Carbon offsetting abroad: the illusion of voluntary action

07.12.2023, Climate justice

Pressure from civil society and the media has rightly discredited the carbon markets. The current system is not delivering on its promises and is harming the Global South.

Carbon offsetting abroad: the illusion of voluntary action

Excessive recourse to offsetting instead of a substantial reduction in emissions is in no way sustainable.

© Ishan Tankha / Climate Visuals Countdown

The voluntary carbon market facilitates the trading of carbon credits. It allows a company to continue emitting CO2 while offsetting its own emissions by funding projects that reduce emissions elsewhere. On paper, carbon offsetting is seen as the most effective market-based approach for achieving results in terms of reducing global emissions. The idea is to maximise the efficiency of available resources in reducing emissions by using them where they are most beneficial. For example, once a company has reduced its own emissions as cost-effectively as possible, it could then allocate resources to low-carbon technology projects or reforestation projects to arithmetically offset the emissions it has not yet reduced. In practice, however, the assumption that cheap carbon credits are the answer is much criticised. They are seen as undermining the goal of reducing emissions and helping, counterproductively, to maintain the status quo. More recently, increased scrutiny by civil society has raised doubts about the often-misleading promises of 'carbon neutrality' made by some companies under the guise of offsetting, while their emissions continue to rise.

Carbon markets: taking stock

The carbon market has been controversial since its inception in the late 1980s and especially since the signing of the Kyoto Protocol in 1997. Its development has given rise to parallel markets, namely the 'compliance' market and the 'voluntary' carbon market, which are sometimes difficult to distinguish due to the potential overlap between them. The compliance market involves mandatory emission reductions and is regulated at the national or regional level. The best known of these markets is the European Union Emissions Trading Scheme (EU ETS), which Switzerland joined in 2020. Under this mechanism, certain large emitters – power plants and large industrial companies – are subject to an emissions cap, which they can offset by buying allowances from other members who have reduced their emissions beyond the target. This cap is reduced each year. A laborious implementation process, the system has led to a certain reduction in emissions in the sectors concerned. However, there has been criticism that it has been too generous in allocating free allowances to large emitters, that it has allowed an influx of international credits and that it has not set sufficiently ambitious reduction targets. Furthermore, the price of carbon is still too low; it should reflect the social cost of a tonne of emissions and be gradually increased to USD 200. The voluntary market, on the other hand, currently has no minimum reduction targets and remains largely unregulated. Outdated carbon credits are also frequently used, as are credits whose quality and price vary widely, sometimes even below USD 1.

The limits of the voluntary market

The crisis of confidence that has hit the voluntary carbon market is not only due to its unregulated nature and inadequate framework, but also to the technical limitations of the mechanism. Carbon credits rarely correspond to the exact unit of 'compensation' claimed, and their impact is systematically overestimated. This is due to the use of an unreliable quantification method and the lack of a comprehensive monitoring system that is genuinely free of conflicts of interest. Moreover, it is often unclear whether offset projects meet the additionality criterion, i.e. whether they would not have been implemented anyway, without the financial contribution of carbon credits. This is particularly true for renewable energy projects, which have become the most cost-effective source of energy in most countries. Another major challenge is double counting, i.e. the crediting of carbon credits by both the host country and the foreign company. This practice violates the principle that a credit can only be claimed by one and the same entity. The Paris Agreement has increased the risk of double counting because, unlike the Kyoto Protocol, it also requires developing countries to reduce their emissions.

There are also many doubts about the permanence of registered offsets. The extraction and burning of fossil fuels is part of the long-term carbon cycle, while photosynthesis, and hence the sequestration of carbon by trees or the absorption by the oceans, is part of the short-term biogenic carbon cycle. Trying to offset the long-term accumulation of CO2 in the atmosphere with offset projects limited to a few decades therefore seems illusory. In addition, anthropogenic climate change itself, with the increasing frequency of fires and droughts and the spread of pests and diseases, threatens the storage of carbon in temporary sinks such as soils and forests. There is also the risk of leakage, where a project to protect forests in one region leads to deforestation elsewhere. As for the prospects for technological solutions using carbon capture and sequestration devices, these should not be overestimated. They are currently neither competitive nor available on the scale required in the short term. Even in the future, they are likely to play only a limited albeit necessary role.

Carbon colonialism perpetuates injustice

More fundamentally, over-reliance on offsets rather than substantial emission reductions is unsustainable. As Carbon Market Watch points out in its report (Corporate Climate Responsibility Monitor) on the integrity of the climate change targets of companies claiming to be pioneers, the implementation of these companies' current 'net-zero roadmaps' is highly dependent on offsets. At the current rate, demand for land to generate carbon credits will far outstrip availability, directly threatening the survival of local communities, biodiversity and food security. At the same time, emission reduction projects popular in the voluntary market, such as reforestation and other 'nature-based solutions', are often based on 'fortress models' of conservation, in which protected areas are fenced off and militarily protected – at the expense of the original inhabitants. Far from being "empty spaces" to be planted with trees by polluters, these projects often take place on land inhabited by indigenous communities. The new gold rush for nature-based solutions through the privatisation of natural carbon sinks is exacerbating historic and complex land conflicts and confronting forest dwellers with the real threat of dispossession. This rings even truer when such projects deprive indigenous communities of their right to self-determination and to give their free, prior and informed consent to all projects affecting their territories.

Overall, the current system is woefully inadequate to the urgency of the climate crisis, and is also deeply unjust. It grants pollution rights to the biggest greenhouse gas emitters – mainly large corporations and economies in the Global North. They are allowed to continue with business as usual, while economic systems and lifestyles, mainly in the Global South, are restricted. This carbon colonialism thus shifts the responsibility for combating climate change and corporate deforestation onto local communities that have contributed the least to climate change.


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