The Wild West of Offsetting

In this episode, influential climate blogger Joe Romm discusses whether carbon offsets are, per the title of his recent white paper, “unscalable, unjust, and unfixable.”

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Carbon offsets — whereby one party pays another party to reduce carbon emissions — are an extremely convenient thing to have for people, businesses, and institutions that have money to spend, want to do something green, and either won't or can't reduce their own emissions.

So offset markets have flourished for decades, even in the face of investigation after investigation, exposé after exposé, showing that the emissions reductions they represent are dubious or outright fraudulent.

Things may be coming to a head, though, especially as it slowly sinks in that the Paris Agreement in many ways renders the entire enterprise of offsets moot. If everyone is trying to get as close as possible to zero emissions by 2050, what is gained by trading those reductions back and forth?

A white paper digging deep into these subjects was recently published by none other than Joe Romm. Romm has a PhD in physics from MIT and worked at the Department of Energy in the 1990s, but most people in my world know him as one of the earliest and most influential climate bloggers. He’s also authored numerous books on climate solutions.

As of earlier this year, he is now a senior research fellow at the University of Pennsylvania Center for Science, Sustainability, and the Media, being run by climate scientist Michael Mann. His first report is on offsets, and it’s a doozy. I called to talk with him about the role offsets have played in the past, the reforms the UN is attempting to make to them, and their future in a post-Paris world.

Okay, with no further ado, Joe Romm, welcome to Volts. Thanks so much for coming.

Joe Romm

Oh, well, thank you so much for having me, Dave.

David Roberts

You know, it's funny. I'm sure you will resonate with this. Probably the number one question I get asked my entire friggin career is people writing in to say, "Hey, such and such, my utility or some firm or some company is offering me these voluntary offsets. Are they worth it? Is it worth it doing this?" And I've been meaning forever and ever and ever to do something squarely on offsets, because what I always want to tell people is, like, "No, they're kind of junkie," but I don't want to exaggerate or stereotype. And I thought maybe I was missing some nuances.

So then I read your paper and realized I was missing a bunch of nuances, but they're all nuances. Showing that offsets are way worse than I imagined. Far worse than I had even dreamed. So let's get into it. Let's just start, though, in case any listeners out there don't know exactly what we're talking about. Just what is a carbon offset? And there's two basic kinds the sort of mandatory kind and the voluntary kind just run real quick through what an offset is.

Joe Romm

Sure. Well, I use a definition from the General Accounting Office: Reductions of greenhouse gas emissions from an activity in one place to compensate for emissions elsewhere. So a typical transaction is the developed country or a company, instead of reducing its own CO2 emissions, pays a developing country to reduce its emissions by an equivalent amount instead. And then if the buyer purchases enough offsets, they've been going around calling themselves carbon neutral or net zero. And I would say the interaction that most people have had with offsets, the most common one is when you're buying an airline ticket and you sort of have that option to spend a few dollars to offset your emissions, usually by planting trees.

And the short answer is don't waste your money.

David Roberts

Right. But the idea behind it originally, and they go way, way back, the idea behind it originally is that it's kind of expensive to reduce emissions in developed countries and wealthy democracies, and there's lots of super cheap reductions waiting to be had in developing countries. So the idea was, let's flow some money from developed countries to developing countries. You'll help do some virtuous projects there and we'll reduce emissions. And it doesn't matter where you reduce emissions, right, because it's all one atmosphere and you'll get cheap reductions. That was the driving idea. And conceptually speaking, it's not crazy.

It just kind of turns out that every particular turns out to be difficult to do in a rational way. So we're going to get to some specifically sort of modern or contemporary issues around offsets relating to the Paris Agreement and how that kind of changes the whole playing field. But before we even get there, let's just talk about the history of offsets and the issues that face them, the difficulties. This basic idea of like, I reduce emissions here and I sell it to you and then you count it against your total, the basic issues that they have faced.

And I feel like every couple of years I see another big comprehensive sort of report come out saying, "Yeah, offsets are still mostly junk." So as far as I know, they've been junk from the beginning. But just talk about some of the basic difficulties facing offsets.

Joe Romm

Sure. And the phrase that there's this lots of super cheap emissions out there in developing countries. This is a very key phrase that we will come back to because it's that misconception that is really screwing up the way a lot of people are looking at how we're going to solve global warming.

David Roberts

Right.

Joe Romm

Because they don't exist. So the first offset was 1988.

David Roberts

Oh, wow.

Joe Romm

Yeah, this is Mark Trexler worked on this. And this was a utility, was just trying to see could they do a project in another country. Because utilities, they figured they were going to be — they thought in 1988 they would be regulated sometime soon. So they wanted to check this out. So there was a voluntary market created and voluntary means it's unregulated. It is the wild, wild west. There is nobody out there who is saying this is a real offset and this isn't a real offset.

David Roberts

So there's no government body that vets these in any way. It's all just private companies making claims.

Joe Romm

Exactly. And working with brokers or verifiers or creditors out there. And so that's sort of problem number one. Whenever you have a market that is completely unregulated, there is generally a race to the bottom. Which is to say, if I told you, "Hey, I can sell you a good carbon offset in Brazil for $20 a ton," but someone else says, "Oh, I'll sell you an offset for $5 a ton," who are you going to buy?

David Roberts

Right. And it's important, I think, to say here, too, like the seller has every incentive to sell as cheap as possible, the buyer has every incentive to buy as cheap as possible. Neither party in that buyer seller relationship has any incentive at all to maintain quality. There's no regulatory backstop, there's no penalty for low quality. So both have every incentive in the world to cheap out on this.

Joe Romm

Absolutely. And I was where you were at, at offsets until I decided to start really digging into them. So it took me like six or seven months of really looking closely to realize, "Oh, this is worse than I thought." But also it was tricky to explain, so I had to spend a lot of time trying to figure out how to explain it. And indeed there is an article, the scientific literature is like a nonstop assault on offsets. And there was an article back in 2001 that basically said, yes, one of the problems with offsets is that both sides have an incentive to exaggerate.

