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Corporate Carbon Neutrality Claims and the Legal Effects of Double Counting

3.6.2024, Maisteritutkielma

This thesis in law examines the legal effects that companies may face if they use carbon dioxide (CO2) offset as a basis for their carbon neutrality claim and this offset is in later scrutiny revealed as double counted. Double counting renders the carbon neutrality claim void, as the offset is also counted for elsewhere and therefore does not deliver climate change mitigation outcome for the company. Avoiding double counting is one of the established quality criterions of carbon offset, however it is not straightforward to evaluate it ex-ante as the practise occurs ex-post. Double counting can occur unintentionally but also intentionally by fraud. This thesis examines the topic in relation to EU law but draws examples from national legislations of the Member States, notably from Finland.

Companies can purchase carbon offset from the voluntary carbon market. They can purchase it for varied reasons related to corporate social responsibility. However, most often offset is purchased to claim carbon neutrality. Carbon neutrality is a voluntary goal for companies. It can be achieved by reducing CO2 emissions that can be reduced and then compensating the residual emissions by purchasing offset. Carbon offset is a commodity - one kiloton of CO2 emissions equivalent and valued as carbon credit. Carbon credits are constructed under different schemes by different developers and sellers, and as such are based on different standards and have different prices. The market is international in nature, and in many cases project developers and end purchasers are in different countries. The voluntary carbon market is not regulated by substantive law and therefore, the market remains regulated by self-regulation. This creates issues in quality assurance and also the problem of lack of oversight and enforcement. The differently constructed commodities are also difficult to compare, and the market includes information asymmetry and integrity risks.

Companies make voluntary carbon neutrality claims visible in their mandatory sustainability reports. If these claims are rendered void, it has negative effect on climate change effort but also to the company’s reputation which can lead to significant monetary losses. In relation to ‘green’ consumer products, companies may face accusations of misleading marketing practices or greenwashing, if it is revealed that compensation was purchased from a poor-quality offset project. Also, the rise of human rights consciousness in relation to emissions reductions may play part in the risk of environmental litigation. The legal effects of double counting in relation to carbon neutrality claims is a new phenomenon which has not been previously examined. This thesis is explorative in nature, but finds that the risks are somewhat similar as to with any quality issue of carbon offset for companies, although double counting poses certain specific features.

Asiasanat
• Hiilidioksidipäästö - Hiilineutraalius - Ilmastonmuutos - Kansainvälinen ympäristöoikeus - Päästökauppa - Päästöt - Ympäristökorvaus - Ympäristönsuojelu - Ympäristöoikeus - Ympäristövastuu