The Long Read: The Carbon Offset Conundrum

Updated: Mar 2, 2021

Carbon offsetting has become the hot topic in the mainstream media and is increasingly the dominant subject of discourse in political and economic strategy. Governments and businesses are now making pledges on climate action that climate scientists have long been advocating. Individuals too are increasingly aware of the carbon footprint of their lifestyles and looking for ways to take action to lessen their impact on the planet.

Offset your flight carbon to stop all of that lovely snow melting

The purchase (and cancellation) of carbon certificates – “offsetting” - is one of the key mechanisms governments, businesses and people can use to begin to counterbalance their emissions and make a positive contribution to climate action. Offsetting is, however, a murky area of the climate action debate, filled with conflicting evidence as to its effectiveness, particularly in such fields as climate justice. Allegations and concerns abound over such fundamental issues as labyrinthine accreditation systems and misaligned incentives.

In the coming months we will explore these issues in depth – but this article is intended to act as a primer and signpost some of the discussions to come, many of which are bedevilled by disagreement and controversy.

What even is carbon offsetting? And does carbon offsetting even work?

Offsetting puts the net in net-zero. Carbon offsetting is a way in which individuals or organisations seek to balance their carbon dioxide emissions by supporting projects that displace or sequester an equivalent amount of carbon dioxide elsewhere in the world.

In an ideal world carbon offsetting should only be used to balance truly unavoidable emissions. balance. One of the chief criticisms of offsets is that they in fact encourage the continuation of polluting behaviours without addressing the core problem of the behaviours themselves. To paraphrase a puzzled participant in a REDD+ project aimed at avoiding deforestation – “they pay me money not to cut down my trees, so they can cut down their own trees instead?” (see more concerns below).

Trees are just the best. We love trees. We'll be writing more about how much we love trees soon.

What is a carbon credit?

The creation of the Clean Development Mechanism (“CDM”) by the secretariat of the United Nations Framework Convention on Climate Change which became operational in 2006 heralded the introduction of a globally recognised accounting system for carbon: carbon credits.

Fundamentally carbon offsetting is a way of quantifying and trading greenhouse gas emissions. This is done through the creation and exchange of carbon credits. One carbon credit is worth 1 tonne of carbon dioxide equivalent (CO2e).

Carbon offsetting projects calculate the number of tonnes of CO2e that are either avoided or sequestered by the project according to agreed methodologies. The result defines the number of carbon credits that the project can then sell on to third parties. When someone buys one of these credits they are ‘retired’. This makes sure that no-one else can buy the same carbon, effectively avoiding “double counting” the credit whereby a country, project developer and buyer could theoretically all lay claim to the same offset.

The CDM created a mechanism where project developers in poorer countries could in theory develop renewable energy projects that would otherwise have been unaffordable through issuing the project carbon credits based upon its performance.

Offsetting is credited (geddit?) with helping speed the transition away from fossil fuel energy.

The sale of carbon credits was intended to underpin the financial returns on a project making it economically viable. The process of certification was, however, often criticised as controversial – common criticisms revolving around costs, a lengthy process and the all-important question of “additionality. Discussion of the additionality subject would fill a book but, in essence, it relates to whether a project would have been built in the absence of carbon credits. Additionality will be covered further in our Beyond Carbon blog series.

In parallel to the CDM process new market approaches evolved in the Voluntary Carbon Market – many initiatives were launched to address the flaws of the early CDM. As a result a number of independent specialist verification and certification bodies emerged alongside the UNFCCC CDM – the most prominent of which today are Gold Standard and Verra VCS.

Each agency follows a core set of principles essentially modelled upon the UN’s CDM system (or using UN CDM tools).

Carbon Markets

Currently there are two main carbon markets:

  1. Compliance Market: allows governments, private companies, and other entities to purchase carbon offsets in order to legally comply with caps on the amount of greenhouse gases they are allowed to emit. The markets are created by national and international treaties such as the Kyoto Protocol and the EU Emissions Trading Scheme.

  2. Voluntary Market: allows any individual or entity to purchase carbon credits. This may be done by individuals to offset their personal emissions or companies who seek to improve their climate targets, CSR and reputation.

Whilst this characterisation appears simple, in practice there is often significant cross-over and inter-connections between the compliance market and the voluntary markets and the players involved.

At earthrhize we operate in the voluntary carbon market, helping you balance your emissions footprint as part of your overall subscription.

We go through the hassle of registering on voluntary carbon credit exchange sites in order to source carbon credits on your behalf. This enables us to buy a wide range of projects covering all of our HALO indicators.

What constitutes a carbon offset project?

Offset projects can be led by governments, businesses or both. They aim to avoid or sequester GHG emissions and are varied in their size and location. A project could be the development of hydro power station generating renewable electricity in Uganda. It could be protecting and conserving a rainforest in Peru and giving the income from credits to indigenous peoples. Projects come at many scales – from the micro-scale of replacing open fires with clean cookstoves in Malawi to large scale solar farms in Rajasthan. It could be a tree planting scheme where local people are employed and own the forest in the future.

Other examples include reducing methane emissions from landfill and farming, wind, solar and biomass energy and freshwater bore holes.

Indeed, the vast range of programmes available is reflected in the fact that UNFCCC CDM process has over 190 methodologies to accredit projects from small scale cookstoves to large nature based solutions, such as REDD+.

How does carbon pricing work?

In the voluntary carbon market, project developers list carbon credits they have available to sell on a register at a price. The price is not linked to any particular benchmark or commodity (such as WTI in the oil markets) but is determined by a multitude of factors. Typical factors would include the developer’s attitude to whether the project requires the funding from the sale of carbon credits, the availability and age (vintage) of the credits, the location of the project, the type of project and technology it uses and whether the project fulfils broader sustainable development goals.

