Carbon Offsetting: Overview

Introduction

Carbon offsetting is a somewhat controversial attempt to mitigate the effects of global climate disruption by allowing individuals and companies to offset, or compensate for, the emissions of carbon dioxide or other greenhouse gases that their activities cause. A typical carbon-offset transaction involves calculating how much carbon dioxide equivalent is produced as a result of a particular activity or operation, then paying someone else to reduce the same amount in their own activities or operations. Alternatively, a carbon-offset payment may fund a project that produces a clean source of sustainable energy, thus indirectly reducing carbon emissions by providing an alternative to oil, coal, or natural gas.

Carbon offsetting is related to carbon trading, but it does not require governments to regulate carbon credits. It was conceived as an efficient, market-based method for people and companies to reduce their personal carbon footprints and take steps toward becoming more carbon neutral. Offsetting can be voluntary or mandated by government agencies, under the Kyoto Protocol. Critics of voluntary carbon offsetting believe that it is ineffective, largely because the market is not sufficiently controlled by universal standards for calculating emissions and reductions. In addition, critics speculate that carbon offsetting may serve as an excuse for countries and individuals to keep polluting while implementing sustainable projects elsewhere, rather than addressing the root sources of greenhouse-gas emissions. Another valid argument is that many offset projects may have been implemented regardless of whether or not companies were attempting to reduce carbon emissions. However, this problem can be fixed by creating rules for additionality so that companies do not receive carbon credit for projects that were already scheduled to occur.

Large companies typically choose large projects, including hydropower stations, landfill gas collection, reforestation, wind- and solar-power farms, and hydrofluorocarbon destruction. On a smaller scale, individuals and even businesses can easily reduce their carbon footprint by increasing energy efficiency, using lower-emission products (such as poultry instead of red meat), and changing travel patterns by having phone conferences and planning out shopping trips.

Understanding the Discussion

Carbon Footprint: The amount of carbon-dioxide emissions associated with the daily activities of a person, organization, or country.

Carbon Neutral: Describes a person, organization, or country whose total activities do not bring about any net increase in the amount of carbon-dioxide emissions, due to either a direct reduction in emissions or the purchase of offsets equivalent to the emissions their activities produce.

Carbon Trading: A practice in which companies buy and sell certificates, or “credits,” giving them the right to produce a certain amount of carbon emissions.

Climate Change: Refers to the gradual increase in the average temperature of the earth’s air and water. Scientists agree that the phenomenon is caused by the emission of greenhouse gases; sometimes called "global warming" or "climate disruption."

Greenhouse Gases: Gases that trap the sun’s radiation (heat) within the earth’s atmosphere and contribute to climate change; examples include carbon dioxide, methane, nitrous oxide, and chlorofluorocarbons.

Sustainable Energy Source: An alternative to traditional fossil-fuel-based energy sources that does not create environmental pollution or contribute to global warming.

History

Although “global warming” and “climate change” are relatively new phrases, meteorologists and laypersons alike began to notice changes in weather trends as early as the 1930s. Winters, they noted, were starting later in the year and were generally becoming warmer. However, it was common scientific knowledge by that time that the earth went through periodic (and usually temporary) transitions in temperature. As a result, there was no real concern over the phenomenon, which was believed to be natural, and no realization that it had anything to do with human activities.

A British engineer named Stewart Callendar was one of the first people to recognize that these observed increases in temperature could be correlated with the increased burning of fossil fuels due to industry and development. As the fuels combusted, they emitted carbon dioxide that prevented heat from the sun from escaping the earth’s atmosphere and returning to space.

Callendar’s ideas, though correct, did not become a significant part of the scientific conversation until several decades later, in the late 1970s and early 1980s. By this time, researchers gathering information on both changes in global temperature and increases in carbon-dioxide concentrations in the atmosphere had collected enough data to provide convincing evidence that the problem of global warming was not only real but rapidly accelerating. A 1979 National Academy of Sciences report advised urgent action on the matter, and in 1983 the United States Environmental Protection Agency (EPA) acknowledged that climate change could have a serious detrimental effect on the nation’s agriculture and economy.

