At the upcoming UN climate talks, COP28, in Dubai next month, carbon credits will take center stage. These credits, bought by companies to offset their carbon emissions, allow them to consider consumed goods and services ‘carbon neutral’.  

Carbon credits are from various projects that suck in or store carbon. These include anti-deforestation efforts, replacement of coal-fired power plants with renewables, and energy-efficient cookstoves. 

Each credit signifies the reduction or removal of one tonne of CO2, allowing businesses to offset their CO2 footprint.

Carbon credits have grown since their integration into the 1997 Kyoto Protocol. However, their credibility faced substantial questioning this year following several scientific studies and investigative reports casted doubts on the voluntary carbon market (VCM), which operates independently of the UN process.

At the COP27 climate summit last year, the UN Secretary General expressed concerns about the lack of standards, regulations, and rigor in the VCM.  

RELATED: Key Highlights of COP27 Climate Summit

At this year’s COP28, talks will seek to clarify the complexities surrounding the participation of nations in carbon offset markets.

Renewing Credibility in Carbon Credit Market

The United Arab Emirates, COP28 host, expressed hopes for advancements during the Dubai summit to bolster credibility in carbon credit markets.

In a study focusing on averted deforestation, researchers concluded that emission reductions and project benefits were exaggerated. They also raised concerns about the lack of independence among project inspectors and the lenient practices of carbon credit certifiers such as Verra.

The research also highlighted the overflow of carbon offsets with minimal actual reductions achieved. While this study focuses on nature-based projects, many other carbon reduction initiatives exist as mentioned earlier.

At the 2023 Carbon Markets Summit in July, research firm Sylvera along with Pachama assembled a group of global leaders to delve into the present complexities and future potential of carbon markets. They produced a comprehensive report detailing the current state and future trajectory of this critical sector. 

RELATED: Sylvera and Pachama Release 2023 Carbon Market Trend Report

One of the findings revealed that carbon credits, through a last resort, do not mean later. The mitigation hierarchy does encourage reductions first over offsetting using carbon credits. But companies can buy them throughout their net zero journeys, so long that they don’t replace actual reductions.

More notably, corporations are moving upstream and become more involved earlier in projects, focusing on the ‘contribution’ approach over offsetting. It means they’re in a flight to quality to secure future supplies of high-quality credits. This trend will persist this year and beyond. 

Declining Prices, Growing Market 

Amid quality criticisms, the pricing of carbon credits for nature conservation projects witnessed a sharp decline. It plummeted from $18 dollars/tonne in January 2022 to $6 in January 2023, eventually dipping below $2 by mid-October.

Despite the dip in carbon prices, credit retirements remained strong in 2022 and on track to break records in 2023. As per report by Bloomberg with support from Carbon Growth Partners, there was an astounding 350% increase in annual retirements since 2016. 

Carbon credit issuance peaked in >350 million in 2021 and slightly decreased in 2022 and 2023. Bloomberg projections indicate that the carbon credit market could go up to $8 billion by 2050. 

More importantly, corporations are not the only entities relying on carbon credits to hit carbon neutral goals. 

Article 6 of the Paris Agreement permits countries to collaborate in meeting emission reductions goals, including transferring carbon credits. This is also known as the “Internationally Transferable Mitigation Outcomes” or ITMOs.

RELATED: Suriname Takes the Lead in Selling Credits Under Paris Agreement

This opens avenues for significant state investments in carbon credits, with developing nations relying on them for critical climate funding.

Oil-producing countries view them as a cost-effective means to achieve net zero emissions. Saudi Arabia is already unveiling a national offset scheme for corporations aligning with Article 6 of the Paris Agreement.

This matter is important in the lead up to COP28 when the Paris Agreement mandated the climate conference to deliver the first ever Global Stocktake – a comprehensive evaluation of the world’s progress against climate goals.  

Keeping 1.5°C Within Reach 

COP28 UAE will open a great opportunity for the world to come together and drive progress to keep 1.5C within reach. 

