Carbon offsets — whereby one party pays another party to reduce carbon emissions — have always been dodgy, but now they are threatening to undermine the Paris climate agreement. That's according to a new white paper from OG climate blogger Joe Romm, who's now a visiting scholar at U. Penn.
Not so fast… The death of the carbon markets has been foretold many times in the past and yet, the market evolves and lives on, and will once again because it has an important role to play.
I’m a big fan of both you David and Joe but, as someone who has worked both directly and indirectly in the voluntary carbon markets for over 15 years, there are parts of this podcast discussion that are off target:
- No one should use credits in lieu of actual action - in fact the GHG accounting protocol and the Science Based Target Initiative, the standards over 5700 companies use to set their GHG reduction goals, will not let you take credit for carbon credits as part of your Net Zero commitment. Credits are encouraged to be used only after your are reducing in line with a “1.5 Degree Aligned Reduction Pathway.” And then, they are only to mitigate emissions “Beyond Your Value Chain” (e.g., to help mitigate emissions beyond your own footprint) with the only exception being carbon removals years in the future to address un-abatable emissions. See the guidance here: https://sciencebasedtargets.org/beyond-value-chain-mitigation.
- Companies don’t use carbon credits in lieu of taking action: it’s well documented that companies who buy credits are well ahead of companies that don’t in terms of any sort of action on climate. In fact buying carbon credits is usually done by the most responsible companies and is not an act of greenwash. One recent study by Trove Research: https://trove-research.com/report/corporate-emission-performance-and-the-use-of-carbon-credit s//]
- This discussion misses the most important reason for buying credits which is to provide much needed financing for the protection and restoration of natural ecosystems which otherwise are not being funded. NDCs or no NDCs, the sad reality is many governments don’t have the money to protect their natural ecosystems. Carbon finance provides funding that would otherwise not be available to move many conservation and community projects forward. To assure this can be done without any double claiming, the market is moving to corporations and others buying credits under the banner of “Funding Climate Action” rather than any notion of “offsetting.”
- It is not true that developing countries will be left to finance the most expensive projects. The logic of Article 6 will mean that developing countries keep the credits from the cheapest projects to count against their NDC, and they will sell the credits from the more expensive to develop projects to global corporations and developed countries. The markets for these credits are already taking shape with this assumption.
I'm never quite sure where "RECs" or "credits" end and "offsets" start but I feel like it's all the same.
I just feel double-counting is rife. Just this a.m., I'm looking at spreadsheets with local town electricity consumption, PV "production," GHGe/kWh from Xcel, etc. The town counts all local PV production as "ours" and wants to say it reduces our "emissions" from the totals reported by Xcel based on their blended CO2/kWh. BUT, 75% of local PV generation is under "Solar Rewards" where essentially Xcel pays $0.04/kWh or so to take ownership of CO2 offsets/credits and use those to reduce its blended CO2/kWh.
There's another category of double counting with behind the meter solar which reduces metered consumption, but then wants to be counted as renewable production also. Fine, but add the BTM production back onto the consumption first. Can't do both.
I agree with all the concern about whether offsets are real (additional, permanent, well measured, etc.), but there were 2 things that seemed wrong about the discussion (assuming the offsets in question are real)...
First, it seems very reasonable to let companies count avoided emissions offsets toward their net-zero targets and also let countries count those emissions reductions toward their NDCs as "separate accounting systems." If a company in the US reduced its emissions, it would obviously count that in its progress towards net zero and the US would also record that reduction in its inventory and show it as progress towards its NDC. That's not double-counting. The company and the country each have their own separate targets and their separate inventories aren't being added up to determine some global inventory. (If they were THAT would be double-counting.) Similarly, if a company based in CA paid for carbon dioxide removal (CDR), it would count that toward its net-zero goal. If the CDR occurred in Denmark, it seems reasonable for Denmark to count that as a negative emissions, too. It only becomes double-counting if the state of CA also counts that as a negative emissions because we can't have both Denmark and CA/USA count the same negative emissions -- because they are part of the same country-based accounting system. If the CA company wanted to use that CDR to comply with a state regulatory requirement aimed at lowering the state's emissions (such as SB 308: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB308), then they would have to make sure that no other government was also claiming those reductions in order to avoid double-counting.
