Explainer: allegations against Microsoft and Rabobank's carbon credits impact

Another day, another carbon credits scandal. It’s getting to be a little like crypto. Google decided to stop using carbon offsets this week, presumably to avoid some of the bad press surrounding carbon credits. But what are the allegations against Microsoft and Rabobank exactly?

Follow the Money reports:

[Microsoft] is paying Dutch multinational Rabobank millions of euros to neutralise its impact on the environment. The problem? The bank’s carbon credit programme has no clear effect.

If someone promises that they can save trees from being cut down, or convert electricity from fossil fuels to renewables[1], or really anything that reduces carbon emissions, they can get paid for it in the voluntary carbon market. This is usually subject to checks and balances by ratings agencies to make sure they are genuinely reducing carbon emissions.

Microsoft, like many tech firms, buys voluntary carbon offsets so that they can tell their customers that they have carbon neutral operations. This avoids the hassle of stripping out all the carbon from their own operations and is often cheaper. For tech firms, a carbon-neutral target is increasingly difficult to meet with the proliferation of electricity-hungry Artificial Intelligence (AI). The processing power required for AI creates significant demand for data centres, which use a lot of energy for cooling. In the US, coal plants are already planning to stay online longer than anticipated, to meet data centre demand and reliability requirements. Offsets can provide a solution if the energy system cannot, and after all, our carbon budget is global, not local.

The integrity of carbon offsets is important, then, if they are replacing real operational shifts for major firms. While Rabobank represented less than 3% of Microsoft’s carbon offset purchases in 2022 and 2023, questions about their integrity could cast doubt on the rest of the portfolio. Accusations of impropriety centre around a project in Côte D’Ivoire, representing a third of credits sold.

Verifying project impact

Let’s start with the first claim – that they are over-estimating emissions reduction from their projects.

The bank uses satellite imagery and its own methodology to track the number of trees grown in its programmes. …Tree growth can be seen from space – and … the carbon stored in their trunks and roots can be calculated on the basis of those satellite images. 

This method is much cheaper than manually checking everything onsite, reducing costs to between five and 10 per cent of the revenue from carbon credits, down from as much as 40 per cent. This allows more money to be passed onto farmers as profit, the bank says.

According to Rabobank, calculations from satellite images can be verified with sample on-the-ground tests.

But one such check, carried out by the Preferred by Nature consultancy firm [in 2022] on a project in [Côte D’Ivoire], found that Rabobank’s satellite-based estimates were more than six times higher than the consultancy’s estimates.

Sending armies of consultants to count trees doesn’t seem like good value for money versus using satellite imagery, but their model doesn’t seem to work well. Towards the end of the 91-page consultancy report, Acorn, Rabobank’s carbon division, concedes that the data available may be insufficient to deliver a good result. They cast some blame on Space4Good, the remote-sensing provider, for how they applied algorithms, e.g. perhaps not setting high enough resolution in their model. They point to a competitor, Satelligence, as having more accurate results.

I’m generally in favour of using cheaper verification methods, so that more of the project revenues go to the communities. Yet it’s unclear if Rabobank chose a provider that would give them favourable results given that there are other options in the market, or whether this was an honest mistake. Either way, the range of plausible emissions reductions is still terrifying – there is an order of magnitude difference in the minimum and maximum carbon impact of the project by the satellite provider with the more accurate results.

Double Counting:

The second claim is about double-counting between projects.

[Rabobank] is far from the only organisation working to encourage tree-planting in the region and no external party has verified that Rabobank in particular has led to the planting of additional trees. …

The World Cocoa Foundation, an alliance of more than 90 cocoa companies, developed an “action plan” to protect and restore forests and help farmers become more sustainable. One of the regions targeted by the plan is almost identical to Rabobank’s project area. …

While there is no doubt that new trees have been planted in [Côte D’Ivoire], it is impossible to know for sure how many of these are because of Rabobank’s carbon credits. 

Again, I’m sympathetic to Rabobank. They have a contract that says their farmers haven’t signed their carbon away to anyone else. Though, if I were a farmer and no one was double-checking, I’d be tempted to sign my emissions away to as many companies as I could get away with. It’s not like it is a legal product to sell anyway.

Emissions Sovereignty

Which brings us to the third, and most interesting claim on emissions sovereignty and the legality of Rabobank selling these emissions reductions in the first place:

In 2021, however, the Ivorian government wrote a decree stating that all carbon credits from the area belonged to [Côte D’Ivoire]. 

In the following years, Rabobank was repeatedly alerted to the risk of double claiming. Warnings came from the Preferred by Nature consultancy firm and a former employee, but the bank did not halt sales. 

In 2023, it even conducted one of its largest transactions of this kind, selling over 34,000 credits to Microsoft for roughly one million euros. …

A World Bank report stated that “there were no documents or contracts signed that gave Rabobank the right to carry out carbon transactions” in the country. 

The Ivorian environment minister Konan Jacques wrote to Rabobank in November 2023 asking that it suspend its activities in the region. Concerns over double claiming could “damage the reputation of the country and your programme,” the minister said.

Côte D’Ivoire says it’s illegal to sell carbon credits in this area because they belong to the government. Presumably, this is so that they have flexibility to count them in their carbon budget as the country industrialises, or can profit from them directly as a carbon credits issuer. 69% of the electricity grid is powered by fossil fuels and they are planning a three-fold increase in oil production by 2027.

Microsoft did implicitly fund a project to reduce carbon emissions, that may not have happened otherwise, so in some sense their investment was additive. The thing is, I’m not sure Microsoft and Rabobank’s transactions really change anything about national carbon emissions accounting. No matter how many voluntary offsets Microsoft purchases, the US will still have to count the emissions from the electricity powering the data centres as American emissions[2].

I’m also not sure they care about the national accounting. Microsoft is buying offsets to make themselves look good on climate by putting money into decarbonisation projects when it can’t do so through its own operations. Rabobank is trying to make a sale, helping Microsoft to claim that their dollar funded carbon emissions reduction. National emissions accounting only seems important for Rabobank insofar as it renders their product illegal. It takes away a revenue opportunity for the government if they had been a counter-party with Microsoft instead.

So where does this leave us?

The voluntary carbon market has so much potential for impact, if it is monitored well and contributes effectively to emissions reduction. Some companies monitor better than others, and they should be the ones retained for verification, not those that provide favourable results to project developers. Double counting is also a major risk which can be addressed with more transparency. Renoster, a rating agency, published geospatial coverage maps for 575 nature-based projects. Not all developers they contacted were willing to disclose their project areas.

The disconnect between voluntary carbon markets and national accounting, however, will continue to rub. Until offsets are formalised and included in national accounts, they will run the risk of double-counting and not actually shifting operational decisions. While the flow of capital to fund emerging economies to reduce carbon emissions is positive, I would argue it is a good thing that these offsets are not yet included in national accounts, if it forces industrialised nations to actively decarbonise domestic operations. The alternative might be holding back the development of foreign nations by eating into their carbon budgets without necessarily making productive investments. This entrenches existing power imbalances and could reduce much-needed investments in infrastructure and manufacturing.

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[1] Projects can even claim emissions reduction from converting plants that burn fossil fuels to burning trees, but that’s another story…

[2] Unless regulation changes on this front.