During the past few years, global voluntary carbon markets have been thrown into crisis by fraud and quality scandals. Verra, a major certifier of carbon emission offsets, announced in August that it was rejecting 37 Chinese rice cultivation projects and revoking issued carbon credits, due to quality concerns. Some of the credits from these so-called “phantom” projects had already been procured to offset greenhouse gas emissions by major companies, like Shell and China National Petroleum Corporation. But evidence seen by Dialogue Earth indicates something more serious than quality concerns: some of these projects never existed.
Experts say any forthcoming reforms of emissions-reduction methodologies and oversight processes should be accompanied by a return to the basic principles of carbon offsetting: it is a contribution to global action on climate change, not a way to offset a company’s avoidable emissions.
Farming in the dark
Three farmers in eastern Anhui province, China, could hardly have imagined their rice fields would be linked to some of the world’s largest energy companies. Shell, for example, used carbon credits from their fields to offset greenhouse gas emissions from “23 LNG [liquefied natural gas] cargoes between January 1, 2022, and December 31, 2023”. This enabled Shell to label the shipments as “carbon neutral.”
Rice farmers in Asia commonly grow rice in flooded fields – rice grows well in such conditions, weeds do not. However, these anaerobic soil conditions lead to the production of methane, a particularly potent greenhouse gas. In 2018, rice cultivation in China produced almost 9.33 million tonnes of methane – or 39.1% of the country’s total agricultural methane emissions. That made rice the second-largest agricultural source of the gas, after livestock farming.
Rice cultivation projects under carbon credit schemes aim to tackle this by promoting intermittent drainage, also known as alternate wetting and drying, which reduces methane emissions.
According to documents concerning the development of these projects, the rice fields of the three Anhui farmers were part of separate projects. The documents claim alternate wetting and drying was being used to reduce emissions. But the farmers tell Dialogue Earth that nobody had spoken to them about alternate methods to cut emissions, nor had they heard of carbon trading. Among the three, only one farmer (from the city of Tongcheng) had tried intermittent drainage, and only then in one small area while continuing with traditional methods elsewhere.
The farmer from Tongcheng says the local agricultural bureau tried to popularise alternate wetting and drying about a decade ago, but with a different type of rice: “It was voluntary then; they just said it could be tried in fields that are harder to irrigate.” But, he adds, the yields from the new type of rice were not so good, which would mean less income. “I tried the method on several mu [a Chinese measurement of area; 15 muis approximately one hectare]. The rice was tasty, and I still grow some for my family, but otherwise I stick to the old way.”
Anhui is one of China’s major rice-growing regions. In Tongcheng, the fields are spread across hillsides and plains. In this land of rivers and lakes, farmers do not usually fret about water supplies. However, the farmer told us shortages can occur in very dry seasons, which have been particularly bad in recent years. Local advocacy of alternate wetting and drying is mainly aimed at relieving those worries.
The 37 rice projects in question were all green-lit by auditing firms used by Verra. Each project supposedly started at some point between 2018 and 2020. Verra has said it started a quality control review at the end of 2022, the results of which were announced this August. In Verra’s words, it ultimately “applied strong censures to the auditors that had reviewed [the projects’] applications.”
According to a company spokesperson, the identified concerns about quality covered: the accuracy of baseline figures used; the activities that projects claimed had been undertaken, and the sufficiency of followed practices; and the evidence that Verra’s chosen independent validation and verification bodies (VVBs) provided when verifying projects. The spokesperson did not comment on how many projects were actually implemented.
Over the past two years, however, the carbon credit ratings firm Ecoptima spotted unusual patterns in these projects during big data analysis. Upon reaching out to over 70 agricultural authorities and other relevant departments, Ecoptima was told no Verra-registered, rice cultivation carbon credit projects existed in their jurisdictions. In some cases, no agencies had been authorised to carry out such projects.
Based on written governmental responses seen by Dialogue Earth and the outlet Climate Home News, at least 19 of the 37 rice cultivation projects rejected by Verra appear to be “phantom” projects. Beyond Shell, companies such as PetroChina International Company Limited and the United Kingdom’s OVO Energy also purchased credits from these projects. Furthermore, 87 other projects awaiting carbon credit certification raised similar concerns.
Together, these projects account for nearly 40% of all rice cultivation projects in China that are seeking Verra certification. They span 13 provinces and municipalities, with claimed annual emissions reductions exceeding 57,000 tonnes of CO2 equivalent per project.
A phantom project template
Project documentation reveals the offset schemes in question were all organised and managed in very similar ways. They were typically set up as a partnership between a local agricultural company and a carbon trading consultancy. They always claim cooperation with, or support from, the local agricultural bureau. The local agricultural company, or an agricultural technology research body, trains local farmers and monitors project quality. The new irrigation techniques require closer management of water, so there is also always a promise from the development company or local government to invest in improved irrigation systems – necessitated by China’s high rural development standards.
In the several cases mentioned above, the works to improve irrigation systems described in project documents did not exist either. A farmer in Tongcheng says they are still using the same irrigation system they have had for decades: knocking holes in dykes around the fields to flood them, filling the holes in again to dry them out. Another farmer tells Dialogue Earth that improved systems had been installed, but the dates did not match up with those claimed by the project.
