The Crisis of Confidence in Voluntary Carbon Offsets

Last year, an investigation by the Guardian and Corporate Accountability found that most of the world’s largest carbon dioxide offset projects failed to deliver promised climate benefits.  The report is among several questioning the integrity and effectiveness of voluntary carbon offset programs in achieving net-zero emissions and stabilizing global temperatures.

In 2023, voluntary offset programs attracted nearly $2 billion from companies aiming to offset emissions from factory operations to air travel.  However, the outcome has been a crisis of confidence in these programs.

On this podcast, Danny Cullenward, a senior fellow with the Kleinman Center for Energy Policy, explores the integrity challenges facing voluntary offset markets and their true climate impact. He also examines why governments hesitate to regulate these markets and discusses the role voluntary offsets can and should play in global climate efforts.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone.

Last year an investigation carried out by The Guardian newspaper and a nonprofit called Corporate Accountability concluded that the majority of the world’s largest carbon dioxide offset projects had failed to deliver promised climate benefits. The report is from just one in a string of recent investigations that call into question the integrity of voluntary carbon offset programs and their value as a tool to achieve net-zero emissions and stabilize global temperatures.

On today’s podcast, we’ll be looking at the crisis of confidence surrounding voluntary offset programs with Danny Cullenward. Danny is a Senior Fellow here at the Kleinman Center. He is working with the United Nations to help write carbon trading rules under the Paris Agreement. Danny will discuss the growth of voluntary carbon markets, which last year attracted nearly $2 billion from companies seeking to zero-out emissions for everything from factory operations to air travel. Danny will explore why governments have been hesitant to regulate voluntary offset markets, and he’ll weigh in on the overriding question of what role voluntary offsets can and should play in frameworks to address climate change.

Danny, welcome back to the podcast.

Danny Cullenward: Thanks for having me back, Andy. It’s a pleasure to be here.

Stone: You have been quoted widely in the press these last two months on voluntary carbon markets, so I’m very happy to have you here to explain some of the key controversies surrounding these markets. Voluntary carbon markets have attracted the participation of some of the world’s largest corporations. I’m thinking about oil and gas companies, airlines, luxury goods companies — you name it — as well as from consumers, right? So last year Taylor Swift came under fire for her use of air travel offsets. To get us started, what is a voluntary carbon market?

Cullenward: The “voluntary carbon market,” this is a term people use to describe the private sector activity that ultimately culminates in the generation of what we call “carbon credits.” And each carbon credit is a unit. It’s a certificate. You can imagine it as a piece of paper or a digital certificate that is supposed to represent one ton of carbon dioxide equivalent. The whole concept here is that today, everybody is emitting CO2 and other greenhouse gases. Some people want to take action. We can talk about honestly the most effective action, which is directly cutting emissions, trying to create policies and systems to do that; but on top of all of that, you might want to be able to make a claim about addressing the emissions that are happening today that we’re unable to control today. The voluntary carbon market is the ecosystem of private sector activities that leads to the generation of carbon credits from projects or activities that are attempting to reduce emissions, or maybe even pull some CO2 out of the atmosphere and commodify and turn that into a credit that can be traded, bought, and sold and ultimately retired by a single unique beneficiary who says, “I use this carbon credit to make some kind of claim.” Typically that claim is an offsetting claim, where somebody might say, “Hey, I’ve gone carbon neutral because even though I emitted greenhouse gases today, I’ve purchased offsets to cover the emissions that I have, and those two things should cancel out in the mind of the person making that claim.

Stone: I wonder if you could distinguish between these voluntary markets and the government-run markets?

Cullenward: It’s pretty easy to distinguish with some terminology, but as I’ll get into, it’s actually really hard to distinguish it in practice. So we talk about the voluntary carbon market, meaning voluntary things done by private parties for their own voluntary purposes. And we also talk about government-run compliance programs, where a government policy might mandate a particular climate outcome and allow people who are subject to the requirements of that program the option to comply in part through the use of carbon credits. And this happens most often in things like cap and trade programs for greenhouse gases, where again, the government might say to large polluters, “Your pollution has got to go down over time. One of the ways you can achieve compliance with these program rules is to purchase and retire carbon credits.”

When the carbon credits and the compliance mechanism are being run through a government mandate, a law, a policy, or a regulation, we tend to call that the “government-run compliance market.” When it is done for purely voluntary reasons, like a company might just want to say something, or a consumer just might want to do something, we call that the “voluntary market.”

Stone: Would an example of a government-run market be, for example, the European Union’s Emissions Trading System? Actually, I think there are no longer offsets allowed in that system, but that would be a prime example. Is that right?

Cullenward: That’s great, yes, exactly. The European program was at one time one of the biggest consumers of carbon offsets. They’ve moved away from that for some reasons we can get into. In California, where I’m based, we have a cap and trade program that’s kind of similar to the European program. We have a heavy use of carbon offsets in our program, so those are exactly — those are government-run compliance markets.

Stone: So a number of recent investigations, and one by the University of Cambridge in the UK found that forest protection projects that have been approved by the world’s largest certify of offsets significantly, substantially overstated their benefits. What problems have been uncovered, specifically?

Cullenward: There are a number of different problems that have been uncovered. It might help to sort of back up and explain how a carbon credit gets made, to help explain how the study you mentioned, with respect to these tropical forest projects, found all the problems that it did. The way offsets work in general, for both the voluntary and the compliance market, is that it’s essentially a way of outsourcing climate action. It’s the promise that somebody else, somewhere else did something good for the climate, and somebody should be able to purchase the right to claiming that they did the good thing by buying the certificate.

