Carbon offsets are a wildly popular and controversial way to fight climate change.
This odd mélange of companies, celebrities, cities, countries, and organizations have all made commitments to curb their contributions to climate change, if not eliminate them entirely. And they have one tactic in common: buying carbon offsets.
For companies like Amazon and Delta aiming to be carbon-neutral, offsets help provide the “net” in their “net-zero emissions” goals. And together, these buyers are fueling a multibillion-dollar market for one of the more popular, and more controversial, tactics to limit greenhouse gases.
Following a wave of global youth climate strikes, an alarming United Nations report showing that the best-case scenario for climate change is slipping out of reach, and a wave of devastating climate-linked disasters from Brazil to Australia, there’s been a spike in interest in carbon offsets. In particular, a growing number of people, fueled by peer pressure and shame, are reckoning with their emissions from air travel.
“In [late 2019], there was over a 700 percent increase in businesses, organizations, and individuals taking action using [our] travel offset tool,” said Jodi Manning, director of marketing at Cool Effect, a nonprofit that sells carbon offsets and invites travelers to “wipe away the baggage of pollution.”
The booming market for offsets falls into two broad categories: voluntary and compliance. Voluntary offsets are the ones people and companies buy at their own discretion. Compliance offsets are used to meet legally binding caps on carbon in schemes like the European Union’s Emissions Trading System.
According to Ecosystem Marketplace, the market for voluntary offsets came close to $300 million and traded almost 100 million metric tons of carbon dioxide equivalent in 2018, the latest year for which data is available. Estimates of the size of the global carbon compliance offset market range between $40 billion and $120 billion.
And the markets are likely to grow even more. Spurred by demand from customers and pressure from their own employees, more than 170 companies to date have pledged to become carbon-neutral by the middle of the century, if not sooner. These private behemoths join 77 countries — the United Kingdom, the Marshall Islands, Costa Rica, Sweden — and more than 100 cities that have set similar climate goals.
Meeting these ambitious targets will eventually require decarbonizing completely, which is tougher for some countries and companies than others. Those that currently depend on oil sales, natural gas heating, or coal-fired furnaces can nonetheless start making progress right away through buying offsets.
With a carbon offset, a business, a government, or an individual can pay someone else to cut or remove a given quantity of greenhouse gases from the atmosphere. That can take the form of buying cleaner-burning cookstoves in developing countries that reduce deforestation for firewood, or financing a wind turbine generator to displace fossil fuels on the power grid. It can also come as a credit for restoring a section of tropical forest that takes in carbon from the atmosphere.
Critically, the reduction in greenhouse gas emissions from these projects counts toward the balance of the person or government buying the offset, rather than the people installing the project or the place where it’s built. What’s more, buying offsets is something anyone can do if they have the money. And unlike policies like a carbon tax, an offset is directly connected to a specific quantity of greenhouse gas emissions, at least on paper.
Yet carbon offset projects have a long history of overpromising and underdelivering, threatening fragile progress on climate change. Some of the more established offset programs — like the United Nations’ REDD+ program or the Kyoto Protocol’s Clean Development Mechanism — have had a poor track record of meaningful reductions in emissions. Disagreements about rules around offsets also continue to derail international climate change negotiations. So there’s a lot of well-deserved skepticism around them.
But advocates say that the enormous potential of offsets to combat climate change, protect nature, and route money to the parts of the planet that need it the most shows that they need to be part of the portfolio of solutions to limit warming. Here are five of the most important things to know.
1) What is a carbon offset?
At its core, an offset is an accounting mechanism. It’s a way of balancing the scales on pollution. And offset schemes have been used successfully in the past to solve other environmental problems, like nitrogen oxide air pollution that contributes to acid rain.
But to reduce local air pollution, you need to have your offset in the vicinity of the pollution source, like a coal power plant. Otherwise, the offset won’t do anything to improve air quality. That’s not the case for human-produced greenhouse gas emissions that are changing the climate.
“Since climate change is a global problem, it doesn’t matter where you reduce emissions,” said Anja Kollmuss, a policy analyst in Zurich who studies emissions trading. “You can reduce emissions anywhere you want and if you have a limited amount of money at your disposal, it makes sense to reduce emissions where it’s cheapest and easiest to do them.”
That global potential for action is a big reason that carbon offsets are such a valuable tool to address climate change. Carbon offsets range in size from a couple tons that an individual can purchase to gigatons that national governments buy to meet their own targets. And compared to other air pollutants, carbon dioxide is being emitted on a vastly larger scale, so both the demand and the opportunities for offsets are also greater.
