Carbon offsets have serious issues. Is it even possible to fix them?

Thousands of companies have established net zero goals, and many use carbon offsets—for example, paying to protect forests—to bolster their claims about reducing emissions. Shell, for example, spent $26 million on things like tree-planting projects last year, and plans to use nature to “mitigate” 120 million metric tons of CO2 that it emits each year by 2030.

In theory, these kinds of carbon offset programs—which includes everything from extra funding for forests to capturing methane at landfills to improving sustainability in agriculture—seems like a good thing. But the system has some obvious flaws. “We cannot offset our way out of climate change,” John Oliver said in the latest episode of Last Week Tonight, which spent 23 minutes outlining some of the problems with offsets.

Carbon offsets have been around for decades, but the voluntary market ballooned to $2 billion in 2021, quadruple the size of the previous year. They have serious limitations, beginning with the fact that some companies, like Shell, plan to use them instead of cutting their own emissions. It’s also hard to prove that a particular offset project is actually helping, and difficult to show that the benefits will last—some forests that were protected by carbon offsets have already burned in wildfires, releasing the carbon that had been captured in the trees.

At the same time, there’s a surge of efforts to improve the system, including new standards for how companies use carbon credits, and new approaches to designing and measuring the offset programs themselves.

The problem with offsets

It’s often hard to prove that offset programs made something happen that wouldn’t have happened anyway, a factor called “additionality.” JPMorgan Chase, for example, spent nearly $1 million to help conserve a forest in Pennsylvania that had been a bird sanctuary since the 1930s—and arguably wasn’t in much danger of large-scale logging. American Carbon Registry, the organization that verified the carbon credits, says that because there weren’t previously logging restrictions in place, the sanctuary might have turned to timber harvesting if it later needed cash, since logging is common on nearby land. The offset program added new legal protections, so logging can now only happen in a limited way. But it’s difficult to model the counterfactual: What would have happened at the sanctuary if the offset program hadn’t existed?

“Is it possible to design a system that creates really clearly additional credit? Maybe, but it’s really, really hard,” says Freya Chay, a project manager at CarbonPlan, a nonprofit that studies the impact of climate actions. It’s also difficult, she says, to design a system that can’t sometimes be gamed by less scrupulous organizations trying to sell carbon credits.

One study of some voluntary offset projects in the Amazon rainforest found “no significant evidence” that the projects had actually slowed down the loss of trees. Another analysis of California’s $2 billion forest offsets program found that 29% of the offsets were overestimating the benefit to the climate, meaning that polluters buying those credits got away with emitting more CO2.

The challenge isn’t limited to forests. A working paper of more than 1,000 wind farms in India that were funded by carbon credits found that at least 52% of the projects very likely would have been built even if the carbon credits hadn’t existed. And while the number of studies finding issues in the system keeps growing, there are few, if any, studies proving that particular offset projects have been a clear success. “I’m not seeing any examples of carbon offsetting programs that are working well,” says Raphael Calel, a public policy professor at Georgetown University who coauthored the wind farm study.

It’s also difficult to prove that the benefit from a particular project will last. In forest programs, trees can be lost to wildfires, or disease, or, if the right protections aren’t in place, might later be logged. Projects use “buffer pools” as insurance, protecting extra trees in case some are lost. But a study of California’s buffer pool found that wildfires have already destroyed nearly all of the offsets that were supposed to last for the rest of the century. For a buffer pool to work, it would have to be designed differently, better taking into account the impact that climate change is having on forests.

There’s also a bigger challenge: Protecting a forest, and other impermanent offsets, aren’t truly equivalent to emissions from fossil fuels. Some programs, like California’s, call a forest program “permanent” if it is meant to last for a century. “There’s a huge value judgment there that says we’re going to consider 100 years of storage equivalently valuable to your emissions, which impact the climate for literally millennia,” Chay says. (To make things more complicated, it’s also difficult to estimate precisely how much carbon a forest stores.)

Fixing the system

Multiple efforts are underway to try to improve the carbon offset system, both in terms of how projects are created and measured and how companies make use of offsets. The Science Based Targets Initiative, a group that has helped more than 3,000 companies set voluntary climate goals, has a new net zero standard that requires most companies to cut their own emissions deeply—in most cases, at least 90% by no later than 2050. Buying carbon credits is additional, but can’t replace the first step.

The net zero standard makes it clear that offsets, or “must be on top of, not instead of, a company’s own deep emission cuts,” says Rosie Williams, a communications manager for the Science Based Targets Initiative. Under the standard, the 10% or less of a company’s emissions that can’t be eliminated by 2050 will have to be offset by permanent carbon removal—projects like sucking CO2 out of the air and storing it underground. Some companies, like Microsoft and Stripe, are already strategically investing in new carbon removal tech.

Another group, VCMI (the Voluntary Carbon Markets Integrity Initiative), is working on a new standard for how companies can talk about carbon credits. “We are trying to create a robust science-based benchmark for comparing claims by corporates and other non-state actors about the greenhouse mitigation actions,” says Mark Kenber, executive director of VCMI. Right now, he says, because there’s no global framework, it’s difficult for consumers or investors to tell what’s greenwashing and what isn’t.

Organizations that help create offset projects, like The Nature Conservancy, continue to work on ways to improve the quality. To better understand how much additional benefit comes from a project, the organization is working with partners on large-scale tests. “We basically set up giant landscape-scale experiment where you have a ‘control’ and a ‘treatment,’” says Campbell Moore, who leads a global carbon markets team at The Nature Conservancy. An offset project, with financial incentives to better manage the forest, is compared to similar properties nearby without the same program in place, to see what happens in real life.  “It’s moving from that static baseline, where you’re measuring your additionality against a computer model, to measuring your additionality against real, extremely analogous forests in real time,” he says. The nonprofit also created its own internal standard of review.

Some companies are trying new approaches, like NCX, which pays private landowners to avoid logging based on a short-term forecast of the current economic conditions for selling lumber, and a prediction of what that landowner might do without the incentive in place. But because the program pays landowners to avoid logging over one-year periods, critics say that it risks long-term losses. (The model is also new and proprietary, and hasn’t yet been proven to work.) The company argues that it can still help. “One of the things that that we know is that urgency matters,” says Zack Parisa, CEO and founder of NCX. “We see it in every single one of these IPCC reports that that are rolling out. So what we do this year matters. And what we do this year, and the scale at which we’re able to do it, defines what’s possible going forward.”

It’s important to find ways to fix any issues in the market rather than giving up on offsets completely, argues Frances Seymour, a senior fellow at the World Resources Institute, who also serves on the board of a global program to reduce deforestation and degradation.

“We know that tropical forests are disappearing quickly,” she says. “There isn’t an obvious alternative source of finance. We do have some preliminary evidence that the prospect of this market finance can incentivize governments to start doing something different. And if we don’t come up with a way to manage those risks, we almost certainly will lose those forests, which we know are critical to meeting the Paris targets. There’s no sort of IPCC scenario that allows us to keep the temperature at a reasonable level without not only stopping tropical deforestation, but reversing it.”

The organizations setting up offset programs need to show that they work, says Calel. “I think that if anyone wants to do this now at any scale, they should assume the burden of proving out that the way they’re doing it actually works,” he says. “Because I’ve seen so many examples of really smart people trying these things and not succeeding.”

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