Second, it seemed like there was confusion between specific tons of offset emissions and reduced on-going rates of emissions, similar to the mistake we often see between kW and kWh. If I pay to help shut down a coal plant 5 years earlier than planned, I could claim an avoided emissions offset for the number of tons of CO2 that would have been emitted during those 5 years. Even if the host country agrees to let me take credit for those emissions reductions for those 5 years, it can still take credit for lower emissions from year 6 on into perpetuity. I'd be buying tons of avoided emissions (like kWh), not an on-going lower rate of emissions (like kW) that would offset my own emissions for every year into the future. And perhaps that host country doesn't really care about its emissions during those first 5 years since its NDC just aims for a certain target by 2040 or 2050. It may see little value in keeping those early years of emissions reductions and would be happy to sell those off at a lower price. By doing so, it is not requiring itself to "buy them back" or to do more expensive emissions reductions in the future as Joe was describing. This seemed like a big flaw in the argument that developing countries would be foolish to sell off some avoided emissions because then they would have to do even more expensive emissions reductions later.
I also found this "time" issue confusing. I'll write a longer reply later on the many battles for good rules in these ever-evolving market (which I first engaged with in 2000). It does seem to me that actions that push us down the curve further or faster still have value. If I am missing something on this concept, I am hoping someone can educate me.
It would also be useful to have a central place where these issues can be reasonably discussed with Joe (and David if he so desires.) Joe has made very important contributions to our thinking over decades. Some back and forth on this new paper would be interesting and potentially very useful.
Isn’t the answer for Amazon, Microsoft, etc., to--buy EVs for fleets, put backfeed-able solar on all their roofs, install on site battery backup--actually *do* everything they can? And as much as able, literally procure actual clean grid power from local power companies. They can also directly fund microgrids in Nigeria, etc. It may not cover 100% and not all of that can be claimed, but the sooner they do it, the sooner they stop polluting. And the sooner they help physically clean their own grid, the faster other “free power” opportunities like electrolyzers can arise. And the “area of carbon emissions under the drawdown curve” shrinks by doing it faster. So it would do a measurable good that they can point to for PR.
Companies, like countries, aren't competing to reduce the ppm CO₂ in the atmosphere. They are competing for human eyeballs and sympathy - credit for being environmentally concerned. The end-game of the COP26 article 6.4 negotiations in '21 made it clear the value of these offsets is the public and international credit for participating in the system and not anything related to the efficacy of the system (e.g. zombie CDM credits, Brazil-Switzerland leading the charge). I'd suggest both the international and voluntary markets are imaginary; oversubscribed at minimum. Nothing that was grandfathered in was any better than the explicit double counting in the Orstead deal, the required good-faith was missing in practice.
The new Microsoft campus is a great case in point on how aligned actions are to the optics of climate and not the realities. This new set of buildings have a district ground source heat pump system (really cool!) and will be net-zero when complete (in operations) - they'll produce as much energy as they consume on that campus. But that "in operations" bit is doing a lot of work. Not only is the embedded carbon of the construction omitted, the facilities that were torn down were not at their end of life, these buildings were less than 35 years old so their prior embedded carbon wasn't even amortized before they were torn down and replaced.
You can get a lot of attention for recycling 500 hard drives from a data center, while very little attention flows to facilitating an additional 50,000 bpd through cloud services provided to an oil field. The folks doing environmental work are good folks and well intentioned, but the core business is not environmental stewardship, stewardship is a marketing expense.
A corporate fleet is a big deal, but it is also a big deal for the core business as well. The fleet refresh will follow big customer accounts (e.g. you buy our products and we'll buy yours) and adhere to environmental initiatives as a secondary objective, when opportunity aligns.
Also, don't read too much into the name Gold Standard, the rules for that system involve an attestation that best practices are followed (and your company has to have been incorporated for at least a year as well to qualify, but trust and good faith all the way down). We've already seen the results of trust without verification. This is actually something really clever in "The Ministry for the Future," the value of the credit is predicated on the MRV required to validate that credit. The whole "markets connecting buyers to sellers" approach is a bad model for this (necessarily) zero sum exchange. Way too many people trying to wrap it in a block chain and facilitate high frequency trading on these 'assets' and not enough worrying about physical (rather than economic) leakage of the counted GHG commodity.
