Messy Carbon Offsets Show Markets Aren’t Always the Answer

by Kate Mackenzie (Bloomberg) Big finance may have to accept the reality that bespoke carbon removal solutions simply don’t lend themselves to an elegant, scalable market.

What essentially started as a way to appeal to environmentally conscious consumers has become a key part of many corporate pledges to achieve net-zero emissions, in part because these offsets are often cheaper than actually cutting emissions.

Right now, credits for these projects are mostly bought and sold via “over the counter” transactions — one-on-one interactions that are more fragmented and slower than, say, trading crude oil futures in a large, liquid market. A new taskforce hosted by the Institute of International Finance, which represents the world’s big banks, asset managers, insurers and funds, wants to change that. This week, the group published recommendations for “scaling up” the markets through which offsets are created and sold.

It’s a questionable proposition. When you have a hammer, the saying goes, everything looks like a nail. When you work in finance, protecting the climate might simply look like a matter of ensuring fungible assets can trade freely and transparently in a liquid market.

The financial institutions and commodities houses would have new lines of business, while the companies would have an easier time purchasing the carbon credits required to meet their net-zero pledges.

What’s less clear is whether the lack of a unified, global market for carbon offsets is the problem that needs to be solved.

But they also warn that such removals can’t substitute for the main priority: cutting emissions from human activities, especially burning fossil fuels.

The fact that one metric ton of CO₂ is interchangeable with another (at least, very broadly speaking) has created an overblown expectation that all climate solutions should be neat, efficient, and financeable. Sure, a ton of CO₂ avoided from leaving coal in the ground might be roughly the same in one place as another, but the same can’t be said for protecting ecosystems, or employing complicated technological solutions. The taskforce acknowledges this in a single line: “What makes this scale-up complex from the outside is the inherent heterogeneity… and technical hurdles such as measurement and verification.” It might have to accept the reality that offsets, a broad mix of bespoke carbon removal approaches, simply don’t lend themselves to an elegant, scalable market. READ MORE