Blake Lovewall, Carbon Credits, Carbon Offsets, Caveat Emptor, Climate Change Opportunism, Deforestation, Die Zeit, Environmental Committments, ESG Scores, Fiduciary Duty, Green Bonds, Green Investing, greenfraud.blogspot.com, Greenwashing, Net Zero, Paris Climate Accords, Recycling Mandates, REDD, SourceMaterial, The Guardian
It doesn’t take much due diligence to reveal that certain green “commitments” are flimsy gestures at best. I discussed the poor economics of recycling mandates in a post a few days ago. Here I discuss two other prominent examples of fake virtue: so-called carbon offsets and green bonds. These are devices often utilized by private actors to assuage activists, gain favor with public policymakers., or simply to claim and promote themselves as “zero-footprint”. No doubt many well-intentioned people believe in the goodness of these instruments, blissfully ignorant of the underlying fakery. Of course, this is dwarfed by the broad flimsiness (and cost implications) of claims about climate catastrophe, which is what motivates carbon credits and most green bonds in the first place. The includes “commitments” made by various nations under the Paris Climate Accords, but that is a subject for another day.
I mentioned Blake Lovewall’s interesting commentary on carbon credits recently. Purchasing these credits is a way of “greenwashing” activities that emit carbon dioxide. Also known as carbon offsets, this is a $2 billion market with growth fueled by a desire by businesses to appeal to environmental activists and “green” investors, and to boost their ESG scores. I’ll quote here from my own piece, which had as it’s main thrust the waste inherent in wind and solar projects (Lovewall quotes are in blue type):
“The resulting carbon emissions are, in reality, unlikely to be offset by any quantity of carbon credits these firms might purchase, which allow them to claim a ‘zero footprint’. Blake Lovewall describes the sham in play here:
‘The biggest and most common Carbon offset schemes are simply forests. Most of the offerings in Carbon marketplaces are forests, particularly in East Asian, African and South American nations. …
The only value being packaged and sold on these marketplaces is not cutting down the trees. Therefore, by not cutting down a forest, the company is maintaining a ‘Carbon sink’ …. One is paying the landowner for doing nothing. This logic has an acronym, and it is slapped all over these heralded offset projects: REDD. That is a UN scheme called “Reduce Emissions from Deforestation and Forest Degradation”. I would re-name it to, “Sell off indigenous forests to global investors”.’
Lovewall goes on to explain that these carbon offset investments do not ensure that forests remain pristine by any stretch of the imagination. For one thing, the requirements for managing these ‘preserves’ are often subject to manipulation by investors working with government; as such, the credits are often vehicles for graft. In Indonesia, for example, carbon credited forests have been converted to palm oil plantations without any loss of value to the credits! Lovewall also cites a story about carbon offset investments in Brazil, where the credits provided capital for a massive dam in the middle of the rainforest. This had severe environmental and social consequences for indigenous peoples. It’s also worth noting that planting trees, wherever that might occur under carbon credits, takes many years to become a real carbon sink.”
Lovewall makes a strong case that carbon credits are a huge fraud. This was reinforced by a recent investigation conducted by the Guardian, Die Zeit and SourceMaterial, a “non-profit investigative journalism organization”, according to the Guardian. The investigation was based on independent research studies as well as interviews with various parties. They found that at least 90% of “rainforest credits” do not represent carbon reductions. Two studies found no abatement whatsoever in deforestation under the credits. Furthermore, the deforestation threats (absent credits) had been overstated by some 400%. The investigation also noted serious human rights violations associated with the offset projects. Rainforest credits are only one kind of carbon offset, but similar problems plague other types of credits as well, such as those earned by shuttering fossil fuel plants in developing countries desperately short on power generation.
That so much of the carbon credit market is fraudulent should infuriate climate change radicals. The findings also are a disgrace to participants in these markets, revealing that much of the “net zero” propaganda trumpeted by corporate PR organizations is a charade. Regrettably, it is motivated by an unnecessary panic over carbon dioxide emissions and their presumed role in global warming. Spending on environmental initiatives should be a warning flag for investors. The resources firms dedicate to those credits deserve careful scrutiny. The fascination with ESG scores is another sign that corporate managers have lost sight of their fundamental mission: to maximize shareholder value by serving their customers well.
Another suspicious form of “commitment” is embodied in the issuance of so-called “green bonds” to raise funds for environmental initiatives. This form of investing is so ostensibly “virtuous” that these bonds are demanded even with specific commitments that are quite “soft”. This just released study finds that green bonds offer little assurance of any positive environmental impact:
“… we find a concerning lack of enforceability of green promises. Moreover, these promises have been getting weaker over time. Green bonds often make vague commitments, exclude failures to live up to those commitments from default events, and disclaim an obligation to perform in other parts of the document. These shortcomings are known to market participants. Yet, demand for these instruments has been growing. We ask why green bond promises are so weak, while the same investors demand strong promises from the same issuers in other settings.”
Green bonds are “virtue ornaments” typically purchased by institutional investors with some sort of environmental or ESG objective. Apparently, earning returns is an afterthought. Unfortunately, these funds managers are usually investing on behalf of other people. While some of those clients might wholly support the environmental objectives, many others have no clue.
Fortunately, there are alternatives, and I’m tempted to say caveat emptor applies here. However, it really is a remarkable breach of fiduciary duty to manage funds based on objectives other than maximizing expected returns, or to in any way sacrifice returns in favor of “green” objectives. That is happening before our very eyes. Even clients who wish to invest funds for green objectives are being shaken down here. According to the research cited above, the green bond “commitments” are hardly worth the paper they’re written on.
Institutional investors go right along, scrambling to add green bonds to their portfolios. This helps drive down the effective cost of funds to the green bond issuers. Thus, highly speculative climate or environmental initiatives can be funded on the cheap. They do, however, produce lucrative opportunities for the climate crisis industry.
One More Time
People save to build wealth, typically for their retirement years. If that’s your objective, you probably shouldn’t invest in firms expending their resources on carbon credits. At best, the credits are a buy-off to activists. who are just as ignorant of the whole sham.
One might plausibly ask whether I should love carbon credits because they allow, at least, certain forms of beneficial economic activity to avoid challenge by crazies. Perhaps that’s true taking the world as it is, but my hope is that exposing various layers of climate hysteria and craziness is one way to change the world. The whole carbon credit enterprise enables extraction of still greater rents by climate change opportunists, to say nothing of human rights abuses taking place under the guise of these credits.
Like carbon offsets, green bonds promote fictitious virtue, They are another way in which green profiteers extract rents from well-meaning savers and investors, some of whom are unaware that ESG objectives are undermining their returns. Even if investors prefer to sacrifice returns in the pursuit of green goals, the initiatives thus funded often have no environmental merit, particularly when it comes to reducing carbon emissions. Despite the efforts of these bonds issuers to convince us of their green bona fides, their “commitments” to green results are usually flimsy.
HT: Green Fraud blog for the image above.