The Carbon Offset Debate | From A To Green

THE PROBLEM WITH CARBON OFFSETTING

Is carbon offsetting greenwashing? Or an effective way to finance reforestation and forest protection to limit global warming?

Carbon offsetting has emerged as a popular strategy for companies to combat climate change and achieve 'carbon neutral' or ‘net zero’ status. However, recent articles from The Guardian and Source Material have raised concerns about the effectiveness and transparancy of the voluntary carbon offsetting industry. This article aims to provide clear insights into the complexities of carbon offsetting, shed light on industry issues, and offer practical recommendations for companies navigating this landscape.

Understanding Carbon Offsetting

Carbon offsetting involves investing in projects that aim to reduce or remove greenhouse gas emissions to balance an individual or company's own emissions. There are two carbon markets: there is the compliance market known as Emissions Trading Systems (ETS), regulated by government policy and the voluntary carbon market, not government-regulated. This article covers the voluntary market for individuals, companies or organizations.

A carbon offset credit is a tradable certificate that allows the purchaser to compensate for 1 ton of carbon dioxide or the equivalent in greenhouse gases. Carbon offset credit programs follow recognized standards such as Gold Standard or Verified Carbon Standard. There are also organizations that provide the opportunity to simply plant trees to balance emissions, which are not certified by a verified standard. Carbon reduction or carbon neutrals claims cannot be used by investing in unverified projects as this is not considered offsetting.

The term Carbon neutral is used when CO2 emissions produced are partly reduced and/or balanced out through carbon offsets. This can cover the complete business or a specific part of business operations. Net Zero means that a company reduces its absolute emissions across its entire supply chain, in order to support the target to limit global temperature increases to 1.5 degrees Celsius, as agreed in the 2015 Paris climate summit.

Two types of offset projects exist:

Avoidance or reduction projects focus on transitioning to renewable energy sources, promoting energy efficiency, or preventing deforestation.
Removal projects capture emissions by (re)planting trees or using CO2 capture technologies.

Greenwashing and Misleading Claims

Many international corporations have used the claim ‘carbon neutral’ but some argue that this is just another form of greenwashing. Especially when compensating emissions becomes easier or more affordable than reducing emissions directly, carbon offset projects can deter efforts towards direct decarbonization. Offsets delay the impact of large corporations with deep pockets that can afford credits but are hesitant to update business operations to avoid emissions in the first place. Essentially, carbon offsets don’t aim to reduce the net amount of emissions but rather prevent an increase in emissions. Carbon neutral claims can therefore mislead consumers into believing that certain products or activities, like flying or buying products, have no environmental impact, which can potentially encourage them to consume more as they believe carbon neutrality implies no environmental impact.

The Importance of Forests

Forests play a crucial role in carbon offset projects, currently offsetting around 10% of the EU-27's greenhouse gas emissions. Investing in forest carbon offsets is vital for restoring habitats, enhancing carbon sequestration, and mitigating climate change. The IPCC recommends increasing forest area by 1 billion ha to limit global warming to 1.5ºC by 2050.

While the carbon offsetting market and forestation projects channel much needed funds to protection and restoration projects, there are many things to be mindful of before committing to invest in tree restoration or protection projects, either verified or not.

Before absorbing carbon in significant quantities, trees need several years to mature, and they do not absorb carbon at a linear rate throughout their lifetime. Forests need to be be well established and effectively managed to maximize carbon sequestration. Trees require soil nutrients like nitrogen and phosphorus, especially as CO2 levels in the atmosphere rise. Also, trees have a limited lifespan and can be affected by climate changes such as droughts and higher temperatures. There is a risk that trees planted for offsetting projects could become sources of emissions if they die prematurely through decay, wildfires, or logging, resulting in releasing the stored CO2. Some trees might last centuries but CO2 emitted by burning fossil fuel can stay in the atmosphere for 1000 years.

Social Implications of Carbon Projects

Carbon projects also face social criticism due to concerns of exploitation. While carbon credits can provide vital funds for rainforest protection and management, it's important to ensure fair compensation for indigenous communities. However, in the unregulated market, there is a risk that these communities are taken advantage of. Developers can make enticing promises of financial rewards to persuade communities to participate. Contracts can be lengthy, complex, and primarily in English, spanning centuries. In response, some indigenous communities started to educate themselves and establish exchanges to combat so called "carbon pirates”.

Some critics argue that carbon projects reflect a new form of neocolonialism where the global North invest in the global South, dictating land and forest management to communities with long-standing roots. Disturbing instances have occurred where indigenous communities were forcibly displaced from their lands, acquired for carbon offset forestry. Instead of addressing the root causes of production and consumption, carbon offsets often pressure the global South to alter their economic practices solely to compensate for emissions from the global North.

The Questionable Value of Avoided Carbon

One of the significant concerns within the carbon offsetting industry is the lack of transparency and standardized practices. The Verified Carbon Standard (VCS) is the most well known standard and is operated by Verra, a non-profit organization. The dominance of the VCS in the voluntary offsets market raises questions about the credibility of the credits. An investigation into Verra revealed that more than 90% of rainforest conservation offset credits, commonly used by companies, may be "phantom credits" without actual climate benefits.

