Are Carbon Offset Schemes Failing to Deliver?

The Shortcomings of Carbon Offset Schemes

Many major corporations, from airlines and oil companies to fashion labels have invested in carbon offset schemes to support their decarbonization aims, including Delta, Gucci and ExxonMobil. Carbon offset initiatives offer an alternative to direct decarbonization practices and are very popular in hard-to-abate industries, where it is difficult to cut emissions at the source. However, recent analyses of some of the most widely used schemes reveal that they are not as effective as companies had hoped. While some underperform, others fail to remove emissions from the atmosphere completely, or even cause harm. 

Carbon offset schemes allow companies to invest in environmental projects aimed at reducing greenhouse gas emissions to balance out their carbon footprints. Many of these projects are located in developing countries. Some of the most popular projects include reforestation, regenerative agriculture, renewable energy projects, waste management, and carbon capture and storage (CCS) technologies. While some companies invest in the schemes to offset all their emissions, others pass the baton to the consumer. For example, many airlines now offer passengers the option of paying to make their flights carbon-neutral by contributing to an offset scheme. 

Earlier this year, the non-profit and transnational corporate watchdog Corporate Accountability published a report that assessed popular carbon offset schemes measured against its classification system. It found that several major companies including Delta, Gucci, Volkswagen, ExxonMobil, Disney, easyJet, and Nestlé, had bought millions of carbon credits for carbon offset schemes that were “likely junk” or worthless in terms of offsetting their greenhouse gas emissions. Some of these companies have since cut ties with these schemes, but many continue to invest heavily in carbon offset practices.  

The Need for Stronger Carbon Market Standards

The report showed that for 33 of the top 50 corporate buyers, over a third of their whole offset portfolio was “likely junk”, which means the carbon emissions reductions were overstated. The “likely junk” ranking is given to schemes where emissions cuts would have happened anyway, or emissions were shifted elsewhere rather than removed. The top 50 offset schemes assessed included forestry schemes, hydroelectric dams, solar and wind farms, waste disposal and greener household appliances projects across 20 (mainly) developing countries.  

Rachel Rose Jackson, the director of research at Corporate Accountability, stated, “These findings add to the mounting evidence that peels back the greenwashed facade of the voluntary carbon market and lays bare the ways it dangerously distracts from the real, lasting action the world’s largest corporations and polluters need to be taking.”  

Two of the biggest offenders are the fossil fuel and transport industries. The fossil fuel industry is the biggest investor in the world’s top 50 carbon offset initiatives and at least 43% of the 81 million carbon credits bought by companies in this sector contributed to projects that are “probably junk”, according to the report. For the transport industry, more than 42% of credits purchased by airlines and 38% of those bought by automakers were found to be likely worthless at reducing emissions. 

This recent analysis is not the only assessment to have found major flaws in many of the top carbon offset schemes. Many environmental groups have long criticized carbon offsetting for ignoring the bigger picture by failing to cut emissions at the source. This has spurred the widespread investigation of the efficacy of these schemes, to understand where companies are succeeding in offsetting their emissions or if these schemes are simply another case of greenwashing. Based on the evidence, climate experts say that the carbon trading market has failed to achieve its environmental aims, as well as delayed the transition away from fossil fuels. In some cases, it has also caused harm to forests and communities in low-income countries. Environmental organizations generally agree that it is time to stop pumping billions of dollars into unproven “climate solutions”. 

In May this year, following several reports of these failings, the Biden administration introduced new principles aimed at strengthening the integrity of the carbon trading market. The Biden-Harris administration released a Joint Statement of Policy and new Principles for Responsible Participation in Voluntary Carbon Markets (VCMs) that codify the U.S. government’s approach to advancing high-integrity VCMs. The statement highlighted the need to take additional action to rectify challenges, restore confidence to the market, and ensure that VCMs live up to their potential to drive climate ambition and deliver on their decarbonization promise. This includes establishing robust standards for carbon credit supply and demand; improving market functioning; ensuring fair and equitable treatment of all participants and advancing environmental justice, including fair distribution of revenue; and instilling market confidence. 

Despite this positive move from the U.S. government, a multitude of investigations suggest that a wide range of major companies continue to invest in carbon offset schemes that continually underperform or are “likely junk.” This move to establish rigorous VCM standards is just the start, as carbon offsetting is a global, not a local, issue and most governments have yet to tackle the matter. Climate experts, consumers, and many industry players have lost trust in the carbon offset sector, as an increasing number of companies worldwide look for ways to cut emissions at the source rather than continue investing in schemes that likely do not work. 

Stay Current on the Future of Energy

Reporting on all things energy, we keep our readers ahead of the curve on the latest developments changing the landscape. Subscribe to Shale Magazine to keep current on energy news, sustainability leaps, and economic intelligence.

When you’re on the go, check out our critically acclaimed podcast, The Energy Mixx Radio Show where we feature the latest insights from top leaders in the energy industry.