Shell’s “fake” carbon credits — why the world is always the loser

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The recent Financial Times report observes global oil major Shell’s egregious misconduct in peddling millions of carbon credits ostensibly tied to CO₂ removal, despite the utter absence of any such mitigation efforts. If this were true, this is simply carbon-washing!

This revelation not only casts a damning shadow on the integrity of a markets-process, hailed as important incentive in curbing greenhouse gas emissions. In Alberta, boasting one of the world’s largest and most carbon-intensive oil reserves, rampant production has impeded Canada’s strides toward meeting emission reduction targets.

Under a subsidy scheme aimed at bolstering the industry, the Alberta provincial government permitted Shell to register and vend carbon credits purportedly equivalent to twice the volume of emissions avoided by its Quest carbon capture facility from 2015 to 2021. This subsidy was subsequently slashed and eventually discontinued in 2022. 

Shell facilitated the registration of a staggering 5.7 million credits, devoid of any authentic CO₂ reductions, which were purportedly offloaded to premier oil sands producers and even some of its own subsidiaries. These duplicitous actions indicate a harsh worry — does corporate greed reign supreme, even at the expense of our planet’s future? 

If these allegations are true, it is urgent that such flagrant abuses of trust are met with severe repercussions, lest we allow the perpetuation of a system riddled with deceit and environmental degradation. Selling emissions credits for reductions that never materialised isn’t just a mere case of climate or greenwashing; it’s a brazen act of exacerbating climate change and a blatant display of poor governance. 

Such behaviour undermines the very essence of environmental stewardship and demonstrates a callous disregard for the urgent need to address climate crisis. One assumes that there would be investigation and an outcome, and if at all, the company involved would bear direct responsibility for its actions.

Exploitation of Loopholes

But accountability cannot stop there. The regulatory systems and governments that turn a blind eye to such flagrant exploitation of loopholes must also be held to account. Failure to do so perpetuates a culture of impunity and emboldens further misconduct, ultimately jeopardising the fate of our planet. 

In a troubling pattern of similar practice, Shell had previously resorted to a similar carbon claim in January 2024, using rice farming carbon credits to offset a substantial portion of its annual emissions under the guise of reducing the “carbon intensity” of its fossil fuel products. However, experts have long sounded the alarm on the dubious nature of such offsets, accusing sellers of inflating emissions reductions and resorting to accounting gimmicks to evade scrutiny, as revealed by a Climate Home investigation.

Consequently, leading carbon standard organisation Verra, which sets the world’s leading standards for climate action and sustainable development, suspended the projects and launched a thorough investigation. Shell promptly removed them from its website. 

Yet, despite the ongoing review by Verra, Shell quietly retired over a million credits from the suspended projects on January 9, effectively counting the claimed emissions reductions towards its climate targets. This move reeks of poor trust and faith and probably even ill intent, further tarnishing Shell’s corporate governance reputation. 

Such actions sow seeds of doubt about the efficacy of ESG standards and cast shadows of scepticism over the feasibility of carbon solutions. Selling emissions credits for reductions that never materialised isn’t just a case of climate or greenwashing; it’s a blatant disregard for the urgency of climate action. Shell’s actions, as reported by the Financial Times, if true, epitomise poor governance and highlight a troubling trend in the carbon credit market. 

Lack of Due Diligence?

Questions naturally arise — how did regulators fail to detect such blatant manipulation, and why did buyers of these credits not exercise due diligence? The oversight raises serious doubts about the effectiveness of regulatory frameworks and the integrity of the carbon credit market. 

The implications on the carbon credit economy are profound. Such misconduct tarnishes the credibility of carbon offsetting as a tool for emissions reduction. It undermines the trust necessary for the growth and legitimacy of the carbon credit market, hindering its potential to drive real environmental change. This repeated abuse of carbon credits calls into question the very foundation of the carbon credit economy.

If major players like Shell can exploit loopholes and manipulate the system for profit, what assurance do we have that other credits are legitimate? Can we trust that the claimed emissions reductions are genuine, or are they just another form of corporate greenwashing?

Regulators must intervene decisively to restore trust and transparency to the carbon offset system. Strengthened oversight and enforcement mechanisms are urgently needed to ensure that carbon credits represent real, verifiable emissions reductions. Without such measures, the carbon credit market risks becoming a breeding ground for deception and corporate misconduct, further undermining global efforts to combat climate change.

The repeated instances of bad faith by global entities like Shell send a clear signal — they consider themselves too big to be effectively regulated. This flagrant disregard for ethical and environmental considerations demonstrates the inadequacy of current ESG norms, especially regarding climate issues.

These raise questions on the ability of these global giants to navigate regulatory frameworks with impunity highlights the ineffectiveness of current oversight mechanisms. This pattern of behaviour not only undermines the credibility of ESG norms, particularly those relating to climate, but also underscores their susceptibility to corporate lobbying and influence. The sheer scale and influence of these entities create an imbalance of power, enabling them to shape policies and regulations in their favour, further exacerbating the challenges in achieving meaningful environmental progress. 

But then, who will ask them? What are the checks and balances? It’s puzzling why none of the major investors have raised questions or alarms on this yet. The silence begs the question — are they complicit or simply turning a blind eye to corporates’ climate paint?  Simply put, is it carbon-credit or carbon-con? The loser is always the world.

—The author, Dr. Srinath Sridharan (X : @ssmumbai), is a Policy Researcher & Corporate advisor. The views expressed are personal.

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