Opinion: 15 Lessons from 30 Years of Voluntary Carbon Markets

This article has been extracted from a climate change micro-site dedicated to Carbon Offsets Round 2. It is part of an ongoing effort to share opinions from thought leaders on a diverse range of issues. The views are those of the contributors and not necessarily those of Forest Trends or Ecosystem Marketplace.  

15 December 2020 | In 1988 Applied Energy Services, working with the World Resources Institute, carried out the first carbon offset project via a CARE agroforestry project in Guatemala. I wrote the carbon quantification methodology for that project (based on conserving nearby forest).

While the idea of offsets has proved very popular in industry and other circles, the experience with carbon markets has been mixed at best. In fact, by 2015 is was less and less clear what the role of carbon offsets would and should be in mitigating climate change.

Then everything changed. Suddenly companies started announcing voluntary “net zero” commitments reminiscent of the first corporate emissions reduction commitments of the 1990s. Because “net zero” commitments almost inherently require carbon offsets, suddenly Carbon Offsets Round 2 was underway. Round 2 was given a huge boost with the establishment of the Task Force to Scale Voluntary Carbon Markets (TSVCM), based on the suggestion by UN Envoy on Climate Change Mark Carney that voluntary markets will have to expand by a factor of almost 200 to help tackle climate change! The TSVCM then put out a consultation document focused on how to make that happen.

That consultation document has almost NO discussion of what we’ve learned from the last 30 years of voluntary carbon offset markets, which you’d think would be relevant to the idea of dramatically expanding those markets. So I’ve taken a very quick stab at identifying what some of those lessons are:

1. It is impossible to maximize for the two primary goals of offsets: “cost containment” and “climate benefit.” There is a fundamental conflict between the two objectives, and cost containment almost always wins.
2. Without constant attention to “willful blindness” and “capture of the system by stakeholders,” you quickly end up selling the equivalent of the emperor’s (invisible) clothing.
3. Policy makers have generally failed to recognize that the truly key decisions relating to carbon offsets are policy decisions, not technical decisions that can be delegated to technocrats or stakeholders.
4. The primary threat to the environmental integrity of carbon markets has been the definition, interpretation, and implementation of the “additionality” criterion. Not fraud and double-counting as is now being suggested because market participants would rather focus on the quantification and tracking of offsets rather than their origination.
5. “Additional” emissions reductions or carbon sequestration have to be traceable back to the workings of and incentives created by the carbon market they are being sold into. That’s what makes them additional. No additionality, no climate change benefit.
6. Carbon offset additionality testing is simply an example of hypothesis testing, which requires the balancing the number of “false positives” and “false negatives,” given that they are inversely correlated. But there is almost no discussion of this basic fact.
7. There is almost never the opportunity to know with certainty whether a particular ton of reduced emissions or carbon sequestration is additional. It’s always a judgment call.
8. It is not enough to characterize “additional” projects as projects that “wouldn’t have happened anyway,” or that “weren’t business as usual.” These ideas are so vague that they’re easily gamed.
9. In the face of policy and market uncertainties, offset developers are motivated to get the lowest-risk and lowest-cost reductions and sequestration accepted into offsets markets. Those are by definition the least additional.
10. The verification process associated with carbon offsets does not extend to verifying their additionality. Additionality testing involves building an a priori counter-factual case that verifiers accept; it can rarely if ever be empirically tested for later on.
11. Additionality fatigue after 30 years of voluntary carbon offsets is similar to COVID-19 lockdown fatigue. Understandable, but in no way invalidating the need to tackle the underlying problem.
12. The handling of offset permanence can dramatically change the economics of carbon offsets from some sectors, and even eliminate them as a source of offsets.
13. Like additionality, leakage can usually not be empirically measured when evaluating carbon offsets, and often requires similar policy determinations.
14. A key problem for voluntary offset markets has been that any offset approved by any of the offset standards organizations can claim to be as good as any other offset. There has been no way for offsets of demonstrably higher quality to differentiate themselves in the marketplace.
15. An alternative is needed to the “least common denominator” approach to approving carbon offsets. A “quality score” for offsets would provide consumers with much more information, and create an incentive for better and self-reinforcing market performance.

I’m not suggesting these are the ONLY lessons that should be taken into account if Carbon Offsets Round 2 is going to proceed as apparently planned, but they do seem rather relevant to that goal.