Our latest report discusses how carbon credits from renewable energy projects are in oversupply and fail to deliver additional climate benefits

Civil society and media have been effective at revealing an error log of issues with REDD+ carbon credits, but carbon credits from renewable energy projects have avoided similar attention although an abundance of problems ‘hide in plain sight’, as our latest investigation uncovers.

This is despite a greater number of renewable energy credits retired on the voluntary carbon market. According to the Berkeley Carbon Trading Project, in 2023 around 53 million renewable energy project credits were retired compared to 50 million REDD+ credits.

Clearly the problems affecting renewable energy projects and those affecting forestry projects are different. However, both lead to a raw deal for the climate and local communities.

Nothing to add

In many parts of the world, renewable energy is already a more economically feasible and logical option than fossil fuel-powered energy. Therefore, it is very unlikely that the financing secured through carbon crediting is adding anything additional.

Projects would typically already take place and have secured investment without the need for the sale of credits. This is especially true for projects registered in Non-Least Economically Developed Countries.

This problem trails back to the flawed methodologies of the Clean Development Mechanism created by the Kyoto Protocol that provide the guidelines for carbon crediting projects to follow. It has been shown that most credits, the greatest share of which are from renewable energy projects, are likely ‘junk credits’. 

These renewable energy credits are designed to allow companies to finance emission reductions that they cannot directly control. However, research suggests that they likely don’t guarantee a meaningful climate impact and may lead to an increase in emissions if used for offsetting.

What’s more, there is evidence to suggest that the building of large hydroelectric dams has caused human rights violations, such as through the displacement of communities and the destruction of the surrounding environment.

Report author and policy expert on global carbon markets Inigo Wyburd expressed his concerns.

“Renewable energy project credits are an appealing lure for a company to invest in,” he said. “They promise an environmentally positive solution, but the reality is very different. Companies should do more due diligence before they commit, to ensure their investments are leading to real climate mitigation.”

Legitimising a bad thing

It is also concerning that things may get worse before they get better. The Paris Agreement’s Article 6 allows and legitimises a new generation of carbon crediting. Many of the projects verified under methodologies guided by the Kyoto Protocol’s Clean Development Mechanism are seeking to transfer to this updated system. However, numerous projects do not guarantee additional emission reductions. 

Verra and Gold Standard, which cover the widest share of the VCM, have adopted many of these questionable methodologies, but following criticism, they only permit registering such projects in least economically developed countries. Other programmes however continue to approve and generate these low-quality credits.

The Allied Offsets Demo Platform demonstrates that nearly 90% of credits from renewable energy projects are retired anonymously, which is in stark contrast to a far higher disclosure rate for forestry project credits (only 26% were retired anonymously). 

There is a serious worry that buyers are aware that what they are purchasing is not up to scratch, but are swayed by their low price and lack of public scrutiny. 

Sealing the dam

There is an estimated surplus of a whopping 829 million carbon credits on the voluntary carbon market from the four main standards, 35% of which are renewable energy credits, the highest share of any project type. 

Addressing this oversupply and the low-quality of these credits is of fundamental importance. Credit buyers must be thorough in researching what it is they invest in. It is too easy to quietly buy and retire their credits. Carbon standards must enforce existing requirements for public disclosure of detailed information on credits. 

The Integrity Council for the Voluntary Carbon Market (ICVCM) must properly enforce its stringent criteria to exclude substandard credits and promote best practice on the market.

Inigo Wyburd said: “It’s clear the voluntary carbon market is flooded with low quality carbon credits. To seal this dam, credit buyers must take responsible actions while those in charge of the flood gates should enforce more stringent rules. Anything less means low integrity renewable energy project credits will continue to plague the market.”