Crypto News: Carbon offsets in chaos

Today, reporter Ben Elgin writes about a collapsing carbon mega-project and how it's creating deep uncertainty in the $2 billion market for carbon offsets. You can read and share the full version of this story on Bloomberg.com. For unlimited access to climate and energy news, please subscribe.

By Ben Elgin

The integrity of one of the largest single sources of credits in the $2 billion carbon market faces serious doubt following the collapse of the partnership behind Kariba, a mega-project in Zimbabwe backed by the world's top seller of carbon offsets.

South Pole, the company that sold most of the credits tied to the forest-protection project, said on Friday that it terminated its contract with Carbon Green Investments, which owns and develops the site. Dozens of corporate giants, including Volkswagen AG, Nestle SA, L'Oreal SA, Gucci and McKinsey, have purchased credits from Kariba representing millions of tons of greenhouse gas emissions.

A patch of regenerating woodlands in Binga, Zimbabwe. Photographer: Zinyange Auntony/AFP

Business practices at the mega-project have come under repeated scrutiny, including an investigation by Bloomberg Green in March that found significant flaws in accounting behind carbon credits from Kariba. Most of the project's proceeds have gone to the two partners rather than people in the rural communities who fight deforestation, as the companies have claimed.

The decision to pull out of agreements at Kariba "follows careful consideration of the project, issues involved and allegations that have been raised publicly," South Pole said in a statement. "All activities related to carbon certification and carbon credits" from Kariba, a mega-project the size of Puerto Rico, "will now be the responsibility of CGI, and South Pole's role as the carbon asset developer has ended."

Over the past decade, Kariba's carbon credits have underpinned claims of breakthrough progress on cutting emissions from its corporate clients. The project has generated nearly $100 million by selling credits for more than 23 million tons of heat-trapping emissions, roughly equivalent to half the annual climate footprint of Switzerland.

Corporate emissions accounting backed by Kariba's credits will be thrown into turmoil by Friday's developments. While large brands have stayed quiet on how they're treating Kariba credits up to now, at least one smaller company has written them off, according to a person familiar with the matter who asked not to be identified discussing sensitive information.

The collapse of Kariba could also pose a danger to the rest of carbon market, which has slowed this year amid quality concerns and accusations of greenwashing. The news risks undermining one of the market's underlying insurance mechanisms, known in the industry as the credit buffer pool. Such backstops are necessary because hundreds of carbon projects around the world are tied to forests or other natural landscapes that are vulnerable to wildfires and droughts. A buffer pool is supposed to guarantee climate benefits aren't eliminated by any unexpected setbacks.

News reports earlier this year, including from Bloomberg Green, found the project had overestimated its climate benefits by at least a factor of five while delivering less money than indicated to communities in Zimbabwe tasked with protecting against deforestation. Earlier this month, a report in The New Yorker raised additional concerns. Steve Wentzel, operator of Carbon Green Investments, described an untraceable way of routing funds into Zimbabwe. "It was illegal," he told the magazine. (Wentzel didn't respond to recent requests for comment, before the release of South Pole's statement.)

A poster for the Kariba project in an office of the Mbire District Council in Mbire, Zimbabwe, on Thursday, May 13, 2021. Photographer: Cynthia R Matonhodze/Bloomberg

Fallout from multiple investigations into the project had already put Kariba's credits into doubt, even before the breakup of the project's backers. Verra, the Washington, DC-based nonprofit that creates rules for carbon offsets and oversees the Kariba project, announced it would put the project "on hold" pending an investigation.

But mounting problems on Friday raise the real possibility that the Kariba project could collapse. After all, South Pole has put the cost of continued operations at a minimum of $60,000 per month. And making up for excess credits that have already been issued could require operating the site for years — or even decades — without new sales, according to Sylvera, a London-based firm that examines the quality of carbon projects.

South Pole told Bloomberg Green earlier this year that the forces driving deforestation in Zimbabwe had changed since it launched the project, leading to the issuing of credits beyond what the project's carbon savings could support. At the time, the company said it would sell credits more slowly to close the gap. But the market for Kariba credits has dwindled as scrutiny of the project increases.

If Kariba shuts down, meaning the trees in the vast forest are no longer under a protective program, all the credits awarded since its inception would be canceled. This would render meaningless the already-shaky claims corporations have made based on these credits.

To prevent this, Verra says it would replace these canceled credits by dipping into its buffer pool. Verra officials told Bloomberg Green earlier this year that doing this for a project the size of Kariba would be an "unprecedented situation" and could wipe out between 38% to 51% of its whole buffer pool.