Economically defined leakage is a mess. Royal Dutch Shell is both a fossil fuel extraction leader and a leader in electrolyzer deployments. To escape the leakage control they just spin out the smaller business and remain a major investor. Usually the international rules leave international boundaries in place, so you don't even have to spin it out of the same holding company (just home it's revenue reporting in a different region, an analog to the point of origin carbon accounting that led Drax to move from domestic coal to international wood pellets).
Netherland's tons, not Orstead's tons. That was an optimistic and strong claim at the end of the piece. National boundaries are used throughout, because nations came together to kick this off and not corporations, but corporate emissions span international boundaries (and often exceed international sums in total emissions). Industrial offshoring of emissions was a thing before offsets. When a company can report their profits from another country, what stops them from reporting their emissions similarly? How do you tease out the contributions of a value chain spanning 200 suppliers and 15 countries? Who's ton is it, really? The bounty and obligation on that ton needs to go to the group verifying it; the measurement, and tracking makes it real. Anyone stepping in to serve that globally civic role should have primacy over corporations and companies, else we'll continue to get these accounting shenanigans to the material detriment of us all. We've played the economic counterfactual games for too long as it is - countries are actually poorly placed for enforcement and their incentives are just as crossed up as the multi-national corporations.
When a company buys "actual clean grid power from a local power company" they are buying power plus a REC. The reason we had essentially no new renewable energy in the grid in 2000, when the REC market started, was because the utilities were in charge of all power decisions -- a monopsony. The issue is not RECs, it is the rules around RECs. Those rules are better in some places than others.
A REC is just an accounting mechanism. It is used in all voluntary and regulatory settings. An analogy: You might not like tariff policies on clothing. Don't blame the sweaters. :-)
True! What I meant was--very literal. True hard work. Is their local utility 20% solar? And a proposed AWS data center will be 2% of the load? Alongside the data center, partner with the utility (or threaten to build elsewhere if they don’t themselves in true Amazon style) to build 2% or 3% of the local demand in solar/wind/battery.
Indeed. The world has changed a lot in the past 20 years. It used to be that the ONLY way get any renewable energy built at scale was the voluntary market. Utilities refused to act.
Fortunately, a lot of hard work got done by many good people to change that reality. Now the baby has grown up, so we have to figure out how to not throw the grown up out with the bathwater.
Great to hear Joe Romm's voice. Nice to see him come out swinging. On a different podcast, one of the folks who developed carbon offsets back 35 years ago said they didn't expect these to be in place for more that a decade or so, when everyone would just actually be required to do it. Similar to what Joe said. I liked the takedown of the successful SO2 emissions market as a good analogy or guide for the CO2e market.
There seems to be a place for a CO2 market, but I've thought for a long time, the offsets should logically be much more expensive and limited, and fairly few emitters should be allowed to buy them. Can't wait to wade into his full whitepaper and the ones he's working on.
I was wondering if anyone has tried buying and retiring credits from the European Emission Trading System, as Dr. Romm suggests. This sounds like a great alternative to carbon offsets, but after a half hour or so of searching, I haven't yet found how to do it. Perhaps someone cleverer or more experienced can offer a few tips? Thanks!
The end of this episode has me thinking on government gatekeepers and mitigation contribution claims, and the rich countries' responsibilities- and commitments - to help the poor countries, which have mainly been empty promises. Is there a seed of a market there - that private companies look to burnish their reputations with easier tasks than reaching carbon zero would support projects in other countries and get something like a tax credit for contributing to the developed nations' international support promises? Could be a total mess! But I can't help seeing connections there...
Looking forward to the BECCS analysis. I hope Joe Romm will look at biofuels, syngas, and alt fuels next. My comment: if $150/ton is enough to convince non-state entities to reduce their own emissions because there are no cheap carbon offsets, fine. The cost of the last ton of emissions must be much more than $150/ton, because the climate conditions we are on track for are not conducive to a thriving global economy. Uncertain economics and political instability are unquantifiable -- but should be anticipated. We can’t keep pushing our responsibilities onto our children. We are crushing them with impossible problems.
