Shell has avoided paying compensation for nearly 2 million sham carbon credits it supported in China, as registry Verra has been unable to hold the world’s largest offsets buyer to account for the scandal.  

Verra told Climate Home the case is “unprecedented”, but it raises questions over the leading carbon standard’s ability to enforce its rules and guarantee integrity in the ailing voluntary carbon market – especially when critical decisions concern a dominant player like Shell.

The energy giant was closely involved in ten carbon offsetting programmes that aimed to slash methane gas released from rice paddies across eastern China. But, as Climate Home previously revealed, the carbon credits – which Shell partly used to justify sales of “carbon neutral” liquefied natural gas (LNG) – failed to cut planet-heating emissions as claimed.

After identifying serious issues and cancelling the projects in late August 2024, Verra informed a Shell subsidiary in China that the meaningless credits would need to be compensated.

So far, however, the carbon standard has been unable to claw back any of the 1.8 million credits generated by the ten projects, which were primarily used by Shell to offset real greenhouse gas emissions created by its vast fossil fuel operations. Other users of the phantom rice-farming credits include Chinese state-owned fossil fuel firm PetroChina, Singapore-based DBS Bank and UK energy supplier OVO Energy.

Hit-and-run

While the projects were originally set up by a small Chinese agritech firm called Hefei Luyu, Shell acted as their “authorised representative” in dealings with Verra, assuming “all applicable rights and responsibilities” equivalent to those of the project developer. Climate Home understands that both Hefei Luyu and Shell should have been on the hook for paying back the over-issued credits.

One of the agreements between Hefei Luyu and Shell

But on September 11 last year – less than two weeks after Verra’s compensation order – Hefei Luyu and Shell ended their agreement, enabling the fossil fuel multinational to abruptly abandon the projects.

Verra told Climate Home that “any business arrangements between the representative and the project proponent fall outside Verra’s purview to oversee or enforce”.

How Shell greenwashed gas with sham Chinese carbon credits

Commenting on the case, Danny Cullenward, a lawyer and climate economist at the University of Pennsylvania, said exiting the agreement does not relieve Shell of its past obligations. Those include being responsible for any potentially “false, fraudulent or misleading statements” made to Verra in the course of Shell’s work as the proxy project proponent, added Cullenward who analysed the project documents.

But, as yet, Verra has taken no action against Shell. In contrast, the carbon credit registry sanctioned Hefei Luyu after the Chinese company failed to reply to Verra’s emails and compensate for the credits. Hefei Luyu cannot hold an account on the platform or register new projects until compensation is delivered.

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Verra told Climate Home there is nothing more it can do against the Chinese firm, but added that it reserves the right to take further action in line with its rules, without providing further details on the potential measures. The registry has so far obtained compensation for 480,000 credits issued by other rice farming projects, unrelated to the Shell ones.

Cullenward said Verra had failed to explain why it cannot hold Shell accountable for the cancelled projects in China.

“If something in Verra’s internal rules prevents this outcome, Verra should identify and fix the loophole,” he added. “Otherwise it is practically begging to be defrauded in the future.”

Cullenward suggested that, even if Verra’s own rules prevent it from taking action in its registry system, the organisation could bring legal proceedings against Shell.

‘Rampant conflicts of interest’

Cullenward said the situation also illustrates the “rampant conflicts of interest inherent to unregulated carbon markets”.

Verra oversees carbon projects’ adherence to its rules, and has the power to suspend or cancel them – but it also relies heavily on the continued generation of new carbon credits to sustain its operations. Verra earns the vast majority of its income – close to 80% in 2023 – from charging a levy on each credit issued by its certified projects.

Shell is a dominant force in the carbon credit market, relying heavily on offsets to reach its climate targets to reduce emissions from its oil and gas operations. The energy company used 14.5 million credits in 2024 – nearly three times more than the second-largest buyer, Microsoft – according to data provider Allied Offsets.

“When they crack down on problematic practices, they hurt their own business prospects,” said Cullenward.

Shell announced on Thursday it had raised dividends paid to shareholders, despite a drop in profits in the fourth quarter of last year. At the same time, the firm has cut back investment in its clean energy division, which in 2024 amounted to seven times less than spending on oil and gas, according to analysis by campaigners at Global Witness.

In response to a request for comment from Climate Home, Shell repeated a statement it first made in August, which said the company was “disappointed to learn of the issues Verra identified with these [carbon] projects during their recent review” and indicated it would “continue to work closely with Verra to understand the impact of their findings”.

A Verra spokesperson told Climate Home that its system is working, as “Verra identified the issues with the projects and is following its quality control procedures to address them, including holding parties accountable for where they failed to conform to program rules and follow through on compensation”.

Verra is committed to “continual improvement” – and lessons learned from this case have been incorporated into “procedures that will substantially reduce the risk of these issues being repeated going forward”, the spokesperson added.

(Reporting by Matteo Civillini; editing by Megan Rowling)

The post Shell dodges paying compensation for sham carbon credits in China appeared first on Climate Home News.

Shell dodges paying compensation for sham carbon credits in China