Rio Tinto Finds Most US Carbon Credits Unsuitable for Emission Goals

Rio Tinto is facing challenges in finding suitable carbon credits in the United States as it strives to meet its emission reduction targets. The majority of the carbon credits the company evaluates are deemed unsatisfactory, highlighting the difficulties that major mining companies face in reducing their carbon footprints.

The carbon credits market is undergoing a shift towards higher-quality contracts globally, with heavy emitters in Australia avoiding deals that have been criticized for not effectively reducing emissions. This trend emphasizes the growing awareness among major emitters about the reputation risks associated with purchasing low-quality carbon credits.

For companies like Rio Tinto, carbon offsets are essential to meet their emission reduction targets. However, CEO Jakob Stausholm has noted that as much as 80% of the contracts reviewed in the US are unsuitable. Stausholm mentioned that the company is committed to achieving a 15% reduction in emissions by 2025, partially through the purchase of carbon credits. However, due to stiff competition, especially from tech companies with high credit demands, finding credible credits is a significant challenge.

In contrast to the US, the situation in Australia appears more favorable for Rio Tinto, with a more abundant supply of credits and less competition. However, Australian emitters are subject to stringent regulations under the federal government's Safeguard Mechanism, which requires the country's largest polluters to reduce emissions by about 5% annually, initially using carbon credits.

Hugh Grossman, managing director of carbon advisory RepuTex, highlighted that companies are moving away from "avoided deforestation" credits, which have come under scrutiny. Confidence in these credits was undermined in 2022 when allegations arose about the integrity of $5.4 billion worth of carbon offsets, leading to recommendations for reforms to improve their credibility.

Despite being part of a compliance market, many buyers are approaching the carbon credits market with a voluntary mindset, focusing on quality and credibility to avoid greenwashing risks. In Australia, emitters like Rio Tinto currently benefit from an ample supply of quality contracts, but as demand grows and supply potentially decreases, securing reliable carbon credits remains a priority.