Because the seller is getting paid a low dollar amount per ton, right? This is going to be a low dollar per ton market, right? So they have an incentive to inflate the number of tons and not even care if they're real tons or not. Now, in most markets, the buyer cares about quality and quantity, right? Caveat emptor. If someone says they're going to sell me ten real oranges but they sell me five rotten oranges, I'm going to object. But in the offset market, I'm not going to object because in fact, I'm paying a price, a fixed price.

So for that price, I want to get as many — remember, this is sort of an imaginary negative quantity of things, right. So I want to be able to claim credit for as many offsets as possible for my money. And do I want to look under the hood and see if those are real offsets? I'll just say maybe some companies do, but in the vast majority of cases, nobody is really looking very closely under the hood.

David Roberts

Right. And you said something crucial there, too, which is what you're allegedly buying when you buy an offset is a unit of something not happening.

Joe Romm

Right.

David Roberts

So there were going to be greenhouse gas emissions. And because of this money you're spending, there won't be. So you're buying basically a hypothetical, like an alternate reality, something that didn't happen, which I think we should say, even if there were a regulator, and even if buyers and sellers both were extremely interested in quality, it's just intrinsically difficult to measure a hypothetical with precision. Right. It's difficult to say what would have happened.

Joe Romm

Right. And this is the famous additionality problem. This problem has always been identified as one of the two or three biggest problems. How do you know that the money you're spending to fund this project, that the emissions reduction wouldn't have happened anyway? And this particularly comes into effect when we're talking about renewable energy, because a lot of offsets were renewable energy projects. Now, you've done many podcasts on these remarkable drop in renewable prices over the years, to the point where they, in the last decade, increasingly became the cheapest thing to do anywhere. So it became increasingly clear that offsets that were funding renewables, that the money from the offsets weren't making the difference.

So in fact, the offset would have happened anyway, and so the buyer shouldn't get credit for something that would have happened anyway. Right. They didn't make any difference with their money. And there's another tricky feature here, which is there are two types of offsets. There's one where I pay you something that will actually reduce emissions. Like maybe I could pay you to shut down a coal plant, or maybe I could pay you to plant trees and pull carbon out of the air. But a lot of offsets, many of the most popular ones, are called avoided emissions.

That's where I pay you not to cut down trees.

David Roberts

Right. And this raises so many issues. Like, for instance, if I own a bunch of trees, I could sell you not chopping down X parcel, and then I could just turn around and chop down Y parcel to compensate, right? So I end up chopping down just as many trees, but after you've paid me not to chop down these, I just turn around and chop down those instead. So the emissions, the trees are all the same.

Joe Romm

These all have names. That's the leakage problem. And you might even be good faith, maybe you're not going to. But the lumber company still needs the wood, right? The reason they're cutting down the trees, presumably not always, but in general, they're going to sell the wood. So the lumber company will just go to the next province. And the question is, how much leakage is there? And the answer is, as it turns out, there's a lot of leakage. Because, again, people aren't cutting down the trees for no reason. I mean, some people might be, but there's always a reason why they might be cutting down the trees to grow crops.

But if they want to grow crops, they're going to grow crops somewhere and so, yeah, this is very, very difficult. Now, we all want by the way, we do want to stop deforestation, right? We do, in fact, want to figure out how to support ending deforestation as everyone committed. Not everyone, but a whole bunch of nations, as you know, in Glasgow made that commitment, and I think we all support it. The problem is just that you shouldn't turn that into an offset. An offset is — another way of thinking, an offset, it's a license for the buyer to pollute.

I'm paying you not to pollute, so I can keep polluting.

David Roberts

Right.

Joe Romm

So you don't want to turn protecting forests into someone else's license to pollute. So there are lots and lots of problems. And indeed, there are countries, I won't name them, but there are countries out there that noticed who have a very good track record. They weren't deforesting and they realized no one was doing offset projects with them. The only way they could get offset projects, if they said, you know, we are thinking about doing some deforestation in our country, and so maybe we'd like — you know, what kind of deal that is.

David Roberts

Yeah.

Joe Romm

And people can Google that.

David Roberts

Nice forest there. Be a shame if something happened to it.

Joe Romm

Exactly. And that's, again, paying people not to do something is — like not to grow crops, I mean, it's going to get you in trouble. And so, over time, these problems never went away. And the voluntary offset program ambled along. It was not very big through 2005. In fact, the total amount of offsets from 1988 to 2005 was about $300 million. So not a lot of money from a global perspective. Then came the Kyoto Protocol, the 1997 agreement, in which the rich nations committed to make some modest reductions by 2010, but the developing countries did not.

David Roberts

Right.

Joe Romm

But in order to make it easier for the richer countries to sign on to this protocol, it included something called the Clean Development Mechanism, the CDM. And the Clean Development Mechanism was simply an offset program. But this is a regulated offset program. This would know sometimes this is called a compliance market. It's used to comply with an agreement. And the problem was that the rich countries were buying these offsets from countries that didn't have any inventory that was tracked. They didn't have a baseline, so there was nothing to stop them from, yes, building a renewable plant and selling you that as an offset.

But they could still keep building coal plants. And one of the points that I make in the paper is that between 2006 and 2022 and the CDM is still running, the Clean Development Mechanism is still running, the biggest seller of offsets was China. China sold half of all the offsets that were sold. During that time China added so many coal plants that it added almost the equivalent of total current US emissions. Right? So China simultaneously didn't develop cleanly, dramatically increased their CO2 pollution. And in the worst of all possible worlds, all the renewable plants that they were going to build anyway, they sold those to the rich countries, which then used them to actually not meet their target, right?

So that resulted in net pollution. There are analyses out there in the literature which basically say the Clean Development Mechanism as a whole led to 6 billion tons more CO2 emissions.