Not so fast… The death of the carbon markets has been foretold many times in the past and yet, the market evolves and lives on, and will once again because it has an important role to play.
I’m a big fan of both you David and Joe but, as someone who has worked both directly and indirectly in the voluntary carbon markets for over 15 years, there are parts of this podcast discussion that are off target:
- No one should use credits in lieu of actual action - in fact the GHG accounting protocol and the Science Based Target Initiative, the standards over 5700 companies use to set their GHG reduction goals, will not let you take credit for carbon credits as part of your Net Zero commitment. Credits are encouraged to be used only after your are reducing in line with a “1.5 Degree Aligned Reduction Pathway.” And then, they are only to mitigate emissions “Beyond Your Value Chain” (e.g., to help mitigate emissions beyond your own footprint) with the only exception being carbon removals years in the future to address un-abatable emissions. See the guidance here: https://sciencebasedtargets.org/beyond-value-chain-mitigation.
- Companies don’t use carbon credits in lieu of taking action: it’s well documented that companies who buy credits are well ahead of companies that don’t in terms of any sort of action on climate. In fact buying carbon credits is usually done by the most responsible companies and is not an act of greenwash. One recent study by Trove Research: https://trove-research.com/report/corporate-emission-performance-and-the-use-of-carbon-credit s//]
- This discussion misses the most important reason for buying credits which is to provide much needed financing for the protection and restoration of natural ecosystems which otherwise are not being funded. NDCs or no NDCs, the sad reality is many governments don’t have the money to protect their natural ecosystems. Carbon finance provides funding that would otherwise not be available to move many conservation and community projects forward. To assure this can be done without any double claiming, the market is moving to corporations and others buying credits under the banner of “Funding Climate Action” rather than any notion of “offsetting.”
- It is not true that developing countries will be left to finance the most expensive projects. The logic of Article 6 will mean that developing countries keep the credits from the cheapest projects to count against their NDC, and they will sell the credits from the more expensive to develop projects to global corporations and developed countries. The markets for these credits are already taking shape with this assumption.
I'm never quite sure where "RECs" or "credits" end and "offsets" start but I feel like it's all the same.
I just feel double-counting is rife. Just this a.m., I'm looking at spreadsheets with local town electricity consumption, PV "production," GHGe/kWh from Xcel, etc. The town counts all local PV production as "ours" and wants to say it reduces our "emissions" from the totals reported by Xcel based on their blended CO2/kWh. BUT, 75% of local PV generation is under "Solar Rewards" where essentially Xcel pays $0.04/kWh or so to take ownership of CO2 offsets/credits and use those to reduce its blended CO2/kWh.
There's another category of double counting with behind the meter solar which reduces metered consumption, but then wants to be counted as renewable production also. Fine, but add the BTM production back onto the consumption first. Can't do both.
This is why Green-e certification for REC-based products is so important.
I agree with all the concern about whether offsets are real (additional, permanent, well measured, etc.), but there were 2 things that seemed wrong about the discussion (assuming the offsets in question are real)...
First, it seems very reasonable to let companies count avoided emissions offsets toward their net-zero targets and also let countries count those emissions reductions toward their NDCs as "separate accounting systems." If a company in the US reduced its emissions, it would obviously count that in its progress towards net zero and the US would also record that reduction in its inventory and show it as progress towards its NDC. That's not double-counting. The company and the country each have their own separate targets and their separate inventories aren't being added up to determine some global inventory. (If they were THAT would be double-counting.) Similarly, if a company based in CA paid for carbon dioxide removal (CDR), it would count that toward its net-zero goal. If the CDR occurred in Denmark, it seems reasonable for Denmark to count that as a negative emissions, too. It only becomes double-counting if the state of CA also counts that as a negative emissions because we can't have both Denmark and CA/USA count the same negative emissions -- because they are part of the same country-based accounting system. If the CA company wanted to use that CDR to comply with a state regulatory requirement aimed at lowering the state's emissions (such as SB 308: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB308), then they would have to make sure that no other government was also claiming those reductions in order to avoid double-counting.
