The Carbon Offset Upset

2022 shed new light on some of the darker aspects of carbon offsets. Investigations and independent studies raised doubts about the real value of many carbon offset credits, as governments, stakeholders, and consumers questioned whether their claimed impact was inflated.

What went wrong with carbon offset credits

A carbon offset credit is supposed to represent one tonne of carbon dioxide that would not have been avoided without the funded project. Reviewers found that some forestry and land-use projects overstated the carbon they removed or protected. When a project would have gone ahead anyway, the credit it produced has no real additionality. Some registries also let the same emissions reduction get counted more than once, a problem known as double counting.

Leakage — a reduction in harvesting at one site driving an increase somewhere else — has been measured directly. A 2019 policy brief by Barbara Haya of UC Berkeley’s Center for Environmental Public Policy found that 82% of the credits issued under the California Air Resources Board’s US Forest offset protocol likely do not represent real emissions reductions, because the protocol assumes a 20% leakage rate where published studies of reduced US timber harvesting support 80% or higher.

These findings matter because companies buy offset credits to support climate claims. If the credit behind a claim does not represent a real, additional, and lasting reduction, the claim built on it does not hold up.

The scale of the voluntary carbon market

A carbon offset is a project funded specifically to lower CO2 emissions or to extract and store CO2 — usually reforestation, new renewable energy infrastructure, or re-engineered agriculture and waste management. Companies buy offsets to meet carbon footprint and greenhouse gas (GHG) targets, a widely accepted practice in energy, utilities, and airlines.

Reaching a “net zero” goal means buying some volume of offsets on the Voluntary Carbon Market (VCM). Between 2018 and 2021 the VCM grew from $300 million to $1 billion, and McKinsey estimates it could reach $180 billion by 2030. Buying offsets beats doing nothing to counterbalance the consumption inherent in doing business — but the way their value is calculated is what governments, stakeholders, and consumers now question.

Change is required, not just purchased

An offset program is not a substitute for re-engineering business practices to carry a lower footprint. Used as one, offsets make climate change worse: they deliver no sustainable CO2 benefit while removing the pressure to cut emissions at the source. Part of their appeal is the idea that climate change can be addressed meaningfully without changing how a business runs. It cannot.

First rule: do no harm

Assess how each funded project affects the community around it. The Alto Maipo hydropower dam near Santiago, Chile — financed by several multilateral banks, registered to sell credits through the UN Clean Development Mechanism, and promoted by the Chilean government as a source of clean energy — has already led to human rights violations affecting local water supply and grazing land. It is also disturbing the surrounding glaciers and accelerating desertification, worsening the regional impact of the climate change it was sold to address.

Overly optimistic estimates

A 2022 New York Times investigation found that many offset projects “do not even come close to 100 percent of the benefits they promise.” The most obvious factor is the reliability of the methodology used to calculate the reduction. An analysis by the non-profit Carbon Plan found that California’s forestry-based offset program overlooked significant biological differences between tree species, overestimating its GHG reductions by 30% — an extra volume of CO2 left in the atmosphere and $410 million in offsets that were worthless to the climate.

Offset projects are exposed to the same disruption as everything else, too. In 2021, California wildfires burned more than 150,000 acres of forest that had been set aside under the state’s own offset program.

Offset terms to know

Additionality

An offset only counts if the carbon-reducing project would not have happened without it. One study found that almost 52% of the offsets generated by Indian wind farms through the UN Clean Development Mechanism came from wind farms that would very likely have been built anyway, meaning those offsets had nothing to do with GHG reductions. Additionality is a particular problem for “reducing emissions from deforestation and forest degradation” (REDD+) projects, where it is often unclear that the funding prevented any real threat of destruction.

Leakage

Check whether suppressing a harmful practice in one place simply increases it somewhere else — the displacement the Berkeley policy brief above measured in US forest projects. An offset that moves an emission rather than removing it kicks the can down the road instead of creating a net benefit for the planet.

Permanence

Understand the lifespan of any purchased offset. Planted trees have to be maintained for a long time to have meaningful climate impact, and one hundred years is the accepted standard. When a forest is destroyed, the carbon stored in it returns to the atmosphere and negates the offset completely.

Double counting

Double counting is when more than one company takes full credit for the same GHG reduction — because the offset was sold more than once, or because supply chain and corporate reporting duplicated it. Be explicit about who is entitled to claim an offset before the benefit is booked twice.

Where the liability lands

Government fines. Regulation and government scrutiny keep expanding alongside international guidelines. Truth-in-advertising and consumer protection statutes prohibiting false and deceptive practices already create liability for misrepresenting an offset.

Litigation. Environmental groups sued KLM Royal Dutch Airlines for exaggerating the benefit of its carbon offsets. That suit is a warning to any business making a public benefit statement about purchased offsets, or a carbon-neutral claim resting on them.

Consumer protection. A business that misleads consumers with GHG reductions its offsets did not deliver can face enforcement action and civil greenwashing claims.

What it means for supplier ESG data

Procurement teams face the same verification problem one level down. A supplier’s self-reported ESG claim is only as reliable as the data behind it. A spreadsheet entry that labels a supplier “carbon neutral” or “sustainably sourced” is not evidence on its own. It is a claim that still needs a source.

For ESG programs to hold up under scrutiny, procurement needs supplier data tied to something verifiable: a certification from an accredited body, a contract clause with defined reporting obligations, or emissions data collected on a fixed schedule. That data belongs where sourcing and contract decisions actually happen, not in a separate report that nobody checks against the supplier record.

The lesson from the carbon offset market is not that ESG goals are wrong. It is that unverified claims do not survive scrutiny. Supply-chain ESG programs that hold up are the ones built on auditable supplier data, not disconnected spreadsheet claims.