How We Fix It: Deeper Dive on Major Buyers of Voluntary Credits
As mentioned before, not all credits are the same. Of the major buyers, what types of credits are they buying?
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First, I want to qualify all of my assertions in this post:
More could be done to clean the data, and more could be done to insure that data is accurate.
With the price of fuel sitting at $4.72, many of the larger buyers of credits we looked at in my last article are seeing their margins hit. The largest buyers like Delta and DL rely on fossil fuels to provide their service, so as the cost of doing business increases, it will be interesting to see how credit buying habits change.
From looking at the graph above, just knowing they are buying credits doesn’t actually tell us much about how these companies are approaching climate initiatives. Some carbon credit projects are incredibly robust with strong climate outcomes, while other projects aren’t.
Company Sentiment and Credit Buying Trends
A potential first step to see how these companies are addressing their emissions is by understanding the types of credits they are purchasing. Are they beholden to the price of fossil fuels and more interested in cheap renewable energy offsets, or are they thinking about their brand value, and instead only buying Agriculture Forestry and other Land Use (AFOLU) credits so they can use these projects in their marketing efforts/brand value.
From the top 11 buyers, we start to see certain patterns emerge. Transport businesses like DL and Delta seem to favor renewable energy credits, O&G companies (Shell, Eni, Chevron) all buy almost exclusively AFOLU credits, and high fashion brands (Gucci) only buy AFOLU.
Transportation companies provide a service that is known to rely on fossil fuels currently, and for the foreseeable future. As such, they are going to have a large emission inventory to offset for a long time — they may be selecting cheaper renewable credits to reduce impact on profit margins, and because customer sentiment (airline travelers, people ordering packages) is less affected by their climate impact than other industries.
On the other side of the market sits oil and gas, and fashion. With oil and gas companies actively providing oil and natural gas (jet fuel’s in the product mix too!), they have regulatory, societal, and internal pressure to address their emissions. O&G has a competitive business regarding expansion of renewable energy, so they may internally be reticent to buy renewable credits. Even if they did, they could potentially face regulatory and societal criticism for buying cheaper credits instead of more expensive AFOLU credits that have accessory benefits.
How does Gucci sit on the same side of the table as Chevron? They face the same problem. As the most valuable Italian brand, their companies relies on incredibly positive public perception. If Gucci’s Environmental, Social, Governance (ESG) efforts didn’t focus on the best of the best and public perception changed, they might find it harder to justify $$$ for their products.
Deep Dive: What has Delta been doing?
As the largest buyer of Verra Credits, Delta has done quite a bit to address climate, but has that always been the case?
Since Verra started issuing credits, their inventory of credits that have been issued, but not yet retired by an organization has increased by over 400 Million tons. In the last year, that number jumped by 165 million — people are getting into the carbon market and developing projects!
I’ll leave it to companies like Pachama and Sylvera to decide whether these new credits are actually valuable, but with the supply increasing, are companies buying more credits, or are there just more companies in total buying credits? Let’s look at Delta
Delta has been busy! The above waterfall chart shows how their inventory of credits has changed since they started buying credits in 2012 — green bars indicate net growth in their inventory, while the red indicated a net reduction.
Over the last 2 years, Delta has retired dramatically more credits than they purchased, putting their inventory of available credits this year at 300k tons — the lowest it’s been since they started buying credits seriously in 2013. This doesn’t necessarily mean they’ve stopped buying credits, but they have clearly stopped buying large pools of credits they don’t end up using that calendar year.
The carbon market is more competitive now than it has ever been before, and companies are facing higher prices for credits and more scrutiny for the credits they use.
Delta may be spending more time performing diligence on the credits they want to buy prior to doing so, and in turn purchasing less credits overall (though higher quality). Let’s see if that’s true.
It is gratifying to see that Delta sticks by its values — The volume of credits retired from 2017 onward indicates that they committed to a net reduction in their emissions with offsets, and that despite their inventory decreasing in size, the volume of credits they are retiring hasn’t decreased in a meaningful way.
2020 Onward indicates an interesting pivot for Delta. With Covid in 2020 and flights grounded for 4 months, it makes sense that the number of credits retired would decrease. In 2021, we saw an abrupt change in the type of credit Delta prioritized. Does delta suddenly care about co-benefits and reforestation? The cynic in me thinks otherwise.
In Sylvera’s 2022 Carbon Credit Crunch Report, they found that while the inventory of credits as a whole is still doing well, the supply of Renewable Energy Offset credits has decreased dramatically.
If AFOLU is becoming the only credit available, Delta’s sudden shift to stop resupplying their carbon inventory and sudden preference for AFOLU credits isn’t due to the goodness in their hearts, and is instead driven by price.
Looking Forward
With energy prices increasing, and the availability of cheap credits decreasing, it will be interesting to see what Delta decides to do. As a steward of responsible business, will they accept the hit to their profits and continue to buy/retire the same volume that they have since 2017 even with the price hike on AFOLU credits, or will they renege on their climate commitments?
Understanding companies the climate efforts of major companies is useful to see if there is true commitment towards addressing climate change, but for you and me, just understanding these credits themselves and the process to make them allows us to know if a company is buying Gucci-grade AFOLU credits, or if their credits are dollar store quality.
Understanding the nuance within types of credits provides us with a way to hold these companies accountable, instead of giving them the benefit of the doubt. Looking forward, let’s look into how these credits are verified and how inaccuracy is addressed, and what separates the good from the bad.
