can we offset our way out of climate change?
By now, you’ve probably heard of offsetting carbon or buying carbon credits. Large corporations and individuals alike are able to offset their emissions in their effort to be carbon neutral, or net zero. Essentially, they want to operate in a way that doesn’t increase the amount of carbon in the atmosphere. But what does this mean and are they effective?
What are Carbon Credits and Offsets?
Carbon credits and carbon offsets are two sides of the same coin.
Carbon offsets are the more broad term referring to the general counterbalance of carbon emissions to sequestration. The idea is to negate the amount of greenhouse gasses emitted from an activity. This is done via a project that extracts or avoids the emissions of the same amount of greenhouse gasses, such as planting forests or restoring marshlands.
Carbon credits are, as the name describes, credits, or units, that are bought and sold on what’s called the carbon market. One credit amounts to the avoidance, removal, or reduction of 1 tonne of carbon dioxide from the atmosphere.
There are three different kinds and each contributes in a slightly different way to less carbon dioxide.
Carbon offsets are the more broad term referring to the general counterbalance of carbon emissions to sequestration. The idea is to negate the amount of greenhouse gasses emitted from an activity. This is done via a project that extracts or avoids the emissions of the same amount of greenhouse gasses, such as planting forests or restoring marshlands.
Carbon credits are, as the name describes, credits, or units, that are bought and sold on what’s called the carbon market. One credit amounts to the avoidance, removal, or reduction of 1 tonne of carbon dioxide from the atmosphere.
There are three different kinds and each contributes in a slightly different way to less carbon dioxide.
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Carbon Removal Credits
These types of credits do exactly what you’d think - they remove carbon from the atmosphere and lock it away. The most popular type of project supported by these credits is reforestation, where trees are planted that will pull and store carbon dioxide from the atmosphere. |
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Carbon Reduction Credits
Reduction credits are for actions that reduce carbon emissions relative to prior practices. In this case, projects might improve fuel efficiency or they might replace old cookstoves in developing countries with more modern ones, thereby reducing fossil fuel use. |
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Carbon Avoidance Credits
These are awarded to projects that avoid the emissions of carbon in the first place. About 75% of carbon credits are avoidance credits, and these are often projects that protect swaths of land, such as forests, from deforestation, thereby preventing the release of carbon dioxide. |
For all of these different types of credits, there are three main guidelines that they must follow in order to be credible.
These credits are usually certified by international standards to ensure they actually have the impact that they claim. Most of the time, the projects themselves follow strict environmental guidelines to ensure social and environmental benefits. However, these standards don’t always have any legal basis, meaning that there isn’t any third-party accountability system in place, which can make them less credible. We’ll talk more about credibility later on.
So where are all these credits traded?
- Each project supported must be indefinite so that they “permanently” remove carbon from the atmosphere. Because there is no way to 100% guarantee what will happen in the future, the standard convention is that carbon must remain out of the atmosphere for 40 years to be deemed permanent.
- The project should provide an additional removal of carbon, one that wouldn’t otherwise happen without the project.
- Projects must be monitored and measured to ensure that what was promised is delivered.
These credits are usually certified by international standards to ensure they actually have the impact that they claim. Most of the time, the projects themselves follow strict environmental guidelines to ensure social and environmental benefits. However, these standards don’t always have any legal basis, meaning that there isn’t any third-party accountability system in place, which can make them less credible. We’ll talk more about credibility later on.
So where are all these credits traded?
Carbon Markets
Just as stocks are traded on the stock market, carbon credits are bought and sold on the carbon market. In some regions, governments have set limits on how much pollution companies can produce. If a company exceeds this limit, they can buy carbon credits to stay within the legal boundaries. These credits are traded on the carbon market. Sometimes companies can trade these credits directly, but often, middleman companies handle the transactions. While these limits might encourage companies to reduce their emissions, they aren't a perfect solution.
