Carbon Offsets: 25 Years of Lessons Learned

We have a 25-year history with carbon offsets, which began in the U.S. in 1989 through the voluntary efforts of independent power producer AES. Electric utilities and others soon followed suit, both to demonstrate their environmental and climate change bona fides and because they saw offsets as an alternative to future emissions reductions mandates. Climate change advocates generally supported these offset initiatives, seeing them as measures that would make it more difficult for companies to later oppose climate policy. Carbon offsets have become a staple of climate change policy proposals at the state, federal, and international levels. Without offsets, neither the Kyoto Protocol internationally nor AB 32 in California might have become law.

But integrating offsets into comprehensive climate policy needs to be distinguished from deploying offsets for individual infrastructure projects around the world (e.g., the Keystone pipeline). It is difficult – indeed, impossible – to argue that any one offsetting measure will have a discernible effect on worldwide emissions and overall climate change. Even offsets in the aggregate cannot by themselves substantially contribute to stabilization of GHGs in the atmosphere, much less at a level that limits global climate change to anything resembling 2oC. So what is the policy rationale for pursuing offsets on individual facilities?

  • Isn’t doing “something, anything” better than doing nothing, given that there is no climate legislation anywhere in the world that even begins to limit climate change to 2oC?
  • But doesn’t new (even offset) fossil fuel infrastructure lock-in new GHG emissions for decades?
  • If facilities permitted today with offsets are grandfathered against future emissions reduction mandates, could they actually increase actual cumulative emissions?
  • If offsets are ok for one project, why wouldn’t they be equally acceptable for coal plants or LNG and coal-export facilities?

If policy-makers conclude that offsets will be used for a new infrastructure project, will they deliver the intended environmental benefit? The quality of offsets in today’s carbon markets is all over the map. Even regulatory markets, such as the Clean Development Mechanism under the Kyoto Protocol, have been critiqued for letting substantial quantities of low-quality offsets slip into the system. When it comes to offsetting new fossil fuel energy infrastructure, can environmental performance be assured, or does low-cost become the primary criterion?

These are important questions when it comes to using offsets as a permitting tool.  “Anything is better than nothing” is an inherently weak argument that may have no relationship to the end-game of climate change mitigation. It can be used to justify the pursuit of ineffective measures, and even potentially lock in undesirable outcomes. Unlike 20 years ago, when offsets were a corporate slippery slope that helped companies begin to anticipate climate risk, moving the whole topic of climate change mitigation forward, cheap offsets used unwisely today can undercut business perceptions of material climate risk, and put us onto a slippery slope running in the opposite direction.

This is not to say that offsets cannot or should not be a legitimate part of a meaningful climate change strategy. Using offsets for an isolated piece of fossil fuel infrastructure, however, should be approached with care. If offsets are the answer, we have to make sure we understand the question.

This blog is based on a recent paper from The Climatographers titled “Policy and Technical Issues Associated with Offsetting the CO2 Emissions of New Fossil Fuel Infrastructure Projects.”  For a copy of the paper, please send an email to and mention Offsets in the subject line.

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