Is Mark Carney’s proposed $100 billion-a-year voluntary carbon market the best the ‘rock star central banker’ can do on climate change?

Mark Carney’s Taskforce for Scaling Voluntary Carbon Markets wants to help corporations fix climate change. But how effective will it be?

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Over the past two years there has been what looks like a combination of a beauty contest and a global race to announce corporate climate ambitions. There is a welcome expectation around companies playing their part in tackling the climate crisis. The UK Government has claimed that over 2,100 of the world’s largest companies have set net zero targets, with hundreds of asset managers and owners promising to manage “net zero” portfolios by 2050 or even earlier. Household names such as HSBC and Barclays have made “net zero” pledges.  So what’s the problem? 

At present, companies’ plans to actually deliver on the targets vary hugely – some aim to eliminate the majority of their operational and production emissions at source, through transitioning away from fossil fuel use; whereas others depend on a huge amount of so-called offsetting to “cancel out” their emissions by supporting a green initiative somewhere else in the world. 

Shell’s global net zero scenario is a particularly egregious case in point, which relies on the creation of a new forest the size of Brazil.  

Carbon offsetting can’t halt global warming

In order to meet the global goal of the Paris Agreement to limit warming to 1.5 degrees, the world’s leading climate scientists have agreed  that carbon dioxide removal (CDR) – such as by offsetting by tree-planting – should only be used to offset the emissions that are hardest and most expensive to abate across the global economy. 

In a world full of “uncertainty” (both real and imagined) this much is definite: CDR is not an alternative to emissions reduction, and in fact can only play a minority role in addressing climate change. 

The limited role offsetting might play will necessarily vary by industry sector. But as an example, rough estimates suggest that power companies should not use CDR at all – 100% of their emissions need to be eliminated at source; whereas some parts of heavy industry, such as steel, cement and chemicals (where technical solutions for cutting emissions through production and operations are less clear) may need to rely on carbon dioxide removal to account for between 24–25% of their emissions by 2050.  

But at present, there are no official rules or regulations to make sure that corporate decarbonisation plans don’t rely excessively on offsetting rather than properly eliminating carbon emissions in the first place – so the system is ripe for abuse. 

Is a voluntary carbon market a climate solution or an investment opportunity? Or will it turn out to be neither? 

Walking right into this mess is the world’s only “rock star” central banker, Mark Carney:  the former Governor of the Bank of England, one of the founders of the Network for Greening the Financial System, the UN Special Envoy for Climate Action and Finance and UK Prime Minister Boris Johnson’s Finance Adviser for COP26. If anyone should recognise the looming environmental and governance challenges of monetising CDR Mark Carney should.

Yet Carney headed a “Taskforce for Scaling Voluntary Carbon Markets” (TSVCM), proposing increasing the size of that voluntary market in carbon offsets to $100bn a year – from the current level of around $300 million. 

And while the Taskforce for Scaling Voluntary Carbon Markets launched its first report at the end of 2020, it’s still struggling to get agreement from its big money stakeholders on the way forward. 

The Taskforce’s unanswered climate questions

Failure to reach agreement isn’t that surprising, given the number of remaining unanswered questions facing Carney and his team of management consultants, bankers and derivatives lawyers. These unanswered questions include:

  • Given the huge increase in size for voluntary carbon markets that is proposed, how can we make sure that companies won’t just use offsetting as an excuse to carry on polluting? 
  • Who will set the market rules to avoid companies abusing any market in offsets?
  • Who will enforce the rules to make sure that companies in the offset market don’t make misleading claims to investors and consumers on the back of their participation in such a market?
  • How can Mark Carney advocate setting the size of the market in cash terms without acknowledging that the real constraint must be the maximum role that offsets can play in avoiding catastrophic climate change?
  • Isn’t the scale of the proposed voluntary market incompatible with the amount of offsetting that is feasible to contain global warming to 1.5 degrees?  
  • What kind of eligibility criteria will there be for which companies can use offsets via their voluntary carbon markets?
  • If Carney’s voluntary carbon market takes off with few rules and requirements to ensure enough action is being taken by companies to eliminate their emissions at source, won’t this set a very poor example ahead of official government carbon market negotiations at the climate talks in November? 
  • We can’t plant the whole world with trees – there’s simply not enough space. So how do you ensure that the offsets will be saved for the really hard-to-deal-with sectors?
  • Offsets have a well documented and deservedly dreadful reputation for what they’ve achieved and a reputation for things going wrong. How is your Taskforce going to make sure it’s not just another one of the disasters that has accompanied attempts to offset emissions so far?

The list of questions could go on and on. But the failure to answer even these suggests that growing the voluntary carbon markets might well be a very bad solution to the problems of climate change. 

While these fundamental issues remain unresolved, with a lack of clarity over whether and how the TSVCM will address these questions, we should all be concerned by the timeframe and scale that Mark Carney and the Taskforce have outlined in its ambitions. 

Without resolving these issues, pushing for massive growth in a voluntary carbon market would fundamentally undermine the global response to both the climate and nature emergencies, and the protection of rights for those who depend on our land and seas. 

It’s almost as if, in the face of a housing crisis, the world’s governments were to decide that the people to solve the problem were the same bankers who favoured financialisation, the bundling of dodgy mortgages leading to a mountain of unsecured debt, and the near collapse of the world’s banking system. What could possibly go wrong? If we fail to learn the lessons of the financial crisis of 2008 and make the same mistakes when responding to the climate emergency, there is unlikely to be a bail out big enough.   

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