The European Union is revisiting the use of carbon credits as a tool for European industries to offset greenhouse gas emissions, sparking renewed debate about their effectiveness and integrity. Euronews spoke with Sebastien Cross, co-founder and chief innovation officer at BeZero Carbon, a London-based agency specializing in the assessment of these credits, to understand the evolving landscape of carbon markets and the challenges of ensuring genuine environmental impact. BeZero Carbon evaluates the likelihood that a carbon credit truly represents one tonne of carbon offset, similar to how financial rating agencies assess risk.
Founded in 2020, BeZero Carbon’s emergence reflects a growing need for transparency and accountability in a market historically plagued by concerns over “greenwashing” and overstated claims. The EU previously utilized carbon credits through the Clean Development Mechanism (CDM) until 2020, but abandoned the practice due to these issues. Now, with the ambitious EU 2040 climate target law aiming for a 90% reduction in emissions, the bloc is considering allowing international carbon credits to cover up to 5% of that reduction.
Maturing Carbon Markets and the Role of Ratings
According to Cross, governments are increasingly seeking independent assessments of carbon credits to inform their purchasing decisions, particularly under Article 6 of the Paris Agreement. “We’ve seen interest from governments in using ratings as a tool as they look to design how they want to use carbon credits in their compliance systems,” he explained. This interest coincides with a significant shift in the perception of risk associated with carbon markets.
Five years ago, carbon markets lacked robust risk metrics. Now, rating agencies like BeZero Carbon provide buyers and investors with a measure of that risk, offering insight into the underlying dynamics of each credit. Cross emphasized that the market is becoming more mature, a positive development given the increased political scrutiny and focus on the role of carbon credits in achieving decarbonization goals. The recent global carbon markets pledge endorsed by major economies at COP30 further signals a commitment to developing carbon pricing mechanisms.
Compliance vs. Voluntary Markets
Carbon credits operate within two primary systems: the compliance market and the voluntary market. The compliance market is government-regulated, requiring companies to purchase permits to cover their emissions under strict legal limits. Meanwhile, the voluntary market allows businesses to invest in environmental projects – such as forest conservation or renewable energy initiatives – to offset their carbon footprint.
However, with the EU considering integrating carbon credits into its Emissions Trading Scheme (ETS), the pricing power will likely rest with the EU or its member states. Cross cautioned that introducing cheaper international credits could depress the carbon price, potentially disincentivizing domestic investment in decarbonization technologies. He also expressed concerns about the potential impact on the ETS price if permanent carbon removals are included.
The Validation Problem and Assessing Performance
The fundamental principle of a carbon credit system involves countries or businesses with higher emissions purchasing allowances from those with lower emissions, creating a trading system. “The carbon credit looks at an activity…that is either reducing or removing carbon and attempts to credit for that carbon that has been reduced or removed,” Cross clarified. These activities range from nature-based solutions like afforestation and mangrove protection to technological approaches like carbon capture and storage.
Evaluating the true performance of carbon credits is often complex. Cross noted that perfect data is rarely available, particularly when estimating counterfactual baselines – what would have happened if the project hadn’t existed. While direct air capture offers more readily available data due to its technological nature, determining the actual impact still requires establishing a baseline.
The EU’s previous struggles with the CDM stemmed from projects overstating their emissions avoidance claims. Cross believes the availability of advanced tools, such as satellite imagery and more sophisticated analytical methods, represents a key difference now, allowing for a more accurate assessment of project-level achievements.
Looking ahead, the success of the EU’s renewed interest in carbon credits will depend on robust validation processes and a commitment to maintaining a strong carbon price. The continued development of independent rating agencies like BeZero Carbon will be crucial in ensuring the integrity and effectiveness of these markets, providing investors and governments with the information they need to make informed decisions and drive genuine climate action.
