In the early 1990s, Nike executives uncovered a significant issue. The gas used in the soles of their Air series athletic shoes provided excellent cushioning. However, it also contained sulfur hexafluoride, a potent greenhouse gas—24,300 times stronger than carbon dioxide. This meant that Nike’s popular sneakers contributed as much to global warming as half of all cars in Oregon.
Over 14 years, Nike invested tens of millions of dollars to eliminate this harmful gas. In 2006, the company announced that it had successfully removed all heat-trapping gases from its shoes. However, this environmental issue has resurfaced, revealing a critical flaw in today’s carbon market.
As Nike worked on its gas replacement, it turned its reductions in sulfur hexafluoride into a carbon-offset project. This enabled the company to sell credits for the emissions it had eliminated, allowing other entities to claim those reductions in their own environmental reports. Nike received nearly 8 million carbon credits, equivalent to the annual emissions of a large coal plant, from the American Carbon Registry (now called ACR).
Initially, Nike’s project did not gain traction, and the credits lay unused for nearly a decade. However, earlier this year, over 1.2 million Nike credits resurfaced as the carbon offset market sought to address ongoing issues.
These credits appeared in the ACR’s buffer pool, a reserve designed to safeguard against losses in carbon projects. For instance, if a wildfire damages a protected forest, credits from this pool can replace the lost ones, maintaining the market’s claims about atmospheric emissions.
Major registries in the carbon market rely on buffer pools for protection. Yet, recent critiques highlight that these pools may not contain enough credits to cover potential setbacks, especially as climate change intensifies threats like wildfires and droughts.
When ACR finally revealed its buffer pool contents, it disclosed that Nike credits made up 19% of the pool, more than any other project. ACR added these credits but did not clarify the rationale behind this decision.
Nike’s project has been controversial since its inception. “It was somewhat notorious in the North American carbon market 15 years ago,” says Derik Broekhoff, a senior scientist at the Stockholm Environment Institute. Carbon credits should represent genuine emissions reductions due to financial incentives, a principle known as “additionality.” This means the actions taken to reduce emissions should not have happened without the promise of payment.
However, in Nike’s case, the company had committed to phasing out these gases in 1997 due to pressure from environmental groups and European regulators. Emails revealed that Nike’s efforts were primarily driven by impending regulations, not by potential carbon payments.
As a result, Nike’s emissions reductions may not qualify as valid carbon credits. Yet, these reductions now help support the integrity of various other carbon projects.
“If a project isn’t additional, it shouldn’t be in a buffer pool,” says Mark Trexler, a consultant who helped Nike measure its carbon footprint in the 1990s.
Nike officials have stated that they opted not to sell most of their credits. “Nike is proud of our emissions-reduction efforts and continues to lead in industry action,” said a spokesperson.
ACR officials have not commented publicly but maintain that Nike’s project is still a credible carbon initiative. They assess projects based on certain thresholds, ensuring that activities were not mandated by law or intended for profit. According to ACR, Nike met these criteria.
ACR representatives also assert that they have robust systems in place to protect against project reversals. So far, no ACR project has depended on the buffer pool following setbacks, although that may change due to a recent wildfire affecting one of its forest projects in California.
This situation underscores ongoing challenges in carbon markets. Reports have indicated that many projects deliver fewer environmental benefits than claimed. Consequently, the voluntary purchase of carbon credits has sharply declined, dropping from $2 billion in 2021 to $700 million last year.
Long-term insurance is essential for the effectiveness of carbon credits, which aim to offset fossil fuel emissions that linger in the atmosphere for centuries. For the credits to balance out, the carbon reduction projects need to be equally durable.
However, many offset projects rely on delicate ecosystems that can easily release stored carbon. “Once carbon dioxide enters the atmosphere, it remains there indefinitely,” explains Grayson Badgley, a research scientist at CarbonPlan, a nonprofit focused on climate solutions. “To create an offset, you need a strategy that ensures lasting results.”
Buffer pools serve as a solution for potential project reversals. Projects susceptible to setbacks must contribute a portion of their credits—typically 10% to 20%—to a shared insurance account. If a disaster, like a wildfire, destroys a forest project, credits from the buffer pool are canceled, maintaining the balance in atmospheric claims.
Concerns about underfunded buffer pools have been raised by researchers. A study from the University of California at Berkeley revealed that many forest projects on Verra, the largest carbon registry, underestimated risks by a factor of ten. Similarly, CarbonPlan found that forest projects in California had experienced over 95% of expected fire losses within just 100 years.
The recent fire season has been particularly severe. CarbonPlan identified at least six forest carbon projects in the U.S. that sustained significant damage from fires, affecting around 77,000 acres and likely reversing hundreds of thousands of carbon credits.
Human errors also impact these projects. A prominent offset project in Zimbabwe, known as Kariba, recently withdrew from Verra’s program after overestimating its climate benefits. Companies like Nestle and McKinsey had purchased over 20 million credits from Kariba to meet their environmental commitments. Depending on the outcome, Verra might need to draw up to 40% of its buffer pool to compensate for these credits.
“When the buffer pool fails, as it inevitably will, no one is accountable,” warns Nandini Wilcke, co-founder of CarbonPool, a company developing new insurance models for carbon projects. “What happens to the other projects covered by that pool?”
Verra insists its buffer pool remains sound and claims to have updated risk measurement tools to better address the evolving climate landscape. California officials also affirm that their buffer account is robust but are examining potential adjustments in light of increasingly severe wildfire seasons.
In addition to Nike, other concerning projects have appeared in ACR’s buffer pool. Three renewable energy projects in Brazil represent over 1 million credits, or 16% of the total. These credits have faced criticism because clean energy is often cheaper to produce than fossil fuels, leading to doubts about whether small carbon payments are necessary for project initiation.
“The wind farms would have been built regardless,” notes Haroldo Maia, former financial director for Santos Energia, a developer of one of the Brazilian projects. He adds that carbon credits provide “unexpected revenue not accounted for in the company’s financial modeling.” ACR has stated that the Brazilian projects’ credits meet additionality and other requirements.
It remains unclear how these Brazilian projects entered ACR’s buffer account, as the registry has not commented. Notably, projects related to wind turbines are not required to contribute to the buffer pool since their climate benefits are not at risk.
ACR permits project operators to purchase other credits to deposit into the buffer pool instead of contributing their own.
Experts like Grayson Badgley stress the importance of clarity in these processes. “The buffer pool should provide a reliable replacement: ‘If something happens to your credit, I’ll replace it with something equally valuable,’” he asserts. “We must take permanence more seriously.”
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