What is the most cost-effective way to buy carbon offsets?

[00:00] LHF: What if you could pay someone else to erase your carbon emissions?

I’m Laur Hesse Fisher with the MIT Environmental Solutions Initiative. And on this episode of Today I Learned: Climate, we’re talking about carbon offsets. Many companies, organizations, and even entire countries are using carbon offsets to try to cancel out the carbon dioxide they’re adding to the atmosphere, which, as we know, is dangerously warming the planet. And today I have a guest who can tell us all about how carbon offsets work—and, as it turns out… how they don’t.

[00:41] BH: I’m Barbara Haya. I'm a Research Fellow at the Goldman School of Public Policy at the University of California Berkeley. I do research on carbon trading programs and the effectiveness of carbon offsets.

[00:53] LHF: Dr. Haya has been studying carbon offsets for decades.

[00:57] BH: Around twenty years ago, when I was a PhD student at UC Berkeley. I was really interested in the different roles of wealthy and poor countries in the Kyoto Protocol and in the offset program.

[01:11] LHF: We’ve talked on this show before about the Paris Agreement, the big UN agreement in 2015 that provides a framework for nearly every country in the world to try to control their planet-warming emissions. But before the Paris Agreement, there was the 1997 Kyoto Protocol.

[01:32] BH: The Kyoto Protocol was the first main international global climate agreement under the UN that mandated that some countries needed to reduce their emissions.

[01:45] LHF: The Protocol had some big holes in it—for one thing, the world’s biggest emitter at the time – the US – never got on board. But it did require some other big industrialized countries to start cutting their emissions.

[02:01] BH: And industrialized countries argued greenhouse gases are well mixed in the atmosphere. It doesn't matter where we reduce emissions, so if it's cheaper to reduce emissions anywhere in the world, we should be able to do that.

[02:12] LHF: So say you’re Germany, a well-off country that has agreed to lower its emissions. You could build a bunch of wind and solar farms to take some of your coal plants offline. But you can’t help but notice it would be cheaper to build that same clean energy in India, and take some of their coal plants offline—and since a CO2 molecule warms the planet the same in Germany as in India, the planet wouldn’t notice the difference.

[02:43] BH: So this carbon offset program was created that allowed industrialized countries to invest in carbon reduction projects anywhere in the world, and use the resulting credits towards their domestic emissions reductions targets. 

[02:58] LHF: So if Germany emitted, say, 10,000 tons of carbon dioxide more than they promised they would, they could buy 10,000 tons’ worth of carbon offsets, and bam, mission accomplished: they can say that they’ve met their climate goal.

But of course this only works if we’re sure these offset projects are actually keeping carbon out of the air. So to keep track, every offset program has a “registry.”

[03:26] BH: Offset registries write the rules. They define a set of project types that are allowed to participate, eligibility criterion, and methods for estimating emissions reductions.

[03:39] LHF: If, say, you want to build a wind farm and sell offsets to Germany, the registry will have a set of rules to see if your wind farm qualifies, and how many tons of CO2 it’s going to keep out of the air–and therefore how many offset credits you can sell. It also requires you to hire a verifier who will check that you’re following the rules.

This whole market is growing: More countries are setting limits on their emissions, and using offsets to help meet those targets. 

[04:13] BH: Here in the US there's California's offset program, there’s Quebec’s, Australia has one, South Korea, many programs around the world. And then the voluntary market grew from these organizations that wanted to offer companies and individuals a chance to buy these credits to offset their own emissions voluntarily.

[04:37] LHF: Right, now you don’t have to be a country in order to buy offsets—you can just be, well, you, trying to lower your personal impact on the climate. Or more likely, a company. Lots of companies are claiming to go “carbon neutral,” meaning they do something to cancel out their carbon emissions. Most likely, that “something” is buying carbon offsets.

So what kinds of offsets are people and companies buying?

[05:07] BH: So most projects on the market are forest projects. These are improved forest management, avoided deforestation especially in the global South and tropical areas. That's generating 43% of credits on the market today.

Renewable energy is generating almost a third of credits. Wind power, biomass power, hydro power around the world. And then there's a whole slew of other project types, including waste management, landfill gas methane capture, coal mine methane capture, reducing emissions from chemical processes. And then around five percent of credits are these smaller community projects like cook stove projects, clean water projects, solar lighting projects in the rural South that not only reduce emissions but also provide tremendous benefits to people's lives.

[06:04] LHF: And this market is skyrocketing: in 2021, people and companies bought almost $2 billion of carbon offsets—almost four times what they spent the year before. And even that is nothing compared to what countries spent on offsets—around $750 billion.

So this all sounds good on paper – but are offsets really keeping out as much CO2 as they promise?

[06:38] BH: No, they aren't. This is what I've studied for the last twenty years, and across multiple generations of offset projects and offset programs. Many of the credits available on the market don't represent real emissions reductions.

