The carbon offsets conundrum

A law school professor and internationally renowned expert in climate policy has blown the whistle on Australia’s carbon offsetting schemes, alleging in four new research papers that some “70 to 80 per cent of the credits that have been issued are markedly low in integrity”.

The expert in question, Andrew Macintosh, is director of research at the ANU law school, and the former head of the government’s Emissions Reduction Assurance Committee.

This isn’t the first time Australia’s carbon credits have been called into question: in September last year, a report by the Australian Conservation Foundation and the Australia Institute’s Climate and Energy Program found that one in five carbon credits issued by the Federal Government’s $4.5 billion Emission Reduction Fund (ERF) do not represent real abatement, and are essentially ‘junk’ credits.

So, what are carbon off-sets and carbon credits? How do they work, and can they be done well?

What are carbon credits and carbon offsetting?

A carbon credit is essentially a token of recognition that emissions have been reduced somewhere. Carbon credits are often quantified in tonnes, so one carbon credit = one tonne of CO₂ not released into the atmosphere.

“Carbon offsetting is when the carbon credit is used to offset the obligation to reduce one’s own emission,” explains Frank Jotzo, lead author of the IPCCC’s 5^th and 6^th assessment reports and a professor of environmental economics at the Crawford School of Public Policy at ANU.

So, a company can purchase a carbon credit that offsets a tonne of their CO₂ emissions, because those emissions have been reduced elsewhere. Globally, offsets are often used in countries where companies have an obligation to reduce emissions under national regulations.

There are two main types of offsets.

“The first one is based on avoided emissions,” explains Peter Christoff, a senior research fellow with Melbourne Climate Futures at Melbourne University. “In other words, the company or individual that is trying to offset their emissions is going to pay for someone else not to do something that would produce additional emissions.

“Those emissions are counted as emission saved.” 

The second form of offset is what’s known as a carbon drawdown: “That’s where you actually have a process underway to draw carbon out of the sky.”

But most carbon offset schemes rely on the first method, often in the realm of land use – so the carbon offset is land that’s not cleared, or that’s regenerated.

The original idea behind carbon offsetting was to help poorer countries contribute to the decarbonisation effort, and redistribute some of the economic upheaval of emissions reduction.

“You’re spreading the emissions reducing action more broadly,” explains Jotzo. “And so, in principle that increases the cost effectiveness of reducing emissions because it allows for accessing lower-cost options that are not part of an emission reduction scheme.”

Australia has an internal carbon offsetting scheme, which is overseen by the Clean Energy Regulator. According to Christoff, most carbon credits that are issued in Australia come from agriculture, and in particular farmers are paid to either revegetate and restore their landscapes, or simply to avoid deforestation on their farms.

Common criticisms of carbon offsetting schemes

But offsetting schemes can be controversial. There are widespread concerns about the integrity of some offsets, and the way they’re calculated. For example, speaking with the ABC, Macintosh expressed concerns that most of the forest regeneration projects under the Australian ERF scheme are being planted in arid regions of Australia, where ecologists believe the trees are actually unviable in the long-term.

This is a problem that plagues the calculating and trading of offsets, says Jotzo.

“The fundamental problem with any offsets is that you need to somehow determine what is actually the amount of emissions reduced,” he says. “And the reference point for that is a counter-factual, hypothetical baseline of what emissions would have been if it had not been for the project to reduce emissions.”

So the system of calculating actual emissions reduced is hazy, at best. But more importantly, there are fundamental problems with the very principle of carbon offsetting that go to the heart of the scheme. 

The first is known as the additionality problem.

“The large projects in the Australian scheme are typically ones where landholders say we are not clearing this piece of land, and we would otherwise clear this piece of land,” Jotzo explains. “Then they get credit to keep the vegetation on the land.

“So, the assumption here is that if it had not been for the project, those landholders would have cleared the land. But you can’t prove this. How do you know that the project activity is actually additional to what would have happened anyway? Maybe they would have left the vegetation standing anyway, because it wouldn’t have been an economic proposition to clear it.” 

So, carbon offsetting schemes can provide incentives for landholders to claim an existing piece of forest as a carbon offset, and regulators have to simply trust that the land would have been cleared otherwise.

The second fundamental problem is what’s known as leakage. 

“These offset schemes are always constructed project by project,” Jotzo says. “So now we have 1,000 hectares over here where a landholder commits to not removing the vegetation, but what about the 1,000 hectares just next door? 

“Perhaps they will be cleared instead, because there’s a demand for additional grazing land, and so it won’t be farmer A who clears the land for grazing, it’ll be farmer B.”

In this case, the aggregate impact on emissions is zero, because the ‘offset’ carbon emissions have instead been released elsewhere. And these kinds of cases are almost impossible to regulate, because by all appearances farmer A has issued a legitimate carbon credit. 

Another major criticism of offsetting schemes is that they encourage continued emissions, and draw focus away from the most important goal of decarbonisation.

“An offset scheme only works in a world where some emitters have an obligation to reduce emissions, and others don’t,” Jotzo says. 

“In a world where everyone has to act to reduce emissions, which needs to be the global goal, there’s no room for an offset scheme.”

Should we be offsetting at all?

“I have really serious concerns about the whole idea of offsetting,” says Christoff. “What you’re doing is offsetting emissions that will be in the air for 1,000 years or so [roughly the lifespan of carbon emissions].

“So, the offset will have to work for that period of time. And the first simple question I’d have to ask is, how many companies do you know that have been around for 1,000 years?”

Many offsetting schemes rely on vegetation to store the carbon, which has a finite life cycle. This also raises another key issue, notes Christoff. Because Australia is an arid continent with increasing rates of bushfires, we can’t be confident that vegetation – even long-lived trees – will persist into the future. 

According to Justin Borevitz, a plant scientist whose research looks at plant-based carbon sequestration, there is a place for the processes that many carbon offsetting schemes use, but the economic structure of the transaction needs to fundamentally change.

Rather than either reducing your emissions or purchasing carbon offsets, Borevitz says we should be focusing on both: reducing our emissions and sequestering carbon away from the atmosphere.

“For the 2020s, all of our attention should be on emissions reduction, and going clean energy as fast as possible,” says Borevitz. 

But for those harder-to-abate sectors, in which CO₂ emissions are impossible to entirely eliminate – such as concrete fabrication or agriculture – Borevitz says we need complementary strategies for removing those emissions from the atmosphere, and indeed we need to also be removing our past emissions from the atmosphere too.

“The problem is the word offset,” Borevitz says. “We already put enough in the atmosphere, we need to draw it down, we need to actively pull it out.

“It’s like a bathtub: turn the tap off when it’s over-flowing, and then start bailing out the water.”