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Are carbon credits credible?

Jovi Ho
Jovi Ho • 21 min read
Are carbon credits credible?
Gardens By The Bay as seen from the air. Carbon credits assign a dollar value to emissions, creating a monetary incentive for countries and companies to reduce their emissions. Photo: Airbus Singapore
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Two of the world’s largest carbon credit players have been accused of overstating their environmental impact. Should Singapore still aim to be a hub for carbon trading?

At last November’s COP27 summit, Singapore signed or completed negotiations on partnerships with Ghana, Papua New Guinea, Peru and Japan to collaborate on carbon credits. In Egypt, Singapore joined over 60 countries in the so-called Article 6 Implementation Partnership, which, among others, aims to support “high-integrity carbon markets”.

Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. By assigning a dollar value to emissions, carbon credits create a monetary incentive for companies to reduce their emissions.

Article 6 of the Paris Agreement (made at the COP21 summit in 2015) governs the cooperative mechanisms that facilitate the transfer of carbon credits between countries. The Article 6 rulebook was finalised at COP26 in 2021, following negotiations co-facilitated by Singapore and Norway.

This capped off a hectic, multi-year effort for Singapore’s sustainability efforts, which started with Finance Minister Lawrence Wong announcing a staggered carbon tax rate hike at Budget 2022 in February, and was followed by a government-supported global carbon credits data platform, unveiled in December.

See also: Singapore doubles down on carbon trading at COP27

While further announcements on sustainability were largely absent from Wong’s Budget 2023 speech, Singapore’s plans of becoming a carbon services and trading hub face their first major hurdle in the new year: the growing scrutiny by governments and investors on the authenticity of carbon credits worldwide.

On Jan 18, British daily The Guardian alleged that “more than 90%” of rainforest carbon offsets by Verra, the world’s biggest certifier, are “worthless”.

The Guardian’s nine-month investigation also involved the German weekly Die Zeit and SourceMaterial, a non-profit investigative journalism organisation. The investigation and article take issue with elements of the methodology and the calculations used to determine emissions reductions.

See also: Parliament passes carbon tax rate hike from 2024, Singapore's emissions to peak by 2028

The exposé’s main target is the Washington-based Verra, which operates a number of leading environmental standards for climate action and sustainable development, including its verified carbon standard, which has issued more than one billion carbon credits.

Verra’s rainforest protection programme makes up 40% of the credits it approves and was launched before the Paris Agreement in 2015 with the aim of generating revenue for protecting ecosystems, says The Guardian’s piece. “Gucci, Salesforce, BHP, Shell, easyJet, Leon and the band Pearl Jam were among dozens of companies and organisations that have bought rainforest offsets approved by Verra for environmental claims.”

To assess the credits, The Guardian says a team of journalists analysed the findings of three scientific studies that used satellite images to check the results of a number of forest offsetting projects — known as the REDD+ schemes.

“Only a handful of Verra’s rainforest projects showed evidence of deforestation reductions, according to two studies, with further analysis indicating that 94% of the credits had no benefit to the climate… The threat to forests had been overstated by about 400% on average for Verra projects, according to analysis of a 2022 University of Cambridge study,” says The Guardian.

Government will announce eligible credits this year

The Minister for Sustainability and the Environment, Grace Fu, told Parliament on Feb 7 that the government is aware of the issue raised by The Guardian and the subsequent response and clarification issued by Verra, which issued the rainforest credits.

See also: Singapore government, IETA, World Bank launch carbon credits data platform

“We take all scrutiny of carbon markets and projects seriously, and are committed to ensuring that carbon credits uphold high environmental integrity standards,” says Fu.

Member of Parliament Louis Chua had filed the parliamentary question asking if sufficient due diligence had been done, noting that the National Environment Agency (NEA) had signed memoranda of understanding (MOUs) with carbon crediting programmes Verra and Gold Standard in July 2022.

The MOUs that NEA signed with Gold Standard and Verra aim to facilitate Singapore-based companies in exercising the option to use high-quality international carbon credits (ICC), says Fu.

As part of an offset scheme introduced at Budget 2022, the government will allow businesses to use such credits to offset up to 5% of their taxable emissions from 2024.

Singapore’s carbon tax, introduced in 2019, applies to all facilities producing at least 25,000 tonnes of carbon dioxide equivalent per year. By purchasing carbon offsets, these businesses compensate for their unavoidable emissions by funding projects that remove, avoid or reduce emissions.

