Commentary: Are carbon credits a growing ‘lemon’ problem?

Commentary: Are carbon credits a growing ‘lemon’ problem?


However, legal complexities arise when considering cross-border transactions and carbon credit projects based in developing countries. Proving misrepresentation or harm can be challenging, especially when dealing with projects with unclear additionality, permanence, and double-counting risks. Additionally, different verification standards and regulatory environments create further hurdles in enforcing uniform legal consequences.

The International Carbon Credit (ICC) Framework in Singapore permitting companies to offset some of their taxable emissions with carbon credits is a step in the right direction, but analysing its effectiveness would require some more time as high-quality projects that can benefit the climate are not yet available.

International cooperation is needed to establish clear legal frameworks and enforce consistent standards across borders, ensuring everyone plays by the same rules.

Unfortunately, countries at the United Nations’ COP28 climate summit in Dubai in December failed to seal a deal on carbon trading rules. Until there is consensus, the voluntary carbon market continues to be the main channel for private capital investment in initiatives focused on reducing or eliminating greenhouse gas emissions.

Another pitfall is that carbon credits allow companies to offset their emissions by investing in projects that reduce greenhouse gases elsewhere, rather than directly tackling their own emissions. This can create a moral hazard, where companies prioritise offsets over actually reducing their own emissions, leading to an overall increase in emissions.

Addressing climate change requires systemic changes to our energy systems, transportation infrastructure and industrial processes. Carbon credits can be a helpful tool in the transition, but they cannot replace the need for fundamental changes in the way we live and produce.

While they provide hope, they also carry potential pitfalls. By advocating openness, holding businesses responsible and emphasising real emission reductions, there is potential to transform this market into an authentic force for addressing climate change rather than a deceptive tactic for appearing environmentally conscious.

Ben Chester Cheong is a doctoral researcher in sustainability law at Cambridge University, a corporate regulatory compliance lawyer at RHTLaw Asia and a law lecturer at Singapore University of Social Sciences.