The old saying goes “the only inevitable things are death and taxes.” These days, we should add “voluntary carbon offset controversy.” A new existential problem with the voluntary carbon market (VCM) rears up almost monthly. Bloomberg reported on a particularly interesting one last week involving Nike and buffer pools. Buffer pools are insurance for VCM offset providers and buyers – they are offsets held back in the event a project encounters a major loss and contracted offsets can’t be delivered as promised, most frequently in nature-based projects. Rather than paying for losses with money like traditional insurance, buffer pools pay out in replacement offsets. The article explains:
“If a wildfire rips through a protected forest, for instance, credits from the buffer pool replace the incinerated ones, thus preserving the market’s atmospheric claims.”
No regulations or laws specify how buffer pools work. Instead, VCM industry guidelines include recommendations. This means their inner workings vary by registry, certifying body and project developer. Even so, offsets held in buffer pools should meet basic parameters – perhaps most fundamentally is additionality. Additionality means that the greenhouse gas reductions were undertaken solely as a result of being compensated for the reductions, i.e., they would not otherwise occur and were not otherwise planned.
Enough background, I’ll get to the point. Nike started work in the early 1990s to eliminate sulfur hexafluoride from its Air line of shoes. The efforts “were driven by future regulations and weren’t influenced by carbon payments.” While the company achieved their primary goal, the reductions don’t meet the definition of additionality and therefore should not qualify as valid VCM offsets. However,
“Nike was awarded nearly 8 million carbon credits … by the predecessor to the American Carbon Registry (now called ACR), one of a handful of nonprofit registries that underpin the carbon market. Nike’s project gained little traction at the time; and nobody has used any of these credits in nearly a decade. But the project re-emerged earlier this year, with more than 1.2 million Nike credits surfacing, just as the market for carbon offsets attempts to fix the chronic flaws that have sent it into a spiral.
The Nike credits showed up in the ACR buffer pool… account[ing] for 19% of the insurance pool, more than twice as much as any other project.”
The article quotes our own Advisory Board member Mark Trexler:
“If a project isn’t additional, it has no business being in a buffer pool.”
To sum it up:
“All of this should mean Nike’s emissions reductions are basically worthless as carbon credits. And yet Nike’s solution for its own Air problem now helps backstop the long-term integrity of scores of other carbon projects.”
ESG/sustainability leaders, staff and advisors: While there is a lot to think about here, let me offer two simple things to consider.
- First, this is yet another high profile hullabaloo calling the entire VCM concept into question. Your executives, board members and managers probably read the same mass media reports that you do. Be prepared for a hefty dose of cynicism and lots of questions from them if you use VCM offsets.
- Second – as I’ve mentioned many times before – you should have your own due diligence process for evaluating purchases of VCM offsets. Don’t rely on a single source of information and ask hard questions. To the extent you can, evaluate buffer pool quality and validity. You don’t want to be the next headline.
Our members can learn more about offsets and climate risk here.
If you aren’t already subscribed to our complimentary ESG blog, sign up here for daily updates delivered right to you.
Photo credit: wachiwit – stock.adobe.com
