Can carbon offsets get real climate results? Feds set new market guidelines

You might call it hitting the reset button on carbon offsets. On Tuesday, U.S. Treasury Secretary Janet Yellen and other Biden administration officials released guidelines for the voluntary carbon market. Treasury’s principals aim to mend a market that has great potential to steer money into carbon cuts but has so far fallen short of real climate action.

“We want this market to succeed,” Yellen said at an event Tuesday in Washington, D.C. “But that requires a widespread commitment to integrity.”

For years, companies, climate policy experts and activists have struggled with the idea of credits for carbon offsets. In theory, a company that wants to help reduce its climate impact but can’t yet cut emissions sharply could earn credits by paying for some other activity to reduce CO2 in the atmosphere. The company earns credit for its payment while endeavors such as forest conservation, climate-smart farming or new renewable energy get much-needed financing.

An aerial image of a tractor spreading crushed stone on a farm to field test the ability to draw down carbon dioxide with enhanced rock weathering. Carbon removal practices like this one could be supported…

Courtesy of Eion

But in practice, that voluntary carbon credit market has fallen short on real emissions reductions and raised complaints about greenwashing. Investigations by watchdog nonprofit groups and journalists have exposed projects that achieved little in the way of emissions reductions, and scientists found that some efforts supported by carbon markets, such as poorly planned tree plantations, did more harm than good.

“For good reason, a lot of folks are skeptical,” National Climate Advisor Ali Zaidi said at the Treasury Department event. Zaidi said businesses must first focus on emissions reductions they can achieve in their own operations and across their supply chains, then use the carbon markets to do more.

“Not using this as an excuse to slow down but as an occasion to speed up,” he said.

Yellen made that concept one of the three main principles in her department’s guidelines—companies should prioritize reducing their own emissions.

Second, she said, there must be integrity in the market’s operation, with greater transparency about how credits function and how prices are set on the emissions reductions achieved.

Third, the emissions reductions claimed must be real. To qualify for a credit, the CO2 emissions avoided or removed should be verified, durable and additional, Yellen said, meaning that the project in question would not have happened without the funding provided by the carbon credit payment.

“We’ve seen too many examples where credits fail to meet those standards,” she said. “We know this market can do better.”

The lack of standards on carbon reduction verification has hindered the flow of money into sound agricultural practices, one farmer said at the event. Scott Henry is a partner at LongView Farms in Iowa and took part in a panel discussion following Yellen’s announcement, where he said farmers are leery of getting caught up in accusations of greenwashing.

“I don’t want to be the poster child for carbon credit fraud or selling something that’s not real,” Henry said.

Henry said the guidelines will help give farmers clarity about how they can get support for farming that helps to reduce carbon emissions or to draw carbon down from the atmosphere and into the soil.

Some academics and nonprofit leaders Newsweek spoke with said the Treasury guidelines are a good step toward improving a market that will likely be very important to meeting climate goals.

Economics professor Rohini Pande, who directs the Economic Growth Center at Yale University, wrote this month in the journal Science about the carbon market’s failures and the need to fix them if the world has a chance of meeting targets for climate action.

“Some form of a voluntary market is probably going to be important,” Pande told Newsweek, and predicted that the guidelines will help—to a point.

“It’s a set of principles, but it didn’t tell us how we get there,” Pande said. Now, other bodies must fill in the blanks by doing the hard work of setting actual standards for carbon credits. Ultimately, Pande said, the market will require regulation, not just recommendations.

Steven Rothstein leads the Accelerator for Sustainable Capital Markets at Ceres, a nonprofit sustainability group that works with major corporations on climate action.

“There are some companies moving forward and there are many that are looking for a roadmap, looking for common rules,” Rothstein told Newsweek. “This is an important step in that process.”

Rothstein said despite historic climate action by the Biden administration to spur a clean energy transition, the current global investment is not even close to what will be required to meet the targets countries agreed to at the landmark United Nations climate negotiations in Paris in 2015. The voluntary carbon market, he said, plays a role in adding private sector investment.

“The U.N. has said we’re spending $1.9 trillion on new and emerging technology,” Rothstein said. “That needs to grow to $4 trillion in the coming years to meet the net-zero goals.”