Pay Your Way to Heaven: The Questionable Promises of the Carbon Offset Market

In his Ninety-Five Theses, Martin Luther denounced the Catholic Church’s corrupt practice of selling indulgences, in which purchasers could pay money to absolve the sins of themselves or loved ones. Luther maintained that indulgences allowed people to avoid making genuinely positive changes in their lives, instead being able to pay their way into heaven. The carbon offset market offers a similar scheme as companies pay into eco-friendly projects to absolve themselves of their carbon emissions. Overestimated and underperforming projects, as well as explicitly fraudulent actions, have largely undermined the goals of this system, allowing companies to “greenwash” their operations and continue emitting greenhouse gases without making more meaningful efforts to reduce their environmental impact. COP29 got itself off to a bold start with Day 1 seeing the approval of a new framework for the rules and regulations of the carbon offset market and the creation of the Article 6.4 Supervisory Body to monitor credibility and compliance. Many have touted this decision as a major achievement in improving the offset market, but such changes cannot fully fix this faulty system and should not distract us from the more important goal of reducing emissions overall.

Originating from the Kyoto Protocol and being developed and expanded as part of Paris Agreement negotiations, the general concept of a global carbon offset market is relatively straightforward. Countries or companies can offset their emissions by buying carbon credits from eco-friendly projects that reduce emissions, with one carbon credit representing one metric ton of CO₂ or other equivalent greenhouse gases. These projects can include renewable energy production, reforestation, and energy efficiency projects, and are accredited by third party verifiers. On paper, this system is meant to allow entities to meet their emissions reduction or net-zero goals while generating investment for green projects and initiatives. In current practice however, the carbon offset market has been marred by questions of effectiveness and additionality, fraud, and risks of ecological damages and human rights abuses.

One of the difficulties carbon offsets face is the challenge of carbon accounting. Given the varying types of projects that can provide carbon credits, varying accounting standards also exist, complicating comparability and often resulting in the overestimation of emissions reductions, especially in energy efficiency and carbon sequestration projects. An additional challenge is defining the additionality of a project. Projects such as renewable energy plants that are politically compelled do not constitute an additional reduction in carbon emissions, as such projects would have been done anyway without outside investment. Forest protection and reforestation projects in particular have questionable additionality in regards to permanence. Forest protection projects are largely meaningless if they do not protect forests in perpetuity and often do not prevent companies from opting to eliminate forests in a different, unprotected area. Reforestation projects can take years to provide the emissions reductions they promise given the slow growth of trees and cannot fully protect against clearing or wildfires from eliminating these emissions reductions.

These faults present in carbon accounting and additionality have resulted in high profile cases of fraud. An investigation by The Guardian in 2023 revealed that over 90% of the rainforest carbon offsets approved by Verra, one of the largest carbon offset project verifiers, were worthless “phantom credits” that did nothing to reduce emissions. Verra had overstated threats to forests by 400% on average and of the 94.9 million carbon credits issued, only 5.5 million reflected real emissions reductions. Just last month, the former CEO of CQC, another carbon offset project verifier, was indicted by a US federal court for manipulating the effectiveness of cooking stove projects in Africa and Asia in order to attract a $100 million investment in the company. Faulty credits like these can have disastrous consequences as undermining the emissions reduction goals of the projects means that emissions by countries continue unabated with less incentive to address them.

Further challenges with carbon offsets come in the form of ecological and human rights risks, primarily in regards to forestry projects. Ecologically, tree-planting projects run the risk of introducing fast-growing invasive species which threatens native forests, and projects in high latitude regions can be unproductive as the sunlight absorbed by the trees can generate a warming effect that counteracts the absorption of carbon from the air. In terms of human rights, forestry projects can negatively impact the lives of local peoples in the areas they are implemented, such as projects in Alto Mayo, Peru which have seen the destruction of homes and the displacement of local communities.

With the agreement on new regulations for the carbon offset market and the creation of the Article 6.4 Supervisory Body there is hope for improvement in transparency and credibility, but there remain significant challenges in the areas of carbon accounting and additionality. Highly stringent oversight will be necessary so that companies are not able to greenwash their operations rather than making significant changes to reduce their emissions. Human rights organizations also raise concerns that the new regulations still lack sufficient human rights protections which could allow for the continued permittance of projects that threaten the livelihoods of the people in the areas they are located. While this new framework is a step in the positive direction, the carbon offset market offers questionably quantifiable benefits at best and allows destructive contributions to carbon emissions at worst. It can provide certain benefits towards combating climate change, but the direct reduction of carbon emissions should be prioritized as the main strategy in resolving the current climate crisis.