Buyer, Beware: How to Navigate the Carbon Offset Market

Your company may be considering carbon offsets as part of your strategy to reach net-zero or even to take you to net-positive.

In the?first article?of this three-part series, we explained carbon offsets and credits, why there are growing criticisms, and the reasons why companies may still be needing to use them. With growing attention to nature-based risk, there is an increasing interest in nature-based climate offsets. In this second article, we address some of the issues around nature-based carbon offsets and provide some words of caution to help ensure that your good intentions genuinely contribute to positive, meaningful outcomes.

The trouble with offsets

Carbon offsets are controversial, and a key reason for this is that many projects have not sequestered or removed carbon to the extent that sellers have previously claimed.

Central to the effectiveness of offsetting is “additionality.” Carbon offsets work only if they trigger a carbon reduction that wouldn’t have happened otherwise. In other words, a project is only additional if there are?fewer emissions in the atmosphere than there would have been?had no offsetting activities taken place. So, for example, in the case of reforestation offsets, the offset purchase has to be the reason that trees are being planted or protected.

Unfortunately, numerous recent scandals point to a lack of transparency and integrity within the offsets market. In one investigation, a company was found to be offering payments for lands that had already been forested, and then taking credit for it. Another investigation found that offsetting schemes used by some of the world’s largest airlines were using a flawed and criticised accreditation system, and that the offsets these companies were buying to achieve “carbon-neutral flying” and “net-zero emissions” grossly exaggerated the threat of deforestation that had been averted.

Beyond the matter of additionality, some of the other most common problems include:

1)?Suspect and varied accreditation. Much of the uncertainty with offsets is rooted in the fact that no official, internationally recognised standard for carbon offset accounting exists (yet). Private certification programs use bespoke methods for measuring, certifying, and brokering offsets, and this can make it challenging to confirm and compare the credibility of offset projects. Research suggests that – as of 2021 - as much as 90% of offsets that have been verified by leading carbon offset certification programs have failed to offset as much as they claim; are not permanent; created damaging side effects for local communities or ecosystems; or resulted in some combination thereof.

2)?Flawed baseline accounting. The emissions reduction estimates for projects are routinely exaggerated, and often lack scientific credibility. For example, some offset programs have been criticized for glossing over the distinctions between different tree species and their respective capacity for sequestration. Even though the United Nations REDD+ forest conservation program accounts for 80% of global forest-based offsets, many standard-setters refuse to certify their offsets due to concerns over their accounting methods.

3)?A lack of permanence. To limit climate change, emissions need to be removed from the atmosphere forever, which means that any offsetting must be put back into the ground or otherwise sequestered in a way that won’t be reversed. Trees are therefore a particularly risky bet. For example, massive fires in California and Oregon reduced offset forests to cinders and ash, releasing carbon that companies had paid for and claimed in their disclosures. When it comes to forestry-related offsets, concerns are rising that they are temporary and highly contingent on ongoing care and maintenance.

4)?Double-counting, where both the buyer and the jurisdiction of a credit claim it as a reduction. A purchaser must have exclusive and verifiable claim to their emissions reduction. COP26 introduced new safeguards to restrict the possibility of double-counting, but vigilance is the word.

5)?Leakage, where environmental rules are circumvented so that protecting the land and sky in one area causes harm in unprotected areas. For example, countries or states that introduce a cap-and-trade scheme might see companies relocating to areas without a cap, or loggers may halt or forestall their tree-falling activities in offset lands and simply move their operations to adjacent lands.

6)?Impinging on the rights of others. Unfortunately, many nature-based offsets have violated the rights of Indigenous Peoples and other inhabitants of rural communities. They have incentivised the commodification of nature and empowered businesses to expropriate the lands of vulnerable and historically disenfranchised communities.

