G2 Debate Series: Are Carbon Offsets a Good Use of Climate Capital?
Recent years have seen a massive surge in carbon markets, ranging from the growth of carbon accounting and carbon offset start-ups to commitments from corporations worldwide to calculate and offset their carbon emissions. G2 participated as well, and shared in this blog post our journey to go carbon neutral in 2021. While many applauded our decision and process, many others voiced skepticism and criticisms about both the specific offsets we bought and the concept as a whole. As we continue to deepen our understanding of the carbon markets and look for promising companies to support, we want to acknowledge that much is still uncertain.
Valerie: Carbon offsets are not a good use of resources.
- Inefficient use of time and money — Voluntary carbon offsets were a ~$1B market in 2021, and expected to grow to tens of billions of dollars per year within a decade. While some credits have real value, many have serious issues around additionality (paying for activity that was anyway going to happen), permanence (activities that might temporarily reduce emissions, but not in an enduring way relative to the timescale of climate change), and leakage (damage is just shifted to an alternate location). These issues are often what make the offsets incredibly cheap (sometimes as low as $1 / ton) and attractive relative to making hard business decisions. Even the most well-intentioned buyers may have difficulty distinguishing “real” versus “fake” offsets, and any money (or time / mindshare) spent on “fake” offsets is wasted.
- Creates an “easy out” that reduces urgency for more effective change — Many corporations and individuals are claiming they are net-zero or carbon neutral once they calculate and offset their carbon emissions, even if they continue to directly emit massive amounts of carbon. For example, individuals might continue to fly around the world and think this is okay because they are buying offsets, even though their flight is still burning fossil fuels. Without the seemingly painless “solution” of offsets, perhaps they would fly less or put pressure on airlines to take more direct action. To solve our climate crisis, we need to rapidly and drastically reduce actual emissions by changing operations rather than pushing the responsibility elsewhere. Anything that slows this process hurts the ultimate goal, and we cannot afford any delay.
- Actively hurts vulnerable communities — While most emissions are created in developed countries, many carbon offset projects are nature-based and dependent upon large swaths of land in developing countries (forestry and land-use projects make up the majority of offsets today). Often they distort economies and livelihoods in poorer communities, and are decided upon without the full consent of local inhabitants. It is unjust to put the burden of change on the Global South so that wealthier stakeholders can continue to pollute.
Francesca: While I agree that carbon offsets are not perfect, the climate crisis requires action today, and there are still no viable decarbonization solutions for the majority of our economy.
- Climate capital needs to respond to the climate crisis with urgency, but in many industries, becoming net zero is not feasible in the short- to medium-term — The State of Climate Action 2021 found that we are not on track to hit the 1.5C Paris Accord target. To make meaningful progress against this goal, governments, corporates, and individuals all need to reduce their carbon footprint. Although there have been tremendous strides in climate / decarbonization technologies, we don’t currently have solutions to completely decarbonize essential processes, services, or goods. For example, while there are ways to decrease emissions for data centers, industrial refrigeration, and steel production, none of these critical industries can be net-zero today without offsets. In the short term, our options are to stop producing / using these carbon emitting products until we have found a carbon neutral alternative, or to purchase offsets while simultaneously investing in new technological development. Airlines exemplify this “both-and” strategy: they are investing heavily in Sustainable Aviation Fuel (SAF) and eVTOL that will (hopefully) be commercially viable in the future, but (under CORSIA guidelines) continue to purchase high-quality offsets to achieve net-zero targets today. Technological innovation will make the biggest impact on decarbonization long-term, but for critical parts of the economy, offsets are a key component of making an impact today and, in many cases, for the foreseeable future.
- Increase disclosure and ratings to ensure only high quality offsets are purchased — A key market risk of offsets is greenwashing, whether intentional or unintentional. A challenge for carbon capital has been evaluating the quality of carbon offsets in unregulated and opaque markets. However, companies such as Sylvera, BeZero, and Calyx Global are building offset rating tools that are helping increase quality transparency, transitioning offsets from the wild west into a mature market. In turn, these tools are enabling carbon capital to more efficiently allocate investments in offsets that actually remove carbon (e.g. direct air capture and regenerative agriculture).