But rather than waiting years for all the financing and infrastructure to fall into place to install new zero-emissions hardware or technology, the steel mill could start mitigating its emissions now by buying offsets. That could take the form of buying credits from a broker, who in turn channels money to people restoring a degraded coastal mangrove forest in Indonesia, for example. An acre of mangrove trees can store five to 10 times as much carbon as an acre of rainforest, and restoring huge swaths of these regions is much cheaper than upgrading industrial facilities.
The steel mill would then measure its greenhouse gas footprint and purchase an offset or credit for shares of a mangrove conservation project that would capture or reduce an equivalent amount of carbon dioxide. Offsets are typically packaged in discrete units, sold by a price per metric ton of carbon dioxide reduced.
It works similarly at the international level. Some wealthier countries are reaching diminishing returns in reducing their greenhouse gas emissions. Norway, for instance, already gets 98 percent of its electricity from renewable energy, mostly hydropower. But sectors like air travel are growing more difficult, expensive, and time-consuming to decarbonize as demand grows.
On its way toward its goal of net-zero emissions by 2050, Norway is cleaning up the remaining carbon-heavy sectors of its economy right now with offsets. It’s paying countries like Brazil and South Africa under the United Nations’ Clean Development Mechanism to help industrial plants switch to cleaner fuels and destroy potent heat-trapping gases.
Working together, the countries could end up lowering emissions more than if they each tackled emissions on their own, getting vastly more greenhouse gas emissions reductions for their dollar. And for emissions that currently have no cleaner alternative, like air travel, offsets may be the only way to mitigate their impacts on the environment.
JetBlue announced in January that it aims to become carbon-neutral on all of its domestic flights by July of this year. “We’re reducing where we can and offsetting where we can’t with efforts such as carbon offsetting and sustainable aviation fuel,” said Sophia Mendelsohn, JetBlue’s head of sustainability and environmental social governance.
Large new offset programs are in the pipeline too. In 2021, an international aviation offsetting scheme known as CORSIA will go into effect, generating $40 billion over 14 years and offsetting 2.6 billion metric tons of carbon. California last year approved a tropical forest standard that would allow it to meet its climate goals by backing forest protection efforts in other countries.
But to limit climate change, humans have to zero out their net carbon output, and even start removing carbon dioxide from the air. There aren’t enough carbon sinks to offset every iota of carbon from human activity, so they can’t compensate for all of our emissions.
That means the world will still have to throttle overall emissions. Offsets can buy us time until then, but they aren’t a ticket out of the hard economic, political, and technical work needed to address climate change at a global scale.
2) How do you make a good carbon offset?
There are four key ideas and principles to consider to make a reliable offset:
Essentially, additionality is a counterfactual: Does buying this specific offset lead to a reduction of greenhouse gas emissions that would not have happened otherwise?
If you pay someone who is already building a wind farm to displace a coal power plant, for instance, you may be helping them build a better business case for the project. But that chunk of renewable energy would have been built without your input anyway. That means your purchase didn’t result in any additional reductions in greenhouse gases. On the other hand, if someone is about to clear a section of rainforest and you pay them not to, you have reduced the greenhouse gas emissions associated with deforestation.
Determining whether a project is “additional” requires rigorous and transparent accounting, but that’s difficult to do, which is why so many offsets fail to deliver.
Cool Effect’s Manning said that her company has 14 offset-generating projects under management and has outside experts investigate them. “We have an independent group of scientists that then look through all the documentation and if there are projects that are interesting from a scientific perspective, they’ll get a hold of the project and talk to them about the methodology and the science that they’ve used behind it to do their calculations,” she said.
Depending on the project, Cool Effect’s offsets cost between $3 and $13 per ton of carbon dioxide. For instance, the group offers a $6.60 per ton offset in the form of restoring a peat swamp in Indonesia that sequesters carbon, a project that also employs more than 400 local workers and provides micro-financing in the community. The validation report for the project is 67 pages long and involved a site visit to confirm its performance, calculating and measuring how trees in the area grow over time, how water flows change, and how that influences carbon absorption.
“While on site the audit team visited portions of the property and confirmed that the areas planned for reforestation are currently deforested,” according to the report. “In addition the audit team observed the areas for peat rewetting and confirmed that the canal exists and is appropriate for restoration activities.”
NativeEnergy, another carbon offset retailer, even coordinates site visits for buyers to see their projects firsthand.
