How did a good idea go so wrong? Carbon offsets with Mark Trexler

and it hasn't really proved to work. It's a place where you and companies like Shell can buy credits from projects such as a solar facility in a developing nation, that, in theory, will avoid putting carbon into the atmosphere. At face value, these offsets might seem like a good thing. We want more solar plants, but the difficulty is improving whether paying for these offsets was the reason the solo

plant was built. Many of these green projects would have gone ahead anyway, and thus your offset has not really

provided any additional carbon benefit. It is why experts have pointed out that most of the credits on the current voluntary carbon market don't work still, as more companies sign up for net zero plans rather than actually reducing emissions, they find it easier to buy cheap offsets instead, and the voluntary carbon market will get a boost because it's receiving a stamp of approval from the US government itself.

At COP twenty seven, the US Special Presidential Envoy for Climate John Kerry announced a new offsets program that will help developing countries transition to clean energy through purchases made by big corporate polluters. This was an unenviable task, especially in front of a global audience of environmental experts. You hear him acknowledge this throughout the conference. Unfortunately, some past abuses have in many minds, discredited the use of a

carbon credit. No double counting, no greenwashing. We shouldn't let the mistakes of the past keep us from employing a powerful tool for steering private capital where it is most needed. What Kerry is getting into is a market that's been around for more than thirty years, and it's full of trouble. The first common credit project was created in nineteen eighty eight, and the man who created it was Mark Trexler, my

guest today. This is a commodity that you can't see, you can't smell, you can't feel, and unless you're very careful with how you manage that commodity or regulate that commodity. You really are just selling a lot of emperors invisible clothes. But a lot of people have a lot of money at stake in doing just that. Mark is not a fan of what carbon offsets have become, and he is in a top position to explain why they don't work. That's important because the US and many giant corporations are

doubling down on offsets as a solution. I spoke with Mark this summer for an article about the bogus offsets that companies buy so that they can claim to be carbon neutral, and to learn if there's anything that can be done to fix them. How did a good idea go so wrong? Mark, Welcome to zero, Thanks very much. Before we even start talking about carbon let's break down the idea of what an offset really is and where

that idea came from. Well, an offset is basically the idea that instead of installing an expensive piece of equipment to control pollution on your power plant, you could do something somewhere else that would have the same impact, and so you would save the money of the expensive technology that you might otherwise have to attach to your power plant, and this this got started with the sulfur dioxide program

in the United States. The term now is pretty widely used for sort of compensation of something you're doing in one place by something you're doing someplace else that is supposed to negate it. Given how big the market for offsets has become is likely to become, and that more and more people are going to come across the usage of offsets in some way. Already people are being hawked

buying offsets when they buy their plane tickets. It's fascinating to know the history, and you've been there from the very start, but I do want to ask you a very blunt question at this point, do you regret participating in this industry that has not really helped the climate agenda? Yeah? Yeah. This is sort of like the recent inventor of the labradoodle apologizing to the world for inventing labradoodles and all of the other doodles because it's become a Frankenstein in

the dog world. When this first started, this was a great idea, and carbon offsets were a way of getting electric utilities to talk about climate change and tackle climate change before regulation was on the table. Once you start doing carbon offsets, it becomes a lot harder to deny climate change, and so I don't regret being involved in

it at that point. But no one ever envisioned the idea that voluntary carbon offsets were going to be the way that we solved climate change, which is what we're talking about today and what a lot of people are saying today that was never part of the conversation. And you were there when the first carbon offset project was created in nineteen eighty eight. How did you get involved?

I was hired into the World Resources Institute to develop the methodology for that project, which was literally the first carbon offset project entirely voluntarily done. And w r I had selected this agraforestry project in Guatemala before I was hired in, and so that's then the project that we proceeded with and did a number of others with as after that. Now, what is a YES and why were

they interested in carbon offsets at all? Well, AYES was a small company at the time, an independent power producer Applied Energy Services is what they were called at the time. They were headed up by Roger Sant and he directed a YES for many many years, and he was already concerned about climate change. He knew that building a coal fired power plant was not ideal, but in his view

and the numbers certainly bore this out. At the time, there wasn't anything else he could build to generate power given sort of the laws and the rules and the economics in the US in terms of his business model, and his business model was small power plants. They ended up being coal fired power plants and gas fired power plants. And he came up with the idea or went to the WRII for help with the question of what can I do to sort of make sure that I'm not

having a damaging impact on climate change? And that's how the idea of carbon offsets was born. Now, the idea of offsets, which the word offset itself, came earlier into the lexicon and had been used for sulfur emissions. Did the CEO as just turn around and said, well, they've done it for sulfur, why not do it for carbon. I don't think he went in with any preconceptions, but he went in and said, I'm building these power plants, they're going to emit carbon dioxide. Is there something we

can do? John Kerry was active at this time too. He helped lead the foundation for using market mechanisms to offset pollution. It started with sulfur emissions from coal plants, which contributed to acid rain, and the market solution was to create a cap and trade system. I led the fight in the nineteen eighties when I was chairman of a Governor's Task Wars as a non governor as lieutenant governor,

and we put together the acid rain response. And that's when cap and trade was born because we took it from the American Enterprise Institute Conservative entity, which had designed a market based solution to the problem of sulfur. I guess what it worked. We saved it. You don't hear about acid rain. Now back to mark of the nineteen eighties, WRI teamed up with a relief group called CARE that was already operating in Guatemala to see if they could

