INTERVIEW: Carbon market flaws must be fixed, not an excuse to discard entire system: Shell

Flaws in the global carbon market must be fixed for it to evolve, instead of being used as an excuse to discard the entire system that is helping companies achieve net-zero emissions, said Flora Ji, vice president of Nature-based Solutions at Shell.

In a written interview on March 1, Ji said the industry needs to reach a consensus on what constitutes quality in the carbon market and what incentives are needed to drive up quality instead of quantity of credits. According to her, both standalone carbon projects and jurisdictional schemes have a role to play in lowering emissions.

Ji's comments come at a time when the global voluntary carbon market is under fire for using imprecise methodologies like deforestation avoidance that exaggerate decarbonization claims.

Shell has a target to use nature-based solutions to compensate around 120 million mtCO2e/year of emissions by 2030. In 2021, the company retired 5.1 million carbon credits associated with the use of Shell's energy products by its customers, which is part of Shell's net carbon intensity, the company said.

Ji said Shell currently offers a variety of low-carbon energy and services, such as charging for electric vehicles, hydrogen, and electricity generated by solar and wind power, as well as carbon capture and storage.

"For remaining emissions, we offer and retire carbon credits including from nature-based projects," she said, adding that Shell buys credits generated from a range of methodologies, including projects that protect nature and restore the environment.

"To increase the supply of carbon credits and help meet growing demand, we also invest directly in projects through Shell's Nature-based Solutions business, which focuses primarily on nature-based projects that absorb more carbon dioxide (CO2) or prevent the release of greenhouse gases," Ji said.

Shell has joined the ranks of global corporations that have invested in carbon projects in recent years to generate a steady stream of credits, especially with growing demand for low-carbon transportation fuels, crude oil and LNG. It is also an active trader on the carbon market.

Managing imperfections

Ji addressed the recent controversy around deforestation avoidance projects and the voluntary carbon credits generated from them that resulted in prices dipping to around $1.7/mtCO2e in recent months, before recouping some losses.

Platts assessed CNC, or Nature-based Carbon Credits, at $3.05/mtCO2e on March 2, S&P Global Commodity Insights data showed.

"The carbon market may not be perfectly functioning everywhere yet, and its flaws need to be highlighted and discussed – that's how markets evolve and improve. But it is also an important enabler of emissions reduction and drives critically important resources towards the conservation and restoration of at-risk ecosystems," she said.

"While all participants must work to promote quality and improve practices, the [carbon] market's imperfections must not be used as an excuse to disregard this viable, additional measure for helping reach net-zero emissions," Ji said.

The market decline had prompted calls for existing standards and practices to be reviewed as companies that used carbon credits to offset emissions risked reputational damage.

"Certification standards are key to the credibility of the sector, and it is important that these standards evolve as collective experience provides a greater understanding of project dynamics and associated concerns or gaps that need to be addressed," Ji said.

"There is a need for a common understanding of what constitutes quality. With few or no incentives to drive quality, there is a risk that driving up credit volumes may sometimes be at the expense of quality," she pointed out.

Ji said that avoided emission projects contribute to slowing deforestation and associated impacts on climate change, and ending deforestation is a critical step towards growing natural sinks.

"Done well, actions to address deforestation promote investment and address climate change, while also benefitting local communities and protecting vital ecosystems," Ji said.

There are two types of carbon markets-- voluntary markets for corporates and compliance systems by governments to meet mandatary emissions reductions. There has been a surge in compliance systems in recent months.

"We recognize the opportunities and challenges presented by both standalone projects and jurisdictional approaches. We believe there is a need and room for both approaches, and that collectively we are better served by working with both approaches including through nesting, rather than pursuit of one over the other," Ji said.

Carbon projects

Shell has carbon projects even in countries with no other Shell business, but there is no one-size-fits-all approach.

These include Zambia, where Shell has trained farmers in sustainable agriculture practices and planting nitrogen fixing trees, the Philippines where it has restored more than 10,000 hectares of deforested land, and Senegal for the world's largest planned mangrove restoration project.

Shell also acquired a minority stake in Carbonext, Brazil's largest developer of REDD+ projects, which is currently working on the protection of 2 million hectares of Amazon rainforests.