Second, it seemed like there was confusion between specific tons of offset emissions and reduced on-going rates of emissions, similar to the mistake we often see between kW and kWh. If I pay to help shut down a coal plant 5 years earlier than planned, I could claim an avoided emissions offset for the number of tons of CO2 that would have been emitted during those 5 years. Even if the host country agrees to let me take credit for those emissions reductions for those 5 years, it can still take credit for lower emissions from year 6 on into perpetuity. I'd be buying tons of avoided emissions (like kWh), not an on-going lower rate of emissions (like kW) that would offset my own emissions for every year into the future. And perhaps that host country doesn't really care about its emissions during those first 5 years since its NDC just aims for a certain target by 2040 or 2050. It may see little value in keeping those early years of emissions reductions and would be happy to sell those off at a lower price. By doing so, it is not requiring itself to "buy them back" or to do more expensive emissions reductions in the future as Joe was describing. This seemed like a big flaw in the argument that developing countries would be foolish to sell off some avoided emissions because then they would have to do even more expensive emissions reductions later.
I also found this "time" issue confusing. I'll write a longer reply later on the many battles for good rules in these ever-evolving market (which I first engaged with in 2000). It does seem to me that actions that push us down the curve further or faster still have value. If I am missing something on this concept, I am hoping someone can educate me.
It would also be useful to have a central place where these issues can be reasonably discussed with Joe (and David if he so desires.) Joe has made very important contributions to our thinking over decades. Some back and forth on this new paper would be interesting and potentially very useful.
Isn’t the answer for Amazon, Microsoft, etc., to--buy EVs for fleets, put backfeed-able solar on all their roofs, install on site battery backup--actually *do* everything they can? And as much as able, literally procure actual clean grid power from local power companies. They can also directly fund microgrids in Nigeria, etc. It may not cover 100% and not all of that can be claimed, but the sooner they do it, the sooner they stop polluting. And the sooner they help physically clean their own grid, the faster other “free power” opportunities like electrolyzers can arise. And the “area of carbon emissions under the drawdown curve” shrinks by doing it faster. So it would do a measurable good that they can point to for PR.
Companies, like countries, aren't competing to reduce the ppm CO₂ in the atmosphere. They are competing for human eyeballs and sympathy - credit for being environmentally concerned. The end-game of the COP26 article 6.4 negotiations in '21 made it clear the value of these offsets is the public and international credit for participating in the system and not anything related to the efficacy of the system (e.g. zombie CDM credits, Brazil-Switzerland leading the charge). I'd suggest both the international and voluntary markets are imaginary; oversubscribed at minimum. Nothing that was grandfathered in was any better than the explicit double counting in the Orstead deal, the required good-faith was missing in practice.
The new Microsoft campus is a great case in point on how aligned actions are to the optics of climate and not the realities. This new set of buildings have a district ground source heat pump system (really cool!) and will be net-zero when complete (in operations) - they'll produce as much energy as they consume on that campus. But that "in operations" bit is doing a lot of work. Not only is the embedded carbon of the construction omitted, the facilities that were torn down were not at their end of life, these buildings were less than 35 years old so their prior embedded carbon wasn't even amortized before they were torn down and replaced.
You can get a lot of attention for recycling 500 hard drives from a data center, while very little attention flows to facilitating an additional 50,000 bpd through cloud services provided to an oil field. The folks doing environmental work are good folks and well intentioned, but the core business is not environmental stewardship, stewardship is a marketing expense.
A corporate fleet is a big deal, but it is also a big deal for the core business as well. The fleet refresh will follow big customer accounts (e.g. you buy our products and we'll buy yours) and adhere to environmental initiatives as a secondary objective, when opportunity aligns.
Also, don't read too much into the name Gold Standard, the rules for that system involve an attestation that best practices are followed (and your company has to have been incorporated for at least a year as well to qualify, but trust and good faith all the way down). We've already seen the results of trust without verification. This is actually something really clever in "The Ministry for the Future," the value of the credit is predicated on the MRV required to validate that credit. The whole "markets connecting buyers to sellers" approach is a bad model for this (necessarily) zero sum exchange. Way too many people trying to wrap it in a block chain and facilitate high frequency trading on these 'assets' and not enough worrying about physical (rather than economic) leakage of the counted GHG commodity.