So the question is: How do you calculate what a carbon credit is? What’s an eligible activity? And the way this is done across all the markets is that you take a scenario — it’s called the “baseline scenario,” and that’s supposed to describe what would happen at this project if there was no financial incentive, if there was no carbon credit. And that’s a counterfactual story about a world that doesn’t actually happen. We then compare what does happen at those projects to the story that was told about what should have happened or what would have happened, in the absence of an incentive, and the carbon credits are issued based on the difference between what we can observe and what’s called the “project proponent” says would have happened if they didn’t get paid.

And that’s the basis on which credits are issued. What has been really interesting is, of course, if you’re listening carefully, it’s kind of weird. It’s counterfactual. It’s a story told by somebody who maybe has a financial incentive to tell a certain kind of story. And of course if you tell a very bleak and pessimistic story in the counterfactual scenario, you’re eligible to earn more carbon credits because holding the line against a very pessimistic story will result in more tons being credited, whereas a less aggressive baseline scenario, a more cautious and “things-might-not-be-so-bad” scenario would earn you fewer credits.

That issue is basically at the heart of the study led by a group at a number of different universities, including Cambridge, which looked at the largest segment of the voluntary carbon market, which credits tropical forest protection projects. They found that basically almost all the projects they studied had significantly overstated their climate benefits. What’s interesting about this is some of these projects appear to have meaningfully reduced deforestation. So in some respects, there are some quiet success stories in these programs, in the sense that some of the projects that said, “Hey, we’re going to protect forests that are at risk of being cut down,” actually appear to have reduced deforestation. The problem is when the researchers did the study, they showed that the baseline scenarios, the stories that those projects told in order to earn credits, so vastly exaggerated the most likely baseline scenario, that in retrospect these researchers calculated that they were exaggerating the benefits by a factor of almost 20 in some cases, and quite a bit more in a few individual cases.

So we ended up with this really interesting, paradoxical result where they found more than 90% of the carbon credits they studied were overstated. Even though many of the projects in question had made a difference on the ground, relative to business as usual, those projects that so exaggerated business as usual claimed many more credits than a realistic accounting would have allowed.

Stone: So if I understand, the crystal ball into the future they’re using is that this whole forest may be cut down if we don’t protect it through the use of offsets. That may not actually be the true scenario. It might not be cut down at all, or some small portion; but you’re selling offsets as if all of that forest is being protected.

Cullenward: Exactly, and so the integrity of these claims turns on the veracity and the accuracy of that baseline scenario. And we have this really weird pattern where the people who make money doing these projects are the ones telling that story, and because it’s a story about a scenario that never comes to pass, you can’t observe it, you can’t verify it. We can’t go check if that story was true. We can do careful ex-post analysis to say, “What would a reasonable assumption have been, and how close to that reasonable assumption was the story the project told the crediting entities?” And that research has unequivocally demonstrated massive gaps between the claims and what credible stories might have been. Ultimately, you can’t observe it, and that’s part of what makes it so difficult to build a market on top of promises made by people who have a financial incentive to make a certain kind of claim.

Stone: Transparency is also an issue. You were quoted in an article that appeared in The New Yorker magazine this past October that talked about the world’s largest forestry offset project and the fact that it did not provide the promised climate benefits and that it was not clear where the money raised by the sale of offsets from that project ended up, the conclusion or idea being that much of that money did not arrive to the local communities that that money was supposed to help. This is an issue.

Cullenward: It is one of many issues. This market is relatively opaque. There is very little public transparency. There isn’t even mandatory disclosure about who uses and makes the claims to retire these credits. Within the individual projects, there isn’t a lot of transparency around how money moves. There have been several in-depth investigative reports that have documented — again, if you back way up here, the idea here is we need to mobilize money through voluntary efforts to pursue worthy climate and conservation outcomes. We’ll pay people for the climate benefits they create, and in part, that’s about sending money to, say, local communities and tropical forests to help them create a sustainable economy that doesn’t rely on deforestation activities.

Time and time again, when people dig into these opaque systems, they find that most of the money isn’t actually going to the landowners and the local communities. It’s going to all of the industry participants, from the consultants who help prepare the paperwork, to the verifiers who check in on this, to the brokers who buy and sell these activities. Most of the money doesn’t actually go to the end use, the sort of claimed-worthy climate project. A lot of it ends up in the hands of the intermediaries, but there is really nothing resembling a transparency or disclosure regime that lets you say anything very quantitative about that.

Stone: So offsets and credits aren’t anything new. Offsets were allowed under the Kyoto Protocol’s Clean Development Mechanism, yet the focus and goals of climate efforts have evolved from the Kyoto context to the Paris context, under which we’re operating today. Can you explain the nature of this shift and how it has been reflected in our expectations for the offset market?

Cullenward: Yes, it’s a bit of a complex story, but it’s a very important one. So the first major effort under the United Nations’ Framework Convention for Climate Change, and that’s the treaty that pretty much all national governments have signed onto. The first major effort was the 1997 Kyoto Protocol, which envisioned a world — the compromise that was reached in those negotiations was that wealthier countries would make modest cuts to their greenhouse gas emissions, and lower-income countries were not obligated to do anything on a mandatory basis, but they were allowed to participate by generating offset projects. So a lower-income country could say, “Hey, pay me to build a renewable energy facility instead of a fossil fuel-fired power plant, and I’ll sell you a carbon credit that you can use to comply with your target under the Kyoto Protocol. This was called the “Clean Development Mechanism,” which was the biggest of the group. It’s basically, if you think about offsetting, it’s a way of shifting pollution. It’s a question of where the pollution happens in these mandatory markets.

