Carbon Offsets Round 1 - What Did We Learn?
Round 1 of carbon offsets extended from roughly 1988 to 2015. We’ve learned a lot about the practicalities of designing and implementing carbon offset markets, and it turns out that the practice of offsets doesn’t match the idealized theory of offsets.
This thought tentatively identifies some of the key lessons of Round 1 based specifically on the experience of the Climatographers. It is not intended to be a “final” list of lessons. In some cases you’ll that we’ve inserted a link to materials in this micro-site or in the Climate Web itself that are particularly germane to the finding.
Round 1 Findings
It is impossible to maximize for the two primary goals of offsets: “cost containment” and “climate benefit.” There is a fundamental conflict between the two objectives, and cost containment almost always wins.
Without constant attention to “willful blindness” and “capture of the system by stakeholders,” you quickly end up selling the equivalent of the emperor’s (invisible) clothing.
Policy makers have generally failed to recognize that the truly key decisions relating to carbon offsets are policy decisions, not technical decisions that can be delegated to technocrats or stakeholders.
The primary threat to the environmental integrity of carbon markets has been the definition, interpretation, and implementation of the “additionality” criterion. Not fraud and double-counting as is now being suggested.
“Additional” emissions reductions or carbon sequestration have to be traceable back to the workings of and incentives created by the carbon market they are being sold into. That’s what makes them additional. No additionality, no climate change benefit.
Carbon offset additionality testing is simply an example of hypothesis testing, which requires the balancing the number of “false positives” and “false negatives,” given that they are inversely correlated.
There is almost never the opportunity to know with certainty whether a particular ton of reduced emissions or carbon sequestration is additional. It’s always a judgment call.
It is not enough to characterize “additional” projects as projects that “wouldn’t have happened anyway,” or that “weren’t business as usual.” These ideas are so vague that they’re easily gamed.
In the face of policy and market uncertainties, offset developers are motivated to get the lowest-risk and lowest-cost reductions and sequestration tonnes accepted into offsets markets. Those are in practice the least additional tonnes.
The verification process associated with carbon offsets does not extend to verifying their additionality. Additionality testing involves building an a priori counter-factual case that verifiers accept; it can rarely if ever be empirically tested for later on.
Additionality fatigue after 30 years of voluntary carbon offsets is similar to COVID-19 lockdown fatigue. Understandable, but in no way invalidating the need to tackle the underlying problem.
The handling of offset permanence can dramatically change the economics of carbon offsets from some sectors, and even eliminate them as a source of offsets.
Like additionality, leakage can usually not be empirically measured when evaluating carbon offsets, and often requires similar policy determinations.
A key problem for voluntary offset markets has been that any offset approved by any of the offset standards organizations can claim to be as good as any other offset. There has been no way for offsets of demonstrably higher quality to differentiate themselves in the marketplace.
An alternative is needed to the “least common denominator” approach to approving carbon offsets. A “quality score” for offsets would provide consumers with much more information, and create an incentive for better and self-reinforcing market performance.