During this critical event, the UAE will lead a process for all parties to come up with a clear roadmap. This pathway will fast-track progress toward global energy transition through inclusive climate action. 

Taking place at Expo City in Dubai from November 30 to December 12, COP28 conference will convene >70,000 participants. They include heads of state, government officials, industry leaders, private sector, academics, experts, youth, and non-state actors. 

READ MORE: The Timeline of the COP Conferences

And while the climate agenda involves several topics, talks about carbon credit markets will definitely be one of them.

The upcoming COP28 summit is poised to tackle critical concerns surrounding the fight against climate change. As discussions around carbon credit markets intensifies, the push for greater transparency and regulatory standards gains prominence. The convergence of global leaders and stakeholders at COP28 offers a good opportunity to discuss carbon credit concerns at the highest level.

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Doubts loom over the credibility of the carbon market’s major credit source as the partnership supporting Zimbabwe’s Kariba mega-project crumbles. The project was previously supported by the leading global carbon offset seller, South Pole, raising concerns about the credits’ integrity.

South Pole has ended its participation in the main forest conservation project in Zimbabwe due to recent claims of exaggerated claims. The move may result in job losses for around 20% of the company’s workforce, according to reports. The company employs around 1,200 workers across 30 countries.

Carbon Offsets and Their Role in Reducing Emissions

Carbon offsets enable businesses and individuals to balance their carbon emissions by paying for removing carbon elsewhere. They evolved into a billion dollar global market that’s projected to grow even more up to $50 billion by 2030. 

South Pole’s decision was prompted by concerns about the Kariba REDD+ project’s compliance with their partnership standards. REDD means “Reducing emissions from deforestation and forest degradation in developing countries”.

READ MORE: What is REDD+? Development, Issues, and Solutions

Owned and developed by Carbon Green Investments (CGI), the Kariba REDD+ project, one of the world’s largest forest conservation initiatives the size of Puerto Rico, has issued about 36 million credits since 2011. These credits represent the removal or prevention of a ton of carbon dioxide from the atmosphere. 

According to the Swiss carbon developer’s statement: 

“All activities related to carbon certification and carbon credits from the Kariba REDD+ project will now be the responsibility of CGI, and South Pole’s role as the carbon asset developer has ended.”

Despite ending its collaboration with CGI, South Pole emphasized that the existing carbon credits remain valid. The termination of the partnership comes amid increasing scrutiny and challenges to the project’s integrity and the associated carbon credits. 

The New Yorker’s report and an ongoing investigation by Verra have added to the controversy, casting doubt on the effectiveness of the sold carbon reductions. South Pole said it would cooperate with the investigation and reassess its involvement in Kariba based on the findings.

The Kariba Project

Kariba REDD+, started in 2011, is designed to conserve 785,000 hectares or almost 2 million acres of forest in northern Zimbabwe. It has been a major recipient of funding through carbon credits as corporations support projects that remove carbon from the atmosphere.

Many multinationals such as L’Oreal, Gucci, Nestlé, McKinsey and Volkswagen have voluntarily bought credits from Kariba to offset their emissions. Below is the volume of credits delivered by the project since 2013 until 2022, peaking at over 6 million in 2021. 

Source: South Pole website

The Kariba project led to significant growth for South Pole. But recent months have seen increased scrutiny and challenges for the project and carbon offset initiatives at large.

Publications from different sources revealed that South Pole, alongside Verra, were associated with forest protection credits that claimed to fail to deliver the promised carbon reductions.

READ MORE: Do Deforestation Projects Really Reduce Carbon?

Further investigations into the Kariba project argued that only a fraction of the pledged investments in Zimbabwe are verifiable on-site. The African nation is the 12th largest carbon offsets producer worldwide. It recently amended its carbon law to allow developers to keep more profits from carbon credits.

Following those publications, some companies have withdrawn from the Kariba project, such as Gucci. In a broader context, similar studies suggested that carbon offset projects like Kariba overestimate the levels of deforestation they prevent. 