- Saving the planet requires more than emissions reduction, and climate capital must play a role in preserving natural resources — High-quality carbon offsets provide planet-preserving benefits that go beyond carbon reduction. For example, deforestation not only increases global emissions but also damages ecosystems, endangers animals, and reduces global natural resources. Thus, reforestation carbon offsets not only provide carbon sinks, but also support the protection of natural environments. Climate capital is responsible for a broad range of climate and environmental goals (including, but certainly not limited to, carbon emissions), and high-quality carbon offsets offer key co-benefits.
Valerie: Francesca makes great points about potential benefits of carbon offsets. I don’t deny that some offsets bring some positives, but on-balance they’re not the best use of our money, time, or attention.
- Unfortunately it’s indisputably true that today we cannot have an economy even close to what we are used to that is also carbon neutral without offsets. But rather than expending resources on offsets that artificially create the illusion of net zero, we should focus on technological improvements and behavior changes that directly reduce emissions. We might not hit headline targets as quickly, but will do so in a far more enduring manner.
- Another option is directing resources to political advocacy — ultimately climate is a collective problem that requires collective policy action, not small-scale altruism. Currently fossil fuel interests outspend environmental and clean-energy groups on lobbying by an order of magnitude, totaling billions of dollars per year — all the money spent on carbon offsets could be a formidable political force if redirected in a targeted manner.
- I am supportive of rating agencies and standards. Despite various concerns, offsets are here to stay, so creating order and promoting quality is valuable. But currently there are still too many inconsistent guidelines, so the landscape remains complex to navigate. Buyers can easily be tricked into wasting money, and greenwashing scandals might discredit the entire movement and turn people away from broader net zero transitions.
- Preserving natural resources is a laudable goal, but doing so via carbon offsets is inefficient. We should protect ecosystems directly, in collaboration with people who know the lands well. If we think of these side effects only as co-benefits, they will be deprioritized in the quest to book large headline carbon offset numbers, often unfairly taking advantage of developing countries. Ecosystem restoration and preservation might have carbon benefits, but we should specifically devote resources to these environmental priorities rather than hoping solving climate change solves everything else as well.
Francesca: Valerie offers an important and cogent reminder that the complexity of decarbonization requires a whole-of-society approach. But while carbon offsets are imperfect, they are nonetheless necessary to make a meaningful near-term impact.
- I agree that our climate challenges are collective, but this makes offsets even more important. Carbon capital includes a diverse set of actors with different incentives, time horizons, and spheres of influence, so the range of decarbonization strategies will reflect this diversity. Given that many sectors are unable to be net-zero in the near-term, offsets remain the most viable strategy for the immediate action that is necessary to reach (or even approach) our climate goals. Offsets shouldn’t distract us from investing in both policy and technological solutions, but lobbying on energy legislation has a “very small” effect on policy outcomes, and new decarbonization technologies are still years away from commercial viability in many high-emitting sectors. In the near-term, offsets remain the only solution for many industries to participate in climate action.
- Valerie is correct that the offset market remains too opaque and inefficient, but this complexity is as a feature of any nascent market, not an insoluble problem that undermines market viability. For example, debt markets existed for centuries (and potentially millennia) before the advent of credit rating agencies in the 20th century which were key to the development of the efficient bond market. Similarly, GAAP accounting principles developed in the decades after the Great Depression to increase financial transparency and protect against future crashes. We are at a similar inflection point in the offset market.
- Valerie has highlighted the need for a whole-of-society climate strategy and key shortcomings in the current offset markets. While I wholeheartedly agree, offsets remain one of the only tools for many heavy emitting industries to immediately move towards net zero goals. As this record-setting summer has emphasized, the need for climate action is now. Carbon offsets are and should remain a single piece of a multi-pronged climate capital strategy — and, with policy changes and technological innovation, a piece that should shrink over time.
Regardless of where one lands on carbon offsets, clearly offsets alone will not solve the climate crisis — we need to combine multiple strategies, including proactive decarbonization across sectors. For those who do purchase offsets, be wary of greenwashing and do detailed diligence to only purchase high-quality verified permanent offsets. Registries (Verra, Gold Standard, Climate Action Reserve) can help but do not replace this diligence. Larger corporations are partnering with consultants (Carbon Direct, SouthPole, Anthesis) to evaluate offsets and how to appropriately incorporate them in a decarbonization journey. Emerging players are increasing information availability in a less expensive manner, such as independent carbon offset rating agencies (Sylvera, BeZero, Calyx Global) and offset marketplaces with screening / sequestration requirements (Nori, Puro.Earth, Stripe Climate).