Clearly a rational developer will benchmark pricing to similar projects – so to a certain extent the voluntary carbon market could be characterised as falling into a number of distinct pricing regimes – one for renewable energy, one for nature based solutions and one for small scale projects, such as cookstoves.

The market is illiquid, opaque and has no clear pricing benchmarks. As a result developers are free at any time to dramatically increase the price of credits. If there is more demand for voluntary credits, then prices are likely to rise (often from a low base).

This makes the carbon offset market extremely volatile, making it hard to forecast the future price of carbon, particularly from high quality projects. earthrize in its plans indicates a a target amount of carbon for each monthly plan rather than a guaranteed amount on account of this volatility.

We remain hopeful with our strategy and allocation that we can offer a fixed monthly price plan and deliver our targets for tonnes of carbon dioxide avoided over a year. However, we have experienced first-hand how quickly this unregulated market can change and we aim to be straight with our customers about the risks of guaranteeing an annual commitment.

Is offsetting actually any good?

Ever since the idea of carbon certificates was mooted a central debate has been whether the purchase of carbon offsets is a good thing or a bad thing?

As mentioned above the principal concern is that rather than being used to offset otherwise unavoidable emissions, offset programmes are being used to facilitate the continuation of highly polluting behaviours. We at earthrhize believe there is no replacement for true reduction in fossil fuel in a path to a 2ºC world, but are also convinced that offsets have a crucial role in facilitating our transition to that world.

Only transformational systemic change will solve the climate crisis. Offsets are one piece of the puzzle.

As the debate has evolved the discussion has become more nuanced – with the current focus being on the distinction between avoidance and sequestration. The Carney Report of the Taskforce on Scaling Voluntary Markets published in January 2021 endeavoured to balance this argument – calling for continuing focus on avoidance in the near term whilst sequestration markets mature.

For many renewable energy projects the aforementioned ‘additionality’ question looms large: particularly in the field of large-scale renewable energy projects where the technology is now in a position such that they can achieve funding successfully without needing to rely on carbon credits. New frameworks for offset additionality are emerging suggesting that many accredited renewable energy projects really do not present a true additionality in the current economic climate. The dramatic price falls in renewable energy sources we have seen in recent years now suggest that they no longer have an economic disadvantage against the fossil fuel based projects they were previously displacing.

Across the entire spectrum of carbon offsets concerns remain regarding the question of who truly benefits from the funding of these projects. Tales abound of so-called ‘carbon cowboys’ exploiting communities in order to hoard carbon credit money.

How can I access these carbon offset projects - the earthrhize Approach

We have developed a bespoke approach to assessing carbon offsetting projects to make sure we address all of these concerns. Our aim at earthrhize is to fund a portfolio of credits from projects that once aggregated, help address all quadrants of the HALO objectives - having impact across Humanity, Air, Land and Oceans – going Beyond Carbon.

Protecting rainforests also protects traditional livelihoods.

We work through the lens of climate justice: we prefer to fund projects where they are needed most (often at smalls scale, which may be rare) and are going to earn local communities the greatest benefits.

There is, however, no fixed prescription regarding our allocations to carbon offset projects – we debate carefully many facets of a project, for instance, whether small-scale projects should always be favoured over large-scale developments. Many carbon offset projects have wonderfully emotive photos on account of the project location and its targeted constituencies, others may be considerably less photogenic, such as an anaerobic digestion plant or waste recycling facility in a city. Both have their respective merits – but in a website community we have to fight constantly the inherent bias towards featuring only those projects that are #instagramworthy.

Carbon Offsetting and Your earthrhize Plan

We do NOT guarantee to offset a fixed amount of carbon every year rather we target certain amounts for each plan. These targets are based on our assessment of the best way to maximise your plan’s impact across the HALO based on current carbon pricing (and our predictions of future volatility!). Remember we are seeking to extend your impact Beyond Carbon – it’s not the definitive yardstick for the HALO.

The HALO for the Nii Kaniti REDD+ project we fund in Peru.

There are a multiplicity of carbon calculators available around the internet. The most widely used is probably that of the WWF. It’s always evolving – so we encourage you to try it out. A word of warning, as humans we are often inconsistent from day to day, so the footprint you see today might be considerably different when you input your behaviour on another day.

Further to the accredited carbon credits included in your membership, the trees we plant on your behalf are also sequestering carbon! Due to the weirdness of the carbon accreditation process these do not actually count as carbon credits though (so we don’t claim they are). You can read more about how we might analyse and account for your tree carbon in our upcoming blog post on embedded carbon.

Carbon Conclusions

Congratulations, you made it this far. We encourage you to research, think, discuss and debate with anyone and everyone about carbon offsets. We believe that carbon offsets are one solution out of many to tackle the climate emergency. It is a complex market that needs to be carefully navigated but can lead to real impact, today.

The voluntary carbon market continues to pose challenging questions. How do you find good credits? How do you spot bad ones? What price is good? How do you know they actually make a difference?

We set up earthrhize to help people like you navigate carbon offsets easily. You can leave all the complicated, time consuming bits down to us! We are always open to debate our approach.

At earthrhize we’re more interested in the direction of travel – not just in carbon, but across the HALO to Beyond Carbon. There’s no point being carbon neutral if the oceans are clogged with plastic or we’ve cut the rainforest down and displaced the indigenous people who have been its guardians for generations.

Beyond Carbon to new methods and projects that are delivering sustainable, positive impact across the “Only Home We’ve Ever Known”