Ever since AB 32 was implemented, California’s carbon offset market has been all the rage. While AB 32, or the Global Warming Solutions Act of 2006, has an admirable goal of carbon neutrality by 2045, there are several problematic issues that must be addressed with one of the most aggressive environmental action plans to date.
But as the price of carbon offsets continues to fall, and it gets easier and easier to buy or sell carbon allowances, the environmental benefits are really starting to add up.
California’s Cap & Trade Program Attempts to Stand Up to CO2 Emissions
There are very few carbon credit exchange programs that are as bold or effective as California’s Cap & Trade Program. While it’s certainly not perfect, it goes far beyond other U.S. states and foreign countries when it comes to incentivizing renewable energy projects.
This is one of the largest carbon credit trading markets in the world, designed to reward eco-friendly companies for their work in reducing CO2 emissions and other ozone-depleting substances (ODS)1. These rewards come in the form of Carbon Credits (also known as CO2 credits or GHG credits) which can be sold for a profit. (Note: carbon credits are not the same thing as carbon offsets, although the goal is the same.)
Purchasing carbon credits also allows companies and organizations to become more carbon-neutral without having an obligation to reduce any emissions on-site. Since California’s Cap & Trade program was launched in 2013, it’s estimated that the state’s greenhouse gas (GHG) emissions dropped by over 10% (2018).
California Air Resource Board (CARB) Faces Scrutiny Surrounding Leakage
Back in 2019, the Trump Administration sued the State of California for some aspects of its cap & trade program. Specifically, the lawsuit was directed at California’s cross-border carbon credit program with Canada, the California-Quebec Cap-and-Trade Agreement.
According to the lawsuit, the administration argued that the program “interfere[d] with the United States’ foreign policy on greenhouse gas regulation, including but not limited to the United States’ announcement of its intention to withdraw from the Paris Agreement.” The administration’s lawyers called the program “rogue foreign policy.”
From the beginning, the constitutionality of California’s program was clear to almost everyone. In July of 2020, a federal U.S. Court ruled that the program was indeed permitted under the constitution,2 and the vindictive lawsuit was dropped.
This means that the California-Quebec Cap & Trade Program continues to operate, setting the standard for other states, countries, and communities that are trying to reduce greenhouse gas GHG emissions. The question now is whether verification services and verification bodies1 will be able to keep up with the increase in compliance offset programs.
Additionality: California’s Mine Methane Capture Protocol May Deliver the Wrong Message
In his 2019 paper California Compliance Offsets: Problematic Protocols and Buyer Behavior (PDF) Harvard climate scientist Jack B. Smith asks an important question about California’s California’s CO2 emissions and carbon offset programs:
“In practice, it is unclear whether carbon offset policy can guarantee the production of legitimate offsets—those that represent additional, permanent, enforceable, real, quantifiable, and verifiable greenhouse gas emissions reductions” (ii).
California’s Mine Methane Capture (MMC) Protocol and Recovery and Use (RAU) Programs
One of the reasons that coal mines are so destructive to the planet is because coal occurs within a geological stratum that also leaks methane into the atmosphere. While not as abundant as CO2, methane is even more potent as a GHG emission, and if left unchecked, can have an even bigger global warming effect in the long term.
Fortunately, Recover and Use (RAU) programs have been growing in popularity. RAU programs capture this methane “leakage” before it enters the air. The methane is then repurposed, to generate power, operate vehicles, or even heat residential homes. Even better, RAU programs actually started becoming profitable.
But, as Smith mentioned in California Compliance Offsets, the profitability of these RAU programs could make them ineligible for carbon credit trading and carbon offsets. In order to be considered an offset project, the methane being captured must be in addition to any methane capture that was already in place.
RELATED READ: How to Reduce Your Carbon Footprint
Overestimation of Registry Offset Credits
Another reason that carbon credit programs like the ones in California are so heavily scrutinized is due to the growing problem of Overestimation. Simply put, carbon credit overestimation is when an offset project reports more GHG reductions that actually occurred, and as a result, they receive more offset credits than they deserve. Overestimation can happen for many different reasons … It’s not always a matter of dishonesty.
Perhaps the most common form of overestimation is with baseline emissions. These are the emissions that would have occurred anyway, without the addition of a carbon program. If the baseline emissions are overestimated, then the GHG credits cannot be calculated precisely
- Actual emissions can also be overestimated. This can happen simply because measurements weren’t taken correctly, or there were sampling errors. For example, some forestry offset projects overestimate the carbon sequestration ability of their tree-planting initiatives and improved forest management (IFM) projects.
- Indirect emissions, also known as leakage, is when a carbon offset project also creates GHG emissions as an unintended consequence of their operation. If these indirect emissions are not calculated for, the actual reductions in CO2 that the project is responsible for is much smaller.
Buying & Selling Carbon Credits May Just Encourage Greenwashing
In 1986, climate activist Jay Westerveld coined the term corporate greenwashing to describe the growing practice of companies making false, exaggerated, or misleading claims about their sustainability.
A common form of greenwashing is when a company says that it’s reducing emissions with a specific project or program when in actuality, the company’s total GHG emissions are going up. One example is Exxon Mobil’s “deceptive messaging” lawsuit in 2019,3 a lawsuit that is drawing comparisons to what Big Tobacco faced decades ago.
Do Carbon Credits Encourage Corporate Greenwashing?
Here’s another common criticism of California’s cap and trade program: That the ability to buy carbon credits will actually disincentivize companies to make meaningful reductions in their CO2 emissions. But considering that the state is currently on track to reduce greenhouse gas emissions 40% by 2030, this certainly doesn’t seem to be the case.
Building a Foundation
It will always be trickier and less certain to pay for reductions than to just charge for emissions. Politically connected emitters want a giant supply of credits and allowances to keep prices down in the cap-and-trade program; landowners, coal companies, and farmers want to sell as many credits as they can; and regulators, at least at this stage, are just eager to get a functioning market off the ground.
The truth is, California’s Carbon Credit program, although not perfect, should serve as an inspiration to countries and cities across the globe. The Cap & Trade program was a big leap in a good direction, consolidating verifiable economic theory with critical environmental concepts. But what they really demonstrated is that protecting our climate is not just about marketing and social policy. It’s a bottom-line business decision that can lead to big profit, both for the company and the planet.
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1State of California. Cap and Trade Program. 2021. Web. 16 April 2021. <https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program>.
2Davidson, J. (2020, 07 20). Judge Dismisses Trump Admin Lawsuit Against California’s Cap and Trade Program. Retrieved April 2021, from ecowatch.com: https://www.ecowatch.com/trump-california-cap-and-trade-lawsuit-2646438060.html?rebelltitem=3#rebelltitem3
3Brown, A. (2019, 10 31). FROM CLIMATE DENIAL TO “GREEN” PETROLEUM: MASSACHUSETTS ACCUSES EXXON MOBIL OF DECEPTIVE MESSAGING. Retrieved April 2021, from theintercept.com: https://theintercept.com/2019/10/31/exxon-mobil-massachusetts-climate-change-lawsuit-greenwashing/