So if, for example, Europe has agreed to make a cut, but they buy an emissions offset from let’s say a wind farm in China, the reduction is supposedly happening in China, and that allows more emissions to occur in Europe, and they cancel each other out. So it just kind of shifts the “where” of the pollution and not the total amount, and that’s because the 1997 Kyoto Protocol was oriented around taking a baby step to begin cutting pollution.

Fast-forward to the 2015 Paris Agreement, which is the current international agreement under which we are working on international climate mitigation, and we have a completely different goal. The goal is temperature stabilization, which is now finally codified in an agreement that almost all countries have signed onto. The physics of the climate system require something totally different, and this is a part of the story where, once you understand this from a scientific perspective, everything about the offsets markets looks different. The most important thing you need to understand is that CO2 pollution is basically forever.

There is a component of the CO2 we put in the atmosphere from burning fossil fuels that’s removed quickly, over decades to centuries. There’s a component that’s removed over a couple of centuries to a couple of millennia; but about a quarter of the CO2 that we put in the atmosphere persists over geologic time — tens to hundreds of thousands of years, longer than written human civilization. And that is effectively a permanent outcome.

The climate science that we sort of all operate under, as we think about how to mitigate climate change, is primarily based around cumulative emissions. It’s not a question of when you emit, it’s how much you emit in total that drives the long-term warming outcome. Once you understand that piece of the science puzzle, you realize marginal cuts, shifts about where and not how much on net, don’t really make that much sense. In fact, they don’t contribute at all.

If you think carefully about the Paris Agreement and the goal of temperature stabilization, it strongly implies we need to be moving away from claims that somebody has avoided their emissions and allowed somebody else to increase theirs, which is how most offsets work today. And we need to be thinking more about carbon removal as the primary, and frankly, eventually exclusive means by which you would justify any ongoing emissions.

And that’s a radically different set of activities that basically don’t have any representation of any quantitative significance in the voluntary markets today. So once you get this transition from this program, this concept is sort of born in an era where we were trying to make modest cuts to pollution, and fast-forward, we are actually trying to manage the physics of the climate system. Cumulative pollution is what matters, not when and where you emit it, but how much you emit in total. Literally everything changes, and yet, the entire offset structure more or less chugs along without any change.

Stone: You know, in my simplistic thinking about offsets, I’ve wondered about what has seemed to me to be a mismatch, in terms of when emissions are created and when they might be offset. So imagine I’m taking a flight which results in immediate emissions, and if I address those emissions through a project involving trees, the carbon dioxide could take years or decades to be fully recaptured, I guess, as those trees grow. The net climate emissions from that flight are in the atmosphere right now, when they really need to not be there.

Cullenward: Yes, I think that’s right. There are these difficult timing questions, and then the other piece of it, which I think frankly is where your mind really melts if you start to take this stuff seriously is — let’s talk about forestry carbon credits. It has been one of the largest sectors in both the voluntary and the compliance markets. Forest carbon is great. Forests are amazing. We should be doing all sorts of things to protect, especially tropical forests, which are under just severe attack right now across the world. You can’t solve for the climate problem without halting the deforestation crisis. You can’t address the biodiversity crisis and the extinction crisis we’re living through without addressing tropical forest deforestation.

The problem is, from a climate perspective, and recall the entire concept of a voluntary carbon market or even a compliance market is we’re squeezing all of this into carbon accounting. The claim here is that carbon stored in a forest is equivalent to the CO2 you put in the atmosphere. And what makes this so incredibly complicated is there is about a quarter of the mass of the CO2 you put in the atmosphere that is forever. It is very difficult to make a credible, grounded promise about keeping carbon on a land surface forever. It is very hard to make credible, long-term promises that we’re going to protect a particular forest or change the forest composition to grow more carbon over time.

It gets even harder once you put your head around, “Is it actually equivalent to do a real project in forestry and say that’s the same thing as getting on a plane?” And I think from a physical perspective, it’s pretty clearly not, but the entire construct of the market is to pretend that it is. And that is, by the way, assuming you can calculate the numbers right, and you don’t exaggerate your stories, which unfortunately is prevalent in every major market segment today.

Stone: I want to clarify one other point here, and as you can probably tell, as I’m switching around from these concepts of abatement and mitigation when we’re talking about forests, I find it all very complex. But when you’re looking at forestry projects, and I think you’ve actually really sort of touched on this, but I want to clarify. There are two types of forestry projects, one of which you’ve very clearly mentioned, which is the forestry project that prevents a forest from being cut down, burned, or whatever may happen; and then you’ve got these projects also where new forests may be planted. And I think, at least in my mind, and I’m thinking about an offsetting project, I’m thinking about that new forest being planted.

Cullenward: Those are different projects. There are also other kinds of forestry projects where you manage the land better to grow more carbon on the land on average over time. These are all different ways people have sought to do an intervention in a forest system and claim a carbon credit for it. When you talk about planting a new forest, you’re talking about something that’s oriented around carbon removal, because if there is a piece of land that doesn’t have a forest on it, and you grow a forest, you’re putting CO2 into the trees that grow into that forest over time. And that is a removal claim, so that’s sort of aligned with that general direction we were talking about to get on track for the Paris Agreement-style efforts. But even that has that same problem of how do you make sure the forest stays put?