Fu adds that the MOUs are not legally binding and do not qualify all ICCs issued by the two organisations. “Gold Standard and Verra were selected as MOU partners as they are two of the largest carbon crediting programmes [that] have been accepted by the International Civil Aviation Organisation to issue carbon credits for compliance under the Carbon Offsetting and Reduction Scheme for International Aviation,” she says.

According to Fu, the government will take these developments into account as it finalises its criteria for ICC.


We will publish a whitelist of acceptable ICC later this year, which will include eligible host countries, carbon crediting programmes and methodologies.

Ieta responds

Following The Guardian’s exposé, the International Emissions Trading Association (Ieta) responded in a statement released on Feb 1: “The Guardian article… raises concerns with the methodologies used to calculate carbon dioxide reductions from a number of projects set up to cut emissions by avoiding deforestation and forest degradation (projects typically referred to as REDD+).”

REDD is the abbreviation for “reducing emissions from deforestation and forest degradation”, followed by REDD+, with the plus referring to “the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries”.

According to Ieta, the Guardian article cited academics that take issue with highly technical elements of the methodologies used to determine the amount of emissions reductions by projects to generate carbon credits.

However, Ieta claims “many other experts support” these contested technical elements. “The article did not fairly represent the views of both sides,” adds the Geneva-headquartered non-profit organisation.

In December 2022, Ieta partnered the World Bank and the Singapore government to launch the Climate Action Data Trust (CAD Trust), a platform to share information about carbon credits and projects. CAD Trust links, aggregates and harmonises all carbon credit data from multiple project registries to facilitate transparent reporting.

Major registries like Verra, Gold Standard, American Carbon Registry and Global Carbon Council plan to connect to CAD Trust in 1Q2023, with the first layer of data to be made publicly available at that point.

In response to The Edge Singapore’s queries at the launch of CAD Trust, Simon Henry, director of carbon market development at Ieta, says Verra alone certifies some 80% of voluntary carbon credit trading activity worldwide. Together, the share of carbon activity represented on CAD Trust will rise above 90%, he adds.

CAD Trust declined to comment when contacted by The Edge Singapore in late January, directing queries to Ieta’s statement instead.

Verra CEO responds

In his response on Jan 23, David Antonioli, CEO of Verra, slammed the “sensationalist articles” for containing “outlandish claims”. “These are academically interesting exercises, but they would never pass muster as bona fide carbon crediting methodologies.”

According to his LinkedIn page, Antonioli became principal CEO of Verra in October 2008, a year after its founding by “environmental and business leaders”.

He continues in his statement: “Not all scientists agree, of course, but we do strongly believe that one-sided reporting, with an exclusive focus on a few cherry-picked studies, does not do justice to the realities on the ground and the wide range of opinions on this topic.”

The debate over REDD is “complicated”, says Antonioli. “Certifying REDD activities is not easy, in part because one has to quantify the risk of forest loss that would occur without the carbon project (that is, the baseline). In other words, this requires counterfactual analysis, which is a fancy term for looking at a situation and asking what would happen if things were different.”

He adds: “This approach isn’t unique to REDD and is a cornerstone of the impact analyses that government agencies, academics and others around the world use to determine what works, what doesn’t, and how to allocate resources. Counterfactual analysis is, by its nature, impossible to confirm with 100% certainty, but is critical if we are to channel more resources to protecting forests as a critical means of fighting climate change.”

Constant improvement is vital for the developing scheme, says Antonioli. Ongoing efforts to update REDD+ include shortening baseline periods to six years, so deforestation estimates are more accurate. Other updates include allocating robust jurisdictional baselines, consolidating methodologies and digitalising measurement, reporting and verification.

Verra carved out a president role and appointed Judith Simon on Feb 12, as the organisation “embarks on a major effort to improve its operations”. Simon, who was most recently vice-president at Seattle-based real estate marketplace Zillow, will report to Antonioli and oversee all elements of Verra’s internal operations.

‘Imagined states of perfection’

The methodologies that govern carbon reduction calculations are constantly being reviewed, reads Ieta’s statement. “International bodies like the Integrity Council for the Voluntary Carbon Market and the Voluntary Carbon Markets Integrity initiative are tasked with further improving the quality and integrity not just of carbon credits, but in the way they are marketed and used.”

Citing rapid climate change, Ieta echoes Antonioli’s statement. “We don’t have the time to wait for all the different new and emerging technologies to be economically scalable — we have to do as much as we can, as soon as we can.”

