Letter: Voluntary carbon markets will not solve the energy transition

Mark Carney is right to highlight the “brutal reality of climate physics” and the urgent need to cut emissions (Opinion, June 18). But he is naive in believing voluntary carbon markets can play “a key role” in rapid reductions.

Carney, UN special envoy on climate action and finance and a former governor of the Bank of England, recognises the “valid questions” about carbon credit quality but claims policymakers are now “stepping up” to address them.

Policymakers, however, have been trying and failing to fix the deep-seated problems in voluntary and regulated offset markets, including the incentives for market participants to greatly exaggerate the benefits of offset-generating projects, for the past 30 years. They have consistently run up against the impossibility of regulating a market in a commodity that does not exist in the real world (eg tonnes of carbon that will not be released) and which is created and quantified based on a host of unprovable counterfactual assumptions by the people (project developers and a myriad of different types of consultants) who stand to benefit from it.

Gresham’s Law states that in currency markets “bad money drives out good”. In offset markets, cheap junk credits drive out those from bespoke projects that go through the time-consuming and expensive development, certification and monitoring processes to show a reasonably high certainty of producing their claimed carbon benefits while not harming local communities.

Carney and others believe they can simultaneously fix the perverse incentives and other quality problems in VCMs while massively boosting the scale of the market to make it a key source of funding for the energy transition in developing countries.

History suggests this is likely to prove fruitless. In reality the choice is between a large market in junk (although realistically not large enough to make a perceptible difference in north-south capital flows), or a small market in well-planned projects that has little impact on global emissions.

As in the past, the main beneficiaries of any large offsets market are likely to remain the developers of projects (many of which would have happened anyway), and the many consultants, certifiers, verifiers and brokers that the market requires.

Finding the funding for a rapid and just global energy transition is indeed a wicked problem. But voluntary carbon markets will only complicate and delay our efforts to solve it.

Paddy McCully
Reclaim Finance, Berkeley, CA, US