In a village in rural Uganda, small teams are building boreholes to provide clean water to poor communities. These rudimentary wells mean locals do not have to boil water, cut down trees for burning wood or produce polluting smoke.
For every tonne of carbon kept in the trees and not released into the atmosphere, a carbon offset credit is produced.
“Projects like this only exist because there are carbon credits paying for them,” said Gerald Maradan, chief executive and co-founder of Paris-based EcoAct, which produces carbon offset credits and sells them to companies, including its newest high-profile customer, easyJet.
The low-cost UK airline is one of a number of big corporate buyers that includes energy majors BP and Shell, British Airways, French luxury goods company Kering and US ride-sharing group Lyft, whose recent pledges to cut their net carbon emissions are fuelling a fresh boom in the relatively small offsetting market.
Last month, easyJet said it would purchase offsets for 7.5m tonnes of carbon dioxide that would cover one year’s worth of flights — a single trade equivalent to nearly 8 per cent of the entire global market for voluntary offsets last year.
Millions of those credits will be provided by three projects run by EcoAct, one of hundreds of companies offering such schemes around the world.
The ambitious carbon offsetters
Pledge: Offset its yearly flight emissions
Total CO2 emissions offset: 7.5m tonnes
Pledge: Offset group emissions from 2018
Total CO2 emissions offset: 2.4m tonnes
Pledge: Offset emissions from all rides
Total CO2 emissions offset: 2m tonnes
“We’ve seen a big change in the market in the past two or three months, a lot of new demand and we’re running out of credits,” said Mr Maradan, noting that EcoAct would be looking to hire dozens more people in 2020. “I’ve been in the business for the past 14 years and we’ve never seen such a change in demand.”
The carbon offsetting industry is made up of a dispersed mix of climate-friendly projects, mostly in the developing world, and hundreds of small consultants and brokers that sell the credits these projects create, mostly in the developed world, to buyers looking to balance out their own pollution.
Groups such as EcoAct, which has 160 employees, manage the community projects. The communities themselves receive 90 per cent of the money and EcoAct takes 10 per cent.
The surge of interest from new buyers — including the £25m-a-year programme from easyJet — is expected to push the market for carbon offsets to a new high this year after the volume of offsets sold in 2018 hit a six-year record, according to a new report from Forest Trends, a non-profit organisation working on environmental finance initiatives.
The fresh boom means offset verification companies are hiring more staff, consultants are moving into the sector and existing carbon credit traders are firing up projects that have been shut down for years.
“We’ve seen a significant uptick,” said David Antonioli, chief executive of Verra, one of the biggest carbon offset accreditors. Washington-based Verra and another group called Gold Standard audit and accredit about 80 per cent of the offsetting market to legitimise schemes for buyers.
This year, Verra will certify twice as many offsets as it did in 2018, and five times as many as 2016. The company has hired 10 new employees and is looking to add several more to deal with “the sheer number of . . . requests coming in the door”.
Edward Hanrahan, chairman of Climate Care, a consultancy that sells offsets, estimated that prices of carbon credits would rise by 20 per cent annually during the next five years. “We’ve really seen things start to move again,” he said. “The inquiry rate for us is eight- to ten-fold what it would have been two years ago.”
There are two primary markets for carbon offsets. One is the compliance market, which includes highly regulated programmes such as the EU emissions trading scheme, under which it is mandatory for big industrial polluters such as power plants to buy credits to cover the carbon dioxide they produce.
The other is the voluntary market, through which individuals or companies buy credits that fund projects that can reduce the level of carbon dioxide in the atmosphere, such as planting forests or installing efficient cookstoves in homes that need them.
Tree planting and forest protection projects are the most popular, accounting for just over half of voluntary offsets traded last year, according to the Forest Trends report.
The moderate carbon offsetters
Pledge: Offset emissions from corporate planes
Total CO2 emissions offset: 50,000 tonnes
Pledge: Offset emissions of fans and staff travelling to games in 2020
Total CO2 emissions offset: 405,000 tonnes
Pledge: Offset domestic flight emissions from 2020
Total CO2 emissions offset: 400,000 tonnes
During the previous boom in the 2000s, there were four listed companies selling carbon offsets, with considerable backing from dozens of banks including JPMorgan. The market surged after the Kyoto protocol prompted hopes of a standardised global market for trading carbon credits, peaking in 2008 with a value of $790m. However, it crashed after the collapse of the climate talks in Copenhagen the following year. Many offset projects were shelved — some of which are now being dusted off again.
“Price hasn’t been affected yet in a material way,” said Sarah Leugers, spokesperson for the Gold Standard. “Because there was such an oversupply [the price] is just starting to go up.”
Today — after the listed companies either went bust or were folded into other entities — brokers negotiating deals in the sector are largely operating in the private sector, which some people in the industry said had at times made the market less transparent.
“It’s definitely difficult for individuals and companies to navigate the sometimes murky world of voluntary offsets,” said Kelley Kizzier, a former climate negotiator and associate vice-president for climate at the Environmental Defense Fund, a charity in DC.
The market also has a history of sometimes questionable projects, which have at times undermined the credibility of carbon offsetting as a whole.
“There have been too many scams and dodgy bits of paper in circulation, such that some degree of scepticism is warranted,” said Domenic Carratu, head of commodities and carbon at Dutch lender Rabobank.
Many in the market hope the recent demand will be more sustained this time, because the standards for judging carbon offset projects have improved. “People talk about the wild west of carbon markets, but there’s a very different sentiment now . . . the standards have matured,” said Stephen Donofrio, head of Forest Trends.
The UN climate talks taking place this week in Madrid could help to address concerns. One of the key tasks this year is to negotiate a framework for a global carbon market, one that would allow countries to trade carbon offsets with each other.
A new standardised market could help countries reach the targets they set for themselves as part of the Paris climate accord, the 2016 agreement that aims to limit global warming to well below 2C.
While this global carbon market between countries would not be directly tied to the voluntary market for carbon offsets, Ms Kizzier said the standards agreed at the UN would set the direction for the booming private market. “The rules agreed [in Madrid] will certainly impact how those voluntary standards think about their own certification processes,” she said.
Still, the recent boom has sparked concerns that rising interest from unsophisticated buyers could fuel the emergence of more low-quality projects, according to the Forest Trends report.
“Around seven or eight years ago there were a number of schemes . . . calling up elderly people and posing to sell credits,” said Mr Antonioli. “Some of them went to court and were convicted.”
He had not seen a repeat of the trend so far but said he would not be surprised if similar behaviour emerged.
“The reality is that planting a tree and making sure it lives is very challenging,” he explained, underscoring the importance of good certification systems.
The increase in offset buying from individuals has made this more challenging, because it is harder for individuals to carry out due diligence on offsetting schemes than it is for big corporate buyers.
Ms Leugers said the certifier had recorded a fourfold increase in demand from individuals wanting to buy carbon offsets in 2019, compared with the year before.
Some industry consultants — despite still being scarred from the previous crash in the market — are optimistic that prices may finally be starting to go up, and that the boom might last longer this time.
“‘Old-timers like myself recollect the good old days that never were,” said Mr Carratu. “Perhaps this time it is different.”