set up a carbon offset program. And so the AES money went to CARE to expand the work of CARE in agriforestry. You know, this involved helping landowners put in hedgerows and putting together small tree farms to come up with huge numbers of seedlings that could be planted on the land. So it tried to build a whole economy in rural Guatemala around sort of reforestation integrated into the

agricultural system. And the methodology that I ended up developing was that the carbon sequestration wasn't based on the agricultural systems. It was based on protecting the natural forest that otherwise would have been cut down as these farmers had to abandon their lands in one place as they got depleted and move into new lands. So what does a methodology for a carbon offset project really entail? Well, the methodology that I developed for that project, by today's standards, would

be seen as laughable. So you know, I did some calculations, I made some assumptions. I wrote it all all up in a very nice way. Methodologies today, for almost any kind of project, there are a whole bunch of things they have to address. There are all sorts of tests for additionality, and you have to discuss permanence, and you have to discuss leakage. None of that existed for the

first methodology. But the basic idea behind the methodology is to say, here's a project, whether it's agraphores ary, whether it's cook stoves, whether it's energy efficiency, here is how it's going to reduce or remove carbon emissions. And here is how we're going to measure the difference between what would have happened otherwise the baseline and what happens with the project, and how we're going to calculate the difference between those two, which is the number of offset credits

that that project is then allowed to sell. Now, could you explain those three terms? Additionality, permanence, and leakage. Right, these terms came out of law that already existed in the US for other plutants regulated by the Environmental Protection Agency, and so we took several of the terms from those rules and applied them to the idea of carbon offsets. And the three really key criteria for what makes a

legitimate carbon offset our additionality, permanence, and leakage. Because what's happening with an offset is you're in effect permitting a ton of CO two to be emitted in one place. That's what the offset is, at least in principle, making possible. And so the characteristics of the offset have to be such that you're compensating for the real characteristics of the ton that has now been emitted, and so you have to be doing something that wouldn't have other wise happened.

You have to do something that is quote unquote permanent because the ton that's being emitted is going to be in the atmosphere for one to two hundred years. So, for example, if you're putting a fence around a forest to protect that forest, that might be additional because it wouldn't have been otherwise protected. It might be permanent if you assume that you can permanently protect that forest. But all the pressure that there would have been to exploit

that forest, hasn't that just gone someplace else? And if it is exploiting forest someplace else, then the carbon benefit of that first project to protect the forest is leaking. And then after you go home, what happens to carbon offsets? Do you think that you're going to keep hearing about them? Because other people would adopt this idea. The popularity of

carbon offsets grew rapidly. For example, electric utilities in the United States, especially cold fired electric utilities, they anticipated that their greenhouse gas emissions would be regulated by the mid nineteen nineties. Of course, they were off by decades, but they were very interested and very motivated to try and come up with alternatives to being forced to directly reduce their emissions because they had no idea how they were

going to do that. And so within three or four years you had all kinds of companies doing all kinds of projects to sort of test out the idea of offsets. And after that, offsets got integrated into pretty much every policy proposal to tackle climate change at the federal level in the US, and they took then they took on a life of their own at international fora And was there any skepticism about combon offsets during that period early years?

The skepticism did start to arise relatively early, and it was quite active. For example, around the period of the Kyoto Protocol, were you there by the way, I was in Kyoto. I was not in the negotiating room because I was not part of a delegation, but there were a lot of us in terms of the non governmental organizations. There were hundreds of us, you know, milling around the conference center all night waiting for the people in the negotiating room to try and come to a final document.

So people knew that there would be market mechanisms, they knew there would be offsets, but there was some real concern in the environmental community at the time, parts of the environmental community. So you had some parts of the environmental community, the groups that were out doing work in the field, they saw offsets as a way of funding their activities, and this would be the CARES, the Rainforest

Action Coalition, the Nature Conservancy. But you did see other environmental groups that were very concerned that sort of forestry would take over and swing the market away from the energy side, where they thought a lot more attention needed to be delivered and distort sort of the overall effort at mitigating climate change. So let's talk about the Quote Protocol, which was you know, first agreed upon in nineteen ninety seven. But what was the goal when the Quote Protocol was

being discussed and how did offsets become a part of it. Well, the Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change, which had been approved earlier. It didn't place mandates on anyone to do anything in particular. It was more of a rhetorical document, you could say. The Kyoto Protocol was specifically intended to give some keith to the UNFCCC. And so the Quote Protocol said, we

have annex one countries. These are basically industrialized countries. They will have a treaty based mandatory obligation to reduce their emissions from a historical base line. We have developing countries

Annex two countries. They will have an obligation to at least report on their emissions, etc. With the idea that they eventually start reducing their emissions and carbon offsets and market mechanisms generally, because there were a couple different kinds, Joint implementation and the clean Development mechanism were a way to tell the industrialized countries, this won't be as expensive as you think, because you can buy these credits, and

you could tell the developing countries you're getting something for this because a lot of money will flow to these projects in your countries. So the idea of these market mechanisms was quite key to the final structure of the

Kyoto Protocol. Now that sounds ideal, right. It would be great to find a way in which wealthy countries could transfer some of their wealth to developing countries and help developing countries not tap into the fossil fuels that really powered the developed countries to be developed, and put all these emissions into the atmosphere and what you're describing with the use of offsets, there is in some way this acknowledgement from the developed countries that perhaps the goals of

reducing emissions that they are setting themselves up for may be too stringent, and they needed a way out, and carbon offsets provided this way out. The real challenge with carbon offsets since the very beginning, is that carbon offsets are trying to do two different things, and to some extent those things are potentially contradictory. The first is mitigate

climate change more cost effectively. The other real motivation and driver