Zombie Credits

In the opaque world of carbon credits, a troubling phenomenon known as "zombie credits" has emerged, raising significant concerns about the credibility and effectiveness of carbon offsetting. Zombie credits refer to carbon credits from projects that have ceased their environmental activities but whose credits are still available for purchase. This blog explains what zombie credits are, why they exist, and the implications they have on the carbon market.

What Are Zombie Credits?

Zombie credits are carbon credits from projects that have essentially abandoned their activities, but whose credits are still active on the market. This means you can still buy a carbon credit from one of these projects even though they stopped doing what they said they were going to do. The term was first coined by CarbonPlan, a nonprofit carbon watchdog group. One of the primary examples they highlighted was a hydropower project in China (VCS494) that was a severe failure. The project lacked any real additionality, meaning it did not provide any extra environmental benefit beyond what would have happened anyway. Recognized quickly by the market as flawed, the project was abandoned. However, the credits from this project were never canceled or taken out of circulation. As a result, these credits can still be bought and used for offsetting claims, despite the project being defunct.

A Chinese state hydropower dam, enrolled for carbon offsets and abandoned as a project since 2010.

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The issue of zombie credits exists due to fundamental moral and regulatory failures of carbon registries, such as Verra and American Carbon Registry (ACR), which are supposed to ensure that projects meet their contractual obligations throughout their lifespan. Unfortunately, some projects on these registries have gone wrong in some sense and have been cast aside. The registries should cancel these credits or use their buffer pools to compensate, but they have historically failed to do so.

One of the reasons for this failure is that these registries do not actively monitor their projects. Instead, they rely on project developers to submit monitoring reports. If something goes wrong, developers have no incentive to report it. Typically, these reports are submitted only when developers seek new credits. For instance, if a project involves tree planting, the developer might report, "The trees have grown a little, give me my credits back." However, if the project fails no one checks if the trees are still there, and the credits continue to circulate. This has happened with two deforested REDD+ projects - Tumring (VCS1689) and Oddar Meanchey (VCS904). Both projects are on Cambodian government land, which has a history of disregarding environmental claims and even imprisoning activists. In the Tumring project, it was revealed that high-level government officials were financially connected to the individuals responsible for deforesting the project they were supposed to protect. Despite these failures, credits from these projects remain available for purchase, with no corrective action from Verra.

The Tumring project (VCS1689) has been mostly deforested, but not canceled.

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Verra has a rule that projects should be monitored every five years, but there's no enforcement mechanism if a project is abandoned. Some projects exceed this five-year rule by at least 15 years without any punitive action, leading to a large accumulation of credits from non-existent projects.

No company wants to be caught buying zombie credits, as it would tarnish their carbon-neutral claims. However, the situation is complex because zombie credits are often used in ways akin to financial laundering. Similar to the 2008 financial crisis with subprime mortgages, carbon credits from various projects are pooled together. Some pools are well-managed and ensure the legitimacy of credits, but many are not. This lack of transparency and quality control means that buyers do not know what they are getting, creating a market where zombie credits can thrive. The CarbonPlan article specifically pointed out pools co-sponsored by crypto companies like Toucan and KlimaDAO, where zombie credits were mixed with legitimate ones, making it hard to distinguish between them.

ACR presents another issue by allowing the use of buffer credits from other projects. This means that even if a project like a reforestation effort fails, it can use credits from zombie projects to cover its buffer, leading to an accumulation of low-quality credits. For these reasons, Renoster does not consider ACR or Verra's buffer pools legitimate and excludes them from its project ratings. One example is ACR's Entergy reforestation project (ACR 115) in a national wildlife refuge in the Mississippi River delta. Initially, the trees grew well, but a policy change led to the refuge being flooded annually, causing all the trees to die. Despite this complete failure, the project has not been reverified for over ten years.

Trees inside the Entergy project (ACR 115) have suffered near-total mortality due to flooding. The project’s last verification report dates to 2011.

The Impact of Zombie Credits

The presence of zombie credits in the market has several detrimental effects:

Misleading Buyers: Companies purchasing these credits may falsely believe they are offsetting their carbon emissions, which can lead to reputational damage if the truth is uncovered.

Market Distortion: Zombie credits are often sold at lower prices, distorting the market and creating unfair competition for legitimate projects.

Regulatory Challenges: The lack of enforcement from registries undermines trust in the entire carbon credit system, making it harder to achieve genuine environmental goals.

Avoiding Zombie Credits

To avoid purchasing zombie credits, buyers should:

Check Verification Dates: Only buy credits from projects that have been recently re-verified.

Demand Transparency: Push for greater transparency from carbon credit pools and registries about the quality and status of included credits.

Consider Third-Party Insurance: Use third-party insurers to ensure the validity of purchased credits rather than relying solely on registry buffer pools, which often fail to function as intended.

Zombie credits pose a significant threat to the credibility of the carbon market. By understanding what they are and how they arise, buyers can take steps to avoid them and support genuinely beneficial carbon projects. Increased transparency and accountability from registries are crucial in addressing this issue and restoring legitimacy in carbon offsetting.

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