September 17, 2024
On 4 September 2024, Nordic regulators and other invitees gathered online to discuss credible climate claims based on carbon credits. The event aimed to raise awareness of the current status of green claims guidance and EU legislation, identify and exchange views on key open issues, and discuss ways to address them. The event had three parts: (1) an introduction on the current status of green claims guidance and regulation; (2) a workshop session on identifying and exchanging views about key open issues relating to claims; and (3) a workshop session identifying options for addressing these issues. The workshop sessions included posting thoughts on a virtual whiteboard and discussing them in the group. In total, 22 participants attended the workshop, including representatives from all Nordic countries as well as two other EU countries, from consumer agencies, ministries, chambers of commerce and the private sector, as well as ecolabelling and standard-setting organisations. The event was organised jointly by Perspectives Climate Research, Tyrsky Consulting and IVL Swedish Environmental Research Institute.
The introductory presentation is available in the Nordic Dialogue website.
Hanna-Mari Ahonen, Senior Consultant at Perspectives Climate Research, opened the event with an overview of the Nordic project, key terms and the current status of green claims guidance and EU regulation. She noted that, as an alternative to the traditional offset claims (e.g., carbon neutrality, net zero), contribution claims are now emerging.
Offset claims convey that the claimant has counterbalanced its own value chain emissions with carbon credits while contribution claims are about the claimant contributing to global or national mitigation efforts, for example through carbon credits, without implying that their own emissions are counterbalanced as a result.
The key difference between carbon neutrality and net zero claims is that an organisation should claim net zero only after it has reached its long-term emission reduction goal, by 2050 at the latest, by reducing its value chain emissions in line with the global 1.5°C target, and offset any remaining (“residual”) emissions with permanent removals. Carbon neutrality claims can be done also on the way to net zero and potentially also by organisations that are not reducing their own value chain emissions consistently with the global 1.5°C target.
Hanna-Mari introduced three key questions related to claims based on carbon credits:
She provided a summary of what the Nordic Code of Best Practice and current and proposed EU legislation say about these issues.
The EU has agreed to ban product-level offset claims based on carbon credits and is in the process of elaborating further requirements for the substantiation and communication of green claims, under the proposed Green Claims Directive (GCD). The Parliament and Council have adopted positions that would allow organisations to make offset claims (at organisation level only), contribution claims and claims about future performance based on carbon credits, subject to specific requirements.
The Parliament’s and Council’s positions differ somewhat. The Parliament would limit offset claims to addressing “residual” emissions (to be defined by the Commission). Depending on how these “residual emissions” are defined, this could mean that only organisations that have achieved their long-term net zero targets could make offset claims, and only from the target year onwards (in 2050 at the latest). The Council proposes to limit offset claims to organisations that have a net zero target and are making progress towards it, in line with the EU Sustainability Reporting Standards (ESRS). This is consistent with the Nordic Code of Best Practice, which requires organisations to reduce their own value chain emissions in line with a 1.5°C pathway.
The Parliament and Council have similar positions on information that needs to be disclosed and somewhat different positions on the credits that can be used. Organisations need to, inter alia, report their value chain emissions separately from carbon credits, and specify the type of carbon credit (emission reduction vs removal). For offset claims and claims about future performance, the Parliament would allow only credits certified under the forthcoming EU Carbon Removals and Carbon Farming (CRCF) certification framework or an equivalent scheme approved by the Commission. The Council proposes organisations to report how they ensure the high integrity of the carbon credits used, such as through “recognised quality standards” as defined in the ESRS. While the Nordic Code requires avoiding double claiming between offset claims and national targets, neither the Parliament nor the Council explicitly require it. The Parliament’s position to use CRCF credits could even lead to double claiming between offset claims and the EU climate targets. The Council proposes that the Commission adopts more detailed rules for offset and contribution claims by the end of 2027, taking into account international standards and Article 6 of the Paris Agreement.
During the first workshop session, workshop participants identified key open issues, including issues that were unclear, problematic, or in need of further development. In the second session, they explored options for addressing the identified issues. Participants considered possible actions, how to implement them, who to engage and how. Key issues identified included unclear definitions and requirements, inconsistent carbon credit quality, double claiming, insufficient incentives for contribution claims, and the international context.
The lack of clarity, particularly regarding key definitions, was identified as a major barrier to making credible claims. Many participants called for addressing the lack of clear and unambiguous definitions for offset and contribution claims, including clearly distinguishing between the two and specifying detailed requirements. Concerns were raised that consumers may not understand company-level climate claims and their implications for deciding which products to buy. The lack of clarity also hinders the mobilisation of finance via the voluntary carbon market for additional mitigation, including for removals to be certified under the CRCF. It was noted that the 2027 deadline for detailed rules would mean three more years of market uncertainty.
