The Fatal Design Flaw in Most Carbon Offsets

For starters, offsetting your entire carbon footprint shouldn't be as cheap as your Netflix subscription.

As countries and businesses around the world make ambitious net zero commitments, carbon offsets have been getting more and more attention as a means to helping achieve that target. Before I get into my gripes with carbon offsets, let’s make sure we’re talking about the same thing. Offsets projects – activities intended to compensate for the emission of carbon dioxide elsewhere  - are not all created equal (here’s a useful breakdown). I believe that renewable energy and reforestation offset projects – which are by far the most popular type of investment for those seeking to offset their greenhouse gas emissions – are not well suited to help achieve net zero. And while most experts point to the quality and integrity challenges of many of these projects, I believe the problem with these particular types of offsets goes much deeper. 

Examining the offset market is important and timely given how rapidly it is expected to grow. In January, the Taskforce on Scaling Voluntary Carbon Markets released a final blueprint for creating a large-scale carbon credit trading market. They projected the carbon offset market will grow from $300M in 2019 to as much as $50B in 2030, representing a total demand of 1.5B tons of carbon dioxide – a 15x increase from the current demand of 100M tons. 

Many renewable energy projects would have gotten off the ground without the proceeds from offset credits

This staggering growth is making people nervous. Some excellent reporting by ProPublica, Bloomberg, and others have highlighted issues with the integrity and quality of renewable energy and reforestation carbon offset projects around the globe. Reports have identified challenges with measuring project impact, additionality (many offset activities would have occurred in the absence of offset credits), and leakage (some offsetting activities result in new emissions outside the boundaries of the project). These challenges are serious and widespread – an EU study reported that up to 85% of offset projects have not demonstrated stated effectiveness. Hopefully, better due diligence, stronger verification protocols, new regulations, and monitoring technologies will address some of these implementation issues over time. 

The more fundamental problem here is that these ubiquitous renewable energy and reforestation carbon offset projects – even if implemented perfectly – are not designed to address the long-term challenge of getting to (and staying at) net zero.

The idea of buying and trading credits to offset emissions came to life out of the Kyoto Protocol in 1997, and voluntary carbon offset markets developed soon after. Back then, net zero — a target of completely negating greenhouse gases produced by human activity — was not part of our lexicon and was not really the original ambition of carbon offsets. So, it’s no wonder that carbon offsets that haven’t changed significantly in 25 years will fall short. Here’s why renewable energy and forestry-based offsets are not going to get us to net zero:

First, they are not permanently removing carbon from the atmosphere. It’s important to distinguish between reduction and removal. Renewable energy projects reduce emissions, but they don’t actually remove existing emissions. If you emit one ton of carbon and then buy an offset associated with a renewable energy project, you may have prevented an additional ton from being emitted, but the ton you emitted is still floating around in the atmosphere. Forestry projects, on the other hand, may actually remove carbon from the atmosphere, but that removal is temporary. By and large, forestry projects cannot credibly demonstrate that carbon has been permanently removed. The carbon absorbed by trees is released back into the atmosphere when trees decay, die, burn, or are chopped down. Now, I’m all for protecting forests and planting trees, but if climate change is the defining problem of this century, we need to shift to solutions that remove and store carbon away for at least hundreds of years.

People are less likely to reduce their emissions if they believe they can negate most of their carbon footprint for roughly the cost of a Netflix subscription.

Second, they are not priced to spur individual, corporate, or systemic change. Activists are right when they say we need to focus on reducing our footprint before turning to offsets. However, people are less likely to reduce their emissions if they believe they can negate most of their carbon footprint for roughly the cost of a Netflix subscription. Cheap, plentiful carbon offsets make it easy for people, companies, and governments to continue business as usual. And considering most renewable energy or reforestation offset projects do not work very well, that could have some very serious consequences. An offset project that stores away carbon for the long haul — a permanent, durable offset — should cost more. How much more? It’s hard to say, but Carbon Plan has developed a calculator to show how much a temporary carbon removal project should cost to achieve permanent climate benefits (Spoiler: it can vary but it’s significantly more). If offsets cost more, we would use them strategically on targeted, permanent carbon removal solutions while investing more time and money on behaviors, technologies, and policies that actually reduce long-term emissions. 

Finally, they do not fund breakthrough solutions that are needed to tackle the hardest-to-avoid carbon emissions. Fuel combustion from heavy industry (like cement and steel production) make up 10% of global emissions, far outpacing emissions from all the cars in the world. Another 5% comes from aviation and international shipping. Eliminating carbon emissions from these sectors are more complex and less economical than the transition to renewable energy or electric vehicles that is currently underway. Indeed, as solar and wind becomes increasingly cost-effective and enjoys growing political support, many renewable energy projects will be able to launch without offset sales. Funds from offset purchases could instead be directed to nascent, breakthrough technologies that will do the daunting work of drawing down emissions from hard-to-decarbonize sectors. Many of these technologies are expensive to deploy and are at the earliest stages of development. They will remain in that stage without predictable funding and volume at scale. 

Most offsets do nothing to help decarbonize heavy industry

So, how do we solve these problems? That’s a difficult question, and there are no easy answers. I plan to explore potential solutions in a future post, but at a high level I recommend two key changes:

1. Given the rapid predicted growth in carbon offsets, we know renewable energy and forestry-based offset projects will likely continue to attract a lot of investment. We need to address the myriad of implementation, integrity, and quality challenges that plague the offset market before these challenges become too big to clean up. This letter sent to the Task Force on Scaling Voluntary Carbon Markets has an insightful take on how to improve existing carbon markets before scaling them up. Their recommendations will also improve offsets based on permanent carbon removal solutions.

2. Governments, companies, and individuals need to shift a larger share of their portfolio of offset purchases to permanent carbon removal and storage solutions. 

   • Oxford University offers a useful framework on how to start making that transition. Stripe and Shopify’s recent carbon removal purchases included permanent solutions such as direct air capture, demonstrating how to make this shift in practice. These companies went beyond just trying to counter their carbon footprint at bargain-basement prices. Instead, they directly funded durable nature and technology-based carbon removal projects that could have a catalytic, long-term impact on getting to net zero. 

   • This kind of out-of-the-box thinking helps innovators working on solutions like direct air capture, decarbonizing cement, or creating zero-carbon aviation fuel by providing them predictable, long-term funding. Best of all, that support will enable companies to keep improving their technologies, meaningfully bringing down costs in the process. Funds could also benefit technologies that recycle carbon instead of permanently storing it away, especially if they demonstrate the potential to draw down emissions from hard-to-decarbonize sectors (like aviation) where we have made little to no progress to date.

Offsets are going to gain popularity and grow significantly in the decades ahead. Individuals, companies, and governments need to look beyond traditional carbon offsets and support projects that permanently remove carbon dioxide and catalyze industries that will actually solve the most intractable challenges to climate change. Yes, that will require more money and creativity than our current approaches to offsetting— at least initially — but it is crucial if we are serious about getting to net zero.