Amid an increasing number of corporate net-zero claims and mounting evidence of the destructive effects of climate change, there has been a renewed emphasis on voluntary carbon credit initiatives that promise to decrease, prevent, or eliminate greenhouse gas emissions, spglobal.com writes.
Nowhere has this focus been more visible than in the discussion of renewable energy projects.
The goal was to focus on decarbonization, but now carbon credits are being exploited as a business model, which will undermine the credibility of the carbon markets in the long term, according to a well-informed source for spglobal.com.
Renewable energy projects have historically produced the greatest proportion of carbon credits available in the voluntary carbon market for offsetting claims, with major economies such as China, India, and Brazil hosting the largest renewable energy projects and frequently generating the majority of the credits available in the market.
However, the renewable energy landscape of the 2020s is vastly different from that of the early 2010s, and as the number of renewable energy projects has increased – particularly in rapidly developing countries like India, Brazil, and China – it has become increasingly possible to use voluntary carbon markets not only as a financing tool, but also to generate profits that exceed the original financing goal, according to sources.
As the cost of credits has risen across the voluntary market in recent years, there has been growing concern that many renewable energy project owners have turned carbon financing into a business model, undermining the central premise of additionality in carbon financing through the voluntary market, according to a source at S&P Global Platts.
According to sources, the surplus of credits from renewable energy projects in middle-income countries has weighed on the broader carbon market, with credits from projects hosted in China and India frequently trading at discounts ranging from $1/mtCO2e to $3/mtCO2e to renewable energy projects hosted in LDC host countries, depending on the vintage of the credit.
The shift away from renewable energy project certification has prompted many project owners to seek alternatives to the traditional voluntary carbon market standardization process, either by looking for alternative Standard certifications with potentially less stringent additionality standards or by transitioning away from voluntary carbon credits entirely and toward the Renewable Energy Certificates market.