Clean Energy Canada | Media brief: What are carbon offsets and how can they be used?
April 16, 2021
Clean Energy Canada is a climate and clean energy program within the Morris J. Wosk Centre for Dialogue at Simon Fraser University. Through media briefs, we aim to provide journalists with useful factual and contextual information related to Canada’s clean energy transition. Please use this as a resource, and let us know if there are any topics that you would like to see for future media briefs.
A few weeks ago, the federal government announced a consultation on a proposed greenhouse gas offset system. Such a scheme would follow in the footsteps of other similar systems around the world, including in Alberta and B.C. Offsets allow emitters to purchase “credits” representing reductions in emissions by another emitter, as an alternative to reducing their own emissions. Offsets offer a carbon polluter (like the operator of a steel plant) an additional option to comply with government rules that limit carbon pollution.
While purchasing offsets can help emitters offset their pollution in a low-cost way, studies have shown that in many cases, offsets do not create the additional emission reductions that were planned. How offsets are created and the extent to which they are used dictates their effectiveness at reducing pollution. This media brief provides a summary of offsets, examples of current offset use, their potential benefits and drawbacks, and examples of best offset practices.
WHAT ARE OFFSETS?
- A carbon offset is a reduction in emissions made in order to compensate for emissions created are measured in tonnes of carbon dioxide-equivalent (CO2e), which represents either a one-tonne reduction of carbon dioxide or its equivalent in other greenhouse gases.
- Carbon offsets can be generated and used under government-approved frameworks, for example to help industrial emitters who continue to emit carbon pollution meet their compliance obligations under climate policies. Separately from these programs, some private-sector companies also offer customers the option of offsetting emissions from using their products or services on a voluntary basis, for example airlines allowing flyers to pay extra to offset their flight.
- Carbon offsets have been enabled under international law in the 1997 Kyoto Protocol and were first used internationally in 2001. An approach to use them also exists under Article 6 of the 2016 Paris Agreement. World leaders attending the 2021 United Nations Climate Change Conference later this year are expected to discuss how to operationalize Article 6 going forward.
- Not all actions taken to generate offsets lead to permanent reductions of emissions.1,2 Therefore, the following types of offsets need to be distinguished:
- Temporary: where carbon is stored using methods that release the carbon back into the atmosphere at a later date. For example, this includes storing carbon in forests or oceans, or capturing carbon at industrial facilities for subsequent reuse in products like concrete or synthetic fuels.
- Permanent: where emissions are either prevented or removed from the atmosphere and stored underground so that they cannot be released back into the atmosphere. This includes using renewable energy to replace fossil fuels, improvements to energy efficiency, or capturing carbon at an industrial site or from the atmosphere and injecting it into an underground reservoir for permanent storage.
- The global experience with offsets is mixed, and many of the largest offset projects—particularly those under the first international offset program (the Clean Development Mechanism) enabled under the Kyoto Protocol—failed to achieve their intended emission reductions.3 However, more recent studies suggest that offsets could reduce emissions to some extent so long as they are designed with the principles outlined below alongside proper checks and balances.4,5
HOW ARE OFFSETS USED?
Policies that employ carbon offsets are in use around the world. Below are several examples of how offsets have been used in Canada and internationally:
- B.C. greenhouse gas emission offset projects: B.C. has operated an emissions offset system since 2009 to attain carbon-neutral government operations.6 The program has allowed some Indigenous communities to sell offsets to protect their territories from deforestation while generating revenue. While the program’s early offsets were criticized for a lack of additionality (meaning they credited actions that would have happened anyway), the program has operated for over a decade, primarily using offsets from the protection of the Great Bear Rainforest.7,8
- California’s Compliance Offsets Program: The California program issues offset credits for use within the Western Climate Initiative’s cap and trade system (a form of carbon pricing) that Quebec also partakes in. Emitters may use offset credits to meet a maximum of 8% of their emission reduction requirements—in other words, a small proportion.9
- European Union Emissions Trading System: The world’s largest cap and trade program allowed polluters to draw on offsets to some extent in the past. Since the system’s launch in 2005, the EU has gradually placed limits on the types of projects from which credits are accepted and on the amount of offsets used for compliance in its carbon market. Starting this year, offsets are no longer expected to be used.10
THE BENEFITS OF USING OFFSETS
- Creates additional avenues for emitters to reduce their carbon footprint until new clean technologies are developed and commercially available. For example, offsetting process emissions in the production of cement until the technology for capturing carbon in cement kilns is more mature, or remote communities using offsets until they have identified solutions to switching off of diesel power generation.
- Helps emitters meet their emissions reductions targets in a cost-effective way.11
- Provides opportunities for Indigenous peoples and landowners to derive revenue from stewardship projects on their lands by providing a financial incentive for habitat protection and conservation.12
THE CHALLENGES OF USING OFFSETS
- Emission reductions from offsets can be difficult to measure and are therefore not always properly quantified.13 One of the most important but also most difficult tasks is the determination of whether offset projects fulfill the criterion of “additionality.” This means:
- If offset credits are generated from actions that would have happened anyway, their subsequent use for compliance does not actually reduce emissions.
- Determining whether an offset is truly “additional” requires the difficult assessment of how emissions would have developed in the absence of the intervention claimed to have reduced emissions.14
- Some offsets have been shown to lack “additionality.” Offsets generated under the United Nations Clean Development Mechanism have been criticized for their lack of additionality.3 Significant uncertainty has also been identified around the extent of true emission reductions from California’s offsets program.15
- Offsets can also provide a disincentive for an emitter to invest in carbon reduction (i.e. they buy offsets instead of reducing their own emissions).15
- Finally, studies have shown potential negative effects on climate change mitigation, such as cases where planting trees on natural grasslands and peatlands can add more carbon to the atmosphere than they take up. Other research has highlighted the risks of offsets potentially leading to negative outcomes for biodiversity, for example by introducing invasive species or negatively affecting key ecosystem processes.16–18
A SUMMARY OF BEST PRACTICES
- High-quality offsets represent credits generated from projects that produce real, independently verified, quantifiable, permanent, and additional emission reductions. If there is a compelling reason to use temporary offsets (e.g. Indigenous reconciliation), the lack of permanence should be accounted for.
- Offsets should be employed only to a limited extent so that emitters are still incentivized to focus on cutting their own emissions.
- Offsets should not be used to grow industries that produce products that increase global emissions when emission-free alternatives are available.
1. Thamo, T. & Pannell, D. J. Challenges in developing effective policy for soil carbon sequestration: Perspectives on additionality, leakage, and permanence. Climate Policy 16, 973–992 (2016).
2. Richards, K. R. & Huebner, G. E. Evaluating protocols and standards for forest carbon-offset programs, Part A: Additionality, baselines and permanence. Carbon Management 3, 393–410 (2012).
3. Gillenwater, M. & Seres, S. The Clean Development Mechanism: A review of the first international offset programme. Greenhouse Gas Measurement and Management 1, 179–203 (2011).
4. Seddon, N. et al. Getting the message right on nature‐based solutions to climate change. Global Change Biology 27, 1518–1546 (2021).
5. Chausson, A. et al. Mapping the effectiveness of nature‐based solutions for climate change adaptation. Global Change Biology 26, 6134–6155 (2020).
6. Carbon Neutral Government program requirements. Government of British Columbia
7. Annual Reports & CNARs Table. Government of British Columbia
8. An audit of carbon neutral government. The office of the Auditor General
9. Compliance Offset Program. California Air Resources Board
10. Use of international credits. European Commission (2016).
11. Bushnell, J. B. The Economics of Carbon Offsets. The Design and Implementation of U.S. Climate Policy (2012).
12. Forest Carbon Credits – Economic Revenue for Forest Conservation. Coastal First Nations
13. Federal carbon-offset proposal will likely give illusion of progress, even as it increases emissions. CBC (2021).
14. Bento, A., Kanbur, R. & Leard, B. On the importance of baseline setting in carbon offsets markets. Climatic Change 137, 625–637 (2016).
15. Haya, B. et al. Managing uncertainty in carbon offsets: Insights from California’s standardized approach. Climate Policy 20, 1112–1126 (2020).
16. On the misuse of nature-based carbon offsets. Nature-based Solutions Initiative
17. Bradshaw, C. J. A. et al. Brave new green world – Consequences of a carbon economy for the conservation of Australian biodiversity. Biological Conservation 161, 71–90 (2013).
18. Lindenmayer, D. B. et al. Avoiding bio‐perversity from carbon sequestration solutions. Conservation Letters 5, 28–36 (2011).