Weak trading in carbon credits blunts world decarbonization drive
- Media Manager
- Dec 24, 2023
- 2 min read
Nikkei Asia
Written By: Hiroko Mat Sumoto
Published: December 24th, 2023
Growth in the trading of emissions credits has hit a snag, with the effectiveness of carbon offset projects, such as forest conservation, being called into question and demand for carbon offsets plunging.
As airlines and other major buyers of emissions credits have begun to shun the market, carbon credit futures have fallen 90% from their peak, making it difficult for the financial instrument to play a major role in global decarbonization.
In October, Shell CEO Wael Sawan caused a stir when he said the oil major had given up a plan to spend $100 million a year on carbon offsets. The British company used to buy carbon credits in private, voluntary markets to offset greenhouse gas emissions generated from its production and transportation of liquefied natural gas before selling the fuel to environment-conscious customers. It had planned to purchase credits worth 120 million tonnes of carbon dioxide equivalent annually through 2030.
There are two types of emissions trading, one led by public entities like the European Union and the other involving credits issued by private project developers. If a business has a cap imposed on it by a public authority, it is required to buy an allowance from legally mandated programs to offset emissions in excess of the ceiling. Companies that have set voluntary emissions reduction targets use private credits to meet their goals.
Shell and other companies have decided not to use private credits because of questions raised about their effectiveness. Carbon credit futures traded on the Chicago Mercantile Exchange have plunged in anticipation of weaker demand, with offset futures that cover airlines' emissions hitting a post-listing low in November.
