To achieve real emission reductions, carbon offsetting needs to end

SOMO’s ‘Facing the facts: carbon offsets unmasked’ series debunks eight myths promoted by the offset industry.

Reality check:

Carbon offsets – The illusion of emissions reduction

Each carbon credit allows the buyer to emit one metric ton of carbon dioxide. Carbon credits, which companies buy in the tens of millions annually, allow those companies to claim to be reducing their carbon emissions (on paper) while continuing to emit pollution, almost always from fossil fuels, into the atmosphere. Carbon offsets do not stop the accumulation of greenhouse gases in the atmosphere. In the best-case scenario, actual emissions are ‘cancelled out’ with carbon offsets, not reduced.

The carbon offset system relies on carbon credits representing ‘real’ and ‘permanent’ reductions of emissions. However, research has repeatedly shown that it is a system with serious structural flaws and one that is easy to manipulate. The result is that buyers of carbon credits frequently use what has been termed as ‘phantom(opens in new window) ’ or ‘junk(opens in new window) ’ credits, meaning those credits do not ‘cancel out’ any emissions except on paper.

For carbon credits to represent actual emissions avoided, removed or reduced, they need to comply with three core requirements: additionality, permanence, and preventing leakage. These concepts, however, have proven to be difficult to substantiate and, more importantly, easy for the offset industry to manipulate. Unpacking these concepts is key to understanding why the claim that “carbon offsets reduce emissions” is false and misleading.

Requirements for carbon credits

Additionality

Additionality is the assertion that the activity carried out under an offset project would not have occurred without the project and the associated funding. This requirement is intrinsic to the claimed integrity of a carbon credit. If reductions are not ‘additional’ to what would have happened anyway, there are no real emissions reductions.

A fundamental problem with the ‘additionality’ concept is that project developers need to make predictions about the future – which means choosing one counterfactual scenario from several possibilities. Not only does a project claiming to ‘avoid deforestation’, for example, need to demonstrate that trees would have been cut down without the project, but it also has to make claims about the scale and the rate of such predicted deforestation.

In the case of forest-based offsets, the project developer compares the forest to be ‘protected’ with a ‘baseline’ deforestation rate. Yet, the baseline, which determines what deforestation would occur without the project, is highly sensitive to manipulation(opens in new window) . The higher the baseline rate is set, the more carbon credits a project can claim to produce. This means that the more deforestation a project developer predicts would have happened, the more money the carbon offset industry stands to make. Independent investigations show that the baseline can be exaggerated(opens in new window) by up to a staggering 1,200%. This can happen if project developers select a baseline period or region that is unrepresentative of the forest being protected.

For instance, using a region hundreds of kilometres from the actual project. By setting a baseline and then predicting what will happen in the future, project developers claim ‘additionality’. And the more credits a project developer is allowed to claim, the more money(opens in new window) it can make from selling those. However, scientific(opens in new window) research(opens in new window) , media(opens in new window) investigations(opens in new window) and civil society(opens in new window) reports have revealed fundamental flaws with claims of ‘additionality’ linked to how the calculations are done. For example:

• A media(opens in new window) investigation conducted in early 2023 found that “at least 90% of Verra’s rainforest carbon credits do not represent real emission reductions.”
• A major academic study published in 2023 by Berkeley Carbon(opens in new window) Trading Project found flaws across all elements of carbon accounting, from how the baselines are set to the accounting methodologies and calculation of leakage rates. The researchers noted: “Since over-crediting compounds across factors, only a very small fraction of credits likely represent real emissions reductions…” (emphasis added).
• Academic research(opens in new window) published in the journal Science investigated the effects of 26 avoided-deforestation projects across six countries, all part of the UN’s REDD program , and found that most projects had not reduced deforestation significantly and that for projects that had some impact, reductions were substantially lower than claimed.

In addition to the manipulation of baselines, carbon offset projects rarely address the main root causes of deforestation, such as agribusinesses and mining operations, which persist, often in areas adjacent to offset projects. Instead, forest-based offset projects often point to the livelihoods and actions of forest-dependent communities as the threat of deforestation. They base their claims of ‘additionality’ on modifying the behaviour of these communities, an issue discussed later in this series.