The need for more and detailed rules for certain claims was also challenged, with some arguing that the existing general principles and current legal framework already provide a sufficient legal basis for enforcement actions by consumer protection authorities. It was noted that many companies are not well aware of even the existing rules, including the ban on product-level offset claims based on carbon credits. The shift from product-level to organisation-level claims was seen as blurring the boundaries between claims and corporate sustainability reporting. Although there were some reasons identified for involving business-to-business companies in the green claims discussions, it was also pointed out that the EU green claims legislation targets consumers, not corporate sustainability reporting or business-to-business communication.
Many participants supported addressing these issues in the near term by developing interim guidance for claims. This guidance could include clear definitions and require companies to disclose the type, origin, quality, and impact of carbon credits. Participants also supported launching public awareness campaigns to educate consumers about the differences between various types of carbon credits and claims. Aligning key terms across EU legislation, such as the ESRS, was suggested.
The close cooperation of Nordic consumer authorities was recognised and its continuation seen as important. Nordic consumer authorities could make joint statements, similar to their statement on climate compensation claims in marketing. It was, however, noted that implementation of the Green Claims Directive into national law could pose challenges for such cooperation, in case claims are assessed by (private) accredited entities. Other cooperation opportunities included joint workshops between consumer authorities, industry and civil society. While positive examples and case studies were identified as helpful, it was also noted that the context-specific nature of claims can make it difficult to formulate positive examples. Frontrunner companies could lead by showcasing concrete examples. Long-term proposals included creating a unified EU standard for carbon credit certification and establishing an independent EU-wide verification body for validating claims. Investment in technology and research to improve monitoring and verification processes was also identified as a longer-term opportunity.
Participants identified inconsistent carbon credit quality as a major issue that needs to be addressed. They highlighted trust in carbon credit quality as essential for making credible claims. The lack of standardisation across countries and sectors in the carbon credit certification processes was noted as a cause of varying levels of quality and trustworthiness.
Participants suggested that the EU should lead by example in addressing this issue. They proposed developing clear EU guidance for defining and assessing carbon credit quality. Key quality considerations should include additionality, permanence, timeliness, and leakage, and they could contribute to a clearer definition of f “excellent environmental performance”. Furthermore, they recommended incorporating the planetary boundaries model and properly attributing mitigation outcomes to financial sources. Participants also pointed out the role of researchers and non-governmental organizations in identifying effective mitigation strategies and sustainable development investments.
Participants presented differing opinions on whether to avoid or allow double claiming. One opinion was that avoiding double claiming is essential to maintaining the credibility and efficiency of the market, while another opinion was that allowing double claiming was could facilitate the allocation of capital to green investments. It was noted that double claiming is a risk specific to offset claims and it can be mitigated by using carbon credits authorised under Article 6.2 of the Paris Agreement. Alternatively, when using unauthorised credits, double claiming can be avoided by making contribution claims.
Some participants observed that, due to historical reasons, many companies still prefer offset claims and do not see a compelling business case for making contribution claims. They suggested that if EU regulations mandated the avoidance of double claiming between offset claims and national targets, it could drive demand for contribution claims – particularly given the current limited supply of authorised.
Participants emphasised the need to strengthen the business case and incentives for contribution claims, such as by creating an alternative framework for contributions. Think tanks and research organizations could play a role in this effort, for example by recognising and showcasing exemplary cases of beyond-value-chain mitigation, helping to increase interest in contribution claims.
Several participants highlighted the importance of considering the international context due to the global nature of carbon markets. They called for clarity on how companies’ existing net-zero and other pledges under international initiatives, such as those from the International Organization for Standardization (ISO) and the Science-Based Targets initiative (SBTi), interact with emerging EU green claims rules. More clarity is also needed regarding the role of carbon credits in achieving Scope 3 targets. Additionally, the issue of making claims outside the EU using EU-based carbon credits was raised.
Participants identified the SBTi, ISO, the European Committee for Standardization (CEN), and the European Committee for Electrotechnical Standardization (CENELEC) as key players in the international context. The SBTi was viewed as an influential among companies, informing corporate carbon credit use as much as EU legislation. The SBTi’s work on planetary boundaries, which is referenced in the ESRS, was identified as a notable example. If the EU were to restrict offset claims to credits certified by the EU-based CRCF, some argued this could be perceived as a protectionist move to keep EU finance from supporting mitigation efforts outside the region.