Many international companies compensate for their carbon emissions by supporting conservation through buying ‘carbon credits’. These are units that the equivalent of a tonne of carbon dioxide (CO2). Recently, allegations arose that this scheme benefits the big companies that buy the credits more than the countries that host the conservation projects. Zimbabwe announced on Tuesday that it was cancelling such deals, a move that has shaken the world carbon credit market, as Zimbabwe is host to one of the world’s largest such projects. What does this all mean, and how did we get here? Ties Gijzel reports.
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Zimbabwe will be one of the first countries in the global south to regulate the country’s CO2 market. On May 16, the government presented plans to tighten the supervision of carbon trade in the country and to be entitled to 50% of any revenue from the credits. The Zimbabwean government is taking these steps a few months after reports of abuses concerning the largest CO2 project in the country.
The government wants to regulate the voluntary CO2 market in the country. According to information minister Monica Mutsvangwa, the existing contracts between Western CO2 traders and Zimbabwean projects will be declared null and void. Local governments in Zimbabwe will now have to enter into partnerships through the central government and the Ministry of Finance wants to levy a 50% tax on the turnover from all CO2 projects in the country.
At the end of January, Follow the Money published a report on abuses concerning the Kariba project in Zimbabwe, one of the largest forest protection projects in the world. The aim of the project was to prevent forests from being cut down by offering the local population alternative sources of income and by investing in local infrastructure.
As a result, people would be more inclined to leave the trees alone, which in turn traps the CO2 that would otherwise have gone into the atmosphere. These CO2 savings can then be converted into CO2 credits, a type of securities that are each the equivalent of a tonne of CO2. The credits are sold to companies such as Gucci and Greenchoice that want to produce sustainable clothing or sell ‘green’ gas.
South Pole, the company running the Kariba project, could not show that the money involved in the sale of CO2 credits actually ended up in Zimbabwe.
Follow the Money showed in its January report that the Kariba project had three major problems. Firstly, South Pole, one of the world’s most influential climate consultants and the project’s developer, pocketed nearly twice as much money as agreed, instead of sharing that revenue with the Zimbabwean people. This was revealed by confidential information within the company.
Secondly, South Pole could not show that the money involved in the sale of CO2 credits actually ended up in Zimbabwe. The money went to a company in the tax haven of Guernsey.
Thirdly and perhaps most importantly: more than 60% of the climate benefits of the project existed only on paper.
This news also reached the Zimbabwean government, which now sees the CO2 market as a new source of income. From now on, the Ministry of Environment, Climate, Tourism and Hospitality will supervise the domestic CO2 market. A new ‘CO2 trade committee’ is being set up for this purpose.
A bomb for global carbon credit sellers
This news is a major setback for South Pole. In 2022, the Kariba project was by far its most important source of income and the company had counted on being able to sell carbon credits from Kariba for almost two more decades. But the Zimbabwean government plans threaten to undermine South Pole’s revenue model now that South Pole will have to hand over half of its turnover there.
Zimbabwe’s plans are like a new bomb being planted under the Kariba project. At present, South Pole is busy revalidating the calculation model with which it predicts prevented deforestation.
The company must close a gap of at least 8 million CO2 credits over the coming years with credits that have yet to be generated. In addition, South Pole overestimated deforestation in the area by a factor of at least 14 in recent years. As a result, the project is likely to generate far fewer carbon credits in the future than the company had counted on.
So is this the end of the Kariba project?
In a response, South Pole said it is “assessing the implications that this new potential regulation might have on the Kariba project”. Until then, the company will not comment further.
The people of Kariba are threatened with a second disappointment: after it was revealed that South Pole skimmed off more money than promised, the promised income stream for the next two decades is now at stake.
This is also a new setback for customers such as Greenchoice, Gucci, Adyen and Volkswagen. They bought the credits to support their climate performance, but more than 60% of them turned out to be worthless, based on South Pole’s own internal estimates.
South Pole denies that some of the credits it sold are worthless and believes it will be able to close the gap that arose in the future. But due to steps taken by the Zimbabwean government, the future of the entire project is at stake – and therefore also the chance to make up for any shortfalls.
According to Jonathan Crook of the Brussels-based NGO Carbon Market Watch, countries in the Global South are now more often developing a strategy for domestic CO2 trade. “There is an increasing push to regulate, due to the lack of transparency on the market. You don’t know how much money is floating around with the intermediaries in the Global North.”
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