In late May, Delta Air Lines became the target of a proposed class action lawsuit in the US after advertising itself as “the world’s first carbon-neutral airline”.
Filed on behalf of a California-based client of the US carrier, the complaint said the claim was “false and misleading” as it hinged on buying carbon offsets that are largely worthless - and led customers to believe the airline had not been responsible for releasing additional carbon into the atmosphere.
A Delta spokesperson said the lawsuit was “without legal merit”, and that “it was adopting industry-leading climate goals as we work towards achieving net-zero carbon emissions by 2050”.
The global US$2 billion voluntary carbon offset market - where companies buy credits in pollution-reducing projects like solar panel systems or tree planting to offset their own emissions - is facing ever-greater scrutiny and criticism with researchers questioning the validity and climate benefits of the offsets.
Delta in 2020 announced it would invest US$1 billion by 2030 to mitigate all emissions, and has since spent at least US$283 million on carbon offsets, according to reports on its website.
However, its spokesperson said that since March 2022, Delta “has fully transitioned its focus away from carbon offsets toward decarbonization”, which includes investing in biofuels.
From airlines and fashion houses to technology giants, a growing number of corporations globally have bought credits from the voluntary offsets market as pressure grows on the private sector to achieve net-zero emissions to limit global warming.
Yet the market has been criticized - with studies citing poor transparency, a limited supply of credits, and the dubious effectiveness of many projects in actually cutting emissions.
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There is a (climate) urgency that does not (allow for) this time, which naturally led to the voluntary market.
Ana Carolina Szklo, technical director, Voluntary Carbon Markets Initiative
Separately from the voluntary market, the 2015 Paris Agreement sets out the basis for global regulated carbon trading overseen by the United Nations, under which one country could offset emissions by buying credits generated by another nation that has surpassed its own targets.
While a few regulated markets have been established by South Korea, the European Union, and the US state of California, for example, large-scale bilateral agreements or a broader UN framework allowing for international exchanges are not likely to materialize in the near future, several industry experts said.
Delay in establishing the rules for the proposed UN-regulated market is often used as justification by the private sector to take the lead in financing environmental projects by generating and selling credits on the voluntary market.
Ana Carolina Szklo, technical director of the Voluntary Carbon Markets Initiative (VCMI), said regulated carbon offset markets have proven costly and time-consuming to set up.
“There is a (climate) urgency that does not (allow for) this time, which naturally led to the voluntary market,” said Szklo, whose organization seeks to bring transparency to the market.
Credibility crisis for voluntary carbon offsets
The voluntary market was worth about US$2 billion in 2021 and will reach US$10-40 billion in value by 2030 - transacting 0.5-1.5 billion tonnes of carbon dioxide equivalent, up from 500 million tonnes currently, energy major Shell said in a January report.
But its credibility crisis in the face of growing criticism and looming regulation are casting doubts over what role the voluntary market can play in climate action in the long-term - and if it will be eventually absorbed by the regulated market.
“We have to act now - we can’t wait for politicians to save the world,” said Oscar Schaps, president of the Latin American division of financial services company StoneX, during a debate at the Latin America Climate Summit held last month in Panamá.
The voluntary market faced fresh scrutiny in January after an investigation by the Guardian and Die Zeit newspapers said that most rainforest credits approved by Verra - a leading standards group - did not represent genuine carbon reductions.
Verra strongly disputed the findings, and said in a statement in January that it “develops and continually improves methodologies based on the best-available science and technology through rigorous consultations with many academics and experts”.
Following the investigation, the value of voluntary carbon credits from nature projects registered by Verra - which were already on a downward trajectory - nearly halved, falling to a record low of US$2.07 per tonne of CO2 equivalent in early February, according to US exchange operator CME Group.
The credits were trading at about US$2.29 as of July 12.
Despite the market’s woes, Verra issued 93 million credits in the first six months of this year, up from 77.8 million credits in the same period for 2022, data on its website shows.
