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Due South: Voluntary carbon market’s North-South inequality under the spotlight

Carbon Market Watch research reveals a striking disparity in the voluntary carbon market (VCM). Companies implementing and managing  projects are overwhelmingly located in wealthier nations, raising serious questions about who really benefits from the VCM.

In our latest report ‘Due South’ examining a sample of 30 carbon projects located globally and another 39 specifically located in Africa, we uncovered a striking pattern: companies involved in these projects are predominantly based in the Global North. 

Of the 101 different companies included in our sample that work on African projects, a staggering 62% were based in nations with ‘very high human development.’ In stark contrast, only 15% of these companies were headquartered in countries with ‘low human development’ and, less than 28% of the companies involved in the African projects were actually from African countries.

A similar trend holds true across all VCM actor types, including project developers, owners, consultants, and validators. On top of this, not only are there more companies from richer countries, but these companies also carry out most of the roles in projects.

Who really benefits from the voluntary carbon market?

This geographic imbalance raises a crucial question: Are local communities in the poorest regions truly benefiting from the VCM – as proponents of these mechanisms claim – or are profits principally enriching companies in the Global North? 

Countries in the poorest regions of the world are in desperate need of significant climate financing from affluent nations, which have historically contributed the most to the climate crisis. Yet, no information is publicly available to support the claim that money is being funneled in large amounts to local communities. This study highlights a significant lack of transparency, with critical financial details like fund distribution, revenue allocation to local communities, and project implementation costs often undisclosed. 

This opacity undermines the VCM’s credibility and raises doubts about its efficacy in delivering climate finance to poorer regions. The study underscores why greater transparency in the VCM is needed, echoing previous Carbon Market Watch reports that have pushed for more clarity over, and equal distribution of, financial flows.

For more information check out ‘Secretive intermediaries: Are carbon markets really financing climate action?’ and ‘A fair share of the voluntary carbon market?’  

Scroll between a map showing where companies involved in the projects are based, and where are these projects located

Show me the money

Addressing this lack of transparency is fundamental to ensuring the VCM serves its intended purpose. The Integrity Council for the Voluntary Carbon Market (ICVCM) should implement clearer financial transparency rules. This must be supported by improved regulation and enforcement by standards to ensure that companies adhere to these requirements.

Such measures would enhance the credibility of the VCM and help it become a genuine tool for carbon finance, rather than a mechanism for wealthy companies to meet their climate targets without delivering real benefits to poorer regions. 

Moreover this reinforces why it is essential that the Science Based Targets initiative (SBTi) should not allow companies to use carbon credits to meet Scope 3 abatement targets. 

Until such changes occur, the VCM will raise more questions than it can provide answers. Not only is carbon credit quality under the spotlight, but it remains highly dubious whether these credits provide clear financial benefits to local communities.

Author

  • Inigo is Carbon Market Watch's policy expert on global carbon markets, with a special focus on the voluntary carbon market (VCM).

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