At the same time, you don’t want to over-quantify an offset or promise an unrealistically high degree of precision when it comes to how much an offset reduces emissions. A credible offset has to account for variations in tree-planting or renewable energy installation performance. NativeEnergy maintains what it describes as a buffer pool of offsets that it doesn’t sell to provide backup in case a project underperforms.
Without accounting for potential performance variations, an offset runs a higher risk of breaking its promise, undermining the credibility of the program.
To limit climate change, greenhouse gas emissions have to be kept out of the air pretty much forever, and that may not be the case with some offset projects.
Recently, tree planting has received a lot more attention. Even President Trump, during his State of the Union address (without mentioning climate change directly), highlighted that the US will join an initiative to plant 1 trillion trees around the world, in part to soak up carbon dioxide.
The idea is that trees and other plants take in carbon dioxide from the air as they grow and store it in their biomass. But as we’ve seen recently with major forest fires in Brazil and Australia, the carbon stored in these forests can suddenly get pumped back into the air. That means trees can be a risky bet for permanent carbon storage, demanding monitoring and protection indefinitely.
That’s why some companies and scientists are investigating permanent, geological storage of carbon dioxide, like sequestering carbon dioxide from power plants underground or turning it into rock. These technologies are new and currently quite expensive, but the peace of mind they may be able to provide would be immensely valuable.
After all, climate change is chiefly due to underground carbon getting pumped into the biosphere, so it makes sense to recapture that carbon and put it back in the ground. But other forms of offsets need assurances that once they’ve offset a quantity of carbon, it’s gone for good.
Once someone purchases an offset, the underlying emissions reduction shouldn’t be sold again or left on someone else’s balance sheet. This principle is especially important for international offsets.
“You have to make sure you have an exclusive claim to your emission reductions,” said Derik Broekhoff, a senior scientist at the Stockholm Environment Institute.
It sounds simple, but in practice it’s proven to be a thorny problem. In December, negotiators from around the world gathered in Madrid, Spain, to discuss how to implement the Paris climate agreement. At the meeting, known as COP25, they tried for days to hammer out an accord. The main issue that stalled the negotiations was the international carbon offset and trading scheme outlined under Article 6 of the Paris agreement. Brazil in particular wanted more leeway in counting rainforest preservation toward its own targets while still selling offsets to other countries.
The meeting went way past its deadline ended without a resolution. The issue will again be on the agenda at the next meeting in Glasgow, Scotland, later this year.
Environmental rules can sometimes drive people to avoid them. For instance, if a country or a state implements a cap and trade scheme for greenhouse gas emissions, there is a chance that the sources of those emissions — factories, power plants, farms — would relocate to a place without a cap.
In the case of offsets, leakage can occur when an area of forest is designated for protection and leads to increased deforestation in unprotected areas.
As with additionality, controlling leakage demands rigorous accounting. But it also requires good governance, and in the international arena, it requires cooperation between countries.
And leakage isn’t just about carbon. An offsetting program also has to make sure that it doesn’t make another environmental or social problem worse. A protected nature preserve shouldn’t violate the rights of local or indigenous communities who live there, for example.
Cool Effect’s Manning noted one offset project helped a community purchase a communications tower in the Brazilian Amazon rainforest that’s helping them conduct research and better police territories against illegal logging.
“It’s also allowed them to build jobs locally because people didn’t have access to technology before,” Manning said. “So they’re starting to train, especially the younger people, on how to use it and how to really communicate.” Those jobs in turn create an incentive to preserve the forest rather than harvest it, even in unprotected areas, helping limit leakage.
3) Is there more to offsets than forest restoration projects?
Right now, some of the most popular offsets involve nature-based solutions like Cool Effect’s wetland and forest restoration projects. But carbon dioxide isn’t the only greenhouse gas, and forests aren’t the only way to soak them up.
“In terms of the range of activities that could produce carbon offsets, some of the best are actually industrial gas destruction projects,” Broekhoff said. “This is situations where you’re taking like a waste gas from some industrial process, whether it’s HFCs, or in some cases, N2O from, let’s say, nitric acid production or other similar kinds of activities where there’s really no other revenue stream.”
Gases like HFCs and N2O are potent heat trappers in the atmosphere, much more powerful than carbon dioxide, so reducing their emissions has a huge impact in mitigating climate change. Their impacts on the climate are quantified as a global warming potential pegged to carbon dioxide. If carbon dioxide has a global warming potential of 1, methane is 30, and nitrous oxide is close to 300.
