Are Offsets a Scam?

Some have likened offsets to buying pardons in the Middle Ages (see the spoof site Others hail offsets as an important part of the solution to the climate crisis because of their economic and environmental efficiency and their potential to deliver sustainability co-benefits through technology transfer and capacity building. Let's look at some of the major pluses and minuses of the carbon market. The voluntary offset market in particular has been promoted for the following reasons:

Possibility of Broad Participation

The voluntary carbon market enables those in unregulated sectors or countries that have not ratified Kyoto, such as the US, to offset their emissions.

Preparation for Future Participation

The voluntary carbon market enables companies to gain experience with carbon inventories, emissions reductions and carbon markets. This may facilitate future participation in a regulated cap-and-trade system.

Innovation and Experimentation

Because the voluntary market is not subject to the same level of oversight, management, and regulation as the compliance market, project developers have greater flexibility to implement projects that might otherwise not be viable (e.g. projects that are too small or too disaggregated).

Corporate Goodwill

Corporations can benefit from the positive public relations associated with the voluntary reduction of emissions. Most importantly, voluntary and compliance offset mechanisms have the potential to strengthen climate policies and address equity concerns:

Cost-effectiveness that allows for deeper caps or voluntary commitments.

By decreasing the costs of reductions, offsets can in principle make a compulsory mandate more politically feasible and a voluntary target more attractive, thereby accelerating the pace at which nations, companies, and individuals commit to reductions.

Higher overall reductions without compromising equity concerns.

One of the greatest challenges of climate protection is how to achieve the deep global emissions reductions required while also addressing the development needs of the poor. Historically, developed nations have been responsible for a much larger share of the increase in atmospheric GHG concentrations than developing countries. But to achieve climate stabilization, emissions must be curbed in all countries, both rich and poor. Offsets may be one way out of the conundrum of needing to achieve steep global emissions reductions while at the same time allowing poor nations to develop. This has not been the case thus far because the emissions reductions undertaken have been too small to be significant. Small reduction targets allow participants to tinker at the margins and avoid the kind of restructuring that is needed to achieve climate stabilization. While taking on considerable domestic emissions reductions, industrialized countries could, through offsets, help finance the transition to low-carbon economies in developing nations. In other words, offsets might allow equity to be decoupled from efficiency, and thus enable a burden-sharing arrangement that involves wealthier countries facilitating mitigation efforts in poorer countries. For an in-depth analysis of such a potential climate and equity framework, see the Greenhouse Development Rights Framework.

Yet carbon offsetting is not without its critics. A recent flurry of media reports has criticized the poor quality of carbon offsets projects in both the compliance and the voluntary market. Here are the most often cited criticisms:

Non- additional

Recent research reports have pointed out that a significant number of offsets come from projects that would have been implemented anyway (i. e. they are non-additional). More about additionality.

Lack of Fairness

Critics have also raised concerns over equality and fairness based on the argument that carbon offsetting enables developed nations to perpetuate unsustainable lifestyles by funding carbon projects in developing countries. Some argue that these projects rarely lead to benefits for the host community, and have gone so far as to call the offset market a form of carbon colonialism.

Lack of Transparency

The voluntary offset market in particular has been criticized for its lack of transparency, quality assurance and third-party standards.

Despite these critiques, carbon markets are already a substantial economic force and will likely grow considerably over the coming years. It is therefore important to focus the discussion on how to use these markets most effectively to:

Contribute to climate protection through real and additional, permanent, and verifiable greenhouse gas (GHG) reductions, while limiting unintended negative consequences.

  • Reduce GHG emissions in an economically efficient way.
  • Enhance the social and environmental benefits to project hosts.
  • Stimulate social and technological innovation and participation by new actors sectors and groups.
  • Create and build constituencies for more effective and comprehensive national and international solutions.
  • Avoid perverse incentives that could stymie broader climate protection actions and policies.
  • Synergistically work with other climate protection measures.

To address these shortcomings, over a dozen voluntary offset standards have been developed in the last few years. Each standard has a slightly different focus and none has so far managed to establish itself as the industry standard. Some closely mirror compliance market standards, while others take a more lenient approach in order to lessen the administrative burden and enable as many credits as possible to enter the market. Certain standards are limited to particular project types (e.g. forestry) while others exclude some project types in order to focus on the social benefits of carbon projects. It is important to note that the vast majority of voluntary offsets are currently not certified by any third-party standard. This is likely to change over the coming years.

To read a short summary about the most important offset standards, go here.