A Carbon Offset Database: Correcting the Market’s Failures

“We are the first generation to be able to end poverty, and the last generation that can take steps to avoid the worst impact of climate change. Future generations will judge us harshly if we fail to uphold our moral and historical responsibility.” Ban Ki-moon

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In theory, carbon offset markets can help us manage our environmental impact while promoting social and economic development. In practice, they are dominated by a few large players with little transparency, undermining their credibility. We are producing a database on all of the carbon offset projects in order to bring people closer to the projects they fund.

What are carbon offsets?

Carbon offsetting is a process where individuals and companies purchase carbon credits that offset their environmental impact. Credits are tradable certificates measured in tonnes of carbon dioxide or an equivalent amount of a different greenhouse gas (referred to as tCO2e); it allows the owner to emit 1 tCO2e. For offsets to work, the underlying credits need to fulfil four basic criteria: additionality, permanence, leakage, and verification. The aim of offsets is to help us mitigate the levels and concentration of greenhouse gases in the atmosphere.

There are two kinds of markets for offsets: compliance and voluntary. Initiated in the 1997 Kyoto Protocol, compliance markets enact legally-binding emissions reductions targets. Industries and firms have to account for their environmental impact, either by reducing their emissions or purchasing credits to offset them. Voluntary markets are not legally mandated nor enforced — they are a market for those who want to offset their own emissions. Whilst compliance markets face some oversight, voluntary programmes are largely self-governed.

Registries are responsible for creating credits, acting as central book-keepers of how the credits are transferred and ‘retired’, meaning taken out of circulation. They form their own standards and regulate who is allowed to act as a project verifier. Once projects meet all of a registries’ requirements, they generate a number of credits equal to the emissions reduction the project quantifies.

To give an everyday example: say that you wanted to offset your driving last year. In the UK the average distance driven for 2019 was 11,481km. Using one of many online tools, you can calculate an estimate of the emissions from this in tCO2e: for a mid-sized petrol car, it would be 3.6 tCO2e. To offset this, you need to purchase 3.6 tCO2e equivalent carbon credits; your purchase should directly lead to an additional reduction of 3.6 tCO2e. Consequently, your driving has a net zero impact.

Why aren’t offsets more popular?

Today markets for offsets are highly opaque, making it difficult to piece together what is going on. If these markets operated accordingly this may not be disconcerting, but a 2016 report by the Öko-Institut found that 73% of all Certified Emissions Reductions (offsets generated by the CDM compliance market) had a low likelihood of being additional and of not being overestimated. The lack of information and high degree of uncertainty creates an adverse selection. Purchasers of offsets are kept in the dark as to how prices are set, with the average cost of an offset fluctuating as widely as 50c to $25 or more, despite their shared result of reducing 1 tCO2e.

This is not a new observation and the reason the problem persists is indicative of a second issue: the market is dominated by a few large players. There are five main registries responsible for the creation of credits that feature in the voluntary market: the Clean Development Mechanism (who also produce credits in the compliance market), The Gold Standard, Verra (VCS), American Carbon Registry, and Climate Action Reserve. Together these bodies are responsible for the majority of offsets available to purchase; they face virtually no regulatory oversight, with control over whether or not a project will be granted credits, and how many credits are issued. To ensure everything is strictly as is reported, independent 3rd party assessors have to verify the project before it receives any credits. These 3rd party assessors are paid by the project developers for their work, and must be chosen from a pool which is regulated by the registries.

Offset retailers play a major role in pushing an unequal distribution of the project types available. Whilst all credits must create an additional 1 tCO2e reduction, they also have wider effects. Unfortunately, not all offsets are equally immediately attractive to consumers. People naturally prefer the ideas of planting trees and supporting cleaner cookstoves, things that they can easily relate to, rather than waste methane capture or landfill offsets. Consequently, retailers focus on the more attractive offsets, for which they can conveniently earn more on. Some retailers do not even allow you to choose which projects’ credits to buy — the only way to get any information about what specific projects one supports is to reach out and ask via email. With more information on the projects, as well as control over which offsets you can buy, consumers would be in a better position to choose offsets based on their total impact rather than appearance and relatability.

What offsets should & should not be

At their worst, carbon offsets pay lip service to helping the environment. They might fail to deliver the tCO2e reduction certified and can lead to substantial damage to the local communities around the projects. Moreover, offsetting emissions is not a tool to pander to environmental guilt: used as such, they cannot help the world reach the IPCC 1.5 degree target.

However, used properly and offsets could be vital in preventing irreversible climate change. We should all aim to bring our carbon footprints as low as possible; we need to remember though that we will never be able to produce zero carbon. Using credits to offset what is unavoidable not only promotes technologies that help the environment but can drive forward economic development as well.

What are we doing?

At AlliedCrowds, we are bringing people and the companies who purchase offsets closer to the projects they fund. The lack of information in the market is currently a barrier to this, and there is no source of data on all of the major registries’ offsets. Our aim is to remedy this: the database we are putting together will contain information on all of the offsets in circulation on the 5 main registries.

Our database will help remove the barrier between consumers and projects, enabling consumers to make more informed decisions. Projects themselves can then feature more prominently in consumers’ decisions. With a greater awareness of and focus on the projects, pressure will increase to develop projects strictly for their benefit to the environment and local communities around them. Alongside this, our aim is that the database will open up new opportunities for researchers and analysts, paving the way for insightful work that further challenges the market to improve.

We are working on developing the idea further and would love to get your feedback on the concept. We will continue to develop this idea and keep our readers updated: make sure to subscribe to our newsletter here.