I’ll give you another example of a challenge that comes up because a lot of people are thinking just in carbon terms. So you can appreciate if you’ve got a grassland, and you’ve turned it into a forest, there’s probably more forest carbon above the ground. That’s easy to imagine in your mind. The challenge is there are actually other effects. We call them “biophysical effects.” In some parts of the world, the land cover that exists before a forest, and this is particularly true in the boreal regions, for example, there might be actually more of a reflective surface there. When you add a forest, it darkens, and that means the land starts absorbing more incoming irradiation and trapping more heat, which can actually undo the benefits of the carbon storage claims or create a corresponding problem that outweighs it in some cases.

So there are parts of the world where if you plant trees on non-forested land, you actually increase total warming that’s happening because of that activity because the absorption of the incoming radiation actually swamps the carbon benefits you get. It’s not true everywhere, but I just wanted to give you an example of the complexity here. We’ve been talking about “carbon, carbon, carbon” for so long that I think a lot of people have lost track of the fact that there’s a lot going on in Earth systems science. There’s a lot going on in ecology that’s much more complicated than sometimes these very simple carbon accounting claims make it seem, and that’s a problem, to be honest.

Stone: We’ve been talking about forestry offsets primarily to this point, but I want to point out that those aren’t the only types of offsets that are available in the voluntary markets. I think when all is really said and done, consumers want to know that the one ton offset that they just bought really represents one ton of emissions that have been avoided or removed — removed, I think, being critical in the current context.

And this becomes a truth in advertising question. I think this is very interesting. Some states have really begun to address it as this sort of problem. How is this becoming a consumer protection issue as much as a climate issue itself?

Cullenward: So this is where things get really interesting to me. I spend all my time thinking about the nerdy intricacies of these issues. You and your podcast are talking to people with lots of expertise in lots of different fields. Most people who are vaguely aware of climate and care about it haven’t spent hours preparing for a conversation or years doing research. They’re just encountering things in their day-to-day life, and they’re trying to make decisions about what might be good or bad in their choices. Can they make a slightly better choice?

I’m struck by the number of friends and family members who are encountering carbon offsets and offset-related claims in their day-to-day lives, and they say to me, “Hey, you work on this stuff. Check out this thing.” If you buy anything on an ecommerce platform these days, chances are you’ll be offered the opportunity to pay a little extra money to make your shipping carbon neutral. Or maybe your brand of clothing or whatever it is you’re interested in buying has said, “Hey, you should shop with us because our products are certified carbon neutral.”

I think we’re seeing more and more direct-to-consumer marketing of products and services that are making a claim to be climate friendly using the complex mechanics of these carbon credits in the voluntary carbon market to substantiate those claims. And so in that world, to me, I think it’s really important that the complexity of all this not be hiding statements that people know are not true or should know aren’t true. That turns out to be very controversial in the industry because, of course, nobody wants to be subject to additional scrutiny.

There is a range of approaches governments are taking right now around the world. Let me give you a couple of examples from states in the US. Let me actually just start with Europe. Europe did something really interesting recently, which I don’t think many Americans have picked up on, and that is they have banned consumer-facing marketing of products and services that are based on carbon offsets as presumptively misleading. So they’ve said, “You can’t make consumer-facing claims about a product or a service that are based on the use of carbon credits.”

Stone: They just outlawed it.

Cullenward: They’re outlawing the claim. They’re outlawing somebody saying, “Buy my product. It’s carbon neutral because of offsets.” They’ve specifically said it’s okay to say, “Hey, my company has done some great things. We’ve invested in some voluntary activities that we think are good for forests and people and the climate.” You can advertise those things as positive things you’ve done. You just can’t say your product is carbon neutral because of offsets. And that to me, frankly, seems like the right approach, if you’re taking any of the literature or reporting over the last several years seriously. But that is not the approach that’s being taken in the US. Largely, things are unregulated everywhere else. At the federal level, it’s kind of odd. It’s the Commodity Futures Trading Commission, which is a financial regulator that primarily focuses on derivatives and futures markets — think corn futures, think oil futures. These are commodity market regulators. The CFTC is the primary point regulator over these markets right now.

About a year and a half ago, they announced an enforcement task force that might be looking into some questions around potential fraud in these markets. They have authority to go after fraud in the underlying commodity markets. We’re also waiting. There’s a much-promised update from the US Federal Trade Commission, which is the main federal consumer protection regulator for interstate commerce. And the Federal Trade Commission has what’s called its “Green Guides.” So they have some official, binding guidance about what they consider to be appropriate and inappropriate kinds of environmental marketing. That document was last updated in 2012. It has a very short provision on offsets that doesn’t say a whole lot, and the FTC has been working on these updates for a couple of years, so I guess we expect them to say more in the near future, but we don’t know exactly what they’ll say.

Then at the state level, there are a couple of different things going on. I’ve been involved — there is a bill in California that passed California but was vetoed by the governor last year and has been re-introduced in the California Legislature and passed the State Senate this year and is now in the State Assembly that would clarify how the state’s existing false advertising law applies to the mechanics of the carbon crediting industry.