[06:56] LHF: Yeah, this is the bad news—while countries, companies and, yes, even you, may be thinking they’ve canceled out their carbon emissions, all this activity around offsets might actually be making climate change worse.

To understand this, let’s go back to Dr. Haya’s early research on offsets. She was studying them in India in the early 2000s.

[07:19] BH: At the time that I was studying this, the Indian federal government as well as state governments were really interested in building out wind power, and there were many subsidies and incentives for the technology.

[07:31] LHF: But at the same time, European countries wanted to build that same wind power, to offset their emissions. Which raises a question: did these wind farms even need the money from the offset program?

[07:44] BH: A buyer of these credits should not get credit for paying someone to do what they would have done anyway.

I ended up speaking to one consultant who was helping a wind developer develop a project, and he said that he would at times create two different financial assessments for the same project, where he would do one that said that the project is cost effective, and he would send that to the bank in their application for a loan, and then he would do another one that said the project is not cost effective, and he would send that to the UN in their application to be included in the Kyoto Protocols offset program.

It's really important that the offset income is really making reductions happen that wouldn't have happened otherwise. And that's called additionality.

[08:34] LHF: It’s like if someone was paying you to clean up the beach—so you go down to the boardwalk and pick trash out of a trash can, and haul it off to the dump. That trash was going to be hauled off away anyway by the city: you haven’t cleaned any additional trash off the beach.

And this additionality problem doesn’t seem to be getting any better. Look, for example, at forest projects.

[09:00] BH: Most of the forest projects are being credited not for doing something, but for not doing something. Not deforesting and not aggressively harvesting. And that means it's very easy to tell a story of a high risk of deforestation and harvesting, so you can generate lots of credits early on.

[09:28] LHF: Right, these projects are telling the registries, if you don’t let us sell offsets, someone’s going to cut down these trees. But it’s hard to know in all cases if that’s true.

[09:38] BH: Verifiers and auditors are not used to making an assessment as to whether the project developer is lying or not. And what that means is that landowners can now get paid offsets for what they would have done anyway. And there's a lot of evidence that this is, in fact, what's going on.

Another quality issue with these projects is the risk that the carbon that you're storing will be released back to the atmosphere through wildfire or a beetle outbreak.

[10:13] LHF: Sure. These projects are trying to keep carbon inside trees—and if those trees die and decompose or burn up, then, poof, there goes your offset.

[10:24] BH: But there's another problem of leakage.

[10:27] LHF: “Leakage” means that sometimes these projects don’t stop carbon emissions, so much as move them around. So say your offset purchase really does protect a tract of trees that was otherwise going to be logged. If timber companies can just log a different plot of land instead, then what did the offset save?

[10:46] BH: And I did one study of this, and found that just from the leakage accounting, the projects most likely are over-crediting by three or four times.

[10:56] LHF: If we make the wrong assumptions in calculating offsets, buyers are going to think they’ve “canceled out” their emissions, when really they’re still warming the planet.

[11:07] BH: I think offsets are sort of a perfect storm for poor quality. The buyer wants cheap credits, the seller wants to sell more credits for doing less, the third party verifier wants to be hired again, and the registries themselves are competing with one another. They're in the business of generating credits. So you don't have future generations or the climate at the table in this market.

And I think that there's a real need for researchers to shine a really bright light on what's really happening on the ground to make sure that we aren't just reducing emissions on paper.

[11:48] LHF: I don’t think it’s a bad thing that companies want to be carbon neutral—if they can’t reduce their emissions to zero then, should they just say, oh well, nothing we can do?

[12:01] BH: What I would love to see is instead of treating these credits as offsets where you can call your business “carbon neutral”, which is not accurate, you disclose how much you're emitting, how much you've reduced your own emissions, and then also instead of the offset market, pay into different funds to support effective climate mitigation.

[12:28] LHF: And maybe that makes sense. Because as appealing as it is to “erase” your carbon emissions, maybe even the best carbon offsets can’t actually undo our actions.

[12:40] BH: You could say there are two main problems with the offsets. One is the quality issues that we discussed, and then there's more of a question of, “Aren't you always responsible for your emissions? Can you emit carbon and then pay someone else and be absolved from being responsible for your emissions? And I think that both issues are real issues.

[13:06] LHF: That’s our episode. As always, we have more resources in our show notes at tilclimate.mit.edu if you want to learn more about carbon offsets or the studies that have tried to estimate how effective they are. And we have an Educator Guide for bringing this episode into the classroom.

TILclimate is produced by the MIT Environmental Solutions Initiative at the Massachusetts Institute of Technology. David Lishansky is our Editor and Producer. Aaron Krol is our Associate Producer — and did our artwork. Michelle Harris is our fact-checker. Sylvia Scharf is our Climate Education Specialist. Adam Nacov is our Student Production Assistant. The music is by Blue Dot Sessions. And I’m your Host and Producer, Laur Hesse Fisher. 

Thank you to Dr. Barbara Haya for speaking with us, and thank you for listening.