Robust Methodology and Safeguards Are Crucial

“Carbon offset methodology is ‘not perfect’,” South Pole CEO Renat Heuberger says in defense of the company’s practices. He further noted that they’re consistently adhering to the approved methodology for the Kariba project.

Heuberger also emphasized the uncertainties involved in deforestation projects, remarking that predicting rates 10 years in advance is challenging. 

Verra, the leading carbon credit certifier overseeing about 75% of voluntary carbon credits globally, acknowledged the importance of a critical evaluation of the market. The nonprofit also noted the imperfections in the system, emphasizing their commitment to continuously improve their methodologies to reflect evolving best practices and the latest scientific insights.

The use of safeguards in carbon offset programs to maintain climate integrity has never been more crucial. These programs usually allocate 10-20% of nature-based project credits for insurance purposes – also called a buffer pool.

Kariba, for instance, has set aside 5 million credits into the Verra-administered buffer pool.

Still, experts suggest that the buffer may not be enough to cover the unavoidable risks caused by climate change. In particular, concerns have been raised regarding the undercapitalization of the buffer pool in California’s carbon market. This is due to the vulnerability of forest offset projects to natural phenomena like wildfires.

Nevertheless, buyers of carbon credits need certainty. This is where insurance can help by providing a creditworthy wrapper around their investments, increasing confidence in the market. 

The works of Kita Earth, a carbon credit insurance company, aim to reduce this kind of risk to help drive finance to scale high-quality carbon projects.

Given the case of Kariba, carbon insurance will play a significant role and will soon become a market standard. It will provide extra due diligence and quality assessment, safeguards when things don’t go as planned, and help build trust to scale this essential market that help combat the climate crisis.

Jess Roberts, Vice President of Ratings at Sylvera, asserted the importance of robust calculations and advocated for a more cautious approach to safeguarding credits.

READ MORE: A Deep Dive into the Flaws and Recommendations for REDD+ Project Methodologies

Amid heightened scrutiny, the Kariba REDD+ project’s legitimacy as a key carbon offset source has faced questioning, prompting South Pole to severe its ties with the initiative. The controversy calls for a re-evaluation of existing methodologies and safeguarding practices to bring credibility to carbon markets.

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The potential of hydrogen as a clean source of energy is gaining momentum with major companies investing heavily in it and working to bring it to mainstream. Here are the three important things unfolding in the industry right now that’s worth knowing.

Duke Energy Corp. has unveiled plans to construct and operate a groundbreaking green hydrogen system at its DeBary Solar Power Plant in Florida, whereas First Hydrogen will showcase the unrivalled potential of hydrogen in powering vehicles. 

Meanwhile, the US Department of Energy’s laboratory cautioned that hydrogen blending in natural gas pipelines has limits due to leakage. They then suggested fixes to help pipeline operators determine which transmission line segments need modification or replacement.

Duke Unveils First-of-its-Kind Green Hydrogen System 

The energy giant said that this initiative will be the “nation’s first system capable of producing, storing and combusting 100% green hydrogen in a combustion turbine”. With construction commencing later this year, the system is expected to be fully operational by 2024.

The project will integrate solar energy to power two 1-MW electrolyzer units, producing oxygen and green hydrogen for safe storage and subsequent use in a combustion turbine. This system will be retrofitted to run on a natural gas/hydrogen blend or pure hydrogen using GE Vernova technology. 

This innovative endeavour reflects Duke Energy’s anticipation of hydrogen’s significant potential in achieving decarbonization across sectors of the US economy. It will also help the energy company in ensuring grid reliability amid the increasing integration of renewable energy sources. 

The initiative is a collaboration between Duke, GE Vernova, and Sargent & Lundy LLC, and is part of Duke’s comprehensive “Vision Florida” program. It comprises several cutting-edge projects such as microgrids, battery storage, and solar-plus-storage installations, with a project budget of $100 million. 

