Plans to plant and protect trees and an initiative to scale up voluntary carbon markets could result in missed climate targets
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Offset programmes are becoming a popular way for businesses to claim progress in reducing emissions from their activities CALCULATION CONCERN
Quantifying the level of emissions offset by nature-based solutions is still not an exact science KEY QUOTE
In principle, offsets can be an effective strategy to reach the goals of the Paris Agreement… although there can be big challenges when it comes to implementation In February 2021, Occidental Petroleum, an American oil and gas firm, delivered two million barrels of seemingly contradictory “carbon-neutral” oil to Indian conglomerate Reliance Industries. The deal can claim to be the first major petroleum shipment for which greenhouse gas emissions associated with the entire crude oil lifecycle—from wellhead to combustion of end products—had been offset through renewable energy procurement. The transaction by the oil company was billed as a first step in the creation of a new market—and new jargon—for “climate-differentiated” crude oil. It was made possible through emission offsets sourced from projects certified under the Verra Verified Carbon Standard, which meets eligibility criteria for the UN’s International Civil Aviation Organisation’s Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) programme. Offsets are designed to compensate for the carbon dioxide (CO2) or other greenhouse gas emissions that a company, government or individual is unable to reduce through their own activities by paying a third-party to implement projects that reduce or absorb greenhouse gas emissions. This can be done through a variety of means, including energy efficiency, renewable energy investments and “nature-based solutions” such as planting trees and protecting existing forests and other natural carbon sinks. Occidental is not alone in seeking help to “decarbonise” through offsets. More and more, companies are looking to tackle Scope 3 emissions—their indirect emissions from customers or the supply chain—a task that is more difficult than cutting direct emissions and is one of the major drivers for offset demand. Among Occidental’s peers, Anglo-Dutch oil major Shell and Italy’s Eni have announced plans to compensate for emissions through nature-based solutions like reforestation to the tune of 140 million tonnes of carbon dioxide a year by 2030, an effort Axel Dalman, from UK-based think tank Carbon Tracker Initiative, points out would require a new forest stretching over an area between the size of Bulgaria and Spain. Shell is the most ambitious of the two, looking to offset 120 million tonnes at the end of the decade. However, carbon sequestration depends on factors like tree species and location and Dalman notes that Shell assumes “trees can sequester quite a lot of carbon while academics say they can actually do a lot less.” Airlines are also among the purchasers of carbon offsets and their customers are routinely offered the opportunity to compensate for their own emissions when booking flights. One sign offsets are in vogue was Italian fashion label Gucci’s announcement in January 2021 of its new Natural Climate Solutions Portfolio, which alongside regenerative agriculture investments also involves the offsetting of residual emissions with investment in REDD+ (Reducing Emissions from Deforestation and Forest Degradation) projects in places like Kenya, Zimbabwe and Honduras.
SCALING UP
A task force launched in 2020 by the United Nations special envoy on climate action and finance, and former Bank of England governor, Mark Carney estimates the market for voluntary offsets needs to grow some 15 times by 2030 and 100 times by 2050 to tap into corporate demand and “meaningfully support” the ambition to limit global heating to 1.5°C. The Taskforce on Scaling Voluntary Carbon Markets sees the dimensions of the market expanding from about $300 million in 2019 to at least $5 billion in 2030 and as much as $100 billion in 2050. Up to 85% of the potential for offsets is seen coming from natural climate solutions over the next decade. “In principle, offsets can be an effective strategy to reach the goals of the Paris Agreement” because they enable “emission reductions where they are cheapest” as hard-to-abate emissions are expensive to cut, explains Valentin Jahn of the Transition Pathway Initiative (TPI), which provides investors with data on the carbon performance and climate governance of listed companies. “This is the theory although there can be big challenges when it comes to implementation,” he says.
SLOWING THE TRANSITION
Prospective investors, like pension funds, like to see how much a company is investing in assets that are “consistent with a low-carbon transition and what contribution it sees from offsets” to gauge whether its energy transition may be at risk, says Jahn. “If you’re an airline, you can buy as many offsets as you want but it’s also important [for investors] to know that you are taking action to decarbonise your fleet of aircraft. Overspending on offsets could also represent a risk of locking in fossil-fuel investments.” “I don’t think it’s a problem that offsets or carbon capture are part of the tool kit of oil companies,” says Carbon Tracker’s Dalman, “but if they are using them to justify business as usual or to slow down the transition that is not a good thing.” To make emission targets credible, a preferred option would be to stop investing in new fossil fuel production, either returning these resources to shareholders or investing in renewable energy, he says. Danny Cullenward from CarbonPlan, a non-profit that assesses carbon removal solutions, says the amount of money that is flowing to offsets globally is still marginal—a positive given their quality is generally poor. However, he sees potential for offsets becoming a “huge problem”. Companies that scale up their purchases may incorrectly think “they have solved the problem without investing in direct emissions reductions in the supply chain”. Similarly, governments are at risk of erroneously concluding that they have found a cheap and easy solution to decarbonise if offsetting is made a priority in the policy agenda, Cullenward adds.
