“Shell Dodges Compensation for Sham Carbon Credits in China: Legal Expert Calls for Accountability”

The energy giant Shell has come under scrutiny for its involvement in nearly 2 million sham carbon credits in China, as registry Verra has struggled to hold the company accountable for the scandal. The case has raised concerns about the ability of leading carbon standards to enforce rules and ensure integrity in the voluntary carbon market, especially when dealing with major players like Shell.

Shell was closely involved in ten carbon offsetting programs aimed at reducing methane gas emissions from rice paddies in eastern China. However, it was revealed that the carbon credits generated from these projects failed to actually reduce emissions as claimed. After identifying serious issues, Verra canceled the projects in late August 2024 and informed a Shell subsidiary in China that compensation would be required for the meaningless credits.

Despite this, Verra has been unable to recover any of the 1.8 million over-issued credits from the projects, which were primarily used by Shell to offset greenhouse gas emissions from its fossil fuel operations. Other users of the credits include PetroChina, DBS Bank, and OVO Energy.

The projects were originally set up by a Chinese agritech firm, Hefei Luyu, with Shell acting as their authorized representative in dealings with Verra. However, less than two weeks after Verra’s compensation order, Hefei Luyu and Shell ended their agreement, allowing Shell to abruptly abandon the projects. Legal expert Danny Cullenward has stated that Shell should still be held responsible for any false or misleading statements made during its involvement in the projects.

Verra has taken action against Hefei Luyu for failing to respond to compensation requests, but has not yet held Shell accountable. Cullenward has criticized Verra for failing to explain why it cannot take action against Shell and has called for potential legal proceedings against the energy giant.

The situation highlights the conflicts of interest in unregulated carbon markets, with Verra relying on the generation of new carbon credits for its income. Shell, a major player in the carbon credit market, uses offsets to reach its climate targets but may face consequences for problematic practices.

Shell has recently announced an increase in dividends for shareholders despite a drop in profits, and has reduced investment in its clean energy division compared to oil and gas spending. In response to inquiries, Shell has expressed disappointment in the issues identified by Verra and stated its commitment to working with the registry to address the findings.

Verra has stated that its system is working and that lessons learned from this case will help prevent similar issues in the future. The case serves as a reminder of the challenges in ensuring accountability and integrity in the carbon offset market.