In this blog I hope to crystallise my thoughts on some of the reasons why current Scottish Government policy on carbon markets is flawed and undermines efforts to tackle climate change. This is a very brief overview and assumes some existing literacy around carbon and climate policy. The blog also omits many other important aspects of carbon markets that are not central to my thesis.
The video above is a promotional video by Shell UK promoting, among other projects, its partnership with the Scottish Government to plant trees and offset the carbon emissions of Shell customers.
Scotland is currently the focus of a carbon frenzy with a variety of players in the market seeking to acquire land mainly for tree-planting in anticipation that the carbon market will deliver financial returns. This is underpinned by the UK and Scottish Government supported Woodland Carbon Code which can be used to register and validate the amounts of carbon sequestered by woodlands. The carbon credits (each credit equals 1 tonne of carbon sequestered) can be sold in the private market to parties who use them to offset their own carbon emissions.
The extent to which the planet warms is determined by the balance between cumulative carbon emissions on the one hand, and the carbon sinks (oceans, vegetation etc.) on the other. (1) Net-zero is a concept which describes the state in which both of these balance each other and as much carbon is being sequestered as is being emitted.
Importantly, however, net-zero as a policy goal relates only to unavoidable emissions. In other words, only once we have eliminated all avoidable emissions, can we enter a net-zero world where what remains (unavoidable emissions) is offset by carbon sequestration. We need to reach net-zero as quickly as possible. Scotland’s target is to achieve this by 2045 and the UK target is 2050.
From a business perspective, net-zero is still not adequately defined. Many companies are claiming to offset emissions but are only offsetting their Scope 1 emissions. (2) Other companies are using carbon offsetting to reduce all their carbon emissions rather than only their unavoidable ones (famously Waitrose, as an early participant in the Woodland Carbon Code, acquired credits to offset the tailpipe emissions of its delivery vehicles – emissions that are not unavoidable). (3)
By far and away the most important thing to do to achieve net-zero targets is to reduce emissions far faster than we currently are doing. A secondary and important long term action is to restore and expand natural carbon sinks such as woodlands and peatlands which will be necessary primarily to absorb the cumulative stocks already built upon in the atmosphere rather than the carbon being emitted today and in the coming decades.
Global targets on emission reductions are not being met and the planet will continue to warm even after we begin to reduce emissions.
Expanding woodlands and restoring peatlands and wetlands are a good thing. They are good for the climate and for nature and they always have been. The Climate Change Committee and the consensus of scientific opinion is that we should be doing this at scale and pace. The question is not whether restoring nature is good for climate, but what role (if any) it can play a role in achieving net-zero by 2045.
The carbon market being discussed here is the voluntary carbon market whereby those generating credits sell to others in a private, voluntary and unregulated market. The observations made do not necessarily apply to so-called compliance markets where carbon trading is governed by international agreements such as the EU Emissions trading scheme. Voluntary markets are now permitted under Article 6 of the Paris Agreement. (4)
Finally the Climate Change Committee, the UK statutory adviser on climate policy, published a detailed report on voluntary carbon offsetting in October 2022.(5) It is well worth reading and underscores the point of this blog that the current approach to carbon offsetting in the UK is taking place without any proper analysis of its role in securing net-zero. This report follows widespread criticism by scientists of the use of carbon offsetting as part of net-zero policies (eg see this article from 2022)
The most pressing and vital objective of climate policy is deep and immediate cuts in greenhouse gas emissions. That is the quickest and most effective means of reducing the harm that global heating is causing. Carbon sequestration is a secondary though important tool in the medium to long term to lock in net-zero policies.
Scotland’s Carbon Sequestration Potential
Woodland Carbon Code credits can only be used by companies to offset their UK emissions, but anyone wishing to sell credits is not obliged to register with the Code. In either case, credits are being sold to (typically) companies based outside of Scotland and (in some cases) outside the UK. This reduces both Scotland and the UK’s sequestration potential as the credits sold have to be deducted from the host country’s net-zero accounting.
Scotland has embarked on a policy path that depends on large amounts of private finance (mainly from the City of London) to invest in “natural capital” solutions that actively reduce Scotland’s sequestration balance in its own net-zero accounts.
The timescales over which new woodland can begin to sequester carbon is a matter of decades. Once the initial carbon cost is included, it will take 20 – 30 years for significant carbon sequestration to be achieved. As argued above, this is a valuable contribution to achieving long-term net-zero, but does next to nothing in the next 10-20 years when the deepest and most rapid carbon emissions reductions are required.
