Carbon credits are not created equal

Carbon offsets are fundamental to New Zealand’s greenhouse-gas policies. However, not all offsets are created equal. That sets the scene for all sorts of games to be played, with winners and losers. This is further complicated by marketing ploys that can lack transparency as to what is actually being bought and sold, and where the credits have come from.

Understanding something about carbon offsets is fundamental to understanding the current drivers of forestry in New Zealand. Offset rules also lie at the heart of whether sequestration credits have official status.

At an official level, carbon offsets in New Zealand operate through the Emission Trading Scheme (ETS).  Within this scheme, emitters purchase credits that have been allocated by Government to other people as a reward for sequestering carbon, typically through carbon forestry.

The current price for those credits, set by supply and demand in the market place, is about $85 per tonne of carbon. 

However, there are other carbon units that are available at much lower prices. Not surprisingly, businesses that wish to claim carbon neutrality as part of their marketing stance prefer to purchase these cheaper units if they can get away with it.

Many people learn from experience that when it comes to buying articles on the cheap, you usually end up getting no more than what you pay for.  If the units are cheap, then it is fairly certain that they are not of the same standard as the official units.

My starting example is Air NZ, which operates an optional system where travellers are invited to purchase carbon offsets for their air journey. 

At the Air NZ website, I decided to calculate emission data per person for a flight from Christchurch to Brisbane and return. It is a trip I have done many times.

The allocated emissions were 411 kg and the cost of offsetting these was $9.98. So that equates to a cost of $24.28 per tonne compared to the ETS price of around $85.00. So where is Air NZ getting its cheap offsets from?

I failed to get a clear answer from their website, beyond the statement that they purchase the credits from an international group called Climate Impact Partners (CIP).   On the CIP website, I then found lots of public relations statements about how CIP is a group with integrity, but I failed to find anything specific as to where the credits might be coming from.

Air NZ also says that 75 percent of the Fly Neutral funds that it collects from flyers are allocated to New Zealand biodiversity projects. However, Air NZ also says these biodiversity projects do not count towards carbon offsets. The unstated reason is that these projects sequester minimal carbon.  

This would seem to mean that not all of the $9.98 for that Brisbane trip would have been used for offsets, implying that the purchase price for the offsets that were purchased would have been considerably less than $24.98 per tonne. Mmmm!

There is also uncertainty as to the accuracy of the 411 kg of emissions.  I asked the same travel question on the Toitu Envirocare website, which is a subsidiary company of Crown Research Institute Landcare Research, and their calculator came up with 766 kg of emissions.

Accordingly, my current perspective about the Air NZ scheme is that it is opaque and needs questioning. I am sceptical as to the extent of reduced emissions elsewhere on the planet if I had opted in to this scheme. And for the record, I did not opt in on my last flight to Brisbane.

My next exploration was to see how Silver Fern Farms (SFF) achieves carbon neutrality under its ‘Net Zero Beef’ programme for grass-fed Angus beef, marketed initially in New York and Los Angeles.

For this to be possible, the supplying farmers must be sequestering considerable carbon to offset the inevitable greenhouse gases emitted first during the pastoral process, followed by emissions during the transportation of the animals to the slaughter facility, followed by overseas transportation of the packaged product to its overseas destination subsequent to processing by SFF.

SFF refers to their beef project as ‘insetting’ rather than ‘offsetting’, because there are no purchases of offsets from outside the integrated farm to plate business. The big unanswered question is how has the sequestration been calculated.

Within the ETS, and for situations where the sequestration is to be counted by New Zealand in its reports to the UNFCCC, the sequestration has to be something that is in addition to ‘business as usual’.  This means with indigenous vegetation, for example, that any regeneration needs to have commenced post-1990. Otherwise, the sequestration is regarded as ‘business as usual’. The only exception might be if it could be shown that there was a new and dedicated pest-control programme on pre-1990 forests, thereby increasing the sequestration above what would otherwise occur.

This raises a key point. There are many situations where sequestration is ‘real’ but it is not UNFCCC compliant. This is because that sequestration is simply a case of nature taking its natural course as a consequence of pre-1990 decisions and actions. 

This issue of sequestration that is ‘real’ but not UNFCCC compliant appears to lie at the heart of an offsetting scheme being promoted in New Zealand by recently formed and allied companies CarbonCrop and Carbonz. I have been getting enquiries from farmers about unsolicited approaches from these allied companies saying that pre-1990 forests on their farms might be capable of earning credits under a CarbonCrop certification system. Carbonz would then sell the CarbonCrop credits to international companies that wish to offset their own emissions, with this offsetting typically being for the purpose of marketing claims. 

 The founder of Carbonz is Finn Ross, part of the Ross family who founded vodka company 42Below. The Ross family now owns Lake Hawea Station, which has been widely reported as having gone beyond carbon neutrality to now being carbon positive. Presumably this was using the CarbonCrop methodology.

There are large numbers of international companies that now need to find these or other carbon offsets to justify their marketing claims. As just one example, Nestlé has committed publicly that, one way or another, its KitKat products will be carbon neutral by 2025.

The complication relates to whether an offset, if it comes from pre-1990 forests, actually leads to any more carbon being sequestered. KitKat purchasers may get a warm feeling from believing the chocolate they are consuming is carbon neutral, but is that really the case?  Would there really be a new tree somewhere on the planet sequestering carbon, or an older tree actually sequestering more carbon, as a consequence of Nestlé buying these carbon credits? Or would those trees just be sequestering what they were always going to sequester?

Here in New Zealand, questions can also be asked whether most of the carbon being sequestered in post-1990 exotic forests is really ‘additional’. Most of these trees were planted in the 1990s at a time when nobody was factoring carbon credits into investment decisions. However, rules are rules, even if not always logical, and these forests have indeed been accepted as UNFCCC compliant.

There are also intriguing parallels between the CarbonCrop methodology and some aspects of the He Waka Eke Noa (HWEN) proposals put forward to Government by rural industry groups. The HWEN proposal is that farm-level sequestration that does not fit within the ETS should be eligible within HWEN.

I am on record as saying that sequestration within HWEN is not going to happen. That has made me less than popular with some industry leaders who have put a big stake in the ground on this one.  However, and quite simply, the Government is not going to have two different official sequestration systems, one within the ETS and one within HWEN, and each with its own set of rules.   The Government will not want to be associated with any sequestration system that is not UNFCCC compliant.

However, putting that issue aside, the notion of a voluntary scheme for indigenous sequestration, particularly for existing regeneration and with the credits sold internationally through a voluntary scheme, will be very interesting to farmers. Only time will tell what price can be obtained for these non-compliant credits, which despite being internationally non-compliant by UNFCCC rules, are indeed genuine sequestration.

A fundamental issue to reflect upon is that wherever there are conflicting criteria by which carbon credits can be earned, there is great scope for confusion, together with marketing games that can be played.

My parting comment to those who think there are simple solutions to these carbon-credit conundrums is that, whenever someone thinks there is a simple solution to a climate-change or greenhouse-gas issue, then the chances are that the problem has not been understood.

[Update 26/9/2022:
Finn Ross advises me that the Lake Hawea certification undertaken by Toitu preceded the formation of CarbonCrop and therefore was independent of CarbonCrop. My understanding remains that the methodology used by Toitu at Lake Hawea and the methodology now used by CarbonCrop are based on the same principle that all ongoing growth of pre-1990 forests is eligible.]