By Nicola Peill-Moelter
If you’re like me, as someone who is trying to reduce my carbon footprint, you might be struggling with the fact that most everything we do has a carbon impact: driving, flying, living in a house or apartment, eating, buying things. And while you’re doing your best to reduce that impact, it’s not going to zero anytime soon. So maybe you’re thinking of buying carbon offsets. But they seem sketchy; paying to pollute. Or perhaps they provide a needed revenue stream to accelerate carbon reduction projects. In this blog, I share my understanding and experience with carbon offsets that I hope will help you navigate the carbon offset market and have the most meaningful impact possible for your dollar.
What Is Your Motivation?
A key question to ask yourself when wading into the world of carbon offset purchasing is, why do you want to buy offsets? Your answer can help inform what type of offset you buy and how much you spend. Do you want to:
- do everything you can to reduce your carbon footprint?
- accelerate the development and scale of carbon sequestration technology and practices?
- do something, better than doing nothing?
- salve your conscience so you can say you have a zero-carbon footprint after your trip around the world?
In a perfect world, offsets would be purchased only after we’ve done as much as we can to avoid and minimize our carbon footprint. Avoiding carbon emitting activities clearly has the most impact such as riding your bike instead of driving and using renewable energy. After avoidance comes reduction, using public transportation, eating local, taking a train or bus rather than flying (or Zooming!), recycling and reusing, driving a more fuel efficient car and energy-efficient appliances. For those of us with means, restoring ecosystems, such as degraded land, can be very impactful and help sequester carbon dioxide from the atmosphere, as well as help to increase biodiversity. Carbon offsets can then be a meaningful way to contribute to carbon reductions.
Carbon Offset Defined
Before I jump into details about carbon offsets, let me define them. A carbon offset, also called a carbon credit, is a tradeable instrument, like a stock or bond, that represents one metric ton (Metric ton = 2,204.6 pounds = 1,000 kilograms) of carbon dioxide equivalent* (“carbon” / CO2e) that either has been removed from or avoided being emitted into the atmosphere. For example, planting trees removes carbon dioxide while switching to a more fuel-efficient car reduces carbon emissions. Because greenhouse gases mix uniformly in the atmosphere, a reduction in emissions in one region will have an impact globally. This is good news in that the location of a carbon reduction or reduction project does not matter in terms of its global impact. An offset certificate is generated by a project for every one metric ton of CO2e avoided or sequestered.
Carbon Removal versus Carbon Avoidance and Reduction
Carbon offsets are generated by projects that avoid/reduce GHG emissions relative to a baseline or status quo or sequester carbon dioxide out of the atmosphere for a period (years). Sequestration is critical because to stay below 1.5°C global temperature rise, the world needs to not only reduce our carbon emissions but also draw down carbon dioxide from the atmosphere. As such offset projects are categorized as carbon reduction/avoidance or removal.
Compliance Versus Voluntary Offsets
Offsets are purchased by an entity (ex. company, government, person) as a means of reducing, or “offsetting”, its carbon footprint in lieu of directly reducing carbon emissions or removing atmospheric carbon due to cost and/or convenience. Where emissions are regulated such as under the China and California Emissions Trading Schemes, some entities such as electric power plants, must purchase carbon credits if they exceed a level of annual emissions set by the scheme. This is considered a “market-based” approach to carbon reductions that give businesses the option to invest in technology or processes to reduce emissions or purchase carbon credits. In 2021, the compliance market was $850 billion.
There is also a growing contingent of public and private entities and individuals that are voluntarily purchasing carbon offsets representing a self-imposed price on carbon. It’s a recognition by the buyer that carbon emissions have a real cost to society. In 2020, the voluntary carbon offset market was $2 billion and expected to grow upwards of $50 billion by 2030. Certainly, there’s money to be made reducing and sequestering carbon!
Carbon Offset Quality
There is no global entity or standard for verifying the quality and legitimacy of projects generating carbon offsets. Today, non-profit organizations fill this void such as The Gold Standard, Climate Action Reserve, American Carbon Registry, Verra, CDM, SCS Global Services and Green-e Climate Standard. You can feel confident that a carbon offset that has been verified and certified by one of these organizations is a quality offset, vetted for additionality, permanence, exclusivity, and accuracy.
Additionality
A key criterion for offset projects is “additionality”, that is, the carbon reduction or removal project would not have been viable without the revenue from the sale of offsets. This ensures that the revenue from offsets does not fund commercial projects that would have happened anyway because those projects would have been profitable without the offset revenue. As you can imagine, the determination of additionality is probably more an art than a science and where there’s room for abuse.
Permanence
Permanence is an indication of how long the carbon is likely to be removed from the atmosphere and not re-emitted. Carbon that’s kept out of the atmosphere for 100 to thousands of years is considered permanent. There are very few proven methods that can achieve this level of permanence including biochar, geologic storage (including bio-oil), direct air capture, and mineralization. Offsets from these projects are very expensive, $100s-$1,000 per ton of carbon, a reflection of the cost and permanence of the carbon sequestration.