David Roberts

And this, remember, is the regulated one. So it's not like bringing in a regulator can solve what are basically intrinsic problems. The mismatch of incentives is not something I mean, you would need the world's best regulator scrutinizing every penny and it would still be difficult. So even from the beginning of offset markets, the beginning of the voluntary market, and then accelerating with the CDM, like, I swear I've seen at least four or five massive literature reviews, reports, etc., saying all these markets are junk, the CDM market is junk, it's still junk, it's still junk, it's still junk.

And that's been going on, as you say, now for over like 15 years. So are offsets finally starting to lose their luster? Are they starting to lose their reputation? And then, if that's true, what happens to companies or countries that are sort of staking their claims of emission reductions on offsets? And that's a lot of private companies at this point that are going around saying we're net zero because we bought all these offsets. What happens if the reputation of offsets finally collapses? Is it going to collapse?

Joe Romm

In the last 18 months since Glasgow, really, since November 2021, the price of nature-based offsets, those became the most popular. That was either planting trees or paying people not to cut down trees. And there are some emerging ones, but those are the big ones. They have collapsed 90% in price. And you are correct that there are a lot of these exposés. In fact, I have like 160 footnotes in this paper. And I mean, there are literature reviews, right, and there are major reports by independent bodies and then there's the media. And the media has been increasingly scrutinizing them.

And anyone who fought Bloomberg, for instance, has been doing regular exposés and really basically calling them fake. One of the big decisive moments was in January, the UK Guardian, along with the German Die Zeit and an independent group called, I think, Source Materials. They had done a major nine-month research effort with scientists and they were looking specifically at what had been considered high-quality offsets were protecting the Brazilian rainforest. These are offsets that were bought by Shell and Disney and Gucci, and they found that 94% of them were worthless. And that 94, 95% number is not at all different, any different — there was a 2016 study of the Clean Development Mechanism by the European Commission, which looked at hundreds of the projects and they concluded that only 2% were high quality.

David Roberts

So if I'm Disney, why should I care? I get to greenwash, I get to look green, I get Super Chief offsets. Maybe I just say, nobody reads these exposés, nobody cares. Everybody's doing well here. Why should Disney care about this happening?

Joe Romm

Yeah. And the answer is that finally, I would say the environmental community and the people who do care about this started using different tactics, which is to call out companies and to actually bring lawsuits. And there have been a lot of lawsuits in the last twelve to 18 months. The lawsuits are of two kinds. The most common kind is where you go to the regulator in the country, the advertising regulator, and say, this is false advertising. The Swiss regulator, for instance, ruled finally that the World Cup, the 2022 World Cup in Qatar, had been calling itself carbon neutral.

That's FIFA, if I'm pronouncing it right, or FIFA, the soccer federation had been making this claim, and this was finally taken to the Swiss regulator, and the Swiss regulator said, this is all misleading. You haven't proven that you're doing anything, so please stop calling the World Cup carbon neutral. And if I can just make tell a 30-second story of just how bad that this is very symbolic of the voluntary market. As I said, renewables become so cheap, right, that it became very dubious that an offset could support a renewable project because it was going to happen anyway.

So in 2019, the two biggest creditors in the world, which are Verra and the Gold Standard, they decided, we're not going to allow any offset project, we're not going to verify any offset project that involves funding renewables unless it's in a very, very poor country. But the overwhelming majority of them were not counting, so they stopped. But because this is the wild, wild west, guess what? Qatar decided it was going to launch its own offsetting verifying company, crediting company, which they did, and they said, we're going to take all comers, we will take any renewable project and we will credit it as an offset.

And guess what? Guess who's going to be a big customer of ours? So yes, that is a large way that the World Cup became carbon neutral. And by the way, you can Google it, Saudi Arabia set up its own in the last couple months, they set up their own crediting firm and they are issuing offsets to their many polluting companies. So we're seeing a lot more of these lawsuits. There have been lawsuits in the Dutch court because Shell keeps trying to claim that its oil is carbon neutral or somehow good for the environment, and they've lost four times in a row.

The British has something called the Advertising Standards Authority, and they've now issued guidance: Please do not use carbon neutral or net zero. Last fall Evian, if you buy a bottle of Evian water, it says carbon neutral on it. So they've now been sued for that. That is a trial that's undergoing and it has now gotten to the point where law firms, this year, law firms have been issuing memos to their clients saying, guess what, this is a very ripe area for lawsuits because this whole offset business is kind of dubious but environmentalists are like they're caring a lot more about climate change and these are starting to launch.

And there was an advertising magazine, the Drum, which basically advised clients that suddenly you have to understand offsets are becoming a reputational and a legal risk. Some people may know at the end of June, a lawsuit was filed in federal court in California against Delta because Delta has been calling itself the world's first carbon neutral airline. And basically the suer said, you know, I bought this ticket because I thought you would solve the climate problem and now I learn you hadn't.

David Roberts

Right.

Joe Romm

This has started to have an impact because you may have caught the news that the very end of June, Nestle's publicly said we are withdrawing all the claims that we are planning to make about carbon neutral for Kit Kat and, guess what, Perrier water.

David Roberts

Interesting. So even if you're a company that doesn't care particularly about this as such, right, in terms of carbon emissions, you're going around buying these standard sort of voluntary offsets and making these claims, which is something that has been a herd activity, right. It's fine to do it because everybody else is doing it, but now the slower, weaker members of the herd are being picked off here. You're actually in some danger now of legal exposure basing the claims on these goofy offsets.

Joe Romm

Absolutely.

David Roberts

There's two stories going on. On one hand it seems like there's a house of cards here that's about to collapse. But on the other hand, as you say, there are more and more kind of scammy people herding into this market to sell them. So it's tough to see how that shakes out.