Linked to the above point on timescales, there is an important point about financial investment. If private capital is encouraged to invest in “natural capital” on the basis that they can sell the credits arising from carbon sequestration, then that investment is not available for the more pressing and urgent task which is reducing emissions. Moreover, unregulated voluntary carbon markets encourage companies to buy carbon credits as a cheaper and faster means of reaching their own climate targets than the often difficult and expensive process of emissions reduction.
Genuine unavoidable emissions
Carbon offsetting should only be used to offset unavoidable emissions. However, there is no regulatory oversight to ensure that this is happening. Many companies for example are acquiring carbon credits to make claims of being carbon-neutral when in fact they are using them to offset emissions that are not unavoidable.
The Voluntary Carbon Markets and Offsetting report by the Committee on Climate Change stated, importantly, that:-
The Committee’s view is that a business is only ‘Net Zero’ once nearly all scope 1, 2 and 3 emissions have been reduced, and the few remaining emissions are counterbalanced with long-term removals.
Significant financial partnerships have been developed such as the Revere project between financial institutions and Uk National Parks designed to secure financial returns for investors by the unregulated sale of carbon credits. One of its founding partners, Santander Bank, admitted in a recent online seminar that credits from its work in the Cairngorms National Park is being used to offset its Scope 1 emissions, most of which are not unavoidable.
One of the many companies that have sprung up to act as brokers in this market, Climate Neutral Britain, based in the City of London, buys and awards credits to companies whilst admitting (see Section 7.4 and 7.5 of this client report) that the emissions being offset are actually avoidable.
The Committee on Climate Change report argued that:-
The evidence reviewed for this report suggests that VCMs [voluntary carbon markets] are not currently supporting Net Zero globally: low prices and inaccurate claims mean that credits may not be meaningfully reducing emissions, while their use may cause buyers to take less action on their own emissions impact.
The voluntary carbon market is open participation by anyone, sellers and buyers, with little or no regulatory oversight. The extent to which it is doing anything to hasten the journey to net-zero is, in fact, completely unknown. Similarly, the extent to which the Woodland Carbon Code is doing anything to achieve (real) net-zero is unknown.
Impacts on land markets
High land prices benefit existing landowners. Much of the “investment” in land for carbon is not investment at all. It is merely the acquisition of land involving a transfer payment to existing landowners. We don’t even have much of an idea how much this is worth since many of there most significant land acquisitions in recent years have failed to disclose a purchase price, stating instead that the consideration which the law requires to be disclosed is “implementation of missives” (6)
Much of the debate being conducted in Scotland at present (all of it in fact) is on how to establish principles for “responsible investing” or how to ensure that communities receive some benefits. These are second order questions. The first order question is what role such investment and its associated credits and offsetting should play in climate policy. Beyond some simple soundbites from politicians, there has been no engagement with this substantive question (at least that I am aware of) by Scottish Ministers.
Until such questions are addressed and resolved, projects such as Scottish Natural Heritage’s Climate Finance Initiative should not be going ahead. The fact that it is, and that Scotland’s carbon economy is being driven primarily by the interests of City of London capital is alarming.
There are many alternative ways of managing what its currently an unregulated voluntary market. For example, carbon emitters could be mandated to give the Government a carbon permit for every tonne of carbon they emit together with a payment or tax. Government, through an independent regulator, would assess these emissions and identify which are unavoidable over what period of time. These could then be allocated to carbon sequestration projects that have been independently assessed to sequester an equivalent amount of carbon and awarded to the company concerned.
There is no evidence that carbon offsetting is doing anything meaningful to achieve net-zero and that it may, in fact be hindering that goal. Yet Scottish Ministers are ploughing ahead regardless developing financial mechanisms, codes and policies which are driving up land values and (probably) contributing very little to mitigating climate change for the reasons outlined above.
Thank you for reading.
This blog has been supported by donors to my defamation crowdfunder who kindly donated their eligible refunds to my work on land reform.
I am using carbon as a shorthand for all greenhouse gases.
(5) A copy of the report can be downloaded here https://www.theccc.org.uk/wp-content/uploads/2022/10/Voluntary-carbon-markets-and-offsetting-Final.pdf
(6) See Section 12(2)(a) of the The Land Register Rules etc. (Scotland) Regulations 2014