Since they come from industrial sources, these gases are easier to quantify and track. When the gases are captured and destroyed, the emissions reductions are permanent. And it’s much easier to prove that an offset payment to destroy these gases is making a difference.
“The additionality is pretty straightforward with those kinds of projects because there’s really no reason to do these things apart from generating revenue from the carbon offset sales,” Broekhoff said.
The problem is that buyers think these projects are kind of boring, according to Broekhoff, and they don’t carry many of the side benefits of preserving nature, even if they are comparable in price.
Some of the tougher offsets to implement are those for renewable energy and energy efficiency projects. It’s a lot more difficult to prove additionality with such projects. The costs for renewable energy are dropping rapidly, and energy efficiency has an inherent economic incentive. Many of these efficiency upgrades and solar and wind installations would be going forward anyway without money from offsets. But developers are still using offsets to support some renewable energy projects.
In the future, offsets may come from sucking carbon dioxide straight from the air via technologies known as direct air capture. There are already companies that have built plants that can do this, but the challenge now is to deploy these giant CO2 scrubbers at scale, make them use vastly less energy, and to make them much cheaper. Other tactics include things like engineering crops to draw in more carbon dioxide. Such offsets would be valuable for the sectors of the economy that are the most difficult to decarbonize, such as air travel.
4) What are the problems with carbon offsets?
According to Kollmuss, the majority of offsets being sold by brokers, businesses, and governments don’t deliver the emissions reductions they promise. “There are many more bad offsets than there are good offsets,” she said.
Different offset programs have developed their own standards and best practices, but they’ve been difficult to uphold.
One of the most prominent international offset systems is the United Nations’ REDD+ program, first formed in 2005. It’s aimed at reducing emissions associated with deforestation and at restoring natural areas, helping wealthier countries stay within carbon caps by routing funding to developing countries where these forests are located.
But as Lisa Song at ProPublica reported, REDD+ has struggled in places like the Amazon, as pressures to cut down the rainforest overwhelmed the payments being issued to protect it, with many purchasers left none the wiser. That meant that a major carbon sink was being degraded and the associated emissions from the offset purchaser were continuing unabated, with little accountability on either side of the transaction.
“In case after case, I found that carbon credits hadn’t offset the amount of pollution they were supposed to, or they had brought gains that were quickly reversed or that couldn’t be accurately measured to begin with,” Song wrote. “Ultimately, the polluters got a guilt-free pass to keep emitting CO2, but the forest preservation that was supposed to balance the ledger either never came or didn’t last.”
Daniel Nepstad, an Amazon rainforest researcher and founder of the Earth Innovation Institute, said that there are solutions to these problems, and some are already being pursued. In particular, he said that there’s been a push to develop offsets beyond the scale of individual projects. “We moved to a much larger scale, where the boundaries are an entire state, an entire province, an entire nation,” he said. “This all gets more simple and robust at the big scales.”
By expanding the scale of an offset program to a wider jurisdiction, it can generate a larger quantity of emissions reductions than with an individual project. It also brings governments on board, adding accountability and enforcement. This is a critical element in getting large reductions in forest loss. Despite the recent surge in deforestation in the Amazon, Brazil’s government has actually slowed its rate of forest loss with government policies in recent decades. Between 2005 and 2014, deforestation in the Brazilian Amazon declined by 70 percent.
“There’s about 6 billion tons of CO2 that are in trees as carbon instead of in the atmosphere as CO2 because of this Brazilian effort,” Nepstad said. So bringing local and national governments into the loop on offsets could yield better results than the piecemeal projects of the past. These jurisdictional offsets are now part of California’s tropical forest standard for its statewide cap and trade system.
Another problem is that offsets are cheap at the moment. If prices are too low, offsets won’t generate enough pressure to get an individual or government or business to change their own carbon-intensive behavior, and in fact may simply grant them license to keep doing what they’re doing. But if they get too expensive, few will buy them voluntarily. So the price of an offset has to ride a fine line between being affordable and uncomfortable, but that can change rapidly in a competitive carbon market.
Offsets are also vulnerable to manipulation. “There’s always going to be an incentive problem when you pay someone not to do something as opposed to charging them to do something,” said James Bushnell, an economics professor at the University of California Davis. “And that’s kind of the offset scheme where instead of charging people to emit carbon for example, we are paying them to not admit carbon.”
