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It’s not easy being green: Offsets explained

Georgina Quach
April 18, 2023

Offsets have come under fire as a way for companies to compensate for carbon emissions through eco projects elsewhere. How do they work and should such claims be trusted?

 A woman eats fries and a hamburger at a fast food restaurant
Image: Robin Utrecht/picture alliance

Can eating burgers fight climate change? Swedish fast-food chain Max seems to think so. Not only does the company claim to have net-zero emissions, but it also brands its beef and non-meat burgers as "climate-positive."

Max claims to offset 110% of its carbon emissions — an annual total of 147,000 tons in 2020 — mainly by donating a fraction of profits to plant trees in Uganda. 

This sounds ideal. But research recently published in the Environmental Science & Policy journal has challenged this "net-zero" logic. 

By buying "offsets", the chain does not actually need to reduce actual carbon emissions to fulfil its net-zero claim. In fact, Max's absolute emissions have more than tripled between 2007 and 2021 due to the opening of more restaurants and subsequent higher power usage. And the company admits, it expects its carbon impact to keep on growing. 

How does offsetting work?

Buying offsets is a way to "compensate" for environmental damage. Companies make a financial contribution to projects that reduce the amount of carbon dioxide in the atmosphere, and in exchange can keep polluting themselves. 

Examples of projects include planting trees and rewetting peatlands — which store huge amounts of carbon in their soil. By this logic, it is possible to take "carbon neutral" flights with German airline Lufthansa. Even the FIFA World Cup in Qatar billed itself as climate-neutral. 

A bird wading through shallow water
Wetlands are among the projects offered to companies looking to offset their emissionsImage: Huseyin Yildiz/AA/picture alliance

In recent years, the carbon offset industry has boomed. It is worth $2 billion (€1.87 billion) annually and is expected to grow five times that size by the end of the decade.

After the concept's invention in 1987, some international treaties such as the Kyoto protocol have let industrialized countries use carbon credits, each of which is worth one ton of carbon, to keep within emissions limits. That market –— where carbon credits are traded to meet government regulations — is much bigger, about $261 billion a year.

However, experts have warned most of the credits on the voluntary carbon market aren't effective. 

The problems with offsetting

Recent analysis by British news outlet the Guardian, German newspaper Die Zeit and the investigative site SourceMaterial, found more than 90% of rainforest carbon offsets by Verra, the world's biggest certifier, are likely to be "phantom credits", meaning they do not represent genuine carbon reductions. Verra has strongly disputed the findings of their investigation. 

Forrest Fleischman, environmental and natural resource policy professor at Minnesota University, argued that corporate claims of being "climate positive" cannot solely rely on offsets. "There isn't enough room on the planet to absorb all the carbon emissions through trees," he said. "So while this might look good for one company, it's not a practical strategy globally." 

Cash for emissions: Does that work?

According to Reprisk, a Switzerland-based data science firm that analyses companies' environmental, social and governance practices, one in five ESG risks are linked to carbon offsets and misleading communications — rising to one in three for the food and beverage sector. 

"If a company claims to be carbon neutral, consumers would think the company doesn't harm the environment, but the reality is that changing your business model is costly and time-consuming," explained Alexandra Mihailescu Cichon, Reprisk's executive vice-president. 

The cost of credits — starting from $4.24 (€4) a ton — is often much less than the projected cost of reducing corporations' own emissions in the first place. She also warned that lack of regulation means standards in the market are still hugely erratic. 

Offsetting in practice 

Offset projects can be broadly split into two categories: removals and avoidances. Removal describes actions which actively take carbon out of the air and store it permanently, such as by planting trees or direct air capture — which is not a technology available at scale. Currently carbon dioxide removal represents just a small percentage of the carbon credits in circulation.

Avoidance offsets are from projects that stop the release of greenhouse gases, such as protecting trees from being logged. For example, the asset management arm of the US bank JP Morgan Chase has bought 250,000 acres of forest for more than $500 million "for carbon capture and timber." As such, the bank has paid timberland owners to not cut the trees down, thereby allowing them to absorb carbon from the atmosphere, and in turn, itself profits by generating potential carbon credits for investors.

Alternative investment firm Oak Hill Advisors LP is also cashing in on timberland for carbon offset deals, spending $1.8 bn on US forests. 

The sun shines through tall skinny trees
Some companies have been buying forest land with a view to making a profit from offsetting schemesImage: Patrick Pleul/dpa/picture alliance

Some critics have accused JP Morgan of greenwashing. They argue that while it is good the trees are not being cut down, it is tricky to prove if — and by how much — that results in a net removal of carbon from the atmosphere. This test is known as "additionality”, and measures whether the funding from the carbon credit made any positive difference to the climate.

Another measure used to certify offset projects is the "permanence” of the activity. Finally, there is the potential for "leakage” – if one area of forest is saved from exploitation, but the overall pressure to exploit forests has not gone down, will that demand for deforestation just be redirected somewhere else, say, to another forest? 

Alternative approaches

Observers are raising these questions out of concern that the carbon impact of avoidance emissions — which can only ever be an estimate — is being heavily overstated by those who stand to gain financially.

But tighter scrutiny of offsetting claims could come soon. The Integrity Council for the Voluntary Carbon Market, an independent governance organization, is defining standards that purchasers could use to sort the good from the bad, and filter out low-quality carbon credits. 

Nature-based solutions could also offer answers. A study by the We Mean Business Coalition, a global group of seven non-profit climate-focused organisations, showed that if the world's 1,700 biggest emitters compensated each year for just 10% of the emissions they have not yet cut, through investments in nature, it would mitigate nearly 30 gigatons of emissions and mobilise up to $1 trillion in climate finance by 2030.

Edited by: Tamsin Walker

Climate-neutral – is that even possible?

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