"This is maybe the biggest real-world test we're seeing so far on the use of buffer pools," says Gilles Dufrasne, policy lead at Carbon Market Watch. "Sure, the buffer pool can sustain one big project. It's going to impact it massively, but the numbers show it can compensate for those credits. But you can't do it if it's four, five or six projects."

Read the full version of this story on Bloomberg.com.

Japan's push to preserve coal has irked its developed-nation peers. Like the rest of the Group of Seven, Japan has pledged to virtually eliminate planet-warming carbon emissions by 2050, but it refused to join a pledge to end the use of coal by 2030.

Perhaps more surprisingly, Japan is helping groom a whole new generation of coal miners. At a last-of-its-kind mine the government is funding a training program for overseas workers. More than 200,000 miners have passed through the course on their way to jobs in China, Indonesia and Vietnam. Yet their careers will need to be short if the world is to avoid the worst effects of global warming.

You can read this story for free on Bloomberg.com with visual media produced in partnership with Outrider Foundation.

New speaker targets climate funding. The first major legislation House Republicans passed under newly installed Speaker Mike Johnson would cut billions of dollars in consumer rebates for energy efficiency upgrades.

Microsoft set to surpass airlines on SAF. The tech giant has recently closed two large clean fuel deals. Together they could propel the company ahead of most major US airlines on sustainable aviation fuel investments.

More water judges are needed. Water disputes have become so pervasive that officials in Colorado, Utah and Nevada are teaching judges how to handle the growing number cases over water rights.

This week, the International Energy Agency published its flagship report: The World Energy Outlook. It's dominating climate news because what the IEA says makes a big difference to how governments tweak their energy policies. But how did an organization formed by a handful of countries in response to the 1973 oil crisis come to hold so much influence over our response to the climate crisis? For the answer, this week we're revisiting one of our favorite episodes: an interview with Fatih Birol, the head of the IEA, about how it has cemented its role in the energy transition. Subscribe to Zero on Apple or Spotify to get new episodes every Thursday.

By Brian K. Sullivan

Critical fire conditions could develop across parts of Southern California, including Los Angeles and Anaheim this weekend as dry Santa Ana winds sweep the regions, the US Storm Prediction Center said.

A fire weather watch has been posted across much of the region as the "first significant Santa Ana wind event of the season'' arrives in Los Angeles and Ventura Counties, the National Weather Service said. These winds typically arrive at this time of year blowing overland dry wind from the east that heats up as it descends mountain sides.

Fire engines drive in a parking lot at the Mt. Wilson Observatory in the Angeles National Forest, California. Photographer: Patrick T. Fallon/Bloomberg

The winds can knock down trees and powerlines and cause any fires that spark to spread wildly. California, which is prone to wildfires, had somewhat of a respite this year due to last winter's heavy rains and snow.

So far this year in California, 6,164 fires have burned 312,739 acres, which is less than the five-year average of 6,884 blazes charring nearly 1.6 million acres, according to the state's Department of Forestry and Fire Protection.

In other weather news:

Research: A new study has discovered at least two ways hurricanes, typhoons and cyclones can undergo rapid intensification — a term for storm winds increasing by at least 35 miles per hour in 24 hours. One way is when a storm crosses warm water and ideal atmospheric conditions, but researchers at the National Center for Atmospheric Research have also identified a second more unexpected way. For some systems there can be a burst of thunderstorms far from the cyclone's center that give it a short-lived boost in power.

Pacific: While residents and rescuers search through the damage of Hurricane Otis in Acapulco, Mexico, forecasters are watching a patch of thunderstorms off the coast of El Salvador in the Pacific that could become the season's next storm. The system has a 80% chance of spinning up into a tropical storm in the next two days.

Atlantic: In the central Atlantic Ocean, another system has a 40% of becoming the season's next storm. A third patch of thunderstorms and showers in the western Caribbean has a 30% chance of spinning up in the next week.

UK: Scotland is bracing for another weekend of extreme weather with an increased risk of flooding just days after Storm Babet hammered the coastlines of the North Sea.

South America: Ecuador is set to begin rolling blackouts Friday as the worst Amazon drought in half a century cuts hydroelectric power output, which provide more than two-thirds of the country's electricity.

BloombergNEF has opened applications for its Pioneers awards for startups working to solve three major climate challenges. Those include reducing buildings' carbon footprints, easing the bottleneck to getting clean energy on the grid and creating fuels that don't fry the planet. Read more about the program here. Completed applications must be submitted by 5pm ET today.