This week, governments, policy makers, business leaders and members of civil society will gather in Dubai for COP28, to discuss the progress towards the goals set out in the Paris agreement. There is much work to do, with models predicting that on the current policy and action trajectory, the world could experience over 2.5 ºC warming before the end of the century—significantly higher than the 1.5 ºC level of warming agreed to at the Paris Agreement. The breach of this 1.5 ºC target is expected to increase the likelihood of the more extreme and irreversible effects of climate change, exposing millions more people to dangerous heat and droughts.
In a world grappling with the urgent need to combat climate change, voluntary carbon offsetting has emerged as a popular strategy for businesses to mitigate their carbon emissions. However, the practice faces fierce criticism, due to recent revelations regarding frequent overstatement of the environmental benefit of offsetting projects, and also their potential to exacerbate social inequities. Despite the rapidly evolving landscape of voluntary carbon offsetting, and the lack of scientific consensus on its efficacy, sequestration of carbon remains a key policy mechanism for reaching net zero. As such, it is imperative to support appropriate projects that not only contribute genuinely to environmental goals, but also prioritize social equity.
The environmental impact of carbon offsetting
As companies face regulatory and consumer pressure to address their environmental impact, voluntary carbon offsetting through platforms such as the UN Carbon Offset Program have emerged as a beacon of hope, offering a tangible way for companies to address their carbon footprint. The premise is simple: companies invest in projects that claim to reduce or capture greenhouse gas emissions equivalent to those produced by the company, thus achieving a net zero carbon impact. These projects include initiatives such as reforestation, renewable energy, peatland restoration, and efficient cookstove programs to name a few.
Carbon offset projects are typically assessed for credibility by methodology, additionality (emissions reductions directly attributable to offset project activities), measurement verifications, permanence (long term stability of emissions reductions), and social and environmental co-benefits.
One of the primary criticisms levelled against carbon offsets is that they are not credible. One of the largest voluntary carbon offset trading platforms, Verra, earlier this year was the subject of a Source Material investigation that found only 6 percent of traded carbon offsets led to real emission reductions. This disconnect between the promised impact of offsetting projects and their real-world results has led to scepticism about the effectiveness of this strategy. In some cases, offsetting projects may even lead to ecological and environmental damage.
Carbon offsetting also shows a damaging tendency to view the broader ecological crisis through a narrow lens of emissions and global warming. For example, ecologically inappropriate interventions in tree-planting or the construction of hydroelectric dams may lead to the generation of carbon credits, but cause harm to biodiversity in the process. This overestimation of environmental benefits, and underestimation of environmental harm, can be partially attributed to a lack of standardized measurement and verification processes across an unregulated voluntary offset market, leaving it open to ambiguity and manipulation.
The Hidden Social Cost of Offsets
Beyond the environmental concerns, the carbon offsetting landscape has come under fire for its potential to exacerbate social inequities. Many offset projects, particularly in “developing” countries, have faced criticism for neglecting the impact they have on displacing local communities, infringing on land rights, and contributing to a neocolonialist approach to climate action. The United Nations Carbon Offset Platform, for example, exclusively sells credits for projects based in such countries. The degree of separation between the purchasers and producers of these credits may risk obscuring the true social impact of carbon offset projects.
In some instances, the benefits of offset projects fail to reach the communities directly affected by them. This lack of local engagement and consultation can lead to a disconnect between the project's intentions and its impact on the ground. In other instances, projects have contributed to extensive gender-based violence and come under fire from human rights organizations. For carbon offsetting to be a genuinely sustainable solution, it must address these social concerns and ensure that impacted communities are active participants in decision-making processes.
The Future of Offsetting
The jury is out on what the future holds for carbon offsets. The University of California recently announced that it would be all but eliminating the use of third party carbon offsets, with ambitious plans to decarbonize its operations directly through targeted actions such as on campus solar projects. Many other businesses are also opting to drop carbon offsets from their net zero strategies, citing a lack of confidence.
However, with the value of the voluntary market for carbon offsets projected to be worth $10-40 billion dollars by 2030, it’s safe to say that there remains a strong demand for the mitigation of greenhouse gas emissions by companies not legally obliged to do so. This could also be buoyed by the emergence of improved standards and transparency in accounting and reporting that may restore credibility and confidence.
If you accept the economic premise of “internalizing the externality” when it comes to carbon emissions (spoiler: I don’t), then a well regulated market for carbon offsetting has potential to mitigate the impact of greenhouse gas emissions. However, it currently has far greater potential to cause environmental and social harm if implemented carelessly.
When engaging with the voluntary carbon offset market, it is vitally important that well-intentioned measures to reduce the environmental impact of businesses are not the catalyst for further damage. In their current form, carbon offsets also present as a cheap sticking plaster for business as usual by mega-polluters. Net zero strategies should look to address decarbonization at source, with offsetting used as a last resort.
Furthermore, when offsets are used, proper due diligence around the choice of project is imperative, and locally appropriate offsetting projects should be considered to mitigate the potential for “out of sight, out of mind” social and environmental harms caused by projects in the “developing” world.