Reducing carbon emissions to mitigate climate change is crucial if we want to ensure a sustainable planet for future generations. Carbon offsets are one way to achieve this; however, some assert they do not really work due to various issues involving effectiveness, credibility, and success rates. So, we had to ask: do carbon offsets reduce climate change?
Carbon offsets can mitigate climate change if they are additional, permanent, meet key criteria and verified project standards, and are carried out until the end of their lifespan. However, they do not work at the core issue of reducing CO2 emissions and may be used as greenwashing.
Keep reading to see if carbon offsets impact climate change, how you can best use carbon offsets to reduce climate change, and why greenwashing is an ongoing issue that needs to be addressed.
How Could Carbon Offsets Positively Impact Climate Change
Climate change is arguably the most severe, long-term, global impact of fossil fuel combustion. Every year, approximately 36 billion tons (bt) of CO2 are emitted from burning fossil fuels. The carbon found in fossil fuels reacts with oxygen in the air to produce CO2 which warms the earth by acting as a heating blanket.
By: Grace Smoot
A carbon offset is a reduction or removal of emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. A carbon credit or offset credit is a transferrable financial instrument (i.e. a derivative of an underlying commodity) certified by governments or independent certification bodies to represent an emission reduction that can then be bought or sold.
Both offsets and credits are measured in tonnes of carbon dioxide-equivalent (CO2e). One carbon offset or credit represents the reduction or removal of one ton of carbon dioxide or its equivalent in other greenhouse gases. Carbon credits are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs).
In these programs greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. The goal is to allow market mechanisms to drive these sources towards lower GHG emissions. Since GHG reduction projects generate offset credits, this approach can be used to finance carbon reduction schemes between trading partners around the world.
Within the voluntary market, demand for carbon offsets is generated by individuals, companies, organizations, and sub-national governments who purchase carbon offsets to mitigate their greenhouse gas emissions to meet carbon neutral, net-zero, or other GHG reduction goals. This market is aided by certification programs that provide standards and other guidance for project developers to follow in order to generate carbon offsets.
A variety of greenhouse gas reduction projects can be used to create offsets and credits. Forestry projects are becoming the fastest growing category Renewable energy is another common type, and includes wind farms, biomass energy, biogas digesters, or hydroelectric dams. Other types include energy efficiency projects (such as efficient cookstoves), and destruction of landfill methane. Some include methods that use negative emission technologies, such as biochar, carbonated building elements and geologically stored carbon.
Offset and credit programs have been identified as way for countries to meet their NDC commitments and achieve the goals of the Paris agreement at a lower cost. However, there have been a number of news media stories in recent years criticizing these programs on the grounds that carbon reduction claims are often exaggerated or misleading. Organizations can take a variety of due diligence actions to identify “good quality” offsets, ensure that offsetting provides the desired environmental benefits, and avoid reputation risk associated with poor quality offsets.
There is a diverse range of sources of supply, sources of demand, and trading frameworks that drive offset and credit markets. As of 2022, 68 carbon pricing programs were in place or scheduled to be created globally. While some of these involve carbon taxes, many are emission trading programs, or other types of market oriented program involving carbon offsets and credits. International programs include the Clean Development Mechanism, Article 6 of the Paris Agreement, and CORSIA.
National programs include ETS systems such as the European Union Emissions Trading System (EU-ETS) and the California Cap and Trade Program. Eligible credits in these programs may also include those issued under international or independent crediting systems. There are also standards and crediting mechanisms managed by independent, nongovernmental entities, such as Verra and Gold Standard.
Demand for offsets and credits derives from a range of compliance obligations established under international agreements and national laws, as well as voluntary commitments adopted by companies, governments, and other organizations. Voluntary carbon markets (VCMs) usually consist of private entities purchasing carbon offset credits in order to meet voluntary greenhouse gas reduction commitments. In some cases purchases of credits might also be done as a non-covered participant in an ETS, as an alternative to purchasing offsets in a voluntary market.
Currently there are several exchanges trading in carbon credits and allowances covering both spot and futures markets. These include: Chicago Mercantile Exchange, CTX Global, the European Energy Exchange, Global Carbon Credit Exchange gCCEx, Intercontinental Exchange, MexiCO2, NASDAQ OMX Commodities Europe, Xpansiv. Many companies now engage in emissions abatement, offsetting, and sequestration programs to generate credits that can be sold on one of these exchanges.
Some exchanges, such as AirCarbon Exchange and Toucan, tokenize carbon credits for trading using blockchain technology. Compliance market credits are the large majority of the offset and credit market today. In 2021, trading on the VCM was 300 MtCO2e in 2021. By comparison, the compliance carbon market trading volume was 12 GtCO2e,and global greenhouse gas emissions in 2019 were 59 GtCO2e.
A variety of projects have been used to generate carbon offsets and credits. These include renewable energy, methane abatement, energy efficiency, reforestation and fuel switching (i.e. to carbon-neutral fuels and carbon-negative fuels). The CDM identifies over 200 types of projects suitable for generating carbon offsets and credits. Offset certification and carbon trading programs vary in the extent to which they consider these specific projects eligible for offsets or credits.
For example, under the European Union Emission Trading System nuclear energy projects, afforestation or reforestation activities (LULUCF), and projects involving destruction of industrial gases (HFC-23 and N2O) are considered ineligible. Renewable energy projects can include hydroelectric, wind, photovoltaic solar, solar hot water, biomass power, and heat production projects, among others. Collectively these types of projects help societies move from fossil fuel-based electricity and heat production towards less carbon intensive forms of energy.
However, they may not be accepted as offset projects because it is difficult or impossible to determine their additionality. They usually generate revenue, and involve subsidies or other complex financial arrangements. This can make them ineligible under many offset and credit programs. Methane is a potent greenhouse gas. It is most often emitted from landfills, livestock, and from coal mining. Methane projects can produce carbon offsets through the capture of methane for energy production.
Examples include the combustion or containment of methane generated by farm animals by use of an anaerobic digester, in landfills, or from other industrial waste. While carbon offsets that fund renewable energy projects help lower the carbon intensity of energy supply, energy conservation projects seek to reduce the overall demand for energy. Carbon offsets in this category fund projects of three main types.
Cogeneration plants generate both electricity and heat from the same power source, thus improving upon the energy efficiency of most power plants, which waste the energy generated as heat. Fuel efficiency projects replace a combustion device with one using less fuel per unit of energy provided. This can take the form of both optimized industrial processes (reducing per unit energy costs) and individual action (bicycling to work as opposed to driving).
Energy-efficient buildings reduce the amount of energy wasted in buildings through efficient heating, cooling or lighting systems. New buildings can also be constructed using less carbon-intensive input materials. Industrial pollutants such as hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) have a GWP many thousands of times greater than carbon dioxide by volume. Because these pollutants are easily captured and destroyed at their source, they present a large and low-cost source of carbon offsets.
As a category, HFCs, PFCs, and N2O reductions represent 71 percent of offsets issued under the CDM.Since many of these are now banned by an amendment to the Montreal Protocol, they are often no longer eligible for offsets or credits. Offset and credit programs have been identified as way for countries to meet their NDC commitments and achieve the goals of the Paris agreement at a lower cost.They may also accelerate progress in closing the emissions gap identified in annual UNEP reports.
These programs also produce important co-benefits. Common environmental co-benefits described for these projects include: better air quality, increased biodiversity, and water & soil protection. There are also social benefits, such as community employment opportunities, energy access, and gender equality. Typical economic co-benefits include job creation, education opportunities, and technology transfer. Some certification programs have tools and research products to help quantify these benefits.
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