Carbon Offsets: Can We Buy Our Way Out of Climate Change?

Carbon offsets have been around for decades. Proponents of carbon offsets have labelled them as essential to see climate finance directed towards regions and communities that need it the most. However, investigations into the validity and effectiveness of carbon offsets have painted a different picture and noted that many carbon offset projects do not make any difference to carbon emissions. This has somewhat justified critics' accusations that offsets are nothing more than greenwashing tools businesses and governments use. In general, carbon offsets face an uncertain future, and trust in offsets is somewhat declining after a booming interest in the past decade.

Transcript

0:09

Carbon offsets have been around for decades and have developed over time. Initially, they were primarily targeted and purchased by environmentally conscious individuals who cared about doing their part to lessen their carbon footprint. Recently, however, carbon offsets are now one of the most popular ways for big businesses and governments to reduce their carbon emissions and contribute to their carbon neutrality goals. The entire situation begs the question: Can we really buy our way out of climate change?

0:44

In today’s episode, we’re looking at carbon offsets – their promises, their failures, and their challenges in becoming viable ways for government and businesses alike to take climate action. We look at offset projects from the Amazon to Indonesia, not just to compare their differences but to see if they could make any difference at all in the fight against climate change.

1:12

While the technical details of carbon offsets remain complex, the idea can be broken down into several overarching aspects. Essentially, carbon offsets are like paying someone else to remove carbon dioxide out of the atmosphere for you. A good illustration of this would be a polluting business to purchase clean cookstoves in a developing country, which would reduce a community’s need for wood, which would in turn reduce deforestation. The polluting company could then go on to claim a carbon reduction via their offsets in their reporting. Or, one of the most popular options in recent years – paying someone to restore or protect tropical forests or mangroves along the coastlines in faraway places.

1:56

The supporters of climate offsetting say that since climate change is a global problem, the location of emissions removal doesn’t actually matter. From a money perspective, this would mean it would make sense to remove those emissions where it would be the cheapest. More often than not, this is in developing countries. Much of these carbon offsets are then purchased by companies or governments through what are known as brokers that then dish out the funds to various offsetting projects. In theory, if the offsets are successful, they not only reduce carbon emissions but also help communities in developing countries improve their living standards and potentially protect unique ecosystems and wildlife.

2:36

For example, industries like steel, cement, and aviation are part of the hard-to-decarbonize sectors. In other words, they depend on fossil fuels more than other industries and may find it difficult to decarbonize in the short term. For them, carbon offsetting looks like a golden ticket to reducing their carbon emissions now, as it could take years and vast sums of money to get those industries off fossil fuels. For example, instead of waiting, those hard-to-decarbonize sectors could simply buy offsets from a broker that would then manage an offsetting project for them. If this were an airline, the company could now claim a reduction in its overall emissions profile without actually changing anything in its business practice or infrastructure. 

3:25

But it’s not just hard-to-decarbonize sectors signing up for offsets. Companies like Disney, Gucci, and oil and gas companies like Shell, are splurging hundreds of millions of dollars on offsets. For example, Shell set aside 450 million dollars for offsets in 2023. The entire industry, according to the Guardian, is now worth two billion dollars.

3:53

So, on paper, carbon offsets offer an extensive platter not to only combat climate change but also to protect forests and to send money to communities and countries that need it the most. However, in practice, carbon offsets look very different and have come under intensive scrutiny, with some critics suggesting that offsets simply amount to nothing more than what they call greenwashing. As carbon offsets grow more popular, it has drawn attention to a series of drawbacks for the mechanism questioning their effectiveness and raising doubts about the credibility of many schemes the big businesses and governments are buying into.

4:33

One of the largest problems with carbon offsetting falls on the most popular offset type, which is preventing deforestation or restoring previously forested land. For example, in 2019, a ProPublica investigation into offsetting programs in general and specifically in the Amazon rainforest found that many of the forest-related offset projects were a case study of failure after failure. The article said that many of the forest preservation efforts that were meant to balance out the emissions never even began or lasted. The investigation showed that this was not a recent phenomenon. Rather, it had been spanning for decades in multiple countries. In a similar fashion, earlier this year, the Guardian investigated one of the largest carbon offset brokers called Vera, about their claims on carbon reductions on offsets purchased by huge companies like BP, Shell, and Gucci. These projects financed by those companies, in effect, have led them to claim that their products or services are carbon neutral or have a lower carbon intensity. In other words, companies and consumers can continue on with carbon-emitting activities with a guilt-free ticket.

5:49

In reality, things aren’t that simple. The Guardian’s investigation revealed that a significant majority of the offsets sold by Vera had no effect on carbon emissions at all. They said that over 90% were essentially worthless. In other words, the carbon meant to be neutralized never was. The investigation showed that only a handful of rainforest projects actually showed evidence of deforestation reductions. To make matters worse, they found that 94% of the offsets had no climate benefit. The Vera offset scandal can be technical, but much of it can be broken down by thinking about it like this. Using Vera’s rules, any organization can set up and run a deforestation prevention project and produce their own forecast on how many trees they’ll prevent from being cut down. This is then assessed and approved by a Vera-approved third party. Once accepted, companies can purchase these offsets from Vera to offset their emissions and apply them to their carbon reduction goals. 

