What We’re Learning About Carbon Offsets

Like the value of literally any cryptocurrency last year, the popularity of carbon offsetting was also on the decline in 2022 and now sits at a crossroads.

Background: Carbon offsetting is a strategy used to compensate for carbon dioxide emissions at one location by eliminating or reducing emissions at another. Companies or individuals may “offset” their carbon footprint by investing in renewable energy projects like wind or solar, or technologies like carbon sequestration.

• This tactic allows industries that are notoriously difficult to de-carbonize — like aviation — to reach net-zero emissions while still emitting.

Not all offsets are created equal

The premise of carbon offsetting may make sense in theory, but in practice, it’s difficult to standardize and regulate, with many gaps and workarounds that have been exploited.

Renewable projects are particularly challenging as it’s difficult to prove that an investment in a solar project nixed (“offset”) the construction of a coal plant.

• In other words, have any emissions actually been reduced as a result of the project, or would the reductions have happened anyway?

A more effective way to generate offsets are through processes like Direct Air Capture, which as the name suggests, removes carbon directly from the atmosphere.

Zoom out: With companies realizing that some of their carbon offsets may be as worthless as our crypto investments, some investors starting are steering clear… at least in the near term until the lower-quality offsets can be fixed or replaced.

If successful in creating a cache of only high-quality offsets, the carbon offset market is estimated to be as high as $1 trillion by 2037.