The problem of establishing additionality is not limited to forest-based offsets. Concerns have also been raised in relation to the UN’s Clean Development Mechanism (CDM), the largest carbon offsetting scheme. For example:

• By 2015, the CDM had more than 2,000 dams in the pipeline for offset approval – about two-thirds were in China. The assumption is that dams reduce emissions from fossil fuel-based electricity. On this basis, building dams allows the creation of carbon credits. Yet, studies (opens in new window) noted(opens in new window) that these dams would have been built regardless of whether CDM carbon projects were involved. There is no additionality. The credits created were worthless in terms of compensating for actual emissions.
• A 2021 study(opens in new window) looking at CDM carbon offsetting activities in India found: “that at least 52% of approved carbon offsets were allocated to projects that would very likely have been built anyway. In addition to wasting scarce resources, we estimate that the sale of these offsets to regulated polluters has substantially increased global carbon dioxide emissions” (emphasis added).

Permanence

A related problem is the requirement of ‘permanence’. Carbon credits are supposed to be valid only if the activities that projects implement to avoid, remove or reduce carbon emissions are long-lasting or permanent. All of the fossil carbon that is extracted from under the ground and burned is permanently added to the atmosphere.

With forestry-based offsets, for example, project developers must estimate the risk of the carbon stored in the ‘protected’ forest or plantations being released into the atmosphere within 100 years after credits are issued. How can anyone guarantee that a given forest or tree plantation will still stand in 20 years, let alone 50 or 100? Wildfires, typhoons, floods (all more likely in many regions due to climate change), earthquakes, policy changes, or any number of unpredictable factors can affect forests.

Carbon offsetting claims to account for these risks, but project developers have substantial flexibility in how this is done. The 2023 Berkley Carbon Trading Project(opens in new window) study found that the risks to forest permanence were significantly underestimated. For example, their calculation of the mean 100-year risk from natural change or hazards was more than 10 times the average natural risk used by some carbon offset projects.

The carbon offset system includes what is known as a “buffer pool” of credits, which is reserved to be drawn upon if there is a negative change to the project, such as a fire destroying trees. However, the buffer pool mechanism has serious limits. In a Californian offset program, for example, wildfires depleted nearly one-fifth of the total buffer pool in less than a decade.

Finally, there is almost no meaningful guarantee of permanence or longevity of forest or other land-based carbon offset projects. Many of the companies involved in offsets are newly created and opportunistic. They are unlikely to remain in existence 50 or 100 years from now. Even long-standing companies involved in project development can divest or sell their offset projects if they become unprofitable or high-risk. There is no mechanism to hold the companies buying or selling carbon credits today accountable for what does or does not happen in 30 years, 50 years or 100 years time.

Leakage

A third core issue is leakage. This is when emissions that are supposed to be avoided or reduced in one place by offset projects show up elsewhere. A simple example would be a carbon offset project that claimed to protect a given area of forest from illegal logging. The loggers may just move their activity to a new, unprotected forest area. The carbon offset project is not leading to a reduction of emissions; it has just moved deforestation activity elsewhere.

The carbon offset industry acknowledges leakage and tries to account for it. However, the methodologies do not work. Research conducted by the Berkeley Carbon Trading Project(opens in new window) on the four most widely used leakage methodologies for forest-based projects revealed that many projects with significant risk did not apply any leakage deductions. While academic literature suggests a leakage rate ranging from 10% to 70% based on project conditions, more than half (59%) of the projects assessed by the Berkley Carbon Trading Project did not take any leakage deduction. Most of those that did applied a total leakage rate under 25%. Again, the supposedly rigorous methodologies that claim to guarantee that offsets and credits are of high quality accepted the lower calculations.

In a nutshell

The carbon offset industry cannot credibly claim to reduce emissions in any significant or meaningful way. The evidence that it does not do so is substantial. It is largely a paper exercise where calculations rely on exaggerated baselines and/or hypothetical future scenarios that cannot be proven. Research has repeatedly shown that the industry’s self-regulated verification systems have, time after time, signed off on carbon offset projects where the basics – such as baseline or leakage calculations – are flawed.

These structural failures matter because the illusion of carbon offsets reducing emissions allows for ongoing actual emissions released to the atmosphere. The “zero-sum” game of carbon offsets should rather be called an “adding emissions” game.