Carbon offsetting fails to support climate mitigation and local communities

Carbon offsetting projects based on restoring or protecting forests are failing to help tackle climate change as well as failing to help local communities. Research shows that offsetting projects are persistently inefficient and lack the quality to be considered a credible way to compensate for the greenhouse gas emissions of corporations. Furthermore, many of these projects are creating disruptions and negative effects on vulnerable local and indigenous communities across the world.

Buying carbon (offsetting) credits has become a much-used excuse for all kinds of companies to continue emitting greenhouse gases (GHG) such as CO2. To cater to this demand, various projects involving the restoration or protection of forests and other biomes are being developed across the world by commercial developers. As they claim that such projects reduce global GHG emissions, they can finance these projects by selling carbon (offsetting) credits.

Carbon offsettings belong to the so-called voluntary carbon market, while carbon credits belong to regulated markets such as the Emission Trade System (ETS) of the European Union and follow established rules. One carbon credit or one carbon offsetting equals an allowance for a company to emit 1 ton of CO2eq.

In many ways, it is attractive for companies to have an eco-friendly image and claim to be “Net Zero” or “carbon neutral”. Companies spend millions in marketing this image, and a non-regulated market is the easiest and cheapest option to claim a reduction of their carbon footprint. There are other reasons as well, such as access to sustainable finance and meeting stakeholder expectations.

However, the voluntary carbon offsetting system is not without controversies. False offsetting claims caused by inflated baselines or double counting, complemented by poor verification or poor certification, are among the allegations. Meanwhile, there are serious negative impacts of carbon offsetting projects on local and indigenous communities whose land is often confiscated through dodgy deals, without free, prior and informed consent and without proper compensation. 

Irregularities and injustices

In October 2023, I collaborated with civil society organisations and indigenous leaders from Colombia in a five-day course on carbon offsetting credits and nature-based solutions. The course participants revealed an alarming number of irregularities and injustices in at least 60 offsetting projects in their country.

An indigenous leader told us how her community found out in the news that offsetting projects were developed in her territory and were selling credits in the market without anyone hearing of this before. The project developer had approached and sealed the deal behind closed doors with a few community leaders, and there was no information about if or how the community would receive payments. Furthermore, the community was still taking care of the territory with the same efforts as before. This means the project was not “additional”, it was not preventing further deforestation or helping the community in any way. Any claim that this project was helping to reduce GHG emissions would therefore be false. In addition, the project contract included clauses that eroded the community's autonomy in the territory.

‘Wild West’

This is not an isolated case. A 2023 investigation of The Guardian and Corporate Accountability revealed that 78% of the top 50 global carbon offsetting projects could be considered junk or worthless. 16% were considered problematic, and the impacts of the remaining 6% could not be determined as there was insufficient public or independent information available.

These 50 top projects sold USD 1.16 billion in carbon offset credits which could be labelled as “junk” to corporate buyers, along with an additional USD 400 million in potentially low-quality credits. The controversies revealed by the investigation  range from false or poor offsetting claims to poor verification and certification, for example, because the claims inflated by 2 or 3 times the actual GHG absorption capacity of the project. Other projects claimed to protect an area that was already protected or failed to prevent deforestation while they claimed to have done it anyway.  Experts and researchers now refer to the voluntary carbon market as the “Wild West” of the carbon markets.

‘Phantom credits’

Verification and certification of carbon offsetting projects are voluntary and have their own controversies. Research by The Guardian into Verra, the world’s leading certifier of carbon credits, found that more than 90% of their rainforest offset credits were likely to be “phantom credits” and do not represent genuine emission reductions.

Some offsetting projects also have a very poor biodiversity value. A monoculture of pine trees, eucalyptus or even soy and pastures can issue offsettings. It all depends on the baseline - the depiction of the situation before the project started. The project developer would claim that if the land had already been deforested, the monoculture would be better than nothing. With such projects the carbon offsetting market creates a double damage to the environment. First, because companies justify their continued GHG emissions by buying offsettings instead of reducing them themselves and second, because scientists have warned that the popularity of monocultures in the tropics for carbon offsetting is having unintended consequences, such as drying out native ecosystems, acidifying soils, crowding out native plants and turbocharging wildfires.

Perverse incentives

Another problem is that project developers are trying to convince local or indigenous communities with legitimate rights over a territory covered by forest to issue offsettings. To do so and receive payments, the local community first has to declare their inability to protect the forest or their need for financial help to continue protecting it. Only then the project can claim to give the community the financial means to save the capacity of the forest to continue absorbing GHG. This logic introduces all kinds of perverse incentives for all the actors involved. For the project to claim additionality, some kind of danger to the protection of the forest needs to be found or suggested. Because if the forest is not in danger, there is no need for a project and no money can be earned.

Investigations from journalists and researchers in the field show that offsetting projects are already creating serious problems for indigenous and local communities across the world. A series of investigations by the Latin American Journalistic Research Center (CLIP), an independent journalist network, has revealed an overwhelming number of cases in which intermediary companies and project developers have approached local communities with dodgy contracts, often written in English or other foreign languages and with controversial clauses that erode the autonomy and rights of the communities over their territories. In fact, in 2023, the Supreme Court of Colombia ruled against an offsetting project after finding that the deal was signed without the free, prior and informed consent of the indigenous community of the territory.

Why are voluntary carbon offsettings creating so many controversies?

The voluntary carbon offsetting markets are failing because their foundation is wrong. The notion that a company can contaminate the planet with greenhouse gases in one geography and then compensate this by paying for trees absorbing GHG in another, often-remote, geography has no scientific base. Carbon offsetting as it is right now fails because it equalizes emission and absorption of GHG in a simplistic formula that does not correspond with reality. Furthermore, the abstract concept of offsetting projects also simplifies the complex reality of the communities were most of the projects take place.

Better verification, certification or regulation is unlikely to solve the main issues at all, or at least in time. On the one hand, as long as companies are allowed to compensate for their emissions with offsetting projects, there will be no incentives for them to make more considerable efforts to drastically cut their actual GHG emissions. On the other hand, the complexities of local communities, with different values, cosmovisions and problems makes it difficult to create the one golden standard that would quickly fix the system without causing more damage in it its attempt.

Recommendations

The voluntary carbon offsetting markets have been displaying their negative impacts long enough. If the world is to achieve the objectives of the Paris Agreement, I recommend the following:

• Acquisition of carbon offsets should not grant any company the status of being “carbon neutral”. Companies seriously committed to addressing climate change should decrease greenhouse gas emissions within their production processes and across their value chains. If companies have serious concerns for the issues of deforestation, protection or restauration of ecosystems, that should be reflected primarily in their sustainability policies and in the use of natural resources in their operations and value chains.
• Avoiding and reducing deforestation is still key for the planet, but the focus of projects in this area should be socio-environmental instead of on offsetting emissions. The funding for these projects could come from higher carbon prices. If after meeting their responsibilities companies want to voluntary support socio-environmental projects, those should not be linked to their climate commitments, and they should do careful due diligence. Here there would be space for improving regulation and certification standards.
• Indigenous and local communities have a lot to contribute, not only about protection and conservation but also from their alternative perspectives on the global issue of climate change. Many indigenous communities already protect their territories for the sake of their cosmovision. Some of them might need financial support, while others might need guarantees of autonomy, freedom, and rights. This support can be channelled through official regulated channels, as well as by strengthening legislations on human, labour, and environmental rights.
• Companies can support indigenous and local communities by committing to strong human, labour and environmental policies in their production operations and wider value chains, for instance by paying fair prices for labour and raw materials and by operating and sourcing in alignment with high sustainability standards.

For further information, please contact Jurany Ramirez (policy researcher) at j.ramirez@profundo.nl

(Photo Ricardo Gomez Angel on Unsplash)