Thought Leadership series: re-thinking the voluntary carbon market

In this fourth and final piece in the series of Thought Leadership, B-CCaS Director of Knowledge Exchange and Impact Dr Matthew Brander explores the complexities behind, and solutions to voluntary carbon markets and carbon offsetting.

Most people will be familiar with the idea of carbon offsetting. It is when you pay for projects that reduce emissions (or increase removals) to compensate for your own emissions.

A few years ago, we probably would not have been talking about voluntary carbon offsets, or only to comment on how the market for them was in decline — otherwise they were not high on the agenda.

Now everything has changed. The market is booming and projected to grow 15-fold by 2030¹. Why would that be?

Probably the biggest driver is thousands of the world’s biggest companies setting net-zero targets². Although they may not have given a lot of thought on how they are going to meet those targets, one thought is “We can use carbon offsets!”.

This pushes offsets up the agenda — and means we need to be asking lots more questions about them. For example, what is going to happen to the price of offsets? They might look like a cheap get-out-of-jail card for meeting net-zero targets right now, with today’s prices as low as $3 or $4 per tCO₂, but if everyone wants them how expensive will they be in 2030 or 2040?

There are also all the long-running (but still essential) questions around offsetting too. Are they additional, for example would the offset projects have happened anyway (in which case no compensatory offset is achieved)?

Are they permanent, for example will the carbon sequestered by planting trees remain stored or will it be re-released to the atmosphere (again, in which case no compensatory offset is achieved). Do they harm rather then help the communities in which projects are located?

These questions mean that buyers need to do their due diligence. One excellent source of detailed guidance on navigating these issues is the Carbon Offset Guide:

• Carbon Offset Guide Website

However, there is also a relatively new problem in town: now that every country in the world has reduction targets under the Paris Agreement, where can we implement offset projects that will reduce emissions below what would have happened anyway?

To put it another way, if a host country counts the reductions from an offset project towards its own target, and the country would have otherwise implemented alternative actions to achieve its target, then the offset project does not achieve a lower level of emissions compared to what would have occurred without the project.

However, achieving a level of emissions below what would have happened anyway is essential for an offset to be an offset. Compensating for emissions entails that there must actually be a compensatory effect.

There is a solution to this problem, but it is not a popular one: the country where the project is located could adjust its target/Greenhous Gas (GHG) accounts so that it does not claim the reduction from the project (called a 'corresponding adjustment').

There are many reasons this is not popular, some might be that it is administratively complicated to track whether voluntary offset projects are happening in a country, and to adjust targets or GHG accounts.

Governments might refuse to make corresponding adjustments, or change their minds about doing so, or require payments, which will discourage project developers from investing in new projects.

Governments in least developed countries might lack the administrative capacity to make adjustments, and this would discourage projects in precisely the countries that could benefit from the most from voluntary carbon market investments.

In fact, there is something of a fractious debate within the voluntary carbon market on whether corresponding adjustments are needed.

Without delving into the technical details of every argument, my own conclusion is that if we want to offset, for example compensate for our own emissions, then the need for corresponding adjustments is inescapable. It is no good saying, "I have reduced emissions elsewhere to balance my own emissions" without actually reducing emissions elsewhere, below what would have happened anyway.

That has not to say that implementing corresponding adjustments is easy or will not dent the growth in the voluntary carbon market, but then ignoring the problem will not support the long-term viability and integrity of the market either.

Instead of trying to ignore the problem, acknowledging it can move the debate towards finding solutions. For example, developing the administrative capacity within countries to make corresponding adjustments, and promoting positive spill over effects from offset projects, so that host countries are not simply losing their cheapest abatement options to the voluntary offset market.

An alternative solution is for the voluntary carbon market to move away from 'offsets'. That is, instead of buying certificates from projects to claim "I have balanced my emissions with reductions elsewhere", the certificate could be used to say "I have supported a country in meeting its emissions reduction target". The former requires a corresponding adjustment and the latter does not.

A possible advantage with pivoting the voluntary carbon market towards this type of alternative claim is that the number of certificates a person or company might buy is not limited to the size of their carbon footprint.

For example, my personal carbon footprint might be 4 tCO₂/yr, but that is unrelated to the fact that I can buy 50 tCO₂ of carbon credits because I want to support least developed countries in reducing their emissions, and achieve other social and environmental co-benefits too.

Perhaps what we need is two voluntary carbon markets. One for supporting net-zero targets, which means offsets, which means corresponding adjustments, and another for supporting countries to meet their own targets.

Dr Matthew Brander is the Director, Knowledge Exchange, and Impact at B-CCaS and Senior Lecturer in Carbon Accounting at the University of Edinburgh Business School.

¹ Taskforce on Scaling the Voluntary Carbon Market. Final Report. (2021).
² UNFCCC. UNFCCC 2021 - Race to Zero Campaign.pdf. Race to Zero Campaign (2021). https://unfccc.int/climate-action/race-to-zero-campaign: Accessed on 2nd August 2021.