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Offsetting Emissions With Carbon Credits

Written By Jack Budington

June 23, 2022

A couple of weeks ago, we wrote about the carbon neutral certification process and how businesses measure emissions. In this blog, we will discuss what to do with the carbon emissions our businesses produce.

Carbon neutral certified businesses can’t eliminate all carbon emissions from their operations. Lighting, heating and cooling, web servers, and activities like commuting all require energy—a significant portion of which is produced through the burning of fossil fuels. To become “neutral,” a business must find or fund activities that reduce carbon emissions elsewhere to offset the emissions they create.

The idea for carbon offsets stemmed from earlier efforts to limit other kinds of pollution. The U.S. Clean Air Act in the 1970s mandated that any additional emissions in highly polluted areas had to be offset by pollution reduction efforts. The focus at the time was on substances like lead and sulfur dioxide. As concern about climate change began to grow in the late 80s, the idea of using carbon offsets to address this problem in a similar way grew in popularity. The market took off after the Kyoto Protocol in 1995 created a global carbon market to try to reduce emissions. While the Kyoto Protocol failed to achieve many of its objectives, the carbon offset market has continued to grow ever since.

Broadly speaking, there are two ways of offsetting your carbon emissions. The most intuitive is direct carbon capture. When you fund a reforestation effort, for example, the growth of that forest removes carbon from the air. The other common approach is funding emissions reduction efforts. This can mean anything from investing in green energy projects to funding cow methane burp mitigation efforts. Often when companies buy carbon offsets they are not directly funding the projects. A variety of both for-profit and nonprofit organizations package these mitigation efforts into carbon credits claiming one ton of emission reduction which can be bought and traded. 

The theory behind offsets is that it doesn’t matter where carbon is reduced. A ton of carbon produced in India has just as much of an effect on the environment as a ton of carbon produced by your car. For a variety of reasons, it’s often easier for companies to reduce emissions outside of their own supply chain. Sometimes this is because emerging technologies allow for significant carbon reductions in one area of the economy. Other times it’s because it’s easier to build new green infrastructure in a developing country than it is to replace existing infrastructure in industrialized countries. 

“Offsets give us the simple answer we crave to sustainability. It seems incredible that we could pay a fraction of what it would cost to reduce all of our emissions by paying somewhere overseas to reduce there. This is, of course, because it’s not credible.”

Offsets give us the simple answer we crave to sustainability. If we all just bought our emissions’ worth of offsets, we could end the climate crisis. It seems incredible that we could pay a fraction of what it would cost to reduce all of our emissions by paying somewhere overseas to reduce there. This is, of course, because it’s not credible. The amount of carbon offsets purchased vastly exceeds the amount of carbon actually “offset” by these purchases. One study by the Taskforce on Scaling Voluntary Carbon Markets found that “less than 5% of offsets actually remove carbon dioxide from the atmosphere.”  

A significant portion of today’s carbon offsets market is outright fraud. Forest plots bought for carbon credits are sold off for development, for-profit accreditors willfully exaggerate impacts, and carbon credits are sold multiple times for the same reduction. This is true even of programs administered by governments and credible international organizations. Australia found, for example, that in 59 of 119 selected forest regeneration plots, forest cover had actually decreased—yet these plots were awarded 8.5 million carbon credits. Other projects promise future emissions reductions that may or may not happen. Even responsibly managed offsets have difficulty actually meeting 100% of their stated goals. Preserving forest in one area may lead cattle ranchers to simply deforest the same amount of unprotected forest elsewhere.

Many environmental organizations have come to adopt a dismal view of carbon offsets. A post by Greenpeace states, “Carbon offsetting is truly a scammer’s dream scheme. It’s a bookkeeping trick intended to obscure climate wrecking-emissions. It’s tree planting window dressing aimed at distracting from ecosystem destruction.” Ouch. Yet this view is far from universal. Bronson Griscom, the Director of Natural Climate Solutions at Conservation International writes, “Some critics … see these investments in nature as a license for corporations to pollute … I can sympathize with this reading … but that tide is turning. Leading companies now acknowledge their foundational dependence on nature, a stable climate, and recognize the need to protect it by buying carbon offsets—a pragmatic and effective tool.”

Some of these issues will likely improve over time; after all, carbon offsets are still in their infancy. Environmentalists are becoming more savvy about which types of programs are likely to succeed, and governments are starting to demand more accountability around claimed offsets. This is especially true overseas where governments have taken a much more active role in managing and adjusting their carbon offset programs based on past experience. 

The EU-Emissions Trading Systems has been especially active at trying to create a well-managed carbon market. Unlike in the U.S., many of the EU governments have been willing to prosecute and penalize companies that make fraudulent carbon offset claims. This type of regulation is coming to the U.S. as well, albeit more slowly. Outside of the USDA’s farm carbon offset program, progress on the federal level has been slow, but states have been picking up much of the slack. California has developed a regulated carbon market, while much of the Northeast has created a regulated carbon market specifically for generating power. Whereas claims of carbon neutrality outside of these programs are legally viewed as marketing claims and not vigorously enforced or monitored, participation in these government programs often has significant tax benefits and requires rigorous accounting. 

Offsets can do a lot of good. They might help speed up the switch to renewable energy. They might save the world’s rainforests, but they are of limited use without taking direct responsibility. In the same way it’s impossible to eliminate all of your emissions, it’s impossible to pay others to eliminate all of the environmental impacts of your decisions. 

The point of all of this is not to be pessimistic about carbon offsets but rather acknowledge that sustainability is complicated. Offsets are a great idea as long as we acknowledge their limitations. When done right, offsets help raise funding to preserve land and develop technologies that will, in the long-run, slow down and reduce some carbon emissions. But without systemic governmental action and larger emissions reduction, offsets will not come close to solving the climate crisis. Instead of doing what’s easy, we have to do the hard work to discover the real environmental impact of an economic decision. That is the true path to carbon neutrality.