For instance, the United Nations’ REDD+ programme has been criticised for unsuccessfully reducing emissions and inadvertently causing adverse effects on local communities, particularly by cutting off access to agricultural lands and forests and contributing to land conflicts. As a result, the REDD+ program has been denounced by the majority of Indigenous rights groups, civil society organisations, and climate activists.

In response, the idea of “nature-based solutions” has gained popularity in the past couple of years. Whereas many other offset projects focus on technology upgrades or energy alternatives, these solutions involve the protection, restoration, management, or creation of natural and semi-natural ecosystems. They are intended to advance biodiversity and ecosystem health with the design, implementation, and consent of local communities and Indigenous Peoples. These projects should therefore, ideally, provide benefits to both human and ecosystem well-being.

Unfortunately, there is an established history of governments weakening or violating land tenure rights for Indigenous Peoples and transforming their lands into industrial monoculture farms and tree plantations, sometimes even protected by armed guards. These same plantations are now often the site of large-scale carbon reduction projects. These communities are often excluded from related land management practices and are denied access to the spaces where they live and grow food. Land defenders seeking to uphold their rights often face threats and violence.

In effect, these “natural” spaces effectively become incompatible with nature – as interconnected and diverse ecosystems where resource flow is inextricably linked with culture, food systems, livelihoods, and whole economies. Nature-based solutions must not be nature-based dispossessions.

Doing your due diligence

When it comes to the future of carbon offsets, there’s bad news and good news.

The?bad?news is that the pesky laws of thermodynamics prevent many companies from being able to credibly pursue net-zero Scope 1 and 2 targets without the use of carbon offset programs. Steps can be taken to minimise the role of offsets for airlines, material extractives, energy companies, and other hard-to-abate sectors, but they will very likely remain part of the equation.

The?good?news is that efforts are underway to address many of these issues. For example, blockchain solutions are being used to better ensure additionality and reduce double-counting; satellites, high-resolution imaging, and artificial intelligence are being used to count trees and integrity and verify permanence; and environmental and Indigenous Peoples NGOs are creating new guidance to help companies improve the impact of their carbon credit-purchasing decisions. The Integrity Council for the Voluntary Carbon Market will introduce labels enabling buyers to identify high-integrity carbon credits in Q3 this year.

In order to better ensure the credibility of any offset purchase, it is important to understand how the project you are supporting is contributing to the removal of emissions from the atmosphere, and you must have firm evidence to validate that understanding. Beyond taking additionality and the previous topics into consideration, here are some helpful things to keep in mind if pursuing carbon offsets:

Ask questions. What types of removal offset projects are on offer? Is it biological sequestration, like reforestation or afforestation? Is it renewable energy? Is it the reduction of non-CO2 gas emissions? Don’t pay for something you don’t understand.

Ensure that projects are verified by a third-party, and do your homework on them. Choosing offsets that have been verified by a validation standard with a good reputation (and which is free of reported scandals) is a good start, but be sure to thoroughly assess their methodology and criteria as well.

Check that the projects have strong scientific backing. If, for example, the sequestration calculations for reforestation project don’t align with well-researched averages, or if the project uses non-native species with low survival rates, you should steer clear. Such projects should involve the?right?trees being planted in the?right?places and managed the?right?way.

Looks for evidence of follow-through and success. This, for example, means verifying first-hand that the reforestation efforts you have paid for are being implemented, or that a project that claims to install solar panels on commercial properties is actually doing so. You should reasonably expect annual (or even monthly) updates and timely responses to queries, and you should rigorously pursue efforts to verify that completed projects – such as reforested plots of land – are standing the test of time.

If the insights and recommendations above are giving you cold feet, you’re not alone. Some companies are growing hesitant to invest in carbon offsets and are instead shifting their attention towards sequestering and reducing emissions within their own value chain, a process called?insetting.

In our?next article, we will explore the concept of carbon insetting and explain how it may better serve your company’s needs.

The Embedding Project is a public-benefit research project that helps companies embed sustainability. Learn more about us and our work?here.