Carbon Offsets: Risks and Opportunities

Governments and companies around the world are facing tremendous change. Due to the United Nations' commitment to achieving carbon neutrality by 2050, they are under increasing pressure to reduce emissions. Carbon offsets have therefore emerged as a popular option to compensate for excess emissions.

But what are Carbon Offsets and how do they work?

Carbon Offsets are credits one can buy to compensate for emitting greenhouse gases. Money spent on these carbon credits goes into funding projects that capture carbon and therefore erase the initial emissions from the emitters' carbon balance sheet. This means that for each ton of carbon released into the atmosphere, someone else in the world will take a ton of carbon out of the atmosphere.

There are many different ways to do that. The most popular one is probably planting more trees. They absorb and store carbon dioxide from the air as they grow, resulting in forests being one of the biggest carbon sinks. Other possibilities are to preserve a forest or create renewable energy.

It is a genius idea in principle.

Historic Timeline

The Carbon Offset Market first became prevalent with the Kyoto Protocol in 1997 when the industrial nations first agreed to emission reductions. A compliance system was established, enabling nations that had used up their appointed allowance of carbon emissions to purchase credits from nations that had not yet exceeded their allowance. In 2006 this continued to become a carbon market as we know it today, which soon collapsed due to concerns about its actual environmental impact, corruption, and human rights violations.

And that is why it’s problematic

Despite its popularity in recent times, carbon offsets are still viewed as controversial today. This is because they are usually not as effective nor as genuine as they claim to be and, in some cases, even cause more harm than good.

First of all, there has been a lot of unfaithfulness in the carbon offset market. To effectively balance emissions, the math needs to be as precise as possible. But to date, there are very few regulations on carbon offsets. Many offset projects get approved without having to provide detailed data on their emission reduction, resulting in a lot of uncertainty and greenwashing.

Many carbon offset projects are based on forecasts for the future, which can not possibly be guaranteed. Many projects for example account for the amount of carbon that will be absorbed by a tree throughout its whole life instead of annually, where it is hard to predict how long that will be.

In 2021 the Bootleg fire had destroyed 400,000 acres of forest in the US state of Oregon, including a large number of carbon offsets that had been purchased by Microsoft and BP. This will not remain the only case of natural disasters destroying and releasing offsets, as we are facing even more droughts, fires, and flooding in the future due to climate change.

Another problem is the social impact some of these projects have. Offset projects are often times set up in the Global South, where the cost of such projects is lower. Many project developers fail to consult local communities on their plans, causing the populations’ rights to be violated.

Amnesty International revealed a local Kenyan community being violently forced from their homes and ancestral land in the Embobut Forest between 2009 and 2017. The local forestry service responsible for the destruction was looking to preserve the forest and sell the offsets it generates.

Unfortunately, these cases are not rare, putting the needs of wealthy outsiders to offset carbon above the rights of local communities.

Finally, critics also fear that offsets present a purchasable license for industrial nations and companies to keep emitting greenhouse gases. Offsets can only help us to a small extent in decarbonizing the atmosphere, but they can not reverse all the damage that has been done. The planet does simply not provide the necessary space to compensate for all of the emissions that humanity is putting out at the moment. Therefore, experts advise companies to first start reducing emissions before turning to carbon offsets. Decarbonizing our energy systems and industry is the only way we can address this crisis.

Why carbon offset projects can still be useful

Current carbon offsets are generally unreliable. But it is still unfortunate that the negative image surrounding carbon offsets causes most people to overlook their potential if they are carried out faithfully.

If the United Nations for instance managed to establish a transparent and genuine carbon market, global emission reduction could be doubled, making it much easier and cheaper to reach climate goals. This alone shows that there are real possibilities to use carbon offsets as a way of controlling carbon presence in the atmosphere. The math must be on point.

Additionally, offset projects come with a lot of project capital and investments. Given the fact that these projects are usually carried out in poorer countries, this could have large benefits for respective regions and local communities. Investments in these regions have the power to create jobs and incentives to restore their forests and biodiversity hotspots.

If you want to make sure that you are investing in projects that walk their talk in terms of emission reductions, you should pay attention to their funding. You want to look for projects that can only reduce emissions with the necessary funding, avoiding projects selling you emission reductions that were going to happen anyway.

In Summary

Carbon offsets alone will not save the planet. They have been involved in and caused many problems to this day. On the other side, they can be useful in compensating for emissions that have no way around them if special attention is paid to the discussed issues.

However, companies are always advised to first address the emissions they can reduce before buying carbon offsets or avoid them completely as long as there are no clear regulations on them.

“The first step of climate action is awareness: it is only once you know what your footprint is that you will be able to take appropriate action to reduce it.” – United Nations