Separate from that proposed law, which is a bill called SB 1036 from Senator Monique Limon, there are also two lawsuits active in the United States that I’m aware of that involve the application of California consumer laws to alleged deception involving offsets. So there are two cases. There’s one case against Delta Airlines that’s in a federal court in California that alleges because Delta advertised itself as a carbon-neutral airline using carbon offsets, that the consumer was allegedly misled. They chose Delta over competitors on the basis of these marketing claims, and they allege those claims are false.

There is a similar case against Evian bottled water in a federal court in New York, where a similar allegation is made, where consumers say, “We were enticed to purchase these products in part because they were marketed as being carbon neutral, but we think they’re not because the offsets on which you claimed that marketing statement are not what they say they are.”

So we’re seeing this kind of spectrum from just a straight-up regulatory ban that this kind of language is presumptively misleading in Europe. We have uncertain and pending potential regulatory action at the federal level, but not a lot. And we have litigation coming in the courts, primarily under state law. And all of that is before we get to the most recent principles document, which the White House released in May, which I’m sure we’ll talk about. But that’s sort of the backdrop. It’s all very uncertain, and no one has taken a lot of action, other than Europe, which has said, “Enough of this,” basically.

Stone: I want to bring in an additional point here. California and Washington State have carbon markets that allow offsets. On the other hand, New York is developing its own carbon market and has decided that offsets will not be a part of that market. New York has a different line of reasoning for this that focuses on community impacts. The state is concerned that offsets will allow polluters in New York to continue to operate under the status quo, or even increase their operations and detrimental impacts on nearby communities. Under this scenario, community benefits would really only accrue to communities elsewhere in the country or internationally, where offset projects would take place, while again, New York communities would not really see any benefit.

Cullenward: Yes, and I think that connects back to what we were talking about earlier, the sort of standard offsetting model is really a pollution-shifting model. It shifts the “where” of the pollution, not the “how much in total.” And that has immediate environmental justice and distributional concerns because if you live in a community where a large incumbent polluter is given the flexibility to not cut its emissions at home and instead to buy emission reductions from somebody else — even if those reductions are accurately calculated, which we’ve talked about why maybe they’re not — but even if they are, that just shifts the “where” of the pollution, and that can lead to a perpetuation of the local pollution patterns.

At the same time I think it’s important to emphasize that if you do pay for a pollution reduction somewhere else, you’re also helping somebody else somewhere else, so there are interesting environmental benefits to somebody else, but that is exactly as you described it. It can mean that pollution persists. New York said, for a number of reasons, including the fact that their statutory law in New York doesn’t allow for distant offsets, they decided they’re not going to go down that path, and they cited this environmental justice argument in the rationale, which I think is legitimate.

In California where I’m based, and I’m also the Vice Chair of the Market Advisory Committee there, we developed a market program that relies heavily on offsets. One of the reasons we’ve had a relatively slack program that didn’t accomplish very much in its first decade is because we basically said, “You can have a whole bunch of offsets,” and that depressed market prices, and we see large emitters, in particular in the oil and gas sector, like refineries haven’t really had to change their emissions very much in the near-term, in part because they’ve been able to rely on a very generous offsetting provision.

So those are two very different visions for how to run a compliance market. You could produce lower-cost carbon prices and market outcomes if you allow a lot of offsets, but if you allow a lot of offsets, you are (A) relying on the climate integrity of those offsets, and (B) you’re changing the “where” of the pollution, and that leads to tensions with the environmental justice communities who say, “Why are you letting this pollution persist here in my neighborhood on the promise that somebody else, somewhere else is doing something else?”

Stone: So groups and organizations have been established whose role is to ensure the quality of offsets. And I believe some of these may be industry-sponsored. Some may be independent. I would love to hear a little bit more explanation of who is behind these groups, but overall it appears that they have not really been fully effective in ensuring the integrity of the markets. Could you tell us what are these groups who are overseeing the quality of the industry, and what are the challenges that they’re facing if they bring up?

Cullenward: So maybe to start, it would be helpful to take a step back. In the voluntary carbon market, there are these organizations called “carbon registries,” and these are the private actors. They are usually nonprofits. They are the standard-setters. They decide what methodology, what technical rules projects have to follow to earn offset credits. And they say, “Here’s what you have to do, and if you follow all of my rules, you can issue a carbon credit that says it’s equivalent to one ton of carbon dioxide equivalent, and you can use it for various purposes.”

So to begin with, in this sort of incumbent system, it’s a privately self-regulated system where private actors are setting these rules. And again, time and time again, year after year, sector after sector, the academic evidence shows that things are not going very well pretty much anywhere in those markets. And over the last three or four years in particular, there has been a resurgence of critical academic studies and reporting that has dug into some really flagrant issues, including you mentioned the study from the University of Cambridge, which showed that one of the largest market segments was really performing quite poorly.

So partly in response to that, proponents of these systems — and I want to acknowledge that proponents of carbon crediting in voluntary carbon markets include a wide variety of actors, not just the people who are in the business of minting credits. There are also people who are interested in seeing voluntary money move into protect forests, for example, and to address deforestation. So there is a wide range of actors and legitimate perspectives people bring to saying, “We want to channel this money in an effective way.”

There are two main industry groups that have been set up to address and respond to some of the quality concerns in the market. They each take a different piece of the puzzle. So there’s a group that is focused on what is a good carbon credit? And there’s a group that’s focused on what is a responsible claim you could make using a carbon credit? What is a good carbon credit group is called the Integrity Council for the Voluntary Carbon Markets, or ICVCM, and this is a group that is trying to come up with the process for saying what a good carbon credit is. They’ve told us they’ve finalized what they call their “core carbon principles” or CCPs. These are the principles that they say you have to meet to earn their stamp of approval. What they’ve not yet done, and we’re still waiting for them to tell us what they think, is say which projects, which methodologies, and which registries satisfy those principles. So they have a kind of a process they’ve outlined. They’ve told us the bar they’re aiming for, but they haven’t yet told us who has cleared that bar.

Stone: And what if you don’t meet that bar as a company or as a project?

Cullenward: This is one of the sort of interesting problems from my perspective because I think a lot of people are not going to meet what I think is, frankly, a pretty low bar they’ve set. But I think a lot of people are not going to meet it. And the answer, Andy, is nothing. One of the really striking things about the regulatory efforts from the industry side, there really isn’t anything resembling accountability or consequence for credits that fall short of whatever standards the industry is willing to circle up around.

And that’s a problem from my perspective for a number of reasons, one of which is that it’s pretty clear there are going to be a lot of those credits. The second thing is, they’re all promising the same thing as the purportedly good credits, and they’re allowed to market themselves as identical to the good credits. It’s hard for me to see how things improve if there isn’t any accountability. But the theory that proponents of this strategy put forward is they say, “Well, look, the markets are going to prefer the stuff we put our sticker on, and over time, market forces are going to prioritize the good stuff.” I will say as somebody who has been working on this for about twenty years, I’ve heard that line before, and nothing has changed in the twenty years I’ve been working on this. But that is the line people use.

The other industry organization is this group called the Voluntary Carbon Markets Integrity Initiative, VCMI, and they are focused on saying, “What is a responsible claim a company might make when they use carbon credits?” So they’re focused on what’s the right role for carbon credits in a company’s decarbonization strategy? And that is a different question. I think it’s an important question, but it’s hard for me to get too excited about regulating claims or saying what a responsible claim is until we’ve got the supply side of the market sorted out.

Stone: So we’ve been talking about the integrity of voluntary carbon markets, and it would seem, as we’ve just been talking about and as you just noted right now, that all involved would really be interested in these markets being accountable and transparent, and it promises aligned with deliverables, to make it simple. It’s interesting, though, industry players have been criticized for recently moving to undermine the stringency of standards. A prime example of this is the UN-affiliated Science Based Targets Initiative or SBTI, more of the alphabet soup. And that has long opposed the use of offsets to address Scope 3 emissions, yet it recently moved to allow offsets to be used — two offsets Scope 3 — under significant pressure from industry players. Could you introduce the role of SBTI? What are the implications of this move? I know a lot of people, the employees of SBTI were actually, from what I read, quite opposed to this move. I don’t know if this is final, but what does this signify? Who is running the show here?

Cullenward: This is a really interesting moment, and I encourage people who are interested in this issue to track what happens with the Science Based Targets Initiative. So this is a group. It’s an NGO. It is associated with a couple of the research-oriented environmental NGOs that are out there, so it’s not a creation of the offsets industry, but it is a private sector regulatory entity. And when I say “regulatory,” I mean it’s all voluntary, right? You don’t have to subscribe to their views, but the Science Based Targets Initiative became, sort of de facto, the leading standard-setter for corporate sustainability targets in climate. So they rate and review corporate pledges with an eye towards getting people on track for a true long-term net-zero plan. And they had actually kind of a nuanced view about offsets for a long time, and it’s very important to clarify what that view is.

So they say, “Offsets don’t count for you achieving your corporate emission reduction goals in any of the scopes — Scope 1, 2, or 3, meaning your direct emissions, the emissions from the electricity and gas and fuels you purchase from a utility, as well as the emissions of your suppliers and downstream customers. You don’t get to zero-out or reduce those emissions by using carbon credits. However — and this is an important however — they encourage people to do what they call “beyond value chain mitigation.” On top of your plan to actually cut emissions, it is good and worthy and encouraged that you would also do supplemental activities, like, for example, paying for carbon credits that promote protecting tropical forests. But that doesn’t count for your math. That is a worthwhile thing to do on top of your actual responsibilities, but it doesn’t count for your math.

And that position has been very controversial in the carbon crediting and carbon offsetting industry because it speaks aloud the lie, right? It says, “There’s a lot that could be done that’s good if we manage these programs right, but very little of them are actually equivalent to the permanent harms of putting CO2 in the atmosphere. And rather than pretending that’s the case, it could be useful to talk about this stuff as a supplemental activity.”

And that doesn’t work very well for people who want to market carbon credits as equivalent to CO2 pollution. So a very unfortunate and very controversial thing happened earlier this year, which is that the offsets industry has been very upset by this, and some of the foundations, including a group called the High Tide Foundation and the Rockefeller Foundation, I believe at least High Tide also funds this Integrity Council, this self-regulatory body we discussed for the carbon credit issue inside. They organized a meeting, according to reporting from Reuters, The Guardian, and Bloomberg, which brought in a bunch of proponents from the carbon offsets industry to meet with the executive leadership of SBTI. So not the staff, but the CEO. And they lobbied these folks pretty hard, and the CEO and the Board of Directors made an announcement that they were going to change SBTI’s rules around offsets.

This led to extraordinary controversy, including reportedly staff letters threatening resignation, lots of controversy because SBTI has a process. In fact, they are in the middle of a multi-month, I think more than a year now review of the evidence around the effectiveness of these programs. And that review was essentially truncated in some respects by the CEO’s announcement. So technically no formal decision has been made. The CEO has sort of walked back to say, “We’ll go through all the normal channels.” But it’s unequivocal that the industry put enormous lobbying pressure, including through the foundations that fund the industry’s self-regulatory bodies to attempt to cause the Science Based Targets Initiative to weaken their standards. And that’s a great example of a sign from my perspective, and the industry is not trying to figure this stuff out. They’re trying to remove the barriers to their growth, and rules that force people to make accurate statements about the accountability of those claims are not favored in that approach.

Stone: You know, there have to be companies, for example, that purchase offsets, that recognize the value of transparent, high-integrity markets, and the value of high-integrity offsets to their own corporate image. They have to be out there. I’m sure there are many of them. What do they propose to improve the validity of credits in the market?

Cullenward: I think it’s a really challenging moment. You’re right. There are lots of good people who want to do better, and I don’t mean to suggest that people who are sort of defending the status quo are necessarily motivated by bad reasons. I think there are quite a few people who are motivated by genuinely good reasons, whether it’s protecting tropical forests or transferring money to lower-income countries in the name of climate action. There are lots of good reasons to do this.

Again, I think the general strategy that most people have coalesced behind is that we ought to put a sticker on the good stuff and not worry so much about the bad stuff, because market forces will help lift the good stuff. I think the problem with that approach — there are two main issues. One is that the junk credits, there are a lot of them, and they don’t cost anything. So a lot of people are making the identical climate claims that a more responsible company or more responsible consumer would want to make on the basis of a higher integrity system, but it’s really hard to distinguish the two — one based on junk credits, and one based on better credits. So it’s going to be hard to distinguish those strategies so long as the junk offsetting persists.

And the other piece of this, where things get really complicated, is that if you’re serious about shifting to carbon removal over time, there’s basically not a lot of it today, and it’s sort of being built from scratch. It costs a lot more than these conventional offsets. Just to give you an example, you can get the junk offsets traded and derivatives contracts for less than a dollar a ton, so way, way below the social cost of carbon, and pretty much all high-integrity stuff that’s really good, I would say $100 to $1,000 a ton is not an inappropriate range. So we’re talking two to three orders of magnitude price difference. And you are absolutely right. There are people who are willing to pay for more for higher quality, and that is real, and we need to find ways to encourage and channel that. It is hard to imagine a world where a lot of the people who are relying on $1 or even $5 offsets are really ready to make that transition. I think that’s one of the challenges that proponents have yet to articulate what they want to do about that. For the most part, they’re saying, “Let’s figure out a consensus process to determine what quality is, and go from there.”

Stone: Getting back to our original discussion about consumers want to know what they’re getting — until consumers really understand in this very complex market what they’re getting, a cheap sticker on a product and an expensive sticker look all the same, I would imagine, at the end of the day. And that’s one of the big problems.

Cullenward: Yes, that’s it.

Stone: So into all this, as you briefly mentioned earlier in our conversation, wades the Biden administration in May. The administration in May published a set of principles for voluntary carbon market integrity. You’ve been a bit critical of these principles. What’s in them?

Cullenward: Well, that’s a good question. It’s hard to give you a straight answer. I think there are a lot of good intentions in here, but it’s kind of turtles all the way down, and by that I mean this is a voluntary market that really hasn’t been regulated in the United States. Based on voluntary standards, based on voluntary promises to do things, based on voluntary self-industry regulatory efforts, and the principles that the Biden administration put out — I want to emphasize these are assigned, these principles, by some of the most important people in the federal government right now. We have the Secretaries of the Departments of Treasury, Agriculture, and Energy. We have a couple of the very senior people in the White House, as well, including the Director of the Climate Office, including the Director of the National Economic Council. So these are very senior and influential figures.

These principles, and I think this is often lost on people, principles aren’t even guidance. They certainly aren’t regulations. So these are aspirational nice thoughts that these people have said are good thoughts to have about the voluntary industry. They don’t require anything of anybody. Nobody is required to comply with them. And they don’t actually say all that much. I’ll give you an example. We talked about how when you put CO2 in the atmosphere, about a quarter of it remains almost forever. Twenty-five percent is left at the end of 1,000 years. It takes tens to hundreds of thousands of years to get most of that down to zero.

So you’d imagine that principles addressing one of these core issues here would say something about how long do you need to keep the carbon out of the atmosphere for a carbon credit to make a worthy promise? And it’s kind of striking that the principles don’t actually say anything. Let me read you the one sentence that the principle says on this issue. They say, “The Permanence of Greenhouse Gas Benefits. The emissions removed or reduced — those are the climate benefits — will be kept out of the atmosphere for a specified period of time.” Huh. That’s it. A “specified period of time.” Is that a week? Is that a year? Is that a decade? Is that a millennium?

Stone: Why have they not defined that time?

Cullenward: This is just a great example of when you dig in, once you kind of know the technical side of this, this is a voluntary document, and they haven’t said anything. So why haven’t they said anything? And this goes to the root of the whole problem. When you step back and look at this document, it talks a lot about the Integrity Council for the Voluntary Carbon Markets and various government fora that are trying to figure out, “What is a good carbon credit?” And it sort of points to other people and says, “Let them do their work,” essentially.

And part of the problem with this industry self-regulatory approach is that nobody can put a good answer for it on this durability or permanence question because almost all of the carbon credits today are doing something that is physically incommensurate with mitigating the harms of CO2. Because CO2 has effectively permanent consequences, temporary carbon contracts don’t really do all that much, and they’re certainly not equivalent.

Most carbon credits today make promises to store the carbon from in the range of, ballpark, 10 to 40 years. The full range that I’ve seen across everything I’ve looked at is 1 to 100 years. So you can see that even a 100-year project, and there are some that make those promises, they’re not promising something that’s physically commensurate with the harms of CO2 pollution, and it’s very difficult to achieve consensus with an industry on where to draw that line.

So we talked about the Integrity Council for the Voluntary Carbon Markets, the main self-regulatory industry body. Their standard says, “You’ve got to do it for at least 40 years, and we’re hoping to increase that to 100 over time.” Now that’s a big step forward from where a lot of projects are today. Many of those topical forest projects we talked about, they are only 20-year promises. Moving to 40 years makes a difference, but if we don’t actually reach temperature stabilization within 40 years, a 40-year promise doesn’t do anything to shave peak temperatures because if you re-emit the carbon at the end of that promise, you’re back to where you started. I think that’s one of the tricks about this whole situation. There is no commercially satisfying answer that preserves even a minority of the incumbent actors in the system if you were to set a permanence criterion that was based even remotely on physical climate science. And so time and time again, when people pay lip service to the principles they want to see, they dodge the permanence issue because there is no commercially feasible answer that you could give that would be scientifically accurate, and I think that helps explain why the White House punted.

Stone: You’ve been working with the UN to align offsets with the Paris Agreement. I would assume that that implies that you do see some avenue for the productive use of offsets to address climate change, again, within the Paris context. Tell us your thoughts on that.

Cullenward: Yes, I have a couple of thoughts. One thought is that I wrote a paper with some colleagues, Grayson Badgley and Freya Chay, in 2023 in a journal article called “Carbon Offsets Are Inconsistent with the Paris Agreement,” in which I tried to outline what would have to change to bring them into alignment, and my views around that. So let me give you two answers to the question, one about the voluntary markets, and the other about the Paris process.

I think we need to move away from offsetting. If you recall at the beginning of our conversation, I wanted to draw a distinction between what is a carbon credit, this claim that you’ve got some sort of climate benefit? And then the claim that most carbon credit users is offsetting. They say, “Well, it’s okay I put CO2 in the atmosphere because I bought and retired this carbon credit.” And I think there could be really important and valuable roles for high-integrity carbon crediting, if it’s done well — and it is not done well today. But in an environment where we’re no longer making offsetting claims, well that’s an option you can pull to make a contribution, to do something more than what you’re currently doing, without equating that action with the harms you’re causing when you emit pollution.

So I think there’s a whole trajectory we could talk about where these tools and these instruments could make sense if they’re designed well and reformed. I’m wide open to that conversation. I think that’s really important for some applications like conservation and tropical forest protection. So I’m listening.

Stone: So forestry projects are great, but just don’t make climate claims around them.

Cullenward: Don’t make the claim that your reductions are the same as CO2 emissions. They’re not. Stop doing it. You know, ask, “Is it good for the climate?” Yes, it’s good for the climate, but it’s usually better for some other reason, like you stop tropical deforestation. Don’t put that in the math. It’s a supplemental benefit, and it’s good, and it’s worth doing if you don’t make that false equivalence.

So that’s the direction I think we really ought to be talking about, because if you think we can do good and sound projects, changing the nature of the claim you’re making, I think brings everything into the zone of truthfulness, and that’s where I want to be.

On the Paris Agreement side, part of the reason I was interested to sign up, and I’m a member of what’s called the Methodological Expert Panel for this obscure part of the negotiations around the so-called Article 6 of the Paris Agreement, which authorizes carbon trading. Over time, we’re going to need to shift to carbon removal, as I mentioned, because the only claims where you can say, “I’m compensating,” or even getting to a point where we’re getting truly to net-zero, which is what’s required for temperature stabilization, we’re going to need to figure out how to account for carbon removal outcomes. One of the reasons I was interested to participate in this process is because the UN’s prior experience with carbon crediting came through this Clean Development Mechanism program that we talked about at the beginning of our conversation. That program had no carbon removal. It also really had almost nothing in the land sector at all.

So the institutional apparatus of the United Nations, the one that’s implementing the Paris Agreement, doesn’t have a lot of background or experience with managing carbon storage in the land sector, which is where all the nature-based projects are. And it doesn’t have any experience with any of the novel long-duration carbon removal technologies like direct air capture and enhanced rock weathering — all of the different approaches people talk about in the field of carbon removal.

I do think trying to figure out a way to recognize a process for that could be useful if it’s done well and done right. Unfortunately, I think one of the challenges is that it’s starting from something close to a blank sheet of paper, which puts it at a bit of a disadvantage to the incumbent offsetting practices, where there are lots of people who will tell you exactly how they want to do an offset around a renewable energy project or a forestry project. And we know how that story ends.

But I think it’s really important to figure out a path for what removal looks like, to have to play the small but important role that carbon removal needs to play in the long run for climate stabilization.   

Stone: Danny, thanks very much for talking.

Cullenward: I really appreciate the chance to be on with you, Andy. Thanks for having me.

Stone: Today’s guest has been Danny Cullenward, a Senior Fellow with the Kleinman Center.