Every forest conservation project is rooted in a prognosis about what the future might bring. And every project also includes an inherent incentive to make inaccurate prognoses. Carbon credits are awarded for keeping forests standing that would otherwise be under threat of destruction, a concept known as “additionality”. But it is often hard to say whether a forest is under genuine threat. Because the more deforestation project developers expect in their forest, the more carbon credits they can issue. The more pessimistic the prediction, the more money stands to be earned.

Pachama, a prominent offsetting company, was found to be selling carbon credits generated from forests that were not under threat or where deforestation had actually increased. Companies such as Disney, United Airlines, Air France, Samsung, Liverpool Football Club, Ben & Jerry’s, Netflix, and Chevron were found to have bought these potentially worthless carbon credits.

These findings suggest that the offsetting industry, particularly in the realm of avoided deforestation projects, may not be delivering the expected climate benefits and that the claims made by companies relying on carbon offsets around being carbon neutral or achieving net zero are misleading. Verra is currently working to introduce new rules for generating rainforest carbon credits with all projects set to be using the new system by mid-2025. In the meantime, their CEO has resigned following the recent investigations.

The Role of Carbon Brokers

The involvement of middlemen brokers adds another level of complexity to forestry projects. Carbon market intermediaries or brokers play a vital role in facilitating the trade of carbon credits, making it easier for sellers and buyers to transact.

Investigations reveal that brokers purchase carbon credits in large volumes at low prices from forestation projects in developing countries and sell them at inflated prices to consumers, companies or other brokers. Once certified, carbon credits can be traded multiple times between intermediaries, each time at a premium mark up. In nearly 250 projects, brokers have resold credits at least three times their initial purchase price. For instance, a broker might persuade a buyer to pay €5 for a carbon credit while the project developer planting the trees initially received only €1.

The lack of transparency in the voluntary carbon market is evident as nine out of 10 intermediaries do not disclose their fees or profit margins, and very few companies reveal their purchase price of the carbon credits. It is almost impossible to determine how many times a credit has been traded and the markups applied by intermediaries. This opacity raises concerns about how much of the money paid for carbon credits actually supports genuine climate action and how much benefits intermediaries and resellers.

In 2020, about a quarter of Fortune Global 500 companies committed to being carbon neutral by 2030. As time goes on, it’s expected for prices of carbon credits to increase as these companies will compete with each other to achieve their goals. But if these companies pay more for their credits due to increased market demand, it doesn’t mean that these extra funds will end up at reforestation projects. These funds will likely end up at brokers and intermediaries. The plus side to the expected price increase of carbon offsets does force companies to directly invest in reducing or eliminating their emissions completely.

Involvement of Fossil Fuel Companies

The involvement of fossil fuel companies in the carbon offset procurement process is another critical concern that could undermine climate action goals. Companies like Shell have expanded their role as project developers and brokers of carbon offsets through partnerships and direct acquisitions of forestation projects and nature based solutions to avoid emissions. These fossil fuel companies gain access to carbon credits and can either use them for their own targets or profit by selling them to other companies or individuals. The lack of transparency in the market poses a problem for consumers seeking to offset their emissions. They may unknowingly direct the majority of their payments to these fossil fuel companies that contribute minimally to combating climate change.

The Carbon Debate

Carbon offsetting can play a critical role in funding forest restoration and protection, leading to promising results such as increased wildlife, improved air and water quality, and social benefits. However, it is crucial to acknowledge and address the current limitations and flaws of the market, including potentially worthless credits, social issues, and the involvement of middlemen. Immediate market action is needed to ensure transparency, accountability, and the establishment of robust standards.

Offsetting should not be considered a quick fix or a substitute for emission reduction. Planting trees alone cannot fully address the intensity of our carbon emissions, as carbon stored in trees or ecosystems is not equivalent to fossil carbon left underground. It is also essential to raise consumer awareness about the real impact of products and activities, regardless of any climate neutral claims.

To navigate the challenges of the carbon offset market and make informed decisions, companies seeking to offset their emissions or invest in forest restoration or protection projects should consider the below list of recommendations:

Prioritize emission reduction efforts before considering carbon offsets.
Determine how much from the sale of the credit or investment is received by the direct project owner on the ground or local community.
Support projects that benefit local communities and ensure fair compensation, respect indigenous rights and provide economic opportunities
Assess the involvement of middlemen and their impact on pricing. Assess the original cost of the tree or credit to the seller and investigate the number of times the credit or tree has been traded before reaching the seller.
Choose certified carbon credit programs that follow recognized standards. These programs undergo rigorous evaluation to ensure environmental integrity and credibility.
Consider the complete climate effect, taking into account all greenhouse gases, not just CO2.
Check for any involvement of fossil fuel companies in the procurement of the credit or project to avoid inadvertently supporting entities that contradict climate action goals.

To conclude, in the face of the urgent climate crisis, waiting for a perfect solution is a luxury we cannot afford. The funds generated from carbon offsets will be essential in preserving fragile and threatened forests. However, carbon credits should be considered as a complementary tool, not a substitute for emission reduction efforts or a sustainability strategy. We cannot plant our way out of the climate crisis.

As long as emission reductions are prioritized, funding genuine and effective reforestation and projection projects as close to the source as possible, is an effective and much needed approach to address climate change and restore nature.