Possibilities and risks of carbon offsetting

The effects of climate change are already felt everywhere, and we need to start dealing with it immediately. Both public and private sector organisations have an ambitious task to reduce the climate impact caused by their activities significantly. To a large extent, the commitment comes from the EU’s Green Deal, within which Europe must be climate-neutral by 2050. But what can be done to contribute to a more sustainable future? 

One of the main ways is to start reducing your climate impact. There are several methods to reduce the climate impact directly, but they can be time-consuming and expensive, so many organisations are turning to compensation efforts. The idea of offsetting is that a project is carried out on behalf of an organisation, company, or person for a certain fee during which emissions are removed or reduced. Carbon offsetting is a very appealing way for companies to do a lot without much effort. And it tends to be so when something sounds too good to be true.

The logic of compensation is that if it is impossible to reduce or prevent one’s greenhouse gas emissions, then its climate impact can be balanced through someone else’s actions elsewhere. One example is flight compensation. Since it is difficult to reduce aeroplane emissions directly, the climate impact of flying can be balanced using compensatory measures. By measuring how much CO2eq is generated during one flight, it is possible to calculate how much CO2 the compensation project corresponding to the flight should remove from the atmosphere.

Although there are different metrics to evaluate compensation projects, experts generally focus on five quality criteria. 

A project is considered additional if its activities are not carried out without the compensation market. That means that the project activity is not additional if:

• the project activity is required by law or is already customary in an industry,
• the project is economically viable without income from the compensation market.

The biggest danger in estimating the correct level of emissions is overestimation. If the baseline level of the project’s emissions is too high, then the assessment of the project’s contribution to climate impact reduction is mistaken, i.e., the project’s impact is overestimated.

Although the risk of overestimation is more common, reduction projects can also underestimate actual emissions reductions. The result is the same – the project’s contribution is smaller than initially calculated. It is more economically beneficial for compensation project vendors to rely on more optimistic assumptions that may not hold true later.

Along with additionality, permanence is also one of the key pillars in evaluating high-quality compensation projects. The carbon sequestered or emissions reduced due to the project should be permanent because offset emissions are also permanent in the atmosphere. Since CO2 remains in the atmosphere for centuries to thousands of years, offset projects should also ensure the same removal/reduction duration.

For example, if a company calculates the total emissions in CO2 equivalents, it expresses the impact in a 100-year perspective. So, the offset would also have to bind carbon for at least 100 years for the math to work out.

Meeting the permanence criterion is most difficult for biomass projects (e.g., planting or protecting forests, agriculture, etc.) because they have the highest risk of reversal. Reversal here means the occurrence of unintended emissions during the operation of the compensation project. For example, a project will plant trees that sequester carbon. In the event of a forest fire, the sequestered carbon is released back into the atmosphere, and the compensation is invalid.

In order to ensure exclusivity, it must be established that the carbon credit being sold has a unique ID number, which is removed from the market once purchased. There is a risk of double counting the same carbon credit when several parties use the same credit.

Although the compensation market focuses on climate impact, other environmental and social factors, such as water quality, species richness, living conditions of local residents, jobs, etc., must also be considered.

The carbon offset market can be a treacherous place. Therefore, consumers must be diligent and critical. Some of the aspects that make carbon offsets such an unreliable tool are that there is a lot of subjectivity in evaluating quality criteria, and most of the projects cannot adhere to all five quality criteria. That holds true for several verified projects due to the lack of a consistent and uniform methodology for evaluating projects.

Owing to the risks associated with the compensation market, several companies and organisations have announced that they do not use carbon offsets to reduce their impact but do so through direct action. For example, the Science Based Targets Initiative (SBTi), which exemplary companies can join to verify their climate pledges, allows the use of offset projects only after the company’s emissions have been reduced by 90-95%. The companies that have joined SBTi include, for example, the energy company Orsted, the packaging company Tetra Pak, commercial goods seller Orkla, and many others.

Although risky, tree planting projects are among the most common projects different programmes offer. To compensate for all of the world’s emissions that occur during one year by planting trees, we would need approximately 1.6 billion ha of land.

For reference, this is 700 times more land than the current area of Estonian forests, and a similar area is covered by the world’s current agricultural lands (1.5 billion ha) and the entire area of the United States and Canada combined (1.9 billion ha). 

At the moment, offsetting has been used as a simple, cheap, and fast way to reduce the climate impact of a company, organisation, or person without having to make major changes in their activities. Inexpensive but low-quality offset projects are widely available on the market. Still, more expensive and higher-quality projects are also emerging, with demand greater than current supply (direct air capture, for example).

Public criticism of the low-quality compensation projects currently on offer has increased from both organisations in the public and private sectors. It is clear that low-quality offsets do little to reduce climate impacts. Both sellers and consumers of carbon offsets will likely have to adjust to more regulations in the coming years, leading to the exclusion of low-quality projects. From the company’s point of view, this means that the risk of being accused of greenwashing is drastically increased if low-quality compensation credits are used.