Verra has issued over one billion carbon credits, says Antonioli, which have “channelled billions of dollars into climate action and helped forest communities thrive”.


There is simply no other approach if we are going to channel much-needed finance to protect forests under threat.

Verra launched on Feb 6 a public consultation for the fifth version of the Verified Carbon Standard programme, along with a webinar on Feb 22. Verra will solicit feedback online until April 7, before publishing comments and responses in June.

Antonioli adds: “Instead of waiting for imagined states of perfection, we have chosen to move forward with supporting forest protection projects around the world using these methods, which are constantly under review and continuous improvement. The urgency of the climate and biodiversity crises is too great to ignore this vital tool.”

Second accusation

The Guardian’s shot met its chaser less than a fortnight later, with Dutch investigative journalism publication Follow The Money (FTM) publishing its own takedown of Swiss carbon finance consultancy South Pole.

“South Pole offers over 700 offset projects, with which it says it controls a fifth of the world’s voluntary trade in carbon emission rights,” write FTM’s Bart Crezee and Ties Gijzel. “The Kariba project is by far their most important; in 2022, it accounted for about a 10th of South Pole’s revenue, which it claims was 232 million euros ($331 million).”

FTM’s investigation, published on Jan 27, takes issue with South Pole’s mathematical model for calculating how many trees in the area would have been chopped down if left unprotected. South Pole estimated the future deforestation in Kariba, Zimbabwe, at 3.2% of the forest area per year, meaning it would nearly disappear within 30 years.

There is an incentive to overestimate this figure, write Crezee and Gijzel. “If you assume that local people would have clearcut the forest at breakneck speed, then forest preservation would prevent a lot of carbon emission. The project then generates additional carbon credits and thus additional revenue for South Pole.”

FTM claims satellite data recently collected by South Pole shows that the company has severely overestimated the deforestation. “This is good news for the climate but bad news for South Pole’s business: currently, the company is overestimating the deforestation it would have prevented by about a factor of 14.”

The report alleges South Pole’s management knew about the overestimates since June 2022 but continued closing carbon credit deals with major clients. “In late September 2022, accounting and consultancy firm EY paid over half a million euros to offset carbon through the Kariba project,” write Crezee and Gijzel.

South Pole was aware of FTM’s investigation carried out last year. A week before the story broke, South Pole CEO Renat Heuberger responded to The Guardian’s criticisms of REDD+ projects in a blog post.

“Over the past days, a heated debate has emerged among experts regarding the question, and to what degree the accusations are justified,” writes the Swiss co-founder and CEO. “At South Pole, we take all scrutiny of voluntary carbon markets and projects very seriously. In light of the allegations in the articles, our experts will review all of our REDD+ projects, in addition to the Kariba REDD+ project that is already undergoing its planned revalidation review.”

Heuberger says his company will present the findings in a report, which will “transparently discuss any issues and the underlying data”.

Following FTM’s story, South Pole issued a statement claiming the story was “presented out of context”. “Set up in 2011, Kariba REDD+ used one of the only proven methodologies available at the time, known as the Verra VM9 methodology, which uses a Cumulative Deforestation Model. The model follows observed (past) deforestation patterns to predict the future,” reads South Pole’s statement.

South Pole says it followed Verra’s methodology “to the letter”, trying “to the best of [its] ability” to predict and model the deforestation rate for the next decade. “We are now starting a first re-validation of the 30- year project, which will ensure that the rate of carbon credit generation will be adjusted as the predicted deforestation rate is compared to the observed rate, as the methodology requires,” it says.

In light of the ongoing re-validation, South Pole has decided to suspend sale of credits from the 2019-2021 verification period.

In February 2022, South Pole announced that Singapore’s Temasek Holdings had taken a minority stake “via its carbon solutions platform”. In June 2022, this was revealed to be GenZero, at the launch of Temasek’s wholly-owned investment platform company, which has been allocated an initial capital of $5 billion to help speed up decarbonisation.

A spokesperson for GenZero tells The Edge Singapore: “We believe in the importance of a trusted carbon market as it will play an important complementary role in delivering real emissions reduction and driving positive climate impact.”

GenZero’s representative adds: “To this end, we have noted that South Pole has paused the sale of recent-vintage certified carbon credits from the Kariba REDD+ project, and are supportive of the ongoing baseline assessment work the company is undertaking. We are committed to working closely with South Pole and partners in the ecosystem to assess the implications of the issues raised.”