Joe Romm

No one can stop that, really, because it's an unregulated market. We will get to, in a little bit, the one player who could make a real difference. But fundamentally, it is only going to be turning something that has been done for good PR, right — They were all doing this to try to say, "Oh, we're good environmental citizens. Why? Not because we're reducing our own emissions, but we're paying other people to reduce them for us." And that is now starting to lose its luster. Right. So as people start to realize and maybe get sued, maybe they'll get a group of environmentalists will write a letter saying this is a bogus claim. As that starts to become more popular.

And I think that that is increasingly something that you're going to be seeing happening. It's going to become bad PR. And so it's going to be a reputational risk and a possible legal risk. And those two together, I think it's going to start dawning on people and I think one can say that no serious company should be purchasing offsets to make claims about carbon neutral and net zero. And I will say in the reverse, which is that any company that is, is not a serious company. And it's no longer just people like me saying this. The fact of the matter is that the Secretary General set up a UN expert group to look at this specific issue, which is offsets by non-government entities.

And in Egypt, at Cop 27, they reported out and basically said, "No, please stop saying that you're using offsets to become net zero. You can't become net zero that way." And by the way, the biggest independent group out there working with companies to look at targets to see if they're real — you may have heard of them, the Science Based Targets Initiative — they have also said the same thing: You may no longer use offset. We're going to develop a plan for you to make a science-based target where you reduce emissions 50% by 2030 and get down very close to zero by 2050.

But if you cut your emissions 50% by 2030, you can't go out into the voluntary market, buy the rest of those tons and say you're net zero. That doesn't count. So, yeah, I would say more and more of the serious players are walking away from this notion that offsets are real and can be used by companies to pretend that they're doing something.

David Roberts

Let's move on to what I think is an interesting, not new, but newer issue around offsets. So, as you say, the sort of explosion of the offsets began with Kyoto because developed nations were supposed to make reductions and developing nations were not obligated to do so. So under that regime, it makes sense for developing nations to sort of sell their reductions to developed nations, right? If you don't have to make them yourself, why not sell them to people who have to make them? Then comes Paris. So under the Paris agreement, the Paris framework, everybody is supposed to be making reductions, including developing nations.

So then we get to an interesting problem of double counting. So if I'm a country, I reduce emissions by X and I sell those reductions to a company, the company claims the reductions via offsets, but then I also claim them under my Paris obligations. So it kind of seems like two entities are claiming them. Walk through how this works using the example used in the paper is one of Ørsted in Norway and Microsoft buying offsets from them, and then Norway also counting them. So just walk through how that worked.

Joe Romm

Yeah, absolutely. And I'm going to talk about it, not how it appeared in the paper. It took me a while to figure this out. There was a Bloomberg article in mid-May which reported on this, and it's only literally because I had been working on this for six months and had just gotten to realize that this particular deal was the problematic deal. Or, I will say, one of the two problematic deals, but the other one was solvable. And we'll get to that. So this deal in May, the Danish government announced that it was paying the bioenergy company Ørsted to put carbon capture systems on two biomass plants in Denmark, capture up to 450,000 tons of carbon dioxide a year and bury it under the Norwegian sea.

And Denmark subsidized this with a fund it had set up for the very purpose of doing, you know, carbon removal and carbon capture. And so Denmark is claiming all those tons. It's putting them in its national greenhouse gas inventory.

David Roberts

And we should say quickly that unlike the tree stuff, unlike the forest stuff, these really are verifiable and verified emission reductions. That's not the issue here.

Joe Romm

Right. Certainly this is a more quantifiable and also potentially more permanent. The other problem with trees and stuff is trees aren't permanent as we're living through more and more these days. And indeed, these were emissions that were coming from Danish power plants. Right. So these were official Danish emissions that they had agreed to eventually eliminate entirely for their meeting their pledge under the Paris agreement. And so that seems very reasonable. And if that had been it, it would have been a perfectly fine deal to announce. But Ørsted also announced that it was selling over half of the same exact tons that had just sold to Denmark, to Microsoft, which also threw in some money and is also claiming them to offset some of its corporate emissions.

So the same tons are being sold twice and they're being claimed twice.

David Roberts

Right. So what you've got is Denmark claiming these tons under their Paris pledges, and then Microsoft claiming these tons under its private pledge to reduce its emissions. Both entities are claiming the tons. And if you ask Ørsted, I mean, it's not like this is a secret that this is happening. It's right there in the press release. If you ask Ørsted, they say, "There's no problem here. This is just two separate accounting systems."

Joe Romm

Yes. When I saw this, I wrote a letter email to the person who was in the press release for the Danish government at the Danish Energy Agency. I sent an email to Ørsted and I sent one to Microsoft. Twelve days later, the Danish government writes back and says, "We don't consider this to be a double claiming because there are two different inventories we're talking about." Now interestingly, the Danish press release never mentioned Microsoft. And basically the tone of the email was, "We don't really care what Microsoft does. We're claiming them officially in our national inventory to meet our climate targets, and we don't care what anyone else does."

So Ørsted said, "Yeah, it's two different inventories." And ultimately Microsoft said the same thing. But some journalists asked me, "How could there be two different accounting systems?" And I said it's easy: One's real and one's pretend. And that's what is really going on here. The voluntary market is the pretend market. I think that that has become clear over the decades that what companies are doing is pretending to do something and then really taking credit for being a good environmental actor. But clearly what this deal shows, if you knew nothing else about the voluntary market, it's clear that Denmark has every right to claim those tons, right?

It did subsidize them. The tons came from their country. They're putting them in their inventory and they are actually helping to solve the climate problem. Right? They made a pledge so that's clearly the real market, the one that is recognized by the entire world. So whatever Microsoft is doing here, they're not offsetting tons.

David Roberts

So, you could say, though, I mean, just so people grasp the implications of this, given that every country in the world now has pledged emission reductions under Paris, every deal is going to be like this. Every deal in the voluntary carbon market is going to take this same shape. It's going to be double counting. So the question of whether that double counting is legitimate or not, the entire fate of the voluntary carbon market rests on that question. Because if it's double counting and illegitimate, then there just won't be any reason for voluntary carbon offsets anymore. Every country that hosts emission reductions is going to want to claim them for itself under its Paris obligations.