There are two types of carbon markets:
There are two types of carbon markets:
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Type 1: The Voluntary Carbon Market (VCM)
This is an unenforceable, unmandated market where companies and individuals choose to offset their emissions. For example, if Starbucks wanted to claim carbon neutrality, they could calculate the amount of their emissions and then purchase an equivalent amount of offset credits to fund reforestation efforts in Brazil. Since coffee shops are not one of the regulated industries when it comes to greenhouse gas emissions, their offsets would be purchased on the Voluntary Carbon Market. In order to affirm the efficacy of projects on the VCM, there are offset registries with various certification standards. However, there is no neutral third party holding them accountable. Many feel that their standards are far too low and, without independent accountability, their credibility is often called into question. |
There are also some significant issues with this kind of market. For one, companies trading decide what the price of carbon credits will be. This means that market forces are skewed towards more economically robust developed countries, putting developing countries at a disadvantage. Very often, however, these developing countries are not where the pollution is taking place, but rather where nature is being protected. Additionally, as the name suggests, it is all voluntary, so companies can choose to buy into it or not, which in turn affects the price. When there is a high supply of credits but a low demand, the price is lower than it should be. The voluntary carbon market is also unregulated. Since the polluters are setting the standard, they are essentially buying a cheap license to pollute.
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Type 2: The Compliance Market
This market generally functions as a cap and trade system, whereby states or countries limit, or cap, the amount a sector or company can emit. Companies are allocated a specific level of permissible emissions. They then must keep within that limit or, if their emissions exceed the permit limit, are obligated to purchase additional permits or else face penalties. Companies that are able to reduce their emissions can similarly sell their permits. This creates an incentive to lower emissions. The state also regularly reduces the cap, forcing companies to innovate, because polluting then becomes more and more expensive. One major benefit of this kind of system is that it sets concrete emissions reductions targets. Governments determine exactly how much can be polluted and companies are required to uphold those targets. |
EU Carbon Market - A Successful Compliance Market Example
This graph shows us the past and planned emissions caps within the EU-ETS in million metric tonnes. We can see that it decreases gradually year after year, with the goal of 60% reduction by 2030.
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The European Emissions Trading Scheme (EU-ETS), founded in 2005, was the first emissions trading system in the world and is the second largest to date. It covers over 11,000 facilities, power plants, and even flights within Europe that together are responsible for nearly half of the continent’s greenhouse gas emissions. The EU-ETS sets a limit on emissions that decreases by 2.2% every year, amounting to an annual reduction of 48 million tonnes of CO2e! The EU-ETS functions as a compliance market and permits are tradable. Facilities or companies that reduce their emissions can sell unused permits and, likewise, those that need additional permits can buy them.
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Why it's not so simple
About ⅔ of the world’s largest companies currently have net-zero targets in the books, yet only 4% of them follow the UN’s Emissions Reduction Criteria, which includes clear conditions for offset use. This means that major companies are touting their commitment to sustainability without needing to do too much about it.
There is a big difference between reducing emissions by 90% and offsetting the rest and reducing emissions by 10% while offsetting 90%. These major corporations don’t want to change their production models, as that would affect their profit margins. So, rather than working to reduce their emissions, carbon offsetting gives polluters the ability to keep polluting in one place while paying to reduce emissions somewhere else. Essentially, they are buying the right to pollute!
Although reforestation, peatland rewetting, and solar energy have environmental benefits, most carbon offsets don't reliably reduce emissions. It's extremely hard, if not impossible, to accurately measure how much carbon is saved or emissions are avoided. There's no regulation to ensure that offsets are effective, permanent, or truly reduce emissions as they claim. Additionally, many offset projects take a long time to have an impact. Trees take years to grow, wind and solar farms can take a long time to be approved and built, and peatlands can take decades to start storing carbon again. This makes it difficult to predict the true effect of a project on greenhouse gas emissions.
Moreover, a recent study found that many companies bought offsets for projects that would have happened anyway, without making any effort to reduce their own emissions. This actually led to a significant increase in global CO2 emissions.