The project documents indicate all these schemes have gone extremely smoothly. A single stakeholder meeting attended by local farmers has usually been enough to get the green light. For example, the Tongcheng project document says the meeting taught farmers about the benefits of alternate wetting and drying and – despite almost none of them being familiar with carbon trading or voluntary carbon standards – they were all supportive.
Rice farming realities
The farmers we interviewed all say their main concern about following different methods is whether it would affect their yield or income. Two farmers in Tongcheng point out that alternate wetting and drying has never been widely applied locally, because it makes less money.
The Pesticides Eco-Alternative Center is an NGO that works to popularise lower-emissions rice cultivation techniques in Yunnan, southern China. The group’s director, Zuo Zhi, says such techniques can provide stable and even higher yields. But sometimes, initial investment is needed.
Zuo has found that where good irrigation systems are lacking, farmers can be unsure of when to wet and when to dry their fields. Sometimes, after wetting the field, they prefer to leave it wet in case of water shortages later.
Furthermore, Zuo points out that because farmers face varying conditions across China, approaches and techniques need to be tailored to local needs.
Another complication is that, because younger members of the community have found work in the cities, much Chinese farmland (particularly in the south) is managed by older people. “For them, the idea of reducing emissions seems very distant from daily life. We usually talk to them in the context of achieving stable or higher yields as the climate changes,” explains Zuo.
Verification failures
On the voluntary carbon market, project developers run their projects according to methodologies certified by standard-setters, like Verra. Such firms rely on external VVBs to ensure the project is implemented to the required quality. These VVBs must be certified by Verra, submit to assessments, and strictly uphold standards to maintain the system’s credibility. However, this “two gatekeepers” system has been shown to have failed several times. Faith in the markets has duly tottered.
In early 2023, three news organisations, including the UK’s Guardian newspaper, published the findings of a nine-month investigation: ninety per cent of Verra’s rainforest carbon offsets had exaggerated their actual emission cuts.
In November this year, a synthesis study surveying over 2,300 carbon-mitigation projects worldwide found less than 16% of the associated carbon credits represented actual emissions reductions. Those project types included cleaner cookstoves, the destruction of the greenhouse gas sodium hexaflouride, and the abatement of another, hydrofluorocarbon-23. The synthesis covered carbon credits equivalent to almost a billion tonnes of CO2, which its authors claim is approximately one-fifth of all carbon credits issued globally to date.
The study’s authors point out that the quality of carbon credits is determined by the robustness of the standards used, the strict implementation of those standards during project implementation, and the strength of oversight from auditors and the carbon-crediting mechanism. Under the existing model, one potential problem is that project owners choose and pay auditors. This may lead auditors to take a more relaxed approach to obtain customers.
Last year, Climate Home News published its satellite imagery analysis of the rice fields where Shell’s carbon offsets originated. They discovered the fields had been divided up into smaller plots, which would avoid the tougher rules in place for larger projects.
One expert in carbon trading in China tells Dialogue Earth that, in the past, it was an open secret that auditors would work to find ways for projects to “meet” the requirements of the crediting body.
Rethinking carbon credits
Dialogue Earth consulted Jonathon Crook, a global carbon markets policy expert for the research organisation Carbon Market Watch. He points out that these risks could be reduced if the offset certifier – rather than the project owner – designated auditors.
After identifying problems with its rice cultivation projects, Verra attributed part of these mistakes to flaws in the methane emission-reduction methodology it was using. Named AMS-III.AU, the methodology is a part of the UN Framework Convention on Climate Change’s Clean Development Mechanisms methodology. In March 2023, Verra suspended all project development under AMS-III.AU and started developing a new methodology. Verra also instructed four of the implicated VVBs to generate corrective action plans.
As a result of Verra’s AMS-III.AU cancellation, over 200 further Chinese rice cultivation projects, all being processed for Verra certification, had their applications halted.
Responding to our request for comment, a Verra spokesperson said the four VVBs had failed to meet their required levels of independence and rigour: “This unprecedented situation was serious enough to warrant sanctions that could result in the suspension of Verra’s approval for the VVBs to continue auditing Verra projects.” Verra also said it is evaluating the response and action plans of the four bodies. To date, however, there has been no change to their certification status.
Chen Zhibin, senior manager for carbon markets and pricing at the Berlin thinktank, Adelphi, tells Dialogue Earth that improvements in carbon markets need to take place at both the supply and demand ends. The supply end could manage the continual improvement of emissions-reduction standards and project quality.
For example, in 2023, the Integrity Council for the Voluntary Carbon Market published its Core Carbon Principles, designed to assess if voluntary emissions-reduction mechanisms and related methodologies are up to standard. Those that meet the standard earn a CCP mark. Chen says this “dual assessment” (of both mechanisms and methodologies) could help the market identify more credible carbon credits.
At the demand end, meanwhile, businesses could be steered towards better use of carbon credits. Chen says that would entail “identifying which emissions can be avoided and only using carbon credits to offset those that cannot.”
According to Crook, the solution to current problems with the market lies in abandoning the unrealistic aim of quantifying the emissions offset by every project, which mainly leads only to corporate “greenwashing”.
“For companies and buyers, carbon credits would be purchased as contributions to global climate action rather than offsets for emissions,” he says. “The contribution approach … is a sorely needed replacement to the outdated and error-prone offsetting approach.”
Published jointly by Dialogue Earth and Climate Home News
