Can Carbon Offsetting Help The Planet
“Carbon credit market is set to explorer by 2030.” - McKinsey Sustainability estimates that the market for carbon credits could be worth over US$50 billion in 2030.
Many believe that carbon trading is the most effective way to fight climate change because it is an incentive to lower the cost of sequestering carbon. Some of the world’s largest companies are relying heavily on carbon offsets to reach their ambitious climate pledges. People are getting very interested to know the carbon and greenhouse gas emissions of any economic activity. Because all commercial activities are exposed to carbon emissions, companies are looking to sequester or offset carbon in some way. Even fossil fuel companies are vowing to emit net zero carbon by 2050.
So, can carbon offset help the planet?
What is Carbon Offset?
A carbon offset is the generated greenhouse gas reduction by a project designed specifically for this purpose.
1 carbon offset = the reduction of 1 metric tonne of CO2 or its equivalent.
A carbon credit is a tradable certificate. 1 carbon credit = 1 carbon offset
There are 2 types of carbon credit market/system, “cap and trade” and “voluntary”.
Cap and Trade Market
Carbon trading is a legally binding scheme that caps total emissions and allows organizations to trade their allocation, known as “cap and trade”. Governments set a limit on the emissions permitted across a certain industry. If a company goes over its allowance, it can buy more carbon credits from its market to continue emitting gases. If a company reduced its emissions, it can sell carbon credits to other companies.
The price of carbon is determined by supply and the demand, and supply of units is capped at a level deemed acceptable and their cost will rise and fall. By assigning a price to damaging activity, the system provides a financial incentive for companies to reduce emissions.
In theory, the Cap and Trade system should make CO2 emissions fall. But in reality, they’ve continued to rise. Because the incentives or carbon prices have been far too low to motivate the change that’s needed to decarbonize the world economy. According to Joseph Stiglitz and Nicholas Stern, in order to limit global warming to 2 degrees above pre-industrial levels, the price of carbon worldwide needs to be between $50 to $100 per tonne by 2030.
This is a market where any company or individual can purchase carbon offsets voluntarily just because they want to and not comply with legal obligations. Voluntary carbon market doesn’t have any single regulator and is highly fragmented. This means there are different standards set by each regulator and it is hard to know the quality of the carbon credit. A big part of the voluntary offset program is Corporate Social Responsibility. Companies can win over customers by claiming to be green or carbon neutral. For example, Starbucks uses ethically sourced coffee, build LEED certified stores and they are committed to recycling and conserving water and energy.
But, it could be greenwashing. A study by a carbon offset broker, Compensate, looked at a hundred voluntary offsets, mostly the popular afforestation and conservation projects. It found that over 90% don’t deliver on their promises.
You may think about planting trees as one of major carbon offset projects, but there are many more. Wind, REDD+, Landfill methane, Tree planting, Clean cookstoves, Run-of-river hydro, Water purification, Improved forest management, Biomass/biochar, Energy efficiency, Biogas, Transportation, Fuel switching, Solar, Livestock methane, Geothermal, Agro-forestry, and more.
Here are some examples of carbon credit misuse:
Environmental groups such as the Nature Conservancy and the National Audubon Society sold credits for protecting trees that weren’t in danger of being harvested. This allowed companies like Walt Disney and JP Morgan Chase, who bought those credits, to make misleading claims of lower emissions.
Lyme Timer manages 1.5 million acres of US forests. The company received $20 million for protecting 47,000 acres of hardwood forest. However, the land was so rugged and steep that the trees couldn’t have been harvested anyway. The carbon credits issued didn’t have any benefit to the climate.
Most planting tree programs get millions in funding, receive carbon credits, and then cut down the trees after 10 years. Carbon credits are a way to quantify emissions and pollutants. But it is important to identify the loopholes, flaws, or scams in the system and address them. Afforestation and reforestation are seen as very problematic and the EU does not allow them as mandatory offsets.
Carbon Credits for Farmers
Regenerative farming has been beneficial for soil health and farmers. But it is still very difficult to judge how effective the practices are when it comes to mitigating climate change. Back in the 1990s, there was “Chicago Climate Exchange”, which was trying to trade carbon credits from farmers with companies who were talking about greenhouse gas pollution. The idea was farmers practicing regenerative farming would sequester carbon in the soil. But it wasn’t accumulating carbon as much. Therefore, the whole idea of that market fell apart. Measuring requested carbon is still very difficult and time consuming. If we’re paying farmers to secure carbon from the atmosphere as an excuse not to turn off the dirty power plant or to stop some industrial process somewhere else, that’s not a good idea. Because at the end of the day, the atmosphere’s carbon balance sheet is the one that matters, not ours.
