Challenges

Why carbon offsets need better tech

Carbon offsets are hard. They haven't been adequately standardized, and the financial models are often wildly discrepant with the science. Buyers and sellers are disconnected, and payments are retroactive. Good sequestration projects bridge vast income inequality, the digital divide, and international borders. They operate in the grey zone of emerging tech, and emerging governance and the markets are still largely undefined.

But we must develop them, because nature-based solutions are the best solution we have now, and now is the time that matters.

Here is an eyes-wide-open look at the current market pains:

Buyers

Challenges for buyers of carbon offsets include:

• Lack of available sellers. Lots of sellers fill the market with unverifiable credits and shoddy projects which gives the impression of a market glut, when in reality there is a very low supply of legitimate offsets.

"The nature of demand is also critical to assess market dynamics (eg, demand for high-quality credit is expected to increase, therefor driving up prices of certain high-quality credits, while others will probably remain unused." — McKinsey A blueprint for scaling voluntary carbon markets, 2021

• Low-quality projects. Critics of carbon-offset programs have pointed out that many projects have inflated carbon gains, enabling polluting companies to claim ghost credits – tracking that does not correspond to real-world sequestration. Many blockchain markets offer expired credits which Verra has explicitly discouraged. When carbon accounting includes pre-payment for poor science and fictional projections, buyers can be caught with legal accountability for invalidated emissions.

• US-based sequestration. Institutional buyers of involuntary offsets are currently restricted to buying offsets in the US and Canada, which represents some of the least effective (i.e. wildfires, not a global sink) and most inefficient (i.e. land, legal, and labor costs) sequestration in the world. Companies buying under California’s cap-and-trade program are buying inflated and inefficient credits. These buyers would prefer to transact in tropical forests, have been lobbying to do so for more than a decade, and the science backs them. Meantime, the Amazon is currently providing an unassisted, and unremunerated global service, and without support, this service will fail.

McKinsey, A blueprint for scaling voluntary carbon markets, 2021

Sellers

Challenges for sellers of carbon offsets include:

• It's hard to sequester carbon. The reality is that it takes a lot of trees to adequately sequester carbon. Tree species do not sequester carbon equally (only 1% of Amazonian trees are responsible for 50% of carbon cycling, fast-growing trees do not sequester carbon as effectively as slow-growing native hardwoods, and secondary plantations differ from old-growth.

• Too many middlemen. Currently, offset developers have to meet escalating demands from independent validation agencies, find equitable representation in massive institutions, fill out monolithic institutional paperwork from governing bodies, and then pay brokers to sell their credits anyway. Research shows this has prohibited many providers from entering the market, leaving it dominated by state governments. Given the resources required to transact, it's not economically viable to actually do the hard work of sequestering the carbon.

• Inability to participate in the market. As of 2016, about 2 billion people (slightly more than 25% of the world's population) in 500 million households live in rural areas of developing nations and make a living as "smallholder" farmers, working less than 2 hectares (5 acres) of land. About 75% of the world’s agricultural land is managed by family farms, roughly 12% by smallholders, and investing in them is an effective way to reduce poverty, inequality, and hunger. However, although 85% of the deforestation in tropical forests happens on these farms, they are prevented from participating in carbon markets by economies of scale, the digital divide, illiteracy, language barriers, lack of fiat/bank accounts, and geographic isolation.

S&P Global, Voluntary carbon markets: how they work, how they’re priced, and who’s involved, 2021

Scientists

Challenges for scientists measuring carbon sequestration include:

• Projects plant trees, without adequate tracking. The hard reality is there are far more carbon-offset platforms launched from the urban cloud than succeed on the ground. Even those that deliver surviving plantations might not sequester carbon. Most tree-planting efforts are poorly designed and focus on the number of trees planted, rather than the actual carbon sequestered, or survivability of the trees. Massive infrastructure projects in Brazil, Ethiopia, India, Dubai, Mexico, and China have utterly failed to measurably turn the dial in their respective regions.

• Trees ≠ forests. Many replanting projects plant monoculture trees, often non-native and in natural grasslands, and ignore native forest preservation. Ecologically, reforestation must be coupled with conservation or it’s just more PR glitz.

• Trees die, and carbon is returned to the atmosphere. Current offset accounting practices are misleading at best. Trees do not live forever and when they die because of wildfire, drought, or fungi their carbon is re-released into the atmosphere. Scientists are increasingly demanding tonne-year accounting for green-carbon projects that accurately reflect real-world storage, over industry-serving projections of permanent capacity.

• Carbon offsets are over-estimated, and under-validated. The research on carbon offsets is... offsetting, to say the least. Problems include leakage (where reforestation in one location leads to deforestation nearby), tracking that does not match science, wildfires, and outright sabotage.

Holl & Brancalion, Which of the plethora of tree-growing projects to support?, 2022

Government

Challenges for governing bodies of carbon offsets include:

• Economies of scale. Large-scale projects that miss underlying poverty drivers of rural deforestation in microeconomies fail, sometimes due to outright sabotage. Here is a June 2022 New York Times article explaining economic reasons why farmers cut old-growth in the Congo despite the industry perils.

• Poor offset standardization. No one seems to be able to agree on what makes a legitimate offset. Standards like Verra, Gold Standard, and SustainCert are currently leading the industry and commanding the highest prices, but it can take as long as 3-5 years to get a new method approved and much of the carbon-offset market is transacting off these platforms for greenwashing publicity remains scientifically questionable.

"There is currently no credible and external verification of corporate net-zero targets, allowing some companies to claim net-zero targets without the dramatic reduction in emissions required." — Science-Based Targets, Less net, more zero

• Deforestation continues. Despite action on behalf of international governments to halt deforestation, rural residents ignore embargoes, and poorly-funded governments and corrupt officials are unable to halt international hardwood conglomerates. Sattelite imaging confirms that tropical logging continues at escalating rates and the Amazon is reaching a tipping point, ecological damage may disrupt the ecosystem irreparably, causing it to emit more carbon than it absorbs.

• Planning horizons. As Lloyd's of London explained in 2015, monetary cycles (eg, business, politics, and technocratic authorities, like central banks) extend out 2-3 years. In constrast, insurers who look at financial stability only follow their mandate to the outer boundaries of the credit cycle – about a decade. "In other words, once climate change becomes a defining issue for financial stability, it may already be too late."

• Failure to incorporate Indigenous groups. Despite clear calls from UN-REDD+ for the incorporation of Indigenous communities as land curators, crediting programs still operate primarily through regional governmental structures that have historically abused, marginalized, and disenfranchised these communities. Adding more middlemen from countries with long-running problems with corruption does little to encourage grassroots conservation efforts. Currently, there is no fair-trade mechanisms for small, ideally-placed Indigenous communities to transact directly with purchases of international carbon offsets, despite their long-time recognized status as preservationists and owners of the local jungle.

• Inability to meet Paris Accord Goals. The US will only be able to achieve its climate commitment of halving emissions by 2030 if it makes a dramatic "all-of-society approach". International Net Zero standards are based on hard science regarding the increasingly fragile and interdependent bubble we all inhabit in space. We are not bacteria, we do not have to overgrow our petri dish and die off, but doing better requires using our hyper-evolved brains and thinking slow, like good investors do, past our emotional logic.

• We're out of time. Climate deniers are largely the victims of social-media echo chambers, as the popular Netflix documentary, The Social Dilemma reveals. In contrast, reputable scientists just look at good-quality observational data such as The Keeling curve from ice-core samples and the Mauna Loa observatory (below), and the data is pretty stark. Despite the difficulty, we've got to do something now about atmospheric CO2, and we are.

Ice-core data from pre-industrial revolution to present day. The Keeling curve.

Atmospheric carbon, methane, and oxygen captured from stable sites over the last decade. Cias et al., Carbon and other biogeochemical cycles, 2018