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Carbon Market Watch Newsletter June 2021

Forestry offsets allow Colombian fossil fuel companies to dodge taxes

Colombia has a carbon tax in place, but companies are allowed to buy offsets to avoid paying the tax.  Our new investigation finds that two large-scale Amazonian forestry projects have sold carbon credits for way more emission reductions than they have actually achieved. Such “hot air” credits bring zero climate benefits. In addition, the policy has led to losses in tax revenues worth up to USD25 billion for the Colombian government. To avoid further damage, these projects must stop selling credits. Standards that are supposed to ensure project quality, in this case, VCS/Verra and Proclima, must suspend them from their registries. And the Colombian government needs to clarify its laws and properly enforce them to ensure that companies are not able to use such fake credits under the tax system. This is also important for emissions trading globally.

Unsurprisingly, the three-week technical talks on the future global carbon markets ended without tangible progress. A positive development, however, was that many governments called for human rights to be brought back into the negotiating text after a reference to them was dropped back at COP25. Securing good carbon market rules that have science and respect for human rights at their core will require strong political will and climate leadership, and an advocacy push by civil society.

This month, the European Commission is expected to launch its massive climate and energy package to implement the EU Green Deal, the so-called “Fit for 55”. One of the laws to be revised is of course on the EU emissions trading scheme. A leaked draft proposal confirms the Commission’s intention to expand carbon pricing to sectors like transport and buildings. Meanwhile, heavy industry – some of Europe’s worst polluters – would continue to be largely left off the hook. A recent study by CE Delft, which we commissioned, found that sectors like cement, steel and chemicals profited from the carbon market up to 50 billion euros between 2008 and 2019. This under a system that is supposed to make polluters pay! Ending the handouts of all free pollution permits that lead to these windfall profits is a key step to take under the upcoming revision.

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