‘We can’t stop the bus’

Like Verra’s chief, Heuberger maintains that the REDD+ mechanism is the only forest conservation finance instrument of “any significant scale” today. “We have no readily available and tested alternative mechanism that is better in protecting forests… But let’s remember that the voluntary carbon market is still in its adolescence and while it expands, it experiences growing pains. There are going to be debates, hurdles and constant improvements before it reaches maturity.”

“We can’t stop the bus,” he adds.


We have to fix it while riding on it, or we will never get to our destination on time.

Nonetheless, the scrutiny on this emerging space, where big money and bigger proclamations are involved, is growing.

Voluntary carbon markets, which are unregulated, are worth about US$2 billion ($2.66 billion) a year today. According to McKinsey, this could exceed US$50 billion annually by 2030, with a 15-fold increase in potential demand for carbon credits by 2030, before accelerating to a 100-fold surge by mid-century.

The Integrity Council for the Voluntary Carbon Markets (ICVCM) is perhaps the world’s closest regulatory body in this fledgling field. Hosted by the Green Finance Institute in the UK, ICVCM’s targets include curating a set of core carbon principles to certify high-quality carbon credits, providing governance and oversight over standard-setting organisations and defining a roadmap for the voluntary carbon market.

“We need more standardisation of what a high-quality credit looks like,” ICVCM co-chair Annette Nazareth tells The Guardian’s environment editor Fiona Harvey. “We want to take out the uncertainty and create a market of high integrity, so that there can be much greater confidence and corporations can invest.”

Her colleagues may have attacked the carbon credit organisations, but Harvey herself acknowledges the incredible task facing the sector. “The most worrying thing of all is that waiting for more perfect ways to keep the world’s increasingly threatened and fragile forests standing may be an unaffordable luxury.”

A near-term tool

Carbon credits may not yet be perfect, but shunning it now would be “almost absurd”, says Helge Muenkel, chief sustainability officer at DBS Bank. “It can really be a very efficient tool to help companies get to net zero.”

Speaking on a conference panel hosted by Economist Impact on Feb 7, Muenkel thinks the world does not have “the luxury of taking any tool off the table”.

Only about 20% of the global emissions are covered by compliance markets, says Muenkel, with voluntary carbon markets covering the remainder. “Taking them out of the equation would not be efficient given the task that we have ahead of ourselves.”

Muenkel, who recently marked a year at Singapore’s largest local bank, adds: “What I’m missing in the response to the Guardian article is actually an acknowledgement. ‘Yup, we have issues; let’s take a look. What do we need to do in order to make this market better?’ But I think it’s important to have the toolkit, and we need to leverage everything that we can.”

Last November, Singapore-based carbon exchange and marketplace Climate Impact X (CIX) held its first major carbon credit auction. CIX will leverage Nasdaq’s matching technology to power its spot trading platform, set to launch in early 2023 for financial institutions and institutional investors worldwide.

Launched in 2021, CIX is a joint venture between DBS Bank, the Singapore Exchange, Standard Chartered and Temasek. It is led by Mikkel Larsen, who had preceded Muenkel as DBS’ sustainability chief.

Ahead of COP27 last November, CIX joined a coalition of leading non-profits and organisations in launching a white paper guiding companies about using carbon credits from high forest, low deforestation areas, spread across a dozen countries and nearly 40 subnational jurisdictions.

These jurisdictions house a quarter of the world’s forests, said CIX, with associated carbon credits available under the Architecture for REDD+ Transactions and the World Bank via the Forest Carbon Partnership Facility.

Carbon markets are not perfect, says Genevieve Soh, head of platforms and ecosystems at CIX. “But just because something can be done wrong, doesn’t mean it can’t be done right.”

CIX welcomes increased scrutiny, which is crucial to hold the market accountable, Soh tells The Edge Singapore. “It encourages continuous improvements in the underlying technologies and methodologies that help to safeguard market integrity, all of which are important to build trust. We must recognise that today’s low-carbon technologies are unlikely to be enough to limit global warming to 1.5°C.”

“Carbon markets can be a valuable instrument to bridge this gap,” adds Soh, “especially in the near term.”

Carbon credibility

As panel moderator, Mike Bird, Asia business and finance editor at The Economist, ponders: “I’m a journalist; we’re meant to be cynics. I read things like the Guardian article and I read about phantom credits, and I think this is the world’s biggest problem being addressed by something that’s always going to be a bit dodgy. How do you engage that sort of cynical response?”