As the industry anticipates the economic viability of green hydrogen-fuelled power plants, the International Energy Agency’s recent reports emphasize the need for robust policy support and investment efforts. This is crucial to accelerate the adoption of low-carbon hydrogen production worldwide, with green hydrogen production playing a pivotal role.

RELATED: 2023 is the Year for Green Hydrogen, Here’s How

The agency estimated that low-carbon hydrogen production could grow significantly by 2030, reaching 38 million metric tons per year. As for market size, estimates show global hydrogen generation could reach over $230 billion. 

One particular company that’s making the first move to leverage such immense growth in hydrogen production is First Hydrogen Corp. 

Showcasing Hydrogen’s Unmatched Potential 

First Hydrogen (TSXV: FHYD) (OTC: FHYDF) (FSE: FIT) sells and leases next-generation hydrogen fuel cell powered commercial vehicles. They’re the exact type the Department of Energy is predicting to explode. 

The company’s demonstration vehicle, FCEV, became road legal, boasting a range of 500 km or more. And trial results beat that range with their FCEV clearing 630 km range in a test with SSE Plc.

Rivus, with 120,000 vehicles in their fleet, has also praised the unparalleled results in their analysis. First Hydrogen’s light and medium-sized hydrogen commercial vehicles can refuel in minutes, just like a gas-powered car.

With that, First Hydrogen had announced recently that it will host first-ever track event for its FCEV at the end of October on the track at HORIBA MIRA, UK. Invited participants will get hands-on access to the first-of-their-kind FCEV and the chance to drive them.

But the company is more than just delivering hydrogen-powered vehicles; it’s also planning to build its own hydrogen production.

First Hydrogen is among the many believing that hydrogen is becoming a star player in the transition to cleaner energy. Other companies also recognize this transformative shift and pioneer hydrogen blending projects in the U.S.

RELATED: NiSource and Sempra Energy Lead the Way in Hydrogen Blending

However, a DOE laboratory warned about one particular challenge that hydrogen blending faces. 

The Key Limitation of Hydrogen Blending

A study by the Argonne National Laboratory revealed that hydrogen’s tendency to worsen pipeline leakage could hinder the industry’s efforts to blend the clean fuel in natural gas transmission lines.  

Their modeling showed that introducing a 30% hydrogen blend in gas pipelines resulted in a 6% reduction in lifecycle GHG emissions. 

However, the research highlighted that blending could potentially increase the leakage from transmission lines, negating the upstream and downstream benefits. This is due to the differences in energy density between methane and hydrogen – H2 has ⅓ of CH4’s energy density.

That means increasing flow rates and pressure to carry hydrogen in pipes also increases methane leak rates.

Source: DOE website

Senior scientist Amgad Elgowainy emphasized the challenges posed by increased flow rate and pressure during the October webinar hosted by the Energy Department to showcase the initial findings of its HyBlend initiative.

The National Renewable Energy Laboratory (NREL), contributing to the HyBlend program, devised a tool to help operators identify pipeline assets suitable for blending, pinpoint segments needing modifications, and estimate associated costs. 

To address the mismatches between maximum allowable operating pressure (MAOP) across pipeline segments, NREL proposed three solutions:

Replace segments with appropriate material grade and wall thickness;
Pipeline looping: installing pipes that operate parallel to existing segments that don’t align with H2 piping standard; and
Add compressor stations between segments that don’t match the standard.

In a case study involving the Alliance Pipeline LP, NREL found that pipeline looping emerged as the most cost-effective method. Most remarkably, they also discovered that the capital and operating costs associated with modifying gas pipelines to transport hydrogen has a minimal impact on the delivered cost of energy.  

READ MORE: An Introduction to Hydrogen Energy

Duke Energy’s pioneering green hydrogen system and First Hydrogen’s unmatched hydrogen fuel cell vehicle solution signify a significant leap forward in the journey toward sustainability. However, the Department of Energy’s analysis underlines critical limitations and proposes vital solutions for effectively integrating hydrogen into existing natural gas infrastructure.

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