Does Carbon Offset Work?
Jim Hourdequin, the head of sustainability research for Bloomberg NEF, said “The current design of the voluntary carbon market is doomed to fail.” Just like with most ideas, carbon credits started with honest intentions, but loopholes have turned it into a bookkeeping trick.
Think about the real world. There is no such thing as carbon neutral or net zero fossil fuels. A wind farm isn’t negating the emissions from burning natural gas. But the flawed carbon credit system allows companies to make such nonsensical claims. Also, many offsetting programs have a history of disrespecting the land rights of indigenous and local communities. There are some other issues…
“Additional project” is the money invested had an additional effect of reducing emissions that wouldn’t have happened otherwise because it is not economically viable without the offset money. For example, destroying industrial pollutants will be done if only people want to pay for it. There are only less than 10% of carbon offset projects considered as an “additional project”.
Will the problem just go elsewhere? Let’s say you buy carbon offsets to help save the Amazon from deforestation in Brazil. Maybe that will just shift the problem to parts of the Amazon that are not protected.
Problem of double counting. For example, an airline emits CO2 by flying its planes and reduces that CO2 by funding projects in other countries because it is cheaper. Who gets to claim the reduction in emissions? No two countries or no two actors should be counting the same emission reduction towards their emission reduction goals. Unless double counting is avoided, your purchase of the carbon credit makes no difference to global emissions. While Cap System has rules to ensure no double counting, voluntary market doesn’t have any.
Why Carbon Credit is Important?
Many carbon offset projects don’t offset carbon, and some carbon offsets may also help big corporations to greenwash. So far, it is mostly slowing the fight against climate change by convincing us things regardless of what the facts are. But IPCC calculations show that it will be extremely hard to reach our climate targets without some form of offsets.
To make it work, we would need a system to oversight the quality and the way carbon offset projects are being run. A lot of the market today has been oriented around cheaper mitigation, but we need to focus on where the investment is needed to bring transformational changes.
Carbon credit markets should not become another financial market or a bookkeeping trick. We need to watch for who is buying these credits. Are they planning to just build credits and sell them to make money, or are they partnered with industry demand and projects?
Will Carbon Credit Expire?
Depending on the issuing organization or government, carbon offset credits will expire within 3 to 5 years. Carbon credits are not meant to be bought and held. When you purchase carbon credits, either the seller or you need to retire the credits to claim carbon offsets.
How to Find Quality Carbon Offset Projects?
Ask questions about the offset projects. Is there no leakage of carbon emission savings? Does this project lead to permanent savings? Is the saving additional to what would have been saved without my investment?
Request transparency of the operations and price of your carbon offset supplier.
Always ask for proof of retirement when the seller tells you they will retire the offset on your behalf. It is possible that the seller is trying to sell the same offset multiple times.
Always check if the project is verified by third-party entities.
A cheap price is an alarm, but don’t let the high price be an indicator of the quality of the project. Transparency should be the only way to check the quality.
But the first option is to find ways to reduce your emissions. When you look at the history of energy, we are always adding new energy systems to the mix. We are adding renewable energy to fossil fuels, not replacing them because our energy consumption is always increasing. At the end of the day, the planet doesn’t care about renewable or fossil fuels. Only the amount of greenhouse gases in the atmosphere matters.
COP27: Accelerating decarbonization - https://www.mckinsey.com/capabilities/sustainability/our-insights/sustainability-blog/cop27-accelerating-decarbonization
Getting the Social Cost of Carbon Right - https://www.project-syndicate.org/commentary/biden-administration-climate-change-higher-carbon-price-by-nicholas-stern-and-joseph-e-stiglitz-2021-02
This timber company sold millions of dollars of useless carbon offsets - https://www.afr.com/companies/energy/this-timber-company-sold-millions-of-dollars-of-useless-carbon-offsets-20220318-p5a5uv
White paper 2021: Reforming the Voluntary carbon market - https://www.compensate.com/latest-insights-on-carbon-offsetting