Mistakes will no doubt be made at this early stage, says John Leung, director, Southeast Asia and Oceania at CDP, the global non-profit formerly known as the Carbon Disclosure Project. “Money is pouring into worthwhile projects; it’s just narrowing that variance in what is measured and the technology to measure it properly.”

Standardisation will be the panacea for carbon markets, says Leung. “If we can get some sort of quality grading that is universally acceptable, just like there is more standardisation in disclosure coming with the International Sustainability Standards Board [in March]. With that framework, just like the Task Force on Climate-Related Financial Disclosures in the past, we can get to a point where there is a little bit more authenticity and trust about what we’re trying to do with our carbon offsets, and what kind of projects we’re putting the money into.”

Today’s controversy is mired in technicalities, says Professor Koh Lian Pin, head of the Centre for Nature-based Climate Solutions at the National University of Singapore (NUS).

“Verra, Gold Standard — a lot of effort has gone into producing these,” says Koh in a separate panel on Feb 8.


I think it’s not helpful for different actors to be creating confusion in the market. I think all of us — the standards bodies, the buyers and suppliers, even researchers like myself — should come together and in a single voice articulate that these are the best standards that we have at the moment.

Confusion about carbon credits is eroding public trust in the wider universe of nature-based solutions, warns Koh, who is also a current Nominated Member of Parliament. “When we talk about carbon offsets these days, we are referring mostly to market-based mechanisms.”


Sometimes, people get confused about the tools. They hear about controversies around market-based mechanisms, about standards on carbon offsets, and lose confidence in nature-based solutions.

Nature-based solutions will account for between 65% and 85% of the voluntary carbon market’s total supply potential by 2030, according to a 2021 McKinsey report.

For green carbon, or terrestrial forests, the Americas trump the Asia Pacific region in terms of potential investable projects, says Koh.

With blue carbon, however, Asia Pacific is “by far, number one”. “Southeast Asia is a very decent archipelagic region. We have lots of islands; on our coastline we still have lots of mangroves, [but they are] facing the threat of destruction or degradation.”

Mangroves have been identified to sequester and store more carbon per unit area than terrestrial forests. In September 2021, Temasek pledged $3 million to the NUS CNCS to implement a five-year research programme. The NUS-Temasek Blue Carbon Project builds on a decade of research by NUS in measuring blue carbon, particularly in mangroves and sea grasses.

Then, Koh remarked that Asia Pacific has the highest concentration of the most profitable carbon projects, which can generate returns of close to US$25 billion in net present value each year for the next three decades. “Indonesia alone can generate about US$10 billion per year, every year, for the next 30 years,” said Koh in 2021.

Maybank Investment Banking Group estimates a voluntary carbon market of US$2 billion–US$42 billion per year for the Asean-6 region, based on the initial demand for carbon removal credits.

“Only 2.4% of Asean companies are committed to net zero [via the] Science-Based Targets initiative (SBTi) and hence, the upside for voluntary carbon markets is huge,” says Jigar Shah, Maybank IBG’s head of sustainability research. The SBTi allows up to 10% of emissions to be offset using carbon credits.

Exchanges and banks would gain due to their role in facilitating offsets, adds Shah. “Plantations with surplus land banks could develop insets and use their own carbon credits for mitigation or sale. For investors looking at voluntary carbon markets as an investment option, global carbon ETFs are readily available.”

Chan Mun Wei, ESG centre leader for Asia at think-tank The Conference Board of Asia, sums up the saga in three points.

“1. The voluntary carbon market, where such offsets are bought and sold, needs to be regulated for transparency and credibility,” reads a LinkedIn post by Chan, who is also the founder of social enterprise SustainableSG.

“2. At best, the REDD+ offsets maintain and protect existing forests. There’s a real risk that heavy emitters can buy offsets to ‘cancel’ their emissions on paper while GHG [greenhouse gas] levels in the atmosphere continue to go up,” he adds.

“3. We need open and robust debate to make sure offsets are impactful before investing billions of dollars into such instruments,” Chan writes. “Ultimately, we are all on the same side. No point flaming one another and risk burning and sinking the mothership we all share.”

Photos: The Edge Singapore, Climate Impact X, Economist Impact, Bloomberg, Singapore Pavilion COP27

Infographics: Maybank Investment Banking Group Research

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