After years of campaigning by activists, the tide is finally turning on the idea of companies buying carbon credits to compensate for their emissions. But how exactly is carbon offsetting harmful and what’s the alternative?
The question on the audience’s lips during a recent panel discussion on carbon offsetting was, “How do I find a good project for my climate contribution?”
This question exemplifies how many companies want to take responsibility for (some of) their carbon pollution, but are disconcerted by the doubts that have been cast on ‘offsetting’ projects and the greenwashing accusations that have been levelled against companies who claim to ‘neutralise’ their emissions through the purchase of carbon credits.
Carbon offsetting was an invention of the Kyoto Protocol, a time when only wealthy, industrialised countries had an obligation to reduce emissions, and carbon markets were conceived primarily as a means to provide development finance while lowering the burden on rich countries to meet their own climate targets. On the whole, companies had not yet recognised their obligation to reduce emissions, and relatively few used the voluntary carbon markets as a tool for appearing to reduce their emissions via offsetting. In the Paris Agreement era of heightened climate urgency, developing countries also have their own emission reduction obligation, carbon markets are supposed to channel ‘climate finance’ and the ‘race to net zero’ is one in which more and more companies are encouraged to run.
In this new era, the old flaws of carbon offsetting matter in new, acute ways and call for bigger efforts than ever to establish universal rules and effective oversight. The concept that a polluter can compensate for a tonne of CO2 emitted with the purchase of a credit which represents one tonne of CO2 avoided, reduced or removed elsewhere is beset with problems. The equivalence in such tonne-for-tonne offsetting simply does not exist. In the case of credits for emission reductions, such as through avoided deforestation or support for more energy-efficient cookstoves, the methodologies entail important and often questionable assumptions. In the case of nature-based “removals”, such as through afforestation, the greatest problem is that the permanence of the removal is much lower than the length of time the CO2 which is being ‘compensated’ stays in the atmosphere, rendering the direct compensation of one with another unscientific.
Enemy of the good or opponent of the bad?
One should not make the perfect the enemy of the good, but it is a different matter altogether if the imperfect perpetuates the bad. Offsetting provides an excuse for avoiding real emission reductions and can create a dangerous mirage of ‘climate neutrality’ when emissions are actually rising. It can also lead to greater emissions once carbon is rereleased into the atmosphere from temporary stores.
In fact, offsetting helps mask low ambition, with many companies misusing carbon credits to greenwash their images. Carbon Market Watch has exposed this through numerous landmark studies: The two editions of the Corporate Climate Responsibility Monitor, which Carbon Market Watch publishes together with NewClimate Institute, show that the net zero claims of dozens of corporations are exaggerated and conceal continued high emissions. ‘Net-zero pipe dreams’ demonstrates that fossil fuels cannot claim carbon neutrality. ‘Poor tackling’ casts serious doubt on FIFA’s carbon neutrality claim for the 2022 football World Cup in Qatar. ‘Flights of fancy’ reveals the inadequate climate actions taken by eight major European airlines.
Rethinking carbon markets
Despite the questionable legacy of offsetting, there are honest ways forward for using carbon markets. The first thing we have to be clear about is that offsetting is a claim. It is what the buyer of a carbon credit does with it in its internal carbon accounting (setting it against emissions) and its communication to employees, investors, consumers and the general public. An offset is not a tradeable asset in itself. A carbon credit, which, in theory, if not always in practice, represents a tonne of CO2 avoided, reduced or removed from the atmosphere is a tradeable asset.
Why is this distinction important? Because it tells us that carbon credits can be bought for purposes other than compensating for emissions. The alternative is that carbon credits are bought as a form of climate action beyond an organisation’s value chain as an expression of its environmental responsibility rather than as a tool for absolving it of responsibility for its own emissions. Such climate contribution claims on the basis of the purchase of carbon credits hold the potential of resolving the fundamental and systemic flaws exhibited by carbon markets geared towards offsetting.
The use of carbon credits for contribution claims would, for example, open the possibility that carbon credits represent ranges of emission avoidance or reduction, rather than absolute figures, that they represent temporary removals rather than permanent ones, or even that they finance preparatory activities for future carbon removals. They could also give sustainable development benefits such as halting the loss of biodiversity much greater prominence.
Paying an honest price
Tonne-for-tonne offsetting has historically relied upon the cheapest possible carbon credits that do little to benefit the climate and represent no real pollution cost for companies. Polluters should move to money-for-tonne contributions instead, based on an internal carbon price (WWF recommends $50-250), which would encourage the purchase of higher quality carbon credits with co-benefits. The internal carbon price in turn could be proportional to companies’ revenues or profits.
Building trust
Trust in carbon markets needs to be built more than ever. There are voluntary regulatory efforts for the supply side and the demand side of the market underway – concerted efforts of carbon market stakeholders, financed largely by philanthropic money.
We also see regulatory efforts under the Paris Agreement (Article 6.4) which affect the voluntary carbon market but do not provide for its governance directly yet. Ultimately, we need a good integration of the governance system, especially since voluntary corporate climate action will increasingly become mandatory, for example, as a result of the EU’s Corporate Sustainability Due Diligence Directive currently in the legislative pipeline.
Bringing transparency to carbon markets, not least about financial flows and how much finance actually ends up with carbon projects and local communities in the Global South, will be no mean feat. Much more so given that countries like Zimbabwe, Kenya, Ghana and Thailand now claim more control of their own carbon sinks and their revenues.
So, is offsetting doing more harm than good? Offsetting based on a tonne-for-tonne, cheapest mitigation logic, does more harm than good, especially if it doesn’t respect the mitigation hierarchy of avoid-reduce-compensate. And yet carbon credits could have a role to play in the climate transition if they allow companies to channel finance to projects without claiming that this makes them “carbon neutral”. Such offsetting creates a false impression that polluting activities can continue without harming the climate or raising global temperatures, providing a licence for business as usual.