In 1987, scientists analyzing a 100,000-year-old core of ice from Antarctica found a tremendously extended and consistent relationship between temperature and the level of carbon dioxide in the atmosphere. By the early 1990s, the international scientific community was in broad agreement over both the fact of climate change and its root cause: increased carbon-dioxide emissions. It was clear that in order to combat rising global temperatures, these emissions would need to somehow be reduced.

Carbon offsetting is one market-based means of accomplishing this goal. The idea is that if a tangible monetary value is attached to the use or abuse of an environmental resource, people and companies will have to take into consideration that value, or price, when they are making decisions about how to behave. This forces them to be aware of the effects their activities have on the environment.

Supporters of carbon offsetting believe that it is the most efficient way of reducing carbon-dioxide emissions. They explain that while a market-based approach makes it more expensive to produce carbon dioxide, carbon offsetting allows businesses to negotiate with each other by trading carbon credits to arrive at the cheapest, most effective solution. Using carbon offsets, a company that would have an extremely difficult time reducing its own emissions—for example, because doing so would require purchasing entirely new equipment—can pay another company to make the same reductions. Alternatively, a company can choose to invest in projects that aim to build more sustainable energy sources, creating a long-term solution to the energy crisis facing the world. In the same way, an individual who flies frequently for work and wishes to compensate for the extra carbon-dioxide emissions produced by those flights, or who cannot afford to switch to solar power but wants to balance out their personal electricity usage, can choose to buy carbon-offset credits that do the job for them.

Offsetting schemes began appearing in one form or another as early as 1989. In that year, a US-based company, Applied Energy Services, promised to plant millions of trees in Guatemala in exchange for permission to construct a large new coal-burning power station. They calculated that the trees planted would absorb as much carbon dioxide from the environment as would be produced by the power station over the course of its lifetime. Tree planting is often involved in carbon-offset projects because trees absorb carbon dioxide from the atmosphere as they photosynthesize, and proponents of this type of carbon offsetting argue that increasing the amount of global forest cover is one simple long-term solution to increasing carbon-dioxide levels. However, scientists disagree about the effectiveness of this practice; many consider it to be a slow and very inconsequential compensation for present-day carbon-dioxide emissions. Moreover, critics note, forest fires and deforestation for timber or agricultural purposes threaten the permanence of such projects.

This problem lies at the heart of most criticisms of carbon offsetting, especially those that involve projects such as tree planting or investing in alternative energy sources. Opponents argue that it is extraordinarily difficult to calculate the real impact of such offset schemes. What may be considered an equivalent amount of reduction may not, in actuality, balance out the emissions the project is being used to justify. This is especially problematic because there are many different organizations involved in making these calculations and few international standards for how to do so. Critics of carbon offsetting believe that instead of working toward a real global reduction in carbon-dioxide emissions, carbon offsets encourage people and businesses to continue their environmentally destructive habits while creating the false impression that such activities can be neutralized by others elsewhere.

Keeping track of these systems may also be difficult. In general, a conflict of interest may exist, since both the buyer and the seller benefit from the number of projects created. In addition, the auditors or inspectors are chosen and paid by the developer of the offset project and thus have a specific interest in making money.

Despite these worries, carbon offsetting has been a very popular choice for both corporations and individuals who seek a faster, easier way to reduce their carbon footprints and become more carbon neutral. The United States has been particularly involved in carbon-offset schemes, reasoning that it is cheaper for US businesses to purchase emissions permits from other countries than to take drastic and expensive measures to reduce its own emissions. This was the major reason for the 2003 US withdrawal from the Kyoto Protocol, an international agreement signed by 160 countries promising to reduce future carbon-dioxide emissions. In the same year, several states in the northeastern United States began joining together to form the Regional Greenhouse Gas Initiative, a program in which participating states auction off shares of a pre-established carbon-dioxide emissions allowance to qualifying companies, which can then purchase further allowances by sponsoring a qualifying carbon-offset project in one of five categories.