Economically defined leakage is a mess. Royal Dutch Shell is both a fossil fuel extraction leader and a leader in electrolyzer deployments. To escape the leakage control they just spin out the smaller business and remain a major investor. Usually the international rules leave international boundaries in place, so you don't even have to spin it out of the same holding company (just home it's revenue reporting in a different region, an analog to the point of origin carbon accounting that led Drax to move from domestic coal to international wood pellets).
Netherland's tons, not Orstead's tons. That was an optimistic and strong claim at the end of the piece. National boundaries are used throughout, because nations came together to kick this off and not corporations, but corporate emissions span international boundaries (and often exceed international sums in total emissions). Industrial offshoring of emissions was a thing before offsets. When a company can report their profits from another country, what stops them from reporting their emissions similarly? How do you tease out the contributions of a value chain spanning 200 suppliers and 15 countries? Who's ton is it, really? The bounty and obligation on that ton needs to go to the group verifying it; the measurement, and tracking makes it real. Anyone stepping in to serve that globally civic role should have primacy over corporations and companies, else we'll continue to get these accounting shenanigans to the material detriment of us all. We've played the economic counterfactual games for too long as it is - countries are actually poorly placed for enforcement and their incentives are just as crossed up as the multi-national corporations.
Hi Will,
When a company buys "actual clean grid power from a local power company" they are buying power plus a REC. The reason we had essentially no new renewable energy in the grid in 2000, when the REC market started, was because the utilities were in charge of all power decisions -- a monopsony. The issue is not RECs, it is the rules around RECs. Those rules are better in some places than others.
A REC is just an accounting mechanism. It is used in all voluntary and regulatory settings. An analogy: You might not like tariff policies on clothing. Don't blame the sweaters. :-)
True! What I meant was--very literal. True hard work. Is their local utility 20% solar? And a proposed AWS data center will be 2% of the load? Alongside the data center, partner with the utility (or threaten to build elsewhere if they don’t themselves in true Amazon style) to build 2% or 3% of the local demand in solar/wind/battery.
Indeed. The world has changed a lot in the past 20 years. It used to be that the ONLY way get any renewable energy built at scale was the voluntary market. Utilities refused to act.
Fortunately, a lot of hard work got done by many good people to change that reality. Now the baby has grown up, so we have to figure out how to not throw the grown up out with the bathwater.
Great to hear Joe Romm's voice. Nice to see him come out swinging. On a different podcast, one of the folks who developed carbon offsets back 35 years ago said they didn't expect these to be in place for more that a decade or so, when everyone would just actually be required to do it. Similar to what Joe said. I liked the takedown of the successful SO2 emissions market as a good analogy or guide for the CO2e market.
There seems to be a place for a CO2 market, but I've thought for a long time, the offsets should logically be much more expensive and limited, and fairly few emitters should be allowed to buy them. Can't wait to wade into his full whitepaper and the ones he's working on.
I was wondering if anyone has tried buying and retiring credits from the European Emission Trading System, as Dr. Romm suggests. This sounds like a great alternative to carbon offsets, but after a half hour or so of searching, I haven't yet found how to do it. Perhaps someone cleverer or more experienced can offer a few tips? Thanks!
Enjoy, David. Thanks for the great episodes. https://youtu.be/eoHUiX-jsk4
The end of this episode has me thinking on government gatekeepers and mitigation contribution claims, and the rich countries' responsibilities- and commitments - to help the poor countries, which have mainly been empty promises. Is there a seed of a market there - that private companies look to burnish their reputations with easier tasks than reaching carbon zero would support projects in other countries and get something like a tax credit for contributing to the developed nations' international support promises? Could be a total mess! But I can't help seeing connections there...
Looking forward to the BECCS analysis. I hope Joe Romm will look at biofuels, syngas, and alt fuels next. My comment: if $150/ton is enough to convince non-state entities to reduce their own emissions because there are no cheap carbon offsets, fine. The cost of the last ton of emissions must be much more than $150/ton, because the climate conditions we are on track for are not conducive to a thriving global economy. Uncertain economics and political instability are unquantifiable -- but should be anticipated. We can’t keep pushing our responsibilities onto our children. We are crushing them with impossible problems.