Carbon credits bought by companies seeking to offset emissions have been alleged to have derived from projects potentially linked to forced labour in China, the Guardian reported.
Those credits were sourced from the Bachu carbon project developed by South Pole, the world’s largest carbon consultancy.
The project involves a biomass power plant in Xinjiang, China, where waste cotton stalks are burned to generate carbon-neutral power.
Local expert Adrian Zenz, who has investigated forced labour in the cotton-picking industry in Xingjiang, reportedly found evidence that two farms were involved in potentially coercive labour within a 50-kilometre radius of the biomass project since 2011.
Buyers of carbon credits generated by the project included BP PLC (LSE:BP.) and Spotify Technology SA (NYSE:SPOT), which each bought credits in 2020.
Analysts warned that the incident would discourage companies from entering the voluntary carbon market.
They argue that the onus should be on the accreditation and verification agencies of carbon credits, rather than end buyers.
“Incidents like this clearly act as a disincentive for companies to enter the voluntary carbon market (VCM) if there is a risk of then being caught up in negative headlines down the road,” said Will Crighton, an analyst at Stifel.
“We think the VCM is a key tool in the fight against climate change and this type of commentary is providing disincentives through punishing what seems at face value to be unintentional mistakes made in a young market that is still developing.
“The focus should be on the agencies providing accreditation and credibility to these carbon credits rather than what seem to be unsuspecting end buyers.”