There is a big difference between reducing emissions by 90% and offsetting the rest and reducing emissions by 10% while offsetting 90%. These major corporations don’t want to change their production models, as that would affect their profit margins. So, rather than working to reduce their emissions, carbon offsetting gives polluters the ability to keep polluting in one place while paying to reduce emissions somewhere else. Essentially, they are buying the right to pollute!
Although reforestation, peatland rewetting, and solar energy have environmental benefits, most carbon offsets don't reliably reduce emissions. It's extremely hard, if not impossible, to accurately measure how much carbon is saved or emissions are avoided. There's no regulation to ensure that offsets are effective, permanent, or truly reduce emissions as they claim. Additionally, many offset projects take a long time to have an impact. Trees take years to grow, wind and solar farms can take a long time to be approved and built, and peatlands can take decades to start storing carbon again. This makes it difficult to predict the true effect of a project on greenhouse gas emissions.
Moreover, a recent study found that many companies bought offsets for projects that would have happened anyway, without making any effort to reduce their own emissions. This actually led to a significant increase in global CO2 emissions.
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Additionally, offset programs that plant or protect trees aren’t a very reliable source as climate change increases the risk and severity of forest fires. In 2020, 619 km2 (239miles2) of California forests that were part of an offset program burned down due to wildfires, putting all that captured carbon right back into the atmosphere.
Another risk is that very often carbon offset programs such as hydropower plants displace local and indigenous communities, taking away their resources and disrupting their way of life. Because of the nature of them, the programs also don’t reduce emissions at the source, so they continue to impact communities and the wider environment |
Global carbon emissions are now 182 times higher than pre-industrialization. Emissions reductions that occur through the carbon market are nowhere near enough needed to reach 1.5°C targets and there isn’t enough room on the planet to grow enough trees to absorb all of that carbon dioxide. Studies have shown that we need to keep about 60% of oil and gas and 90% of coal reserves in the ground to keep to 1.5°C warming, which isn’t going to happen without major, fundamental changes to how society produces and consumes. Buying offsets isn’t going to get us there; they rely too heavily on the idea of removing carbon, rather than simply preventing emissions at the source. Rather than using a cup to empty an overflowing bathtub, it's a much better long-term solution to simply turn off the tap.
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What Can Companies Do?
The biggest and most important thing for companies to do is make great efforts to reduce their overall impact. Whether that is by finding new and innovative ways to change their production methods or changing suppliers, if companies are serious about making a positive environmental impact, they must concentrate on reducing their overall emissions, rather than simply buying their way out of it. Offsetting must be viewed as a supplementary step taken, not the primary action.
Where emissions can’t be reduced, it’s best for companies to then support trusted environmental organizations with real, proven impact. For example, rather than purchase offsets, a company could join 1% for the Planet, donating 1% of their revenue to environmental causes. Rather than throwing money at carbon credits to plant trees, supporting an organization working on, say, ecosystem restoration is a much more impactful way to offset emissions that can’t be reduced in other ways. |
Photo: Sam Hill
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What can we do as individuals?
Like with companies, offsetting should be seen as a bonus, or an extra step after first working to reduce your impact. Most airline offsets’ impacts are wildly overstated at best, and intentionally misleading at worst. Just a few years ago, RyanAir’s program offering customers the chance to purchase €2 offsets for their flights was found to lack transparency and effectiveness, resulting, in the end, in emissions reductions of just 0.01%! Where possible, choosing local or train travel is a great first step. When flying, choosing direct flights or a more extended trip, rather than just a couple of days, is another way to reduce, even by a little, the impact of that flight. Instead of buying credits that often have highly inflated environmental impacts each time you do fly, finding an environmental organization to donate to would be much more impactful. Perhaps there is a local organization working to protect marshlands from being destroyed by developers or one endeavoring to restore a previously degraded forest to a healthy state. Supporting organizations that you know and trust are doing good work is, ultimately, going to be much more impactful than purchasing vague credits to plant a few trees. |
Curious to Learn More?
For more, check out John Oliver's segment about Carbon Offsets on Last Week Tonight here>>>
Next month, we are diving into the environmental impact of our diets and why what we put on our plates might just be the most important decision we make in a day to save our planet!
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