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April 26, 2021

Why Are Carbon Offsets So Hard?

Mark Trexler

There is so much arguing going on these days about carbon offsets that I thought it would be useful to explain via a simple story why carbon offsets have been so challenging to successfully implement. It comes down to the fact that you can never actually go back and find out whether a particular project truly was or was not additional. It's very much like the situation explored in the slide below, which drew a lot of laughs when presented at a Conference of the Parties almost 20 years ago.

Trexler quote re designing pregnancy test

But is there a way to make this point clear easily? I think so, and I've given it a shot below in this simple story.

At the end of last year, my phone's "stepper app" informed me that I had walked some 3,000 miles during the year, the equivalent of the distance from New York City to Los Angeles. It told me that the world was a "greener place" as a result and that my walking had saved the equivalent of a ton of CO2 (based on otherwise driving the same distance).

What if the stepper app then offered to buy that reduction from me in order to sell it into the voluntary carbon offset market? Let's say the app offered to pay me $5. What if the stepper app had recorded 1 million people walking the equivalent of 3,000 miles? It hoped to pay out $5 million for the rights to those reductions and to sell those offsets on the retail market for $20 million. A handy profit!

Here's the question: If I made the world greener by 1 ton of CO2 by walking 3,000 miles, as the app told me, can I sell that ton as a carbon offset? It’s a good question for exploring the challenge of assessing the “additionality” of projects being proposed as carbon offsets. To do so we’ll explore several scenarios. And remember the definition of additionality:

"Additional" emissions reductions for carbon offset purposes are reductions that can be traced back to the existence of, operation of, and/or financial incentives created by a carbon market, whether voluntary or regulated.

Scenario 1

I walked the 3,000 miles because my dogs needed to be walked every day. I was not trying to reduce my carbon footprint; in fact, my walking didn't reduce my carbon footprint at all since I would not have driven those same miles by car.

Scenario 2

In previous years I had "walked" my dogs by letting them run behind me while driving on the beach. This year my doctor told me I needed to lose weight, so I started actually walking the dogs. During the year I did walk 3,000 miles more and drove 3,000 miles less (and so I did reduce my emissions by 1 ton of CO2). 

Scenario 3

My 5th grader came home from school and informed me that I was a climate criminal for "walking" the dogs by driving on the beach. To get out of climate jail I agreed to do my part to reduce the family carbon footprint by driving less and truly walking the dogs.

Scenario 4

Having happened to hear about the existence of a voluntary carbon market, and because I'm always short on cash, I signed an agreement with a carbon offset broker at the beginning of the year committing me to driving less on the beach and actually walking my dogs, with the stepper app serving as verification. I would be paid $5 for the ton of emissions reductions resulting from my changed behavior.

Which of these scenarios can legitimately generate carbon offsets?

  • Not Scenario 1's walking, since no emissions reductions occurred at all.
  • Not Scenario 2's walking, since the walking was not attributable in any way to mitigating climate change, much less was it brought about by voluntary carbon markets.
  • Not Scenario 3's walking, since although based on the goal of mitigating climate change, the walking was still not informed or influenced by the existence of a carbon market.
  • Only Scenario 4's walking could legitimately generate qualifying offsets since it did result in CO2 reductions, and was directly attributable to the existence of the voluntary carbon market (and hence additional).

Note that in each of these scenarios the “stepper app” verified that the walking associated with the estimated emissions reduction occurred, but could not help at all with distinguishing between the four scenarios, the “why” behind the steps taken, and their potential offset legitimacy. That’s ultimately what matters when it comes to additionality, and generally speaking offset verification or verifiers don’t touch the topic of additionality. (It’s a common misconception that “verification” of a carbon offset extends to its environmental integrity. It doesn’t.)

How profitable will the stepper app end up being for its owners? Will the company successfully sell 1 million tons of CO2 reductions into the voluntary carbon market, netting $15 million dollars? It all depends on the scrutiny given to “additionality testing.”

You might think that no one would ever actually propose (or approve as offsets) Scenario 1-3 walking, but you’d be wrong, as Bloomberg and ProPublica news stories continue to point out on a regular basis.

Out of the original 1 million walkers who were told they’d made the world a greener place, how many do you think are likely to match Scenario 4? Would anyone go to all the trouble of walking 3,000 miles in order to receive a $5 payment? It seems unlikely -- which means that basically all of the “stepper app offsets” that might be sold into the market would represent Scenarios 1-3, constitute “false positives” in statistics-speak, and be unable to legitimately offset someone else's emissions.

The question that inevitably comes up next is: “Isn't it unfair to preclude the people who walked 3,000 miles from qualifying for the $5 even if their walking was for reasons other than the carbon offset market? How can you say that one person's 3,000 miles of walking benefited the climate, while another person's 3,000 miles of walking didn't?”

Quick answer? Carbon offset markets are not about fairness. They’re about incentivizing “additional” emissions reductions and carbon sequestration. If we’re going to let offset markets be swamped by non-additional reductions just to be fair, then we shouldn’t be using offset markets.

Originally posted on LinkedIn.

Tree image by Gerd Altmann.

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Mark Trexler

Mark has more than 30 years of regulatory and energy policy experience. He has advised clients around the world on climate change risk and risk management. He is widely published on business risk management topics surrounding climate change, including in the design and deployment of carbon markets. Mark has served as a lead author for the IPCC and holds advanced degrees from the University of California at Berkeley.

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