Carbon Offsetting Today

Many companies are voluntarily choosing to offset their carbon footprint, especially those in the transportation industry, which accounted for 28.9 percent of US greenhouse-gas emissions in 2017, according to the EPA. In addition, companies and organizations are increasingly opting for phone or video conferences and online meetings rather than traveling long distances for conferences. Others who frequently travel professionally, such as those in the entertainment industry, also try to green their tours and travels; the Dave Matthews Band, the Rolling Stones, and Coldplay are all well known for mitigating their concert tours with carbon offsets. The nonprofit organization Reverb offers various environmentally friendly services for touring musicians, including providing locally sourced biodiesel fuel, assisting with large-scale composting and recycling, and offering a carbon-offset program for fans. In 2016 the International Civil Aviation Organization stipulated that airlines purchase carbon offsets by 2021, thus largely eliminating the add-on option for individual members of the flying public. Some companies like the Lyft ride-sharing service and the online retailer Etsy have taken similar voluntary measures on behalf of their customers.

NASA reported that by 2018, the global average temperature had increased 1 degree Celsius (about 2 degrees Fahrenheit) from 1880 levels. A 2014 report commissioned by the World Bank concluded that an overall increase of 1.5 degrees Celsius by 2050 was most likely already inevitable. Current efforts to mitigate global warming are targeted at preventing an increase of 1.5 degrees Celsius by 2100, with most past efforts targeting an upper bound of 2 degrees Celsius, which would have severe worldwide consequences. A 4-degree increase would be catastrophic. To achieve the more ambitious goal, according to the 2018 Intergovernmental Panel on Climate Change (IPCC) report, global carbon emissions must be slashed by 45 percent by 2030 and drop to net zero by 2050. This would represent a significant reduction compared to the 33.1 gigatons of energy-related carbon emissions generated in 2018 alone.

The global voluntary carbon offset market grew extremely quickly between 2005 and 2011. According to data from the nonprofit Forest Trend, the total value of voluntary carbon-offset transactions in 2012 was an estimated $523 million, with an average cost of around $6 per ton of carbon. An estimated 101 million metric tons of carbon offsets were contracted in 2012. However, the voluntary carbon offset market slid after 2011, dropping to a low of $145.8 million for 42.6 million metric tons' offset in 2017. Despite that, interest in offsets continued from business, if less so from consumers, and in 2018 the market value rebounded to nearly $300 million for 98.4 metric tons of carbon dioxide equivalent.

While tree planting was the most common form of early offset project, organizations have since undertaken other kinds of offset projects with more immediate benefits, such as wind farm installation, distribution of cleaner stoves in developing countries, or methane capture. The price of the offset typically varies by project and by country, as well as by offset provider. Industry insiders note that to truly provide benefit, offset projects ought to be ones that would not occur or succeed without the investment from carbon credits.

In the fall of 2019 California adopted the Tropical Forest Standard, paving the way for Amazonian countries to join its cap-and-trade program. Environmental organizations like the Environmental Defense Fund, some indigenous South Americans, policymakers, and researchers favored it, as they saw it as a means to encourage more governments to meet the standards for funds. Opponents included US environmental justice advocates who feared increased and ongoing pollution at home. Research also suggests offsets can exacerbate wealth inequality in other countries, weaken protections for the natural environment, and may infringe on local sovereignty. Critics also note it can be difficult to know if on-the-ground conditions change.

By 2023, multiple airlines had begun offering customers the option to pay a higher price for their airfare as a means to offset the carbon emissions created during their flight. However, some observers were quick to label these schemes as “greenwashing,” or misleading or false claims that do little to truly benefit the environment. The following year, the US government announced plans to implement carbon offsetting guidelines intended to address some of the criticisms directed at the practice.

Proponents of carbon offsetting, such as airline officials, often point to it as an interim solution to be championed while less-polluting technology advances and say buying carbon offsets is better than merely continuing to contribute to emissions without offsetting them. Critics contend such measures frequently amount to corporate greenwashing or expiation of personal guilt and do little to change behaviors or systems that generate carbon emissions.

These essays and any opinions, information or representations contained therein are the creation of the particular author and do not necessarily reflect the opinion of EBSCO Information Services.

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