The Good and the Bad in the Offset Market

The Good and the Bad in the Offset Market

For companies aiming to hit net-zero emissions, carbon offsets are often a part of reaching that target. In theory, purchasing offsets balances emissions by storing an equal amount of carbon emitted in a 1:1 ratio. These “stores” are generally achieved through projects like planting trees or building wind farms. However, according to reporting by the Financial Times, three projects that once qualified as offsets actually injected carbon dioxide into the ground to access more oil. Purchasers included Daimler trucks, eBay, and a US energy company. Now, with a new rule in place, these projects can no longer issue credits.

“Offsetting emissions with these credits is complete nonsense,” said Gilles Dufrasne, policy officer at Carbon Market Watch. “If the captured carbon enables an increase in oil extraction, then obviously this must be part of the calculation, and would likely negate any supposed climate benefits.”

The Economist: How do carbon markets work?, October 1, 2021.

Why This Matters

The carbon offset market is a voluntary market for companies who choose to buy credits. Last year, it hit $1 billion. But while being huge, it’s not well-defined. If a fossil fuel project was able to count as an offset, the system is far from doing what it promises. And with greenhouse gas emissions at record highs, there’s no time to waste. Of course, not generating carbon emissions is always more effective than emitting and purchasing an offset, offsets are necessary for industries (like steelmaking) where it’s unlikely emissions can ever truly reach zero.

DW: Why carbon offsets are worse than you think, January 21, 2022.

CNBC: Why Tracking Carbon Emissions Is Suddenly A Billion Dollar Opportunity, September 14, 2021.

What Makes A Good Carbon Offset?

Drilling for oil that would otherwise be inaccessible certainly isn’t a good offset. But what would make for a decent one? Vox laid out four elements in a 2020 story on the topic:

Additionality: This means asking if the offset adds to carbon removal from the atmosphere. For example, would the trees have been planted or the wind farm built without the money from the offset purchase?

Permanence: The offset mustn’t be temporary. If the offset is a protected or restored forest, clearing it a few years later should not be an option a few years later.

No Double-counting: Each offset counts once per purchase for a company or nation.

No Leakage: An offset in one place shouldn't lead to an increase in carbon emissions elsewhere. For example, protecting one forest shouldn’t increase deforestation in another unprotected location nearby.

Determining if these elements are present in a particular offset isn’t always straightforward -- a dilemma at the center of why many offsets don’t deliver true climate benefits.

Bloomberg: These Trees Are Not What They Seem, April 20, 2021.

TED: Carbon Offsets - The Big Lie | David Detzler, June 16, 2021.