Voluntary carbon offsets are headed for a crash

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


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