Just a year ago, emissions rights were all the rage. Companies were closing one deal after another in a market that analysts said would grow at breakneck speed. Then everything started to crumble. The big oil companies were also using emissions rights. Apparently, it wasn’t meant to be.
Back in 2022, Shell announced it would invest around $100 million in developing so-called carbon sinks, or ecosystems that absorb more carbon dioxide than they emit – if they emit any carbon dioxide at all. The supercorporation then planned to turn these sinks into a business, issuing carbon credits to sell to other companies in need of decarbonization.
In September last year, however, Shell dropped those plans. The change of heart followed an investigation by The Guardian and Die Zeit that found that up to 90 percent of carbon credits that the then-largest carbon credit certification company had verified as legitimate were essentially worthless.
The revelation caused quite a stir and raised doubts about the usefulness of carbon credits for the energy transition. Some critics have even described the indulgences as a model for the Catholic Church’s medieval practice of selling forgiveness for sins. And the biggest sinner of all is, of course, the oil and gas industry.
The oil and gas industry has no other option to reduce its carbon emissions than to offset the emissions of its activities through carbon credits. It is no coincidence that Occidental, the first oil and gas company to commit to emissions reductions in the US oil fields, is investing heavily in direct air capture, which it would link to the issuance of carbon credits that it would sell to large emitters.
It is no coincidence that every energy company with decarbonization plans includes emissions rights in their plans – because the only other way for oil and gas companies to reduce their emissions would be to effectively commit suicide. And they are far from the only ones.
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Last month, the United Nations criticised carbon credits, also known as carbon offsets, as an overused tool to reduce emissions when companies should actually be reducing their actual emissions, the FT reported at the time. In fact, the United Nations wrote a document recommending that companies not use carbon credits at all outside of government-regulated programmes such as the EU’s Emissions Trading System.
“I would hope and expect that reputable organizations committed to protecting ecosystems would not block any way to channel this carbon finance,” the head of BP’s emissions trading business unit said at the time in a comment on the UN document.
Now Bloomberg is reporting that the oil industry is the ultimate winner in the UN-loathed carbon market. The report calls the energy industry the “primary culprit in the global climate catastrophe” and notes that the oil industry is using carbon credits to reduce its Scope 3 emissions rather than physically reducing those emissions.
But there’s a catch: the oil industry is far from the only one doing this. The technology industry, a huge emitter made even more massive by data centers, is doing exactly the same thing – because it’s impossible for the technology industry to meet 100 percent of its electricity needs from wind, solar and batteries, at least not without emissions rights. The same goes for any other industry that needs a reliable supply of energy around the clock.
Climate activists, however, have a problem exclusively with the oil industry, even though some involved in the energy transition argue that the oil industry’s use of carbon credits to offset its emissions is actually part of the energy transition and as such is positive. Activists argue – rightly – that carbon credits would help the oil and gas industry survive longer, implying that their ultimate goal is the demise of this industry as the final solution to the climate change problem, regardless of the cost.
Meanwhile, companies continue to use carbon credits, and institutions have emerged to ensure that they are not worthless, the Guardian/Zeit investigation found. The most influential of these institutions, the Science Based Targets Initiative, became the scene of a scandal over problematic Scope 3 emissions earlier this year when it changed its original policy and announced that companies could now count credits towards reducing Scope 3 emissions.
The announcement sparked an uproar among SBTi staff, forcing the organization to make another U-turn and return to its original stance on Scope 3 emissions and credits. The reason for the uproar was the same reason Bloomberg bemoans the oil majors’ position as the big winner of the carbon credit system as a whole: not enough actual emissions reductions.
Critics of the system are certainly right to point this out. But from another perspective, the transition is more about net zero than absolute zero. If carbon credits work as advertised, they should contribute to an overall reduction in emissions. Moreover, it should not matter which industry uses them if the ultimate goal is to reduce carbon dioxide emissions.
By Irina Slav for Oilprice.com
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