And why would it want to sell them? So, is there any way to, I mean, as you said, you can't stop the voluntary market from coming in and just saying these things because there's no regulator and it can say whatever it wants. But as you say, the UN has sort of stepped in here and tried to draw a distinction. Now tell us a little bit about that, how the UN is trying to sort of square this circle.

Joe Romm

It is important to realize, and this took me a long time to understand enough to know where to look in the literature. This deal isn't just exposing the voluntary market. This deal actually undermines the Paris Accord and that emerged in the literature. Within a year of Paris, somebody wrote a paper for a German think tank and ultimately there have been multiple articles, there was a report to the German Environment Ministry. Paris was designed to get every country to make commitments to reduce their emissions and then to go about the business of reducing emissions. It's not a mandatory thing, right?

There's no enforcement mechanism.

David Roberts

Right right.

Joe Romm

That's very important to remember about Paris. It is a good faith effort by countries, or some people may decide whether or not how good a faith it is. But fundamentally, the nations of the world came together at Paris and made these commitments. And there is now pressure on countries to meet these targets. And obviously, as the climate keeps getting worse and worse, it will be harder and harder, I think, for countries to walk away from them. The problem with this deal is if I'm a developing country and I've made emissions reduction target, I'm disincentivized from reducing my own emissions.

Because I can just sit around waiting until some rich company comes in and says "Hey, I'll buy some of those tons from you, even though you're not selling them to me and do this deal." And basically, that's what the literature said. The literature said this deal, first of all, it's not an offset. The country had already agreed it was going to make these reductions, right. Therefore it was going to happen anyway.

David Roberts

Right. This is the hypothetical thing. Like in Paris, all the countries committed to reductions, therefore there's no hypothetical world anymore without the reductions. The whole premise has been wiped away.

Joe Romm

Yeah, these aren't offsets — and by the way, the Gold Standard and I emailed back and forth with the Gold Standard. The Gold Standard said this. It has written articles basically saying that this deal, anyone who does this deal cannot call what they own an offset and they're not going to sign off on any such deal being called an offset. So, yes, as you say, fundamentally, Paris was the beginning and the end of voluntary offsets. And people should have realized that. When the Paris Accord was signed, everybody knew — and the Paris Accord has something called Article Six — and I'm only saying this because I know your audience is sophisticated and I think they should understand this. So Article Six is the part of the Paris Accord that deals with carbon credit trading and carbon offsets. 6.2 is carbon credit trading, 6.4 is offsets. So that was part of the Paris Accord. However, it became clear that the deal that we're describing between a company and a country is one thing, but you clearly can't allow the double counting if it's two countries. So by unanimously agreeing to the Paris Accord, the world was saying, we are going to work out the details of this Article Six and offsets at a later date.

But the literature was clear that there's only two solutions to the double counting problem. So what is the double counting problem? Let's use very simple math. Imagine that Brazil has 2 billion tons of CO2 emissions and the United States has 2 billion tons of CO2 emissions. And the United States says to Brazil, we want to buy half of your tons that are the easiest to reduce. And we're going to pay you this amount of money and you're going to sell them to us and they do this deal. Now, Brazil has actually physically reduced its emissions by a billion tons, right?

So it actually has a billion tons of emissions, but the United States wants to claim that it also reduces emissions a billion tons. But clearly they can't both claim that because then they would each have 1 billion tons, but the world would actually have 3 billion. They combined would have 2 billion tons, whereas the world still has 3 billion tons. Because the United States actually has 2 billion tons. So there's only two solutions to the double counting problem. Either the buyer doesn't count the tons or the seller doesn't count the tons. Right? I think that's pretty straightforward.

Now, if the buyer doesn't count the tons, then it's not an offset, right? They're just helping Brazil reduce its emissions.

David Roberts

Right.

Joe Romm

And that in Cop 27, in November 2022, the world agreed that would be called a mitigation contribution emission reduction. That the rich country was helping contribute to a greenhouse gas mitigation, helping Brazil achieve its Paris agreement, helping the world reduce greenhouse gas emissions. But it couldn't take any credit for them itself could not be used as an offset.

David Roberts

So you can have a reputational boost, you can get a little green glow, you can get some good PR, but you cannot claim to be reducing your own emissions when you're the buyer in this situation.

Joe Romm

And you should know that the environmental community had been urging the voluntary market to move to that exact scheme for many years. Just don't call it an offset. You can keep doing what you're doing. Rich companies can help poor countries reduce emissions. Just don't call it an offset. Just don't pretend you're buying the same thing that they're not selling to you. I mean, it always seemed obvious to me that if the country that reduced the emissions is keeping the tons, then they're not selling them to you. So how could you be buying them? And by the way, the Gold Standard agreed to do this for the voluntary market in the last year or two.

The Gold Standard is basically saying, you can't do not call any of our projects offsets anymore unless you meet very strict criteria, including that it doesn't involve the Paris agreement. So the other solution is the one that is complicated. It's not that complicated, but it's sufficiently complicated that no one understands what was actually the implications of what was agreed to. So the solution where it's a real offset and the selling country, Brazil, doesn't keep the emissions reduction, Brazil has to publicly announce to the world that it is giving up those tons and it is not going to count those emissions reductions in its own inventory because it's selling them to the United States.

Now, there's only one way this can happen, is if Brazil adds back the billion tons to its official inventory. And that addition, that billion tons, that's called the corresponding adjustment.

David Roberts

Corresponding adjustment. So the idea then is you're selling the tons. You're literally selling the tons, which means you no longer have them. So in that case, the United States could claim to be reducing its emissions, but then Brazil could not claim to be reducing its emissions. It would still have the 2 billion tons on the books.

Joe Romm

So put simply, the rich country gets to pretend that it made emissions reductions, even though it didn't. And the poorer country has to pretend that it didn't make any emissions reductions, even though it did.

David Roberts

Right. And this is now a legitimate framework in the UN. You can do this.

Joe Romm

When the final rules are written. All the rules have not been agreed to. But at COP 26, the nations of the world, when the nations of the world signed off on the Glasgow accord or agreement or whatever you want to call the final document, they were unanimously agreeing that they were going to set up something called an authorized offset. And in order for an offset to be authorized, it had to come with the corresponding adjustment. The developed country had to give up those emissions reductions. And as you might imagine, this deal doesn't make a lot of sense.

David Roberts

Well, it does make sense in one way. We should say the one way that it does make sense, which is unlike the old regime, where neither the buyer or the seller had any incentive at all to ensure quality, now, at least if I'm Brazil and I'm selling some of my emission reductions, and I won't be able to use them on my inventory anymore, I'm, by God, going to be sure that those are high quality. Right? Like, I don't want to be selling, I don't want to be giving up my ability to reduce emissions on the cheap, right?

So at least now one party in the transaction has some reason to care about quality, right?

Joe Romm

And this gets to the core issue, which is these offsets won't be cheap. And this is the thing that is the complete game changer that everybody needs to understand. It's one of the reasons why I wrote this paper once I figured it out. Developing countries must not sell these off cheaply. And the reason is pretty clear. If the developing countries let the rich countries skim off their cheap emissions reductions at a low price, those developing countries, because they're all going net zero, right? This is the point. Everybody's going to zero. Those countries are going to have to go back in the market later and buy those tons back, right?

Because they have to pretend they didn't make those reductions. In other words, Brazil had 2 billion tons. It cut its emissions by a billion, but it gave that up to the United States. So it has to pretend it has 2 billion even though it only has one. So in order to come net zero, Brazil not only has to reduce the remaining billion, it has to offset the corresponding adjustment bill.

David Roberts

The billion it sold.

Joe Romm

So the only way it's going to do that is with the expensive stuff, direct air capture, whatever is the price, towards the end of the emissions reduction period. And by the way, I had to use Chat GPT to help me find a lot of these sources when the developing countries were told that by signing the Paris agreement, they were going to have to give up the tons. They weren't happy. And when Brazil, people may know, if people who follow Paris know that Brazil and some other developing countries were the obstacle, they had refused to make this agreement until Glasgow.

And when Brazil finally agreed to make this deal, they added a little hook. They said, yes, we'll agree to your dumb-ass thing, but we retain the rights to make the decision ourselves as to whether we keep the tons or give them up. Which is to say, we can decide. And no one has been able to tell me, by the way, when they get to make that decision, whether they can do it at the beginning or the end. But the point that I want to make here is that since the developing countries are going to have to go back into the market to buy those tons, they better not sell those tons for anywhere near the current market price for voluntary offsets.

David Roberts

Yeah.

Joe Romm

And this gets back to the point that you made at the very beginning. The one really bad thing about the voluntary market is that it left everyone with the impression that there was this vast sea, unlimited sea, of cheap emissions reductions in developing countries that they would be able to buy up instead of doing the hard work of reducing their own emissions. Right. Because fundamentally, offsets are a way of not doing our own renewables efficiency, electrification, et cetera, et cetera, right? We're going to pay someone else to do the hard work. So, because everyone thought that this was the case, I think it has fooled a lot of companies into making the same net zero pledge. Right?

David Roberts

Right. They think it's cheap.

Joe Romm

Yeah, we'll solve it cheap. But the whole point is, once the country has to give up those tons, then it has to say, what is the correct price of those tons? The correct price isn't how much it cost me to do this project, it's the replacement cost.

David Roberts

Right.

Joe Romm

And so the World Bank came out in February with a paper which explained all this, because I was sort of figuring this out and I said, this can't be true, this is all ridiculous. So the World Bank came out in February with an analysis which basically said the following: These tons aren't cheap. First of all, the offset projects themselves won't be cheap because the offset projects were only cheap before because they weren't real. Right? So they didn't say that. I'm putting in some color commentary, but basically, these projects are going to be more genuine because, as you said, Brazil isn't going to give up tons.

Right. In other words, if Brazil was going to reduce these emissions anyway, right. The additionality problem, Brazil's never going to sell tons it was going to do anyway to some other country, right. Because that's rendering the action meaningless for them. So what the bank said is first of all, the tons are going to be more expensive because they're going to be realer and there's going to be fewer in each deal because the seller isn't going to want to inflate them. So the point is, the deals are going to be more expensive, a), and b), there has to be a price for giving up the corresponding adjustment.

And what the bank said is the actual price is going to be somewhere between the cost to the seller to purchase the last ton it needs to meet its 2030 target, right? Because it's adding those tons on at the end, right. If you see what I'm saying. So all of those tons are it sold off the cheap emissions reductions, tree planting, whatever you want to say, shut down some coal plants, whatever is easy, right? The hard stuff like steel or concrete, all that stuff, that stuff the United States isn't buying. So the bank said the actual price for these tons should be at a minimum, what it would cost the developing country to meet its last ton.

But then it added the following, which is what I basically thought, which is in fact, the actual price isn't the marginal cost for the developing country to meet the last ton, it's the marginal cost for the rich country. And this is a very important point. Imagine a world where these authorized offsets are $50 a ton. But if you look at the models, and the World Bank published the results of a GCAM model that had been done, of what it would cost countries to meet the 2030 target, the marginal cost for the US is $155 a ton for the EU and Japan, it's more like $120 a ton.

The EU Market, right, the closest to a real ton on the market is what's traded on the European trading system. It's a European Union allowance. And those are currently sitting around $90 a ton of carbon. They've been oscillating between $80 and $100 a ton for the last year or so. So that's closer to a real emissions reduction by a developing country. So the point is, if these authorized offsets were being sold by Brazil and developing countries for $50 a ton, and it cost the United States at the end, $155 a ton to meet its hardest target, it's just going to keep buying the authorized offsets, right?

They're going to bid the price up until it's much closer to what it costs the rich countries, because otherwise it'd be insane for the rich countries to do it themselves for $150 a ton if they could pay another country $50 a ton. So the point is, once everyone realizes this, once everybody reads my report or really starts to think about it, they're going to realize that these tons should not be sold except at at least $100 a ton.

David Roberts

If we could, just — to bring this full circle. So if you're selling reductions to another country, you're not double counting, you're verifying that they're long-term permanent reductions. If you're dotting all your I's crossing all your T's and properly pricing these things, that basically the buyer is going to end up paying as much as they would need to pay to reduce their own tons.

Joe Romm

Yeah, the final ton.

David Roberts

Which gets you to the final conclusion here, which is what is the point of all this anymore? If the offset markets were rational, were not double counting, were high quality, were verified, they wouldn't really pose any price savings over just reducing your own emissions in the first place.

Joe Romm

Right.

David Roberts

So what is the point of having them at all?

Joe Romm

Right, and that is the important point. This is the thing that should have been obvious once the Paris Accord started to be put into place. If everyone in the world has to go down to zero, then it doesn't make any sense for you to sell off any of your cheap tons, right? You've got to keep them for yourselves.

David Roberts

Right.

Joe Romm

So someone might say, oh, but there's going to be all these negative emissions tons out there, right? There's going to be bioenergy carbon capture storage. There can be direct air carbon capture and storage and then we can plant an unlimited amount of trees. And I'm working on papers on all of those and people just need to understand that none of those are scalable. Trees are not scalable. Direct air carbon capture storage is not scalable, certainly not by 2050. And bioenergy carbon capture and storage is not even a climate solution. And I love doing coming out of an analysis in September with some original modeling by one of the best modeling groups in the world that are basically going to show that bioenergy carbon capture and storage not only isn't a solution by 2050, it would probably warm things up.

But in any case, there is no net zero. There is only zero. There's no free lunch. Everyone is going to have to reduce their own emissions and some may take longer and some may take sooner, but it doesn't matter. Anyone who sells off their cheapest emissions reductions now to anyone else is one of two things. Either they're making a mistake or they're not going to honor the agreement.

David Roberts

Right? So offsets made sense in a world where some people were reducing and others weren't, or some people had to reduce and others didn't.

Joe Romm

Right.

David Roberts

But in a world, in a Paris world where everybody's going to zero, it's just a shell game. Like you're just moving these things around. In the end they all have to be reduced. Like in the end the money is the money. The reductions are the reductions. Everybody's got to reduce to zero. So the whole justification for the shell game of buying and selling these reductions has kind of like vanished out from under the market.

Joe Romm

It has. And I just want to use a little bit of history. The reason I think people got the wrong impression for two or three reasons. One is when carbon trading was first set up, right, the famous acid rain program, sulfur dioxide program that was set up under George H. W. Bush, that was a 50% reduction. Right. Now, in a world where every company has to cut its emissions 50%, it makes some sense if one company can easily reduce down 60% to sell those 10% to another company, that can't easily get past its own 40% reduction.

David Roberts

Right, this is just trading. This is credit trading. It's the whole economic justification for credit trading in any context.

Joe Romm

Right. That's the market efficiency. Right? This is the efficiency in the marketplace. That was why economists and corporations liked that. But again, if we imagine that the acid rain program said everyone had to take their sulfur dioxide down to zero and there was no way to pull sulfur dioxide out of the air, then it would have been, again, crazy, right, for some company to sell off some extra, easy — there is no extra emissions. Right. The point is, there's no extra.

David Roberts

There's no such thing as extra. There's no away.

Joe Romm

Yeah. And in this sense, by the way, even the European trading system, people will come to realize, doesn't make a lot of sense. It's good for price discovery. Those markets are very good for price discovery. How much does it really cost? And there is a 2030 target, right? Everyone doesn't have to go to zero by 2030. But when you think about it, why should Brazil sell some tons to France to meet its 2030 target when by 2050 everyone's going to zero?

David Roberts

Yes.

Joe Romm

I mean, you might say, oh, well, by 2050 we'll have a lot of new technologies and maybe we will. And I'm not here going to tell you what is going to exist in 2045 or not, but I think the main message is that ultimately what Paris means is you got to reduce your own emissions.

David Roberts

All right? So we've established here that in a world where everybody is going to zero, it doesn't make a ton of sense to shuffle around. It certainly doesn't make sense to sell your cheapest reductions when you have to get to zero, because then you're going to just end up having to make much, much more expensive reductions at the end, or do carbon DAC or something like that at the end, which may or may not even be possible. So the whole point of shuffling around emissions between entities has kind of lost some of or all of its rationale in a world where everybody's going to zero.

So then, a question. Let's take it back to the beginning, because a lot of the reason the voluntary offset market exists in the first place is that there are lots of companies and entities who, with varying degrees of good faith, want to do good things on climate and are pushed to by their customers, by their employees, want to do something good. So if you're telling them going out on the voluntary carbon market, buying these offsets and then claiming you've reached net zero is BS, complete BS. It's physical BS, it's accounting BS, it no longer makes any sense anymore.

What should entities who want to help and do good things, what should they do in light of this?

Joe Romm

Well, it is a challenge and I've been asked that question. Certainly, one thing you can do if you really want to do, quote, unquote, an offset is anyone can go to a broker and buy tons on the European trading system and retire them. Just as people did buy into the sulfur, as you know, I'm sure you remember people did buy sulfur allowances and retired them. So yes, that can be done. I mean, I suppose if it were done a lot, then the European Union might limit it. But I would say yes, you can go to the market and do that.

And do you know, companies like Microsoft are funding like direct carbon removal, except that's like $500 a ton. And the point is that at that price right now, for a few dollars a ton, right, a few dollars, you can supposedly offset your airline travel, right. If the price were $100 a ton, it would cost like a third of your ticket. So a lot fewer people are going to do that, needless to say.

David Roberts

Right. So you can buy verified actual carbon reductions in that they're burying them and sealing them in the ground permanently if you're willing to spend whatever, $500 a ton. So your plane ticket would then be, whatever, $10,000, right.

Joe Romm

Except of course, as we said, you can't do that if those tons belong to another country that has its own need to reduce its emissions. That was the mistake that Microsoft made, and I admire Microsoft because they made a leading-edge commitment. They committed not only to offset all of their emissions and go down to zero without offsets, I believe, but they said they were going to offset all of their emissions since the company was incorporated.

David Roberts

Yeah, I mean, Microsoft, I think, is acting in good faith. That's like a good example here.

Joe Romm

Except the problem is, and I've talked to people about them, those tons don't exist. And I don't think Microsoft realized when they made the commitment. And I think somebody out there, hopefully someone knows, someone high up in Microsoft, they are stuck with this commitment at a corporate level. But those tons don't exist unless you do the double claiming stuff. Unless you do the stuff that's obviously ridiculous. And because Microsoft has said we only want to do high-quality tons, right, they did a whole RFP for tons and they rejected 98% of the projects that were proposed to them and said we are only to do high-quality offset and removals.

And I will tell you, I spent weeks trying to convince Microsoft that this was not a high-quality removal project, but I'm hopeful someone else out there can persuade them to stop doing this particular deal. I think that is going to be a challenge. Yes. There are a lot of companies out there that have made a net zero commitment without realizing, thinking again, that there was this vast sea of cheap tons in the poor country. The notion that the rich countries could skim off the easy tons from the poor know that's like climate colonialism or climate imperialism.

And the other thing I would say to your audience is, right now, Singapore, Switzerland and South Korea are going around to developing countries and buying up tons. And I would love to see those contracts because my guess is they're selling those tons cheaply and they may be agreeing to have them be authorized tons and therefore they may not realize that they are basically being ripped off. And I believe that, as I say, one of the reasons I wrote the paper is so everyone in the market needs to have full information so we can't arbitrage anyone's ignorance. But the other thing is, it makes no sense to rip off anybody in this market because, again, it's voluntary.

And if a developed country in three years said, wait, you guys ripped me off, they could just say, I'm voiding the deal. Right?

David Roberts

Yeah.

Joe Romm

We reduced our own emissions, you can't force us to do anything. So, yes, this is a collaborative effort by the entire world to get as close to zero as possible, as quickly as possible.

David Roberts

Yeah. I mean, maybe this even goes without saying, but I feel like the answer to what a company or an entity of goodwill should do is just reduce your own emissions.

Joe Romm

Yes.

David Roberts

Any entity, any country. That is job one, two and three. Right? Like, do the hard work of reducing your own emissions. That's what everybody's going to have to do eventually. And all of this sort of financial shell game to put off that reckoning, I just feel like should be over at this point. Everybody should be reducing their own emissions. And the one thing and maybe we can wrap up with this is just these BS claims of net neutrality have been circulating so long and are so casually used and are used by so many companies now that the companies that do pivot to the hard work of reducing their own emissions are on an accounting level or a PR level, going to appear to be reducing less emissions.

Right. So I wonder if there's any way to sort of give them the reputational boost they deserve when they reduce emissions the right way. Do you know what I mean? How do we incentivize companies to do this the right way?

Joe Romm

That is definitely the challenge. I think that we can certainly do the reverse, which is to publicly criticize the companies that are doing this the wrong way. I think I said that there is one body that could at least solve a lot of this problem, which is to say the UN Framework Convention on Climate Change in Egypt, the Cop 27. The nations of the world considered, or at least the group that looks at this, considered, the possibility of banning voluntary offsets of this nature that help someone achieve their NDC, achieve their Paris target and they punted. But the fact is that if the nations of the world got together and said, if you don't have the corresponding adjustment, you don't have a real offset, they could do that.

I mean, again, people could ignore them. But at know my feeling is that the mere fact, and I think people have some people have caught onto this, the mere fact that the nations of the world unanimously decided to call something an authorized offset is a pretty good indication that anything else isn't real. I mean, you could call it an unauthorized offset, but the point is one of them is in the globally recognized inventory of countries working to actually solve the problem, right? That's the real thing. Anything else is pretend. And I recognize these are very tricky issues for the nations of the world to come to agreement on, but ultimately also it's up to developing countries.

You may have seen in the news that Zimbabwe, I think, was a month or two ago, publicly announced that all future offsets, that no company or entity can do an offset deal with a company in Zimbabwe. They have to go through the government. The government's going to take half the money, a quarter of the money is going to stay in the country on the project, and only a quarter is leaving the country. And I think you're going to see as more and more countries realize what's going on here, they're going to have to stop any deal that doesn't go through the country, because it's only the country that really can officially sell one of its own towns.

And this is what it comes down to: Ørsted had no right to sell those tons to Microsoft because they weren't Ørsted's tons, they were the Danish government's tons.

David Roberts

So the take-home here is: Reduce your own friggin' emissions.

Joe Romm

Yeah.

David Roberts

Just quit looking around for accounting gimmicks and just reduce your own emissions. And if you want to help fund emission reductions in developing countries, which is a perfectly wonderful and virtuous thing to do, do so. Just do not claim that you are thereby reducing your own emissions.

Joe Romm

Right. Just say you're making a contribution claim, mitigation contribution. You're doing a good thing. And as we both know, the rich countries really actually have a responsibility to help the poor countries.

David Roberts

Yes.

Joe Romm

Let's not forget that part of things.

David Roberts

Thanks so much for this, Joe. As I said, I knew offsets were dodgy, but the depth of the dodginess was a revelation. So thanks for coming on and clearing all this stuff up for us.

Joe Romm

Thank you.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at Volts.wtf. Yes, that's Volts.wtf so that I can continue doing this work. Thank you so much and I'll see you next time.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe