Carbon market intermediaries act with little transparency, according to report

Carbon market intermediaries act with little transparency, according to report

  • A new report reveals that few of the brokers, resellers and cryptocurrency vendors that act as intermediaries in the voluntary carbon market reveal the commissions and markups on the credits they buy and sell.
  • This lack of transparency makes it difficult, if not impossible, to accurately assess how much money from these purchases is finding its way to climate mitigation efforts.
  • The report calls on intermediaries to disclose their fees and on supporting organizations to share more information about these transactions, with the goal of illuminating the true potential impact of the voluntary carbon market on climate change.

Only about 10% of the exchanges, brokers, resellers and cryptocurrency vendors that buy and sell voluntary carbon market credits share the precise commissions and profits they make in these exchanges, according to a review commissioned by the nonprofit watchdog Carbon Market Watch.

The opacity with which these “intermediaries” operate makes it impossible to discern how much money is actually supporting efforts such as reforestation projects aimed at slowing climate change, said Gilles Dufrasne, Carbon Market Watch’s policy lead for global carbon markets.

“Ultimately, what we should care about is how much money is flowing to climate action,” Dufrasne told Mongabay. “It’s a bit crazy that nobody is measuring this. There is no number, no data at all on how much finance is really flowing to climate action.”

This lack of clarity exists even as companies, governments and individuals have increasingly looked to the voluntary carbon market as a strategy to draw down their impact on the global climate. One oft-cited estimate put the value of the market at nearly $2 billion by 2021. But Dufrasne said that isn’t “an informative number.”

“It’s not a great estimate,” he added, “because it’s just a multiplication of number of trades by the price [of each credit].”

For example, a 5 euro credit traded 10 times adds 50 euros to the overall value of the market. But in reality, only 5 euros gets to the project owner where it can be used for climate mitigation, Dufrasne writes in a new report released Feb. 2. The other 45 euros goes to commissions and markups for the parties involved in those trades.

With so few of these entities making their margins public, there’s no way to determine how many times a credit has been traded before it’s “retired” and taken out of circulation.

The opacity with which “intermediaries” operate makes it impossible to discern how much money is actually supporting efforts such as reforestation projects aimed at slowing climate change, say experts. Image by Andrea Stone, USAID/ECAM via Flickr (CC BY-NC 2.0).

Such unanswered questions can undermine confidence in carbon markets as an avenue for stemming climate change. A recent survey by Conservation International and the We Mean Business Coalition found that more than 50% of corporate sustainability managers said questions about how the money they’re supposedly investing in climate action is used made them more hesitant about entering the market.

Still, intermediaries play an important role, Dufrasne said. They help ensure that buyers and sellers of credits can find each other in a “decentralized” marketplace that lacks a single exchange for these transactions to take place.

Because the market is so spread out, improving transparency among intermediaries will require action from a variety of participants, the report says. Buyers can select only those credits from intermediaries that disclose the fees they charge and the profits they make. The intermediaries themselves can take steps to share this information publicly on their own. Standards such as the Integrity Council for the Voluntary Carbon Market, an independent governance body, which has said it will release its updated “core carbon principles” in March 2023, could also require that sellers reveal how much a project owner was paid for carbon credits. Organizations like Verra that host registries could share more information about the account holders they list so that it’s clear which ones are operating as intermediaries.

Ultimately, these reforms could encourage more competitive markups and commissions from intermediaries, Dufrasne said. (The 10% that did report their fees charge an average of 15.5% per transaction.) More transparency could also lead to a more equitable share of funding reaching climate mitigation projects, many of which are in less-industrialized countries in the Global South. It could improve fairness and support participants in the market whose primary goal is to channel funds to climate action, he said.

“All you lose are the intermediaries who are … making a very high margin and making money off the back of the climate,” Dufrasne said.

“Without more transparency, there’s the risk of placing a bet on the wrong horse,” he added. “It might not be delivering as much finance as we think it is.”

Banner image: A reforestation program in the Democratic Republic of Congo. Image by Axel Fassio/CIFOR via Flickr (CC BY-NC-ND 2.0).

John Cannon is a staff features writer with Mongabay. Find him on Twitter: @johnccannon

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