Exclusivity
Exclusivity ensures that the carbon reduction, avoidance or sequestration is only claimed or used by the entity owning the carbon offset. Exclusivity avoids double counting. There is only one offset generated for each metric ton of carbon avoided or sequestered that can be claimed only once by the offset owner. Once the offset value has been claimed, say in a carbon reduction report, that offset is retired and no longer available for sale, transfer, or additional claim. Registries, such are the American Carbon Registry, are similar to a stock market, and issue, and track the ownership and status of offsets.
Accuracy
Certified projects are also evaluated how accurately carbon reduction or sequestration is estimated. Low quality offsets overestimate the carbon avoided or sequestered to sell more offsets, typically by overestimating the project’s baseline emissions before carbon-reduction strategies are put into place.
Price is generally a good indicator of quality, carbon reduction/removal and co-benefits. Carbon offsets range from $1 to over $1,000 per ton of carbon. Estimates of the “true cost of carbon” are as low as $50 to over $200 per ton of carbon. The lower estimate doesn’t include all the social and economic impacts of climate change. And, of course, there are many societal benefits of carbon reduction to offset these costs such as reduced pollution, improved health outcomes, job creation and ecosystem restoration.
Nature Based Solutions vs Technological Solutions
There are two general types of carbon reduction and sequestration solutions: nature based (NBS) and technological. NBS use science and ecology applied to target ecosystems over time to reduce carbon emissions and sequester more carbon. Examples include reforestation, wetland, mangrove and prairie restoration, and regenerative farming. Technological solutions are numerous including energy efficiency, renewable energy, bio-fuels, geologic storage, and direct air capture keeping in mind the requirement of additionality. While both solution types can also contribute to job creation and pollution reduction, NBS can have additional co-benefits such as increasing biodiversity, restoring ecosystems, environmental justice, sustainable livelihoods, reducing erosion, flooding and droughts, and.
Today, NBS dominate the carbon removal market because they tend to be low cost and readily available to meet the high demand for offsets. The downside is that NBS are vulnerable to human and climate disturbances where the sequestration can be easily and quickly reversed. NBS also carry a risk of leakage, where, for example, a reforestation project can shift deforestation to another area. Because you’re dealing with Nature and less-than-perfect knowledge, it’s often difficult to establish an accurate baseline which leads to questionable reduction benefits. And projects can have weak additionality.
Impactful or Greenwashing?
So, after all that, do carbon offsets make a difference? Are they worth buying? In my opinion, yes. Here is some guidance:
- Understand your motivations. Knowing your motivations and goals for buying offsets can help inform what type of offset to buy and the price you’re willing to pay. Where possible, investigate the project(s) generating the offsets to find ones that align with your goals.
- Send a signal that carbon reduction is valuable. Like renewable energy certificates (RECs) that come with buying renewable energy, by buying offsets, you are sending a signal to the market that reducing and removing carbon has value – almost a trillion dollars’ worth by 2030! That’s a strong incentive for investors and project developers to get involved.
- Help improve carbon offset project quality. We know that carbon offset projects are imperfect. Revenue from carbon offsets can help scale and improve solutions leading to more, better, and cheaper solutions, like the renewable energy market.
- Maximize the impact of your dollar. Offset price is generally an indicator of quality and impact. But we can’t spend a fortune on offsets. Buying offsets that are certified and verified by reputable organizations helps to ensure project transparency and quality, and looking for offsets with multiple co-benefits can maximize the impact of your dollars spent.
*Carbon dioxide equivalent is a way to compare in a single metric the warming power of different greenhouse gases (methane, nitrous oxide, hydrofluorocarbons) by weight indexed to carbon dioxide which has a relative warming power = 1. A measure of how much energy the emissions of 1 kg of a gas will absorb over a given period of time, relative to the emissions of 1 kg of carbon dioxide.
Carbon Footprint = Greenhouse Gas Footprint
While we use the terms “carbon offsets”, “carbon emissions” and “carbon footprint”, “carbon” can be inclusive of all human-generated/caused greenhouse gases. This includes methane from fossil fuel activity, nitrous oxide from agricultural practices, and industrial gases like hydrofluorocarbons and sulfur hexafluoride (SF6). Particulate pollutants such as soot and aerosols also contribute to a carbon footprint. By weight, these compounds have very different atmospheric warming powers and life spans. For example, the warming potential for SF6 is 50,000 times higher than CO2 and persists in the atmosphere for thousands of years. So just a little bit of SF6 can have a big warming impact. To represent and compare these compounds in a single “carbon footprint/offset” metric, they are indexed to carbon dioxide with respect to their global warming potential, where carbon dioxide has a relative warming power of one.
Further Reading
Carbon Offset Verification: Are Your Offsets Legit?
How The Voluntary Carbon Market Can Help Address Climate Change
Microsoft Carbon Removal Lessons Learned
https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RE4QO0D
Carbon Offset Guide
Microsoft 2021 carbon offset projects analysis
https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RE4MDlc