Carbon Offsets are a Hot Mess, and That's a Huge Problem

Carbon offsets are having a bad week, which is bad news for the many companies that are relying on offsets to hit their climate goals. Not sure what an offset is? You are not alone, and I’ll try to help with that. But, first, check out this week’s headlines about offsets:

• The Climate Solution Actually Adding Millions of Tons of CO2 Into the Atmosphere (ProPublica/MIT Technology Review)

• Top airlines’ promise to offset flights rely on ‘phantom credits’ (Greenpeace)

What is a carbon offset?

What’s a carbon offset? Basically, it’s a payment to someone else who is offsetting your carbon emissions. Are you responsible for emitting 1 ton of CO2 into the atmosphere? Pay someone else to take 1 ton of CO2 out of the atmosphere. Theoretically, the total amount of CO2 in the atmosphere is right back where it started.

Conceptually, offsets are elegant. Transitioning to a carbon-free economy is hard. Offsets should make it easier. Hard is asking airlines to spend a fortune to transition airplanes to non-carbon-based fuels. Easier is letting airlines continue to use carbon-based fuels while paying others to remove an equal amount of carbon from the atmosphere.

Offsets are a mess

In practice, offsets are a mess. Because there’s no real consensus on what constitutes an offset. Which of these would you consider an offset?

1. Paying another company to suck CO2 out of the atmosphere.

2. Paying another company to use renewable energy, rather than carbon-based fuels.

3. Paying another company to emit less CO2 than they are projected to emit.

4. Paying another company to capture CO2 as it leaves its smokestack.

5. Paying an organization to plant trees.

6. Paying a land owner not to cut down trees.

7. Paying a farmer to use practices that reduce the amount of CO2 released by soil.

Unsurprisingly, different people get to different answers. Discussions about what counts as an offset typically wind up revolving around the concept of “additionality.” This concept focuses on the answer to a really hard question: what would have happened if you had not paid for the offset? If you had not paid the land owner, would s/he have cut down the forest? 

If s/he would have cut it down in the absence of a payment, congratulations — you bought an offset that counts. A key problem, obviously, is that it is difficult to know what would have happened in a parallel universe where you didn’t take action. As a friend of mine likes to say, “You don’t get to walk the other path.”

And, once you get past the conceptual problems with offsets, it gets even messier. How do you verify, initially and in an on-going way, that the offsetting party is doing what they say they’re doing? How do you measure the impact? How do you ensure that the offset isn’t being sold to two different parties?

Cleaning up the mess

A lot of energy is going into cleaning up this mess. There are efforts to get alignment on standards. There are organizations that certify and even rate offsets. But it doesn’t feel like we’re getting much closer to solving the offset problem.

There’s a lot at stake. Many companies (and crypto projects!) are using offsets to get to “climate neutral” or “carbon neutral” or “net zero.” In so doing, they’re putting off the harder work of reducing their energy consumption and/or switching to renewable energy. If they’re paying for offsets that aren’t significantly reducing the amount of CO2 in the atmosphere, they’re fooling themselves and their customers into believing that they’re not contributing to climate change.

Meanwhile, there are many companies that could be supporting needle-moving carbon reduction efforts but that are afraid to jump into a murky market.

In the absence of government intervention, my hunch is that we’re going to see the market put a premium on activities that are viewed as being above reproach — and that can most easily be measured. Put another way, companies will want to pay for things that are easy and that their customers will definitely give them credit for:

• A company will pay for carbon that is captured and permanently stored (#1 and probably #5 in the quiz above). This will be viewed as a credible offset to a company’s carbon balance sheet — the total amount of carbon that a company has been responsible for emitting over its lifetime.

• A company will pay for the renewable attribute of clean energy that is consumed by someone else (#2 in the quiz). As long as this “renewable energy credit” is not re-sold, this will be viewed as a credible reduction of a company’s current carbon emissions.

Good enough is good enough

This won’t be perfect. Money will flow to companies that would be producing or consuming renewable energy even in the absence of offset payments (violating the “additionality” principle). 

And if, for example, we don’t treat the prevention of deforestation as an offset, money may stop flowing toward the prevention of deforestation. Indeed, virtually every activity described in the quiz is good for the planet. But I think we’ll need to find ways to encourage these activities without calling them carbon offsets and implying that we can measure their impact precisely.

Meanwhile, a market convergence around activities that can be easily measured and verified will unlock a lot of money that is currently sitting on the sidelines. And this money will flow in some good, if not perfect, directions: reducing emissions, scaling up renewables, and actually removing CO2 from the atmosphere.

(Many thanks to Ali Thorne for forcing me to think hard about these issues. Opinions and mistakes are mine, not hers!)

An umpire makes a call on whether an offset counts.