BOOSTING EMISSIONS
An analysis published in April 2021 by CarbonPlan, found that some 29% of forest carbon offsets it evaluated in California’s carbon cap-and-trade programme were over-credited due to a flaw in its design. In other words, they did not result in a reduction of carbon emissions. Offsets to protect forests represent about 80% of all supposed offsets in California’s market. Since those ghost credits resulted in permission for their purchasers to continue polluting carbon emissions were actually higher as a result of the programme, to the tune of about 31 million tonnes of CO2-equivalents. Cullenward is sceptical that the offset mechanism can be fixed and rather than trying to resolve the problems identified in the analysis the Californian regulator insists it is doing nothing wrong. Charles Canham, from the Cary Institute of Ecosystem Studies, sees “no true benefits to the existing markets in the US in providing meaningful offsets to future CO2 emissions.” The compliance market in California as well as other voluntary offset markets “use a baseline that simply can’t be defended” in calculating allowable permits, Canham says. The baseline typically reflects “how much carbon would be released if I aggressively harvested my currently well-managed forest” rather than the intuitive assumption that today’s rate of growth in carbon storage will continue and should be increased to receive credits. “Future emissions allowances are being calculated against past carbon sequestration,” he says. Canham is also concerned that studies highlighting the potential of natural climate solutions are misleading by taking a “single-minded approach and looking to forests as a solution to maximise carbon benefits, when they provide a diverse set of benefits and when fundamentally what we need to do is to decarbonise the energy system.”
MULTIPLE PROBLEMS
Besides questions about additionality—the principle that offsets generate emissions reductions that would not have happened without their existence—offset projects suffer from several other issues, including concerns about how long carbon sequestration will last. There is also a high degree of uncertainty about leakage. For instance, if you protect one forest it might simply lead to cutting down trees somewhere else. Problems with offsets are not confined to the US and are not new. A 2016 study led by German environmental research institute Oeko-Institut on the Kyoto Protocol’s Clean Development Mechanism (CDM), the world’s first major offset programme, found that it was “likely that the large majority of the projects registered and CERs (Certified Emissions Reductions) are not providing real, measurable and additional emission reductions.” The Office of the Auditor General in Norway, the largest contributor to REDD+ projects, found that results from the programme were “delayed and uncertain”, while there was “considerable uncertainty about the climatic impact.” It also highlighted the potential for fraud. Carney’s taskforce seems to acknowledge offsets are imperfect, noting multiple “pain-points” in the market for carbon credits, including concerns about quality, additionality, double counting, lack of transparency and worries that the use of offsets might simply be greenwashing. It aims to define “high-integrity standards (for carbon credits) while at the same time ensuring a robust, transparent and liquid market” and to establish an independent governance body to help ensure quality.
WRONG SIGNALS
Despite numerous question marks over offsets, the UN’s International Civil Aviation Organisation’s wants to limit growth in emissions in international air travel via the UN’s Corsia offset system. Aviation emissions have been part of the European Union Emissions Trading System (EU ETS) since 2012, although pushback from international airlines resulted in the scope of the bloc’s carbon trading market being limited to flights within the European Economic Area. In July 2021, the EU is set to propose how it plans to coordinate its emissions trading system with Corsia. “In our view, you shouldn’t implement Corsia at all,” says Jo Dardenne, aviation manager with Transport & Environment, a Brussels-based non-profit promoting sustainable transport. “We and other NGOs have tried to help reform [the Corsia mechanism] but don’t see a future for it anymore.” Dardenne points to problems with double counting of offsets, evaluating whether emissions reductions would have occurred anyway and the excess supply of carbon credits that are expected to keep prices low for the foreseeable future. “Airlines will always have the certainty of having an offset available and not having to reduce emissions,” she says. A September 2020 report prepared for the European Commission indicates that Corsia is also almost certainly at odds with the European Green Deal, which sets a target for a 90% reduction in transport emissions compared to 1990 levels by 2050. “If EU participation in Corsia replaces part, or all, of its existing regulation for aviation it is unlikely that aviation would sufficiently contribute to the 90% reduction in transport emissions and risks undermining the ability to reach net-zero emissions by mid-century,” the report says. Aviation is “over-subsidised and under-regulated” resulting in a lack of incentive to cut emissions and invest in clean fuels, says Dardenne. “Offsets in aviation are a fake solution and a distraction from effective policies.” Lawmakers instead should look at measures pursued in road transport where increasingly tight CO2 emission standards paved the way for electric cars, she says.
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Heather O’Brian