Heralded as a market mechanism to address climate change, carbon offsets are once again under scrutiny. A recent investigation into 50 major carbon offset projects found that 39 of them were “likely junk.” For valid reasons, critics of offsets have questioned whether offset programs actually offset and reduce emissions or simply result in corporate greenwashing. Despite their flaws, voluntary carbon offsets can be a viable, cost-effective climate solution. Elevating the standards to make carbon offset programs transparent, measurable, and legitimate will give more credibility and durability to offset programs.
In a carbon offset market, an individual or business will purchase a carbon credit to compensate for their emissions by investing in a practice or activity that reduces emissions elsewhere. Air travelers could offset their emissions by paying someone to plant trees or a manufacturer could invest in renewable or nuclear energy generation to offset emissions at its plant. For companies that have set their own net-zero targets, especially in sectors that are difficult or expensive to decarbonize (i.e., aviation, steel, or cement), offsets offer a way to right their climate balance sheets.
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Voluntary carbon offset markets are not without their challenges, criticisms, and limitations. In some instances, offset projects did not materialize in the ways expected. For example, satellite imagery has shown that forest preservation or reforestation projects covered only a fraction of the land they were intended to cover. Another challenge is accurately measuring the emissions avoided or reduced. Renewable power output can change from day-to-day. Wildfires have destroyed offset projects and forest carbon credit reserves.
Perhaps the greatest challenge is proving additionality. For example, if a company makes an investment in a new energy savings technology or a solar array for economic reasons, but that technology also reduces emissions, those emissions reductions are not additional. Major companies paid as low as two dollars per credit for renewable projects in developing countries that very likely would have occurred without the additional credit funds.
Making matters even more challenging, proving the counterfactual is effectively an impossible task. No one can determine if a coal or natural gas plant would have been built in the solar array’s place. As Bloomberg reported last year, “Many of these projects, especially in China, would clearly have been built because the government wanted them built; the money from offsets did not make them viable.”
The inclusion of all of these renewable projects makes credits cheap, especially compared to purchasing credits from direct air capture facilities, which can be upwards of $600 per ton. When most consumers buy something that is junk or fake, they don’t buy it again. But as Philip Rossetti of the R Street Institute points out, “carbon markets are so complex that it’s hard for buyers to know what is fraudulent, and this makes it difficult for potential critics to chastise buyers of fraudulent credits.”
The criticisms of offsets are not new, and proponents of offsets acknowledge and confront these criticisms head on. Technology has improved the capabilities to measure, report, and verify carbon credits. High-resolution satellite imagery monitors forest stocks and better soil testing understands carbon sequestered from agricultural practices. Blockchain and AI are helping to weed out fraudulent, cheap credits that flood the market. Keeping programs voluntary but setting standards to improve transparency and fraud at the national and international levels has a lot of merit.
It is also worth noting that some of the pushback against carbon offsets deserves pushback. While there are legitimate credibility concerns with carbon markets, the simple fact that offset programs are a market mechanism introduces biases against them. Similar to when technology biases come out against nuclear energy or renewables, opponents of offsets see these programs as corporate greenwashing and nothing else. The reality is, however, that offset projects have yielded climate and environmental benefits. For many businesses, they have not been substitutes for decarbonization but complements.
Well-functioning markets that have strong governance provide consumers with the products they want to buy voluntarily at competitive prices. Price signals communicate relevant information for buyers and sellers and incentivize innovation and creativity. Well-functioning carbon markets can provide the same benefits while making a meaningful dent on global CO2 emissions. The economic and environmental opportunities make voluntary carbon offset markets worth fixing, not abandoning altogether.