On Hope and Secret Potions
Dear readers — sometimes, we tend to forget that there’s no magic potion to circumvent hard decisions. As much as we seek positive news in challenging times, the hard facts and the (sometimes unintended) consequences remain. I’ll let Asterix and Obelix explain.
What’s up?
Some of my fondest childhood memories are reading the stories of Asterix and Obelix, two fictional Gallic warriors that, thanks to a magic potion brewed by a long-bearded druid, were given enormous strength and, with it, the ability to fend off entire battalions of Roman soldiers trying to conquer their village. As I attempt to digest recent headlines on carbon-neutral oil barrels and similar, I start to see a myriad of parallels between Asterix and Obelix and the most pressing matter of our time — the climate crisis. The village, in our case Planet Earth, has to be protected from the Romans — humanity, i.e., ourselves — and the magic potion (whose potential as a long-term solution is questionable) being: carbon offsets! The concept that is hailed to “help save the planet” by some is extremely simple (in theory). An emission somewhere can be compensated by funding an activity (the “offsetting”) elsewhere, with tradable carbon credits (or “rights to emit” — one ton of CO2 per credit, to be precise) representing the link between a company’s emissions and a compensating project. The idea allows organisations to deduct the amount offset from unavoidable scope 1 emissions and scope 3 emissions while counting them towards internal reduction goals. Rightly so, the conceptual simplicity raises questions towards the effectivity of carbon offsets — do they actually actually “offset” something or are they just an “easy way out” for companies shying away from the effort of restructuring a business model?
Give me the lowdown
First and foremost, it is crucial to understand that not all carbon offsets “are born equal”. For instance, we distinguish between nature-based (e.g., planting trees) and engineered (e.g., carbon storage) carbon offset methods. While the latter has enjoyed most of the limelight lately (think of Climeworks’ new mandates), its 775$-a-ton price point hits significantly above the 15–20$ cost for planting trees. A further line can be drawn between the ones aiming at emissions avoidance (e.g., paying a farmer to employ less environmentally harmful agricultural practices) and the ones aiming at emissions reduction (e.g., protecting a forest from being logged). For a project to become a carbon offset project, a request for funding must be submitted to a registration body (Plan Vivo, VCS, ACR and the Gold Standard are some of them). For the project to be approved (and subsequent credits to be issued by the bodies), it is most commonly assessed along the following dimensions:
· Additionality: The most vital criteria to most registration bodies — the funding needs to enable the realisation of the project to trigger the expected offsetting mechanism. If the project would have also been realised without the funding, the intention of the mechanism becomes void and the funding only acts as an “income support”.
· Permanence: Especially for nature-based offsetting methods, there is a need to ensure that the project exists long enough to deliver the expected outcome. A forest being logged only after 10 years into a 50-year offsetting project only leads to an emissions delay, not an offset.
· Leakage: An offsetting project somewhere should not lead to an increase in emissions elsewhere (i.e., a forest being declared as protected should not lead to more logging activity in another forest).
· Indirect Consequences: The realisation of offsetting projects can harm surrounding environments and communities — this must be taken into consideration (think of the consequences of river dam projects for hydro power, for instance).
Needless to mention, ensuring projects are continuously monitored and controlled for both the above criteria and the respective standards poses an enormous challenge for donation-reliant registration bodies. It is therefore not surprising that more and more reports on the pitfalls and “failures” of carbon offsetting surface.
Calel et al.’s working paper, for instance, provides us with a glimpse into the reality of the Clean Development Mechanism (CDM), one of the world’s largest carbon offsetting schemes initiated as part of the Kyoto protocol, and the challenges of additionality. The paper finds that, in India, where CDM projects contribute 13% to all investments into renewable energy, 52% of all funding flows into “infra-marginal” projects (i.e., projects that would have also been realised without the funding), negating the entire offsetting mechanism. Such misallocations within the CDM have, so far, caused additional 6.1bn tonnes of CO2 emissions, the equivalent of running 20 one-GW coal plants for 50 years. While the CDM’s underlying methodology seems sound, it is prone to subjectivity, shown in a project approval rate of almost 98%.
Another example is a 2020 UCL research paper that highlights the issue of outdated credits — credits that were admitted in the early days of carbon offsetting, when standards have been less strict, and have since been allowed to continue trading, despite not meeting standards. This resulted, amongst other cases, in a conglomerate of sizeable companies buying carbon credits off a wind farm in China that has already been operational since 2011 — the potential of such funding to remove additional emissions is questionable.
With the above in mind, it is not surprising that an expected 60–70% of offsets enabled through carbon credits may not actually represent any offsets.
What does that mean?
In times where stark warnings on irreversible environmental damage as a consequence of the climate crisis prompt many firms to commit to ambitious emission reduction goals, carbon offsetting must not be seen as Asterix and Obelix’s almighty potion, but cautiously integrated as one of many tools within a company’s carbon reduction strategy. The inherent danger that a project may cause more harm than good (in some cases, even increase rather than decrease carbon emissions) also leads to the conclusion that a “doing-something-is-better-than-doing-nothing” approach does not necessarily apply. Especially in countries where offset-driven funding is a major contributor towards a low- and no-emission economy, the need for supra-national support in creating an infrastructure that provides independent, offset-specific oversight, transparency and accountability is crucial — and, as the saying goes, there are as many ways to achieve this (think of the perks of blockchain technology) as there are “roads leading to Rome”. But as we brace for more exponential growth in areas of carbon concepts and tech, such need is imminent — else carbon offsetting and markets will become much like the Wild West, and efforts to avoid worst case scenarios on climate change will fail.