7:02

Thales West is a lead author of one of the studies cited by the Guardian on Vera’s offset claims. He said that he wants the system to work to protect rainforests. However, he cautioned that we need to acknowledge the scale of the problems with the current system. Another author from the analysis quoted in the Guardian investigation, Julia Jones, said that if we don’t learn from the failures of the last decade or so, then there’s a very large risk that investors, private individuals, and others will move away from any kind of willingness to pay to avoid tropical deforestation and that would be a disaster. She emphasized that money is needed to fund the emissions reductions from forest conservation. In response, Vera disputed these claims suggesting that their methodologies to the measurements were different but robust. However, according to The Economist, companies purchasing offsets are now growing nervous and are having second thoughts on offset purchases that have seen growth flatline on the back of huge growth in the previous years.

8:09

Across the globe, in Australia, the offset debate has taken a different turn and ensued around the idea of allowing coal, oil, and gas companies to purchase offsets to comply with Australia’s carbon reduction goals. According to the Sydney Morning Herald, the costs of buying these assets would amount to 0.1% of big mining and gas companies’ profits. This would effectively allow companies to emit carbon dioxide without investing in new technology or changing their business models and practices. For example, the Australian gas company, Woodside, would be required to pay between 2.6 and 4.4 million Australian dollars annually to comply with emissions reductions for its gas business in the state of Western Australia. The Green Party politician, Adam Bandt, said it was akin to just coins down the back of the couch for big fossil fuel companies that would effectively be buying their way out of climate action.

9:14 

So can offsets work? Historically, offsets don’t have a good track record of doing much at all. Yet, on paper, offsets have the potential to make positive changes and actually reduce carbon emissions. But given the context and experience, do they have a place in climate action? If so, they must follow four fundamental principles for them to be successful and offer both climate and development benefits.

9:42

The first one of these is known as additionality. In essence, does buying the offset lead to a reduction in carbon emissions that wouldn’t otherwise happen? For example, funding a renewable energy project that is already being built would make it easier for the project’s finances, but it would likely be built without your input in the first place. However, by paying someone not to cut down a forest will start an entirely new renewable energy project. You have, in effect, stopped releasing carbon dioxide by keeping the trees intact or providing clean energy. The problem is figuring out if a project actually is additional. This needs thorough transparency and accounting by multiple stakeholders, including independent scientists, auditors, and, of course, due diligence on the part of the funder to ensure that their money is actually leading to genuine carbon reductions.  

10:37

The second principle is permanence. As the word suggests, permanence is to ensure that the projects are permanent. If carbon emissions are only sequestered for a handful of years, it doesn’t really make a difference to overall climate change. For example, is the project’s financing a strong enough alternative to other profit-motivated activities for local communities? Several offset projects related to forest preservation have been undone due to this. For many rural residents in developing countries, forests would otherwise be cut down for fuel and to create pastures for livestock or crops. Protection only works if the funding of the project can create a reliable alternative.

11:19

The third principle is double counting. If the carbon emissions of offsets are to be credible, they should only be counted once, not repeatedly sold or contributing to other companies’ carbon reduction ambitions. This is harder than it sounds and the technical details of what accounts for double counting have been an ongoing debate for years. However, for offsets to make a real difference, an exclusive claim on those offsets must be ensured to the purchaser. In 2022, for example, Indonesia suspended the sale of carbon offsets related to rainforests and cited double counting as the main issue.

11:56

The fourth and final principle revolves around the issue of leakage. This isn’t just related to carbon leaking into the atmosphere from potential carbon offset sites but also incorporates other themes. For example, if a carbon offset project is designed to protect one area of the forest that leads to more deforestation in another area, the offset benefits would be null or negative. To prevent leakage from happening, once again transparency, accountability, accounting and audits must be held in high regard. Another issue with the potential leakages is if a carbon offset project causes harm in other areas of life. In India, for example, the Dhule wind farm, an offset project in Pune, Maharashtra, is embroiled in controversy after the Adivasi people of the region protested on the grounds of forced land acquisition by energy developers. The wind farm actually displaced farmers and cut down forested land to sell carbon offsets.

13:02

Carbon offsets are controversial. There’s no doubt about that. The lack of trust in how the system works after decades is seemingly justified. However, that isn’t to say that all carbon offset projects are a waste of time and money. Many offsetting projects with rigorous rules, accounting, and science-backed claims do exist and are creating a positive difference in improving the lives of communities in developing countries worldwide. An example of this is an offsetting project by Cool Effect, an organization that supports one of the largest carbon offset projects in the world. The project is home to 150,000 hectares of tropical forest and peatland forest in Indonesia, which plays a vital role in keeping carbon dioxide out of the atmosphere. The project has also integrated 34 local villages and employs 400 people to protect forests and plant trees, along with training and micro-finance loans to transition communities from activities that lead to deforestation.

14:10

Yet, despite projects like the one in Indonesia, there’s still a considerable gap between carbon offsetting projects that work and those that don’t. As things stand, the greenwashing accusations from critics is largely justified based on the documented failures of offset projects worldwide and from dozens of fossil fuel companies attempting to buy offsets without having an intention to actually invest in new technologies and transition away from polluting activities. To rebuild trust in offsets, rules and regulations must be tightened up for offsets to have a future that isn’t associated with greenwashing and is free from manipulation by businesses or governments. Indeed, protection of many of the globe’s remaining tropical rainforests may depend on financing that comes in the form of offsets, but only the ones that work.