He noted that some businesses in countries like China deliberately increased their greenhouse gas emissions with the express aim of getting paid to ratchet them back down again.
“To use a rule of thumb, if the product you’re making is less valuable than the offsets, then that’s a bad sign,” Bushnell said. “Then it’s probably at risk that people might get into this business just to be paid to stop doing it.”
And the prospect of selling offsets has had even more alarming unintended consequences. In 2011, an entrepreneur launched a rogue geoengineering experiment off the coast of Canada with the aim of generating millions of dollars of carbon offsets on international markets. He dumped iron filings into the Pacific Ocean to create an algae bloom that would feed salmon and sequester carbon. Scientists were aghast that an individual would try to manipulate the environment on such a large scale on their own and have called for standards to ensure such unregulated measures don’t end up in carbon offset markets.
5) Can’t we just offset our way out of climate change?
In the hierarchy of climate action, the first and most effective option is almost always to reduce emissions. In other words, rather than buying offsets for your flight, see if you can avoid that flight entirely.
That’s why some environmentalists and activists criticize offset purchases as just greenwashing, particularly when they come from fossil fuel companies like BP, which has committed to reaching net-zero emissions by 2050.
“How will they reach net zero? Will it be through offsetting? When will they stop wasting billions on drilling for new oil and gas we can’t burn?” said Charlie Kronick, Oil Advisor from Greenpeace UK, in a statement. “What is the scale and schedule for the renewables investment they barely mention? And what are they going to do this decade, when the battle to protect our climate will be won or lost?”
And to limit climate change, the goal is to get to zero emissions as fast as possible. While offsets can buy time, they can also lead to delays at a time when the world needs immediate action. That points to another counterfactual: What would you do if you couldn’t just buy offsets?
For some people, countries, and businesses, not buying offsets would force them to reckon with their own emissions and take more aggressive actions to reduce them. The option of buying offsets also creates a moral hazard where polluters can continue emitting greenhouse gases with abandon. This robs the world of precious time needed to get climate change under control.
Many activists also think that offsets shift the burden of fighting climate change from the wealthy to the poor. That’s part of why the band Massive Attack, which had purchased offsets for its concerts and tours for decades, has become skeptical of them.
“First, the concept of offsetting creates an illusion that high-carbon activities enjoyed by wealthier individuals can continue, by transferring the burden of action and sacrifice to others — generally those in the poorer nations in the southern hemisphere,” wrote Massive Attack’s Robert Del Naja in the Guardian. “Ultimately, carbon offsetting transfers emissions from one place to another rather than reducing them.”
At the same time, offsets can allow developed economies to continue expanding farms and factories while restricting those same activities in other parts of the world. While people on the ground might be getting paid to deliver offsets, some of the largest benefits can still accrue to the countries buying the offsets.
For example, a 2010 report from the National Farmers Union and Avoided Deforestation Partners (titled “Farms Here, Forests There”) found that ending global deforestation using programs like offsets would boost US agriculture revenue by $190 billion to $270 billion between 2012 and 2030 through limiting harmful environmental and climate changes.
The most prosperous countries in the world have historically emitted the most greenhouse gases and are thus the most responsible for climate change. But it’s the countries with less means that are most vulnerable and remain the most dependent on fossil fuels. Offsets could end up doing more to propagate the injustices of climate change instead of resolving them. “The rich countries have an obligation to help [poorer countries] decarbonize,” Kollmuss said. “But in my opinion that shouldn’t come from carbon offsets but from climate finance.”
There’s also skepticism of private companies’ offset purchases as well. At Amazon, employees say that they want the company to not just to reach net-zero emissions, but to bring their total emissions to zero. That would rule out using offsets, even if they were “credible,” as Jeff Bezos has said.
All this doesn’t mean that carbon offsets have no value in the fight against climate change; it’s just that the biggest benefits may not come from the offset itself.
“The whole point of local carbon policies should be to sort of spur momentum globally for reductions, and in my mind that means if there’s some noise and misses around the edges of the offset world, it’s kind of worth the risk if some of these things are truly leading to some momentum in clean development and other places that aren’t actively pursuing climate policy,” Bushnell said.
None of this is to say that funding projects to protect natural ecosystems or deploying clean energy are bad. It’s just that doing so doesn’t exonerate the buyer for their contributions to climate change. All else being equal, it is better to buy an offset than to do nothing, but it may not be the best way to spend your money if your aim is to protect the climate.
Carbon offsets will not let us buy our way into heaven, but they could slow our descent into hell.