The Carbon Market is Flourishing: How Can Companies Avoid Greenwashing? | Latest Information | ASUS ESG website, ASUS ESG goal

In recent years, with climate change issues receiving global attention and increasingly strict carbon policies, the carbon trading market has also flourished. To cope with the era of carbon pricing, companies are rushing to lay out their carbon strategies. However, with a significant increase in the supply and demand of carbon credits, some greenwashing controversies have emerged, prompting reflection and discussion on carbon credits from all sides.

Carbon credits can be divided into compliance carbon credits and voluntary carbon credits. The main difference lies in the fact that compliance carbon credits are for reducing and managing the external costs of production activities' carbon emissions to society, while voluntary carbon credits are the opposite of compliance carbon credits, aimed at offsetting the carbon emissions to society. Due to different management implications, the compliance carbon credit mechanism will produce a cap and trade system and a baseline and credit system. The common European Union ETS belongs to the cap and trade system, while Tesla's carbon credits come from the fact that the per-unit carbon emissions of its products are much lower than the carbon credits granted under national energy efficiency standards. The issuance and use of compliance carbon credits are regulated by national authorities, making it difficult for a carbon credit confidence crisis to occur. Voluntary carbon credits are often driven by private initiatives, with their issuance and management mechanisms also handled by private organizations. Therefore, the quality of carbon credits depends on the rigor of the type of emission reduction, the carbon credit issuance, and calculation process.

According to the "2024 Long-Term Carbon Offset Outlook" report released by Bloomberg BNEF, by 2050, the price of voluntary carbon credits is expected to rise to $238 per ton, with an annual market value exceeding $1.1 trillion, far higher than the carbon credit market's size of around $2 billion in 2023. However, this premise requires the market to quickly regain confidence. Improper use of voluntary carbon credits by companies for offsetting purposes could lead to greenwashing allegations, which is the main reason for the decline in market demand confidence.

There is no consensus on what constitutes greenwashing by companies, as it depends on the company's behavior and motivations. Minor forms of greenwashing include using the recycling symbol on product packaging without clearly indicating which parts can be recycled or using carbon-neutral products without clearly explaining how the product underwent emission reductions but directly using carbon credits for offsetting. Another example is using low-cost and environmentally damaging carbon credits for offsetting, such as carbon credits generated from large hydropower facilities. If a company uses carbon credits to offset its product's carbon emissions while simultaneously expanding its fossil fuel extraction capacity, this two-handed greenwashing strategy severely affects global climate action progress and is considered a serious form of greenwashing.

In 2023, the global voluntary carbon credit market development hit a low point, with Shell, Nestlé, and other companies' carbon-neutral products facing greenwashing accusations. Airlines like Delta and EasyJet used junk carbon credits for offsetting and were asked by NGOs to provide explanations. The lack of trust in the carbon market led to scrutiny of all market participants, including buyers, traders, certification bodies, and project developers.

Recently, the Core Carbon Principles (CCP) proposed by the Integrity Council for the Voluntary Carbon Market (ICVCM) have become the highest standard for evaluating carbon credit quality in the market, aiming to restore market confidence in carbon credit quality. According to a recent statement by ICVCM, carbon credit issuers such as VCS, GS, ACR, and CAR meet its CCP standards.

Additionally, the SBTi Net Zero Standard calls on companies to strive for value chain emission reductions, such as procuring or investing in voluntary carbon credit projects beneficial to the environment, as a complementary measure for corporate net-zero emission reductions. SBTi also believes that value chain emission reduction projects will help foster innovation in emission reduction technologies, increase income levels in least developed countries, and contribute to the SDGs. However, SBTi reiterates that the emission reduction benefits outside the value chain should not be used to replace companies' commitments to net-zero emission reductions.

Faced with external greenwashing allegations, companies can adopt different strategic mindsets to strengthen their competitive advantages and turn crises into opportunities. Apple Inc., through its Restore Fund jointly invested with Goldman Sachs and TSMC, has contributed about $280 million to global forest carbon sink protection projects. The high-quality carbon credits obtained will be used to offset the remaining carbon emissions of its carbon-neutral products. Microsoft, on the other hand, has applied its blockchain and carbon management platform technologies to technology-based carbon removal projects, such as direct air capture, soil, and ocean emission reduction projects, enhancing customer confidence in the quality of its carbon credits.

After launching the world's first carbon-neutral verified commercial laptop, ASUS believes that product carbon neutrality should prioritize maximizing emission reductions in the product itself, with the remaining emissions offset by high-quality carbon credits. The use of high-quality carbon credits for offsetting is based on ASUS's responsible brand attitude, as high-quality carbon credits meet additionality, actual carbon removal from the atmosphere, and United Nations SDG standards.

From ASUS's experience in promoting carbon credit-related projects, the challenges for companies entering the voluntary carbon market can be summarized as follows:

1. Development stage:
   The development stage may involve potential infringement on local stakeholders' rights and monitoring uncertainties. Common disputes include project development without consulting local indigenous people, failure to deliver agreed-upon funding, occupation of indigenous lands, and significant discrepancies between revenue and funding ratios. In severe cases, such as land occupation, the issuance body may revoke the project's registration and recover issued carbon credits.
2. Procurement stage:
   The challenge at the procurement stage stems from the different prices for the same ton of emission reductions. This may lead profit-maximizing companies to purchase the cheapest and lowest-quality carbon credits. From the perspective of project development costs, carbon credit development costs will increase as SDG compliance commitments increase, driving up market prices. The more SDGs a carbon credit project represents, the higher its marketing value and demand from companies, causing the market price of such carbon credits to rise continuously. However, the more SDG commitments a project involves, the more stakeholders will scrutinize its fulfillment. Failure to meet commitments may lead to greenwashing allegations.
3. Offsetting declaration stage:
   The offsetting declaration stage involves whether the company has a process of maximizing emission reductions before offsetting. This depends on the company's determination to achieve net-zero emissions and gradually reduce the product's carbon footprint. If the sole aim is to use low-cost and poor-quality carbon credits to acquire a green product/brand image, it will not contribute to the accumulation of core product development capabilities and may severely damage the company's brand reputation.