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MIT Technology Review

Whoops! California’s carbon offsets program could extend the life of coal mines.

A new study highlighting the risks of perverse incentives offers the latest evidence that carbon offsets are a deeply flawed way of combating climate change.

August 26, 2019
Flaring methane at a fuel extraction site.Flaring methane at a fuel extraction site.
Flaring methane at a fuel extraction site.Getty images

A California program to curb climate emissions could have the unintended effect of extending the life of coal mines or encouraging farmers to switch to crops that produce far more greenhouse gases.

The risk of such perverse incentives in the state’s fledgling carbon offsets program is among the most alarming findings in a new paper by researchers at the University of California, Berkeley, Stanford and other institutions. And it’s just the latest evidence that such schemes can grossly inflate the emissions reductions achieved, or even inadvertently boost total climate pollution.

Carbon offsets are a key part of California’s cap-and-trade system, which sets a tightening limit on the amount of greenhouse gases that industries can emit. The state’s major climate polluters can buy or sell allowances, which enable them to generate certain levels of emissions, within that carbon trading market. Or they can purchase a limited set of offsets credits from landowners, farmers, and other businesses across the nation that have altered their practices in ways that could avoid emissions or suck up an equivalent amount of carbon dioxide by, say, halting logging or planting trees.

But if that second party hasn’t actually reduced climate pollution as much as claimed—or, worse yet, increased it—then it means that while money traded hands net emissions continued to climb.

The California Air Resources Board (ARB) specifically designed its offset system to avoid the known problems of earlier systems. Rather than assessing projects on an individual basis, they developed broader protocols that define what types of projects are eligible and how their emissions reductions should be estimated. The system established specific standards for offsets projects in forestry, livestock production, rice cultivation, and coal mining, among other areas.

But in the report posted online early Monday morning, the researchers conclude that this standardized approach can still vastly overstate emissions reductions, or even increase them.

Boosting coal profits

Take the case of coal mining.

The process of digging up coal also releases methane, a greenhouse gas with more than 80 times the warming effect of carbon dioxide during its first two decades in the atmosphere. The gas can continue to leak out for years after a mine has closed.

Depending on the mine, operators have a few choices for dealing with the gas: releasing it into the atmosphere; capturing it and injecting it into a pipeline so that it can be put to use to produce energy; oxidizing it in ventilation systems; or flaring it, which means setting it on fire on site.

The latter three are all improvements over a straight release from a climate perspective, since each process converts the gas into carbon dioxide, which again has less of a warming effect than methane. So the California offsets program allows polluters to buy credits from coal companies for taking any of these steps.

The paper highlights a handful of concerns about whether California’s methane protocol could overstate the avoided emissions at mines, either by crediting reductions that would have happened anyway or by overestimating the baseline emissions of such projects.

But it also raises the possibility that the program could help mines stay open longer or even expand, by boosting the profits of an industry otherwise under growing financial pressure. The paper finds that selling credits could increase coal mining profits by as much as 17% at $10 a ton, which is a little below the current price, or double them at some mines if the price rises to $50.

An added danger is the program will encourage the industry to lobby even harder against regulations requiring flaring, since it wouldn't qualify as an offset if it's required by law, says Danny Cullenward, a co-author of the paper and research associate at the Carnegie Institution.

The paper highlights similar concerns about rice cultivation, which also produces significant methane emissions. California’s program provides credits for altering practices to lower emissions, such as draining fields earlier in the season. But the paper notes that could inadvertently nudge farmers to switch from growing corn, which doesn’t produce nearly the same level of methane per acre, to growing rice to claim the credit.

Both of these areas are relatively small pieces of California’s offsets program. As of July, methane projects had generated a little more than 6 million credits, while rice cultivation projects hadn’t produced any.

But the paper comes on the heels of an April report by the same lead author, Barbara Haya, who leads the Berkeley Carbon Trading Project at the Center for Environmental Public Policy. It found that California’s US Forest Projects protocol—which accounts for more than 80% of the credits issued to date—may have already inflated emissions reductions by 80 million tons of carbon dioxide. That’s a third of the total cuts that the state’s cap-and-trade program was expected to achieve in the next decade, and it suggests landowners could have earned hundreds of millions of dollars for carbon dioxide reductions that may not happen (see “Landowners are earning millions for carbon cuts that may not occur”).

Despite all these uncertainties, California is depending heavily on the offsets program to achieve real reductions. It could represent the full effect of the state’s cap-and-trade program through 2020, and half of it over the following decade, the new paper states. ARB declined to comment for this piece.

California’s offsets program is far from the only one that has raised concerns. A ProPublica investigation published in late May, based on a combination of on-the-ground reporting and satellite analysis of international forestry projects, found that “in case after case … carbon credits hadn’t offset the amount of pollution they were supposed to, or they had brought gains that were quickly reversed or that couldn’t be accurately measured to begin with,” the reporter, Lisa Song, wrote.

Meanwhile, numerous studies have underscored serious problems with an earlier United Nations–run program that provided credits for emissions reductions projects in developing nations. David Victor, a professor of international relations at UC San Diego who closely studied the market, has estimated that as much as two-thirds of the credits didn’t represent actual emissions reductions.

Add it up, and there are very real questions about how accurately any of these programs are measuring emissions reductions, or how accurately they ever could.

“I am deeply skeptical of the ability for any major offsets program to work,” Victor says. “The problem isn’t just accounting (although often that is hard) but also the intrinsic difficulty of measuring the counterfactual, or the level of emissions that would have existed otherwise.”

No easy solutions

That presents a serious challenge because climate studies consistently show we need to figure out ways to get farmers, landowners, and other businesses to remove vast amounts of carbon dioxide from the atmosphere, to have any hope of avoiding dangerous levels of global warming.

So can we salvage these programs?

Haya’s papers have highlighted a number of specific changes that ARB could take to improve its accounting methods and protocols. For example, she says the state could adopt significantly higher estimates of the amount of additional logging that will simply move to other pieces of land, as the market balances out any declines from one landowner claiming credits for preserving trees.

Further, the new paper notes that the regulatory body could take additional steps to monitor for the possibility that the program is creating perverse incentives in some areas—like prolonging the life of coal mines—or avoid the risk in the first place by disqualifying projects where that’s likely.

Technology may play a role too. Some startups, like Pachama of San Francisco, claim they can help government or voluntary offsets programs verify shifting levels of sequestered greenhouse gases in forests, using satellite imagery and artificial intelligence. Meanwhile, the sort of carbon removal machines being developed by Carbon Engineering or Climeworks, which sells its own carbon dioxide removal credits, offer the advantage of stating with certainty the level of greenhouse gases being removed (though the process costs a lot more than planting trees). (See “Startups looking to suck CO2 from the air are suddenly luring big bucks.”)

But there aren’t any easy solutions. As the authors note, it will always be trickier and less certain to pay for reductions than to just charge for emissions.

The underlying challenge is that most of the interested parties are pushing for the easy availability of cheap offsets, Victor says. 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.