Offsetting and Carbon Markets

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By Matt Williams

@mattadamw

What is offsetting?

Achieving net zero means cutting greenhouse gas (GHG) emissions as much as possible, and removing, then storing, any emissions that have not been eliminated, with the result that the amount of GHG emissions added to the atmosphere is no more than that which is taken away, or ‘offset’.

Offsetting all global emissions is not an option; there is simply not enough land to absorb the sheer volume of emissions currently being released into the atmosphere as a result of human activity. This is why in sectors, such as the power sector, where it is possible to comprehensively eliminate all GHG emissions, there is a drive to reach ‘true zero’.

But in the few sectors – for example, food production and possibly some parts of aviation – where it is not currently possible to reduce emissions completely down to zero, offsetting can play a legitimate role to reach ‘net zero’. Remaining emissions in these sectors may be compensated for by a removal of emissions elsewhere, possibly at another time. For example a farmer in England may pay a forestry manager in Scotland to plant more trees than they would otherwise, which will in future offset some of that farmer’s emissions.

How is offsetting done?

There have historically been different ways to create an offset to compensate for an emission in one place and time with a reduction or removal in another place and time.

  • Avoided emissions: an offset could be generated by avoiding emissions that may have otherwise occurred. For example, this could involve replacing fossil fuels with renewable energy or capturing the emissions from a fossil fuel power station and storing them underground. However, now that we need to get to net zero avoiding emissions alone won’t be enough – some removal of carbon from the atmosphere will also be needed.
  • Removals: In the future, any offsets will need to be delivered by removing greenhouse gases from the atmosphere. This can be done by habitats that naturally absorb carbon (like forests) or Greenhouse Gas Removal technologies.

Emissions removals may also be used in future to draw down past emissions from the atmosphere, going beyond their role as an offset and helping to reduce climate change even further.

What is needed for offsetting to be meaningful?

There have been differentattempts to outline the principles that are needed to ensure high quality offsetting. These principles and criteria include:

  • Ensuring that offsetting is only used for the parts of the economy that cannot reduce their emissions in other ways, and maximising efforts to cut emissions today rather than rely on future offsetting.
  • Providing robust protections for the natural environment and human rights in any offsetting project.
  • Minimising the role of emissions reductions and maximising the role of removals – cutting emissions alone will not be enough to achieve net zero and some absorption from the atmosphere will be needed.
  • Ensuring that any offsetting project is ‘additional’ - i.e. that it would not have occurred anyway. Otherwise offsetting projects could lead to a reduction in overall ambition.
  • Removals of carbon from the atmosphere must be permanent. If the carbon is once again released to the atmosphere then the climate benefit is lost.
  • Be clear and transparent about the quantity and quality of offsetting that will be used to meet emissions reductions and net zero targets.

Are there risks to offsetting?

Scale and speed

It is inevitable that some offsetting will be needed to achieve net zero. But there are concerns about offsetting schemes that focus on scale and speed rather than rules to protect people and nature:

  • Being overly confident about offsetting could inadvertently risk a lack of effort to cut emissions in real terms today
  • A project may be counted as an offset even if it would have occurred anyway. Offsetting should only be done through emissions cuts that are additional to what would have happened anyway.
  • Some actors may deliberately use future offsetting as a way to continue polluting activities today
  • Some offsetting relies on large-scale land use, which can put the rights of indigenous peoples and local communities, nature, and food production at risk

A focus on scale and speed can lead to a lack of transparency or clarity. An analysis by ECIU found that of 769 entities (nations, states and regions, cities, and companies) that have net zero targets, only 53 rule out offsetting and only 127 set conditions on how offsets would be used.

Land is a finite resource

The amount of land available for offsetting is finite, and can therefore only offset a small proportion of the emissions the world is currently producing, which is why it is only deemed appropriate for the sectors which cannot reach ‘true’ zero. In addition, some land needs to be left aside for food production, for nature, and for development.

But even early offsetting plans by a small number of companies could eat up a significant proportion of the land available for offsetting. One Greenpeace analysis suggests that the offsetting plans of just two airlines would use up 12% of all available offsets.

Competition with nature and food production

The use of offsetting could require land use in the millions of hectares (because it relies on planting of trees or crops to remove emissions from the atmosphere), which may begin to impact on space for nature and food production, as some scientists have warned.

Concerns about permanence

There are also concerns that offsetting relies on absorbing or storing carbon in ways that are not immediate or may not be permanent (carbon stored in soils may not stay there; trees planted could be destroyed as a result of droughts or wildfires, themselves increasing in frequency and intensity as a result of climate change itself) and that this could result in very little real benefit to the climate.

How can emissions be removed from the atmosphere?

There are three main ways that removals of greenhouse gases can be achieved in order to create offsets:

Bioenergy with Carbon Capture and Storage: trees or crops absorb carbon when they grow. When burned in a power station to produce energy the carbon dioxide can be captured and stored underground. Theoretically this could help to absorb carbon dioxide from the atmosphere, but many raise concerns about the time it takes for trees to regrow, the efficiency of the power plants, and the area of land required.

Furthermore, the power sector is capable of reaching ‘true zero’ so it can be argued that the limited role of offsetting should rather be used to offset emissions which cannot be comprehensively eliminated.

Direct Air Capture Carbon and Storage: machines that can absorb carbon dioxide straight from the air and store it are promising but this technology is at an extremely early stage and currently very expensive per tonne of carbon.

Nature-based solutions: restoring natural habitats such as seagrass in the ocean, or peatlands and forests on land, can protect the carbon they already store and help them to capture more of it. This also comes with the benefits of helping wildlife and providing protection against the impacts of climate change such as floods.

Some estimates suggest that reducing emissions from land and increasing its capacity to store carbon could provide one third of all the emissions cuts needed by 2030.

These approaches can all help to absorb carbon dioxide from the atmosphere and to compensate for emissions from other activities or to remove historic emissions.

How much is needed and when?

Offsetting will be needed to achieve net zero by compensating for the emissions from sectors that cannot fully decarbonise.

The Intergovernmental Panel on Climate Change estimates that anywhere from100-1000 Gt CO2e of total removal (or 1-12 GtCO2e per year) may be required by 2100 - current annual global emissions are 50 GtCO2e.

In its Balanced Pathway for net zero the UK the Climate Change Committee estimates that by 2050 the UK’s land would need to be absorbing 19MtCO2e per year and negative emissions technologies would need to be removing 58MtCO2e per year (this compares to total emissions from the whole UK economy today of just over 400 MtCO2e).

What are carbon credits?

Part of the appeal of offsets is that they allow one party to continue polluting (if they are unable to, or want to avoid, cutting their emissions) while a second party reduces or removes greenhouse gases. In order to facilitate the transfer of climate action between these parties can be turned into credits. These credits can be traded on private markets between companies or individuals.

They may also be integrated into the carbon markets that cities, states, and countries are developing to bring about emissions savings from different sectors of the economy. This can allow the sectors that it is hardest to decarbonise to “purchase” their savings from elsewhere. However, a risk is that if offsets are particularly cheap they may be more appealing than action to cut emissions, and could lead to a downturn in climate change ambition.

Will offsetting be discussed at COP26 in Glasgow?

In 2015 countries signed the Paris Agreement on climate change, committing to limit temperature rises to 1.5°C and reduce emissions to net zero by the middle of the century. One of the remaining sections of the Paris Agreement that has not yet been agreed is called “Article 6”.

It is the part of the Agreement that sets the rules for how countries might trade emissions cuts between one another.

These rules include regulating the swapping of emissions efforts between countries: country A may make a cut in emissions above and beyond what is needed to meet its own national target, and then may choose to offer some of this cut to country B that wants to “buy in” extra effort from elsewhere.

The rules in Article 6 are about ensuring any cuts in emissions aren’t counted twice, which would give a false impression of the benefit to the atmosphere and could reduce overall climate action.

Some countries may attempt to use the forthcoming UN climate summit to weaken these rules. Brazil and India oppose the measures that would avoid double counting. While Brazil, India, China, and some Arab and developing countries have called for old carbon credits to be permitted for future use (even if they may no longer represent any benefit to the climate today).

Some developed countries, the US, Australia, and Canada in particular, have opposed using some of the proceeds from carbon offsets to fund adaptation activity in developing countries.

There are some who fear that without strong enough rules countries that wish to avoid climate action could offload their effort onto other countries, affecting the world’s ability to reach net zero and limit climate change, as well as affecting people and nature.

There are concerns that a rush for offsets could result in land-grabs that particularly affect developing countries and indigenous peoples.