Carbon Offsets: Still Too Good to Be True

If it looks like a scam, acts like a scam, and smells like a scam…

The concept for carbon offsets sounded great. Forestry and logging companies would promise to not cut down trees, so those trees would continue to remove carbon from the air. Each ton of carbon the trees removed would earn one carbon offset, which would be bought by large carbon emitters like airlines and transportation companies. Those offsets would ‘negate’ some of the carbon the companies were spewing so they could claim to be reducing emissions and going green.

What could go wrong?

For several years, people who have been watching the offset market have seen exactly what is going wrong, as the majority of offsets do not meet the actual requirements. These junk offsets are making the forestry holding companies rich and enabling airlines and other industries to greenwash their continued and increasing carbon emissions.

1. Offset credits are only supposed to be generated by actions that would have been taken if the company had not gotten the credits. If there is a forest of 200,000 acres, and 50,000 would have been cut down in a year if not for carbon offset credits, the company is only supposed to generate credits from those 50,000 acres. But many are generating credits from the entire 200,000 acres, even though those trees were not in danger.
2. Similarly, companies count trees that are on steep slopes or outcroppings, which would have been too expensive to reach and remove. In the carbon offset game, these, too, are now “saved” by the generosity of greenwashing companies.
3. In many cases, the benefits are temporary. The Integrity Council for the Voluntary Carbon Market (ICVCM), an organization that has created a global standard for high-quality carbon credits, only requires projects to reduce or store the carbon for 40 years.
4. Companies are supposed to do everything they can to reduce carbon emissions, and purchase offsets for only the carbon they could not otherwise abate. Rather, the companies just purchase offsets without changing their operations.

This is not a new issue. In 2021, The Guardian reported that, “Projects estimate the emissions they have prevented by predicting how much deforestation and land clearing would have occurred without them. The reductions are then sold on as credits. We found their predictions were often inconsistent with previous levels of deforestation in the area and in some cases, the threat to the trees may have been overstated.

“Beyond that, there are concerns about the inherent problem of looking into the future and predicting which trees would and would not have been felled, and of proving additionality – that the project itself made a difference to the outcome – which have dogged the offset system from its outset.”

A year later, the issue persisted, and in January 2023, The Guardian wrote that “more than 90 percent of rainforest carbon offsets” approved by the certifier used by Disney, Shell, and Gucci, among others, were worthless and could make climate change worse. Only a handful of the rainforest projects showed evidence of reductions in deforestation, and a whopping 94 percent of the credits had no benefit. In fact, the report continues, the threat to forests had been overstated 400 percent, on average, for the company’s projects.

Despite years of questions on the efficacy or validity of offsets, Microsoft just signed a deal to purchase 500,000 carbon credits from Occidental. Emissions at Microsoft have risen by almost a third since 2019, and the company has pledged to be carbon negative by 2030. Occidental will remove the carbon from the atmosphere and store it underground via direct air capture (DAC), and sell the offsets to Microsoft “more cheaply” than the $1,000/credit market rate. Occidental has signed a similar deal with Amazon for 250,000 credits over 10 years.

Occidental isn’t the only big oil and gas company selling carbon credits. A few years ago, BP purchased Finite Carbon, which is, according to the Financial Times, responsible for more than one-quarter of the United States’ total carbon credits. But, according to third parties that analyzed Finite Carbon’s credits, they included trees that were never in danger in already logged areas. One of the reviewing agencies determined that 79 percent of Finite Carbon’s credits for the projects analyzed should not have been issued.

Currently, the carbon market is valued at between $2 and $3 billion, a small fraction of the $1.5 trillion it is expected to reach by 2050.

How bad is it?

The hits to the authenticity of carbon capture credits just keep coming.

In August, the ICVCM determined that its Core Carbon Principles label can’t be used by one-third of the market, according to Bloomberg. This move will affect nearly 236 million credits that have been downgraded. ICVCM had developed their Core Carbon Principles (CCP) to identify high-quality carbon credits that create real, verifiable climate impact. The CCP set a global benchmark in the voluntary carbon market to ensure a consistent level of quality and accelerate progress toward the 1.5°C target.

ICVCM Core Carbon Principles are Governance, which includes tracking, transparency, and robust third-party validation; Emissions Impact, covering additionality, permanence, robust quantification, and no double counting; and Sustainable Development, for sustainable development benefits and safeguards and contribution to net zero transition. Additionality goes back to a situation we described earlier, requiring that the GHG emissions reductions or removals are additional, as they would not have occurred in the absence of the incentive created by carbon credit revenues.

This is but one sign of attempts to clean up the renewable credit market. As Bloomberg noted, “in most countries, renewables already represent a competitive alternative to fossil fuels, meaning any additional revenue from carbon credits is unlikely to steer decisions on whether to build or expand green energy capacity. Instead, extra income has tended to go to developers.”

Changes Coming

Ideally, carbon offsets would only be purchased after a company has done everything in its power to lower its emissions in other ways. As many companies have not followed this guideline, and with the abundance of junk credits in the market, carbon offset credits are decried by environmentalists as an effort in greenwashing.

Many of the large companies that were named in The Guardian’s January 2023 article have now moved away from purchasing carbon credits. In 2023 the carbon offset market shrank more than 61 percent and prices tumbled.

Earlier this year, the Departments of Treasury, Energy, and Agriculture released the Voluntary Carbon Markets Joint Policy Statement, because “researchers, journalists, and other observers have found that several popular crediting methodologies and activities that rely on them have not produced the decarbonization outcomes they claim … Put simply, stakeholders must be certain that one credit truly represents one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere, beyond what would have otherwise occurred.”

The “Principles for Responsible Participation in Voluntary Carbon Markets (VCMs) include the following:

1. Carbon credits should meet credible atmospheric integrity standards and represent real decarbonization. That includes that the credits are: additional, unique, real and quantifiable, validated and verified, provide permanence of GHG benefits, and are set from robust baseline
   
   Credit certification standards bodies must effectively govern their standards to ensure transparency, accountability, and responsiveness; operate or use a registry to transparently track credits from issuance to cancellation; ensure robust MMRV of emissions reductions; have procedures to address double counting; require publicly available and accessible information on crediting activities; ensure verification of reported reductions and removals; ensure their governance procedures address conflicts of interest; and support a robust enabling environment for equitable participation.
2. Credit-generating activities should avoid environmental and social harm and support co-benefits and transparent and inclusive benefits-sharing.
3. Corporate buyers that use credits should prioritize measurable emissions reductions within their own value chains. Accordingly, credit users should use VCMs to complement measurable within-value-chain emissions reductions as part of their net-zero strategies.
4. Credit users should publicly disclose the nature of purchased and retired credits.
5. Public claims by credit users should accurately reflect the climate impact of retired credits and should only rely on credits that meet high integrity standards.
6. Market Participants should contribute to efforts that improve market integrity.
7. Policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs.

The operative word in this policy is, however, voluntary. Industries and companies will still be able to purchase their way out of clean energy regulations. Somehow, as with the “clean heat” carbon fees that states are looking to impose on liquid fuel dealers and their customers, the costs for all this will end up on the consumer.

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