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June 2, 2023

Carbon Offsets Are Driving Decarbonization — Or Are They?

Mark Trexler

A new study by Trove Research, Corporate Emissions Performance and the Use of Carbon Credits, concludes that "material" purchasers of offsets are "decarbonizing" twice as fast as others, and suggests "causation." Is that a fair conclusion? Here are some of my initial reactions to the report:

1. Nothing in the Trove report supports the assertion that: "The evidence of the last five years strongly suggests that the voluntary purchase of carbon credits provides companies an incentive to accelerate their emission reductions." I am not at all surprised about a correlation between companies purchasing offsets and "reducing emissions" -- but that doesn't mean that purchasing offsets is DRIVING faster emissions reductions.

2. The report never says whether the offsets themselves are being counted as "reductions" against Scope 1 or 2 emissions. I'm assuming NOT, since that would undermine the term "decarbonization" as used in the report. However, I'm perplexed that the report never clarifies this obvious question. And it's a HUGE question. Were (highly questionable) Renewable Energy Certificates part of companies' "reductions?"

3. A Big Data study? Studies like this should test a hypothesis, not come up with a hypothesis after running the numbers. The Trove report suggests an explanation for the data as:

"In part . . . because when purchasing credits, companies voluntarily attach a price to their emissions. This results in an annual cash expenditure in their budget, which companies then try to reduce. The opportunity to reduce costs then helps to strengthen internal business case(s) to reduce emissions in that firm’s investment / budget approval processes."

Is that a post-hoc explanation as opposed to an initial hypothesis? Is there any evidence that an (implied) internal carbon price of $3-9/ton (based on offset prices) would drive "decarbonization?"

4. Sample Sizes. The report is based on 350 "material" corporate purchasers of offsets, with "material" defined as purchasing at least 100 tons of offsets during the 2017-2022 period. That is a VERY low bar for the term "material purchaser," presumably because a higher bar would have denied the study most of its "statistically significant" results.

5. The main results are based on "median" annual reduction in emissions 2017-22," rather than average. Averages are included in some of the tables, and are surprisingly close to the median. I’d REALLY like to know the details of the statistical testing, particularly the standard deviations. Statistical significance doesn't necessarily infer "policy significance."

6. What would explain 3% per year median emissions reductions for all the companies NOT buying offsets (although 30% of those companies increased emissions, compared to 25% of "material" offset users).

So if you're looking to this report for confirmation bias (we all do!) recognize there are some big issues that are, at the very least, not addressed.

Trove report chart stating that companies that are material users of carbon credits decarbonize faster than those not using carbon credits

Source: Trove Research, Corporate emission performance and the use of carbon credits (2023).

Featured image by Gerd Altmann from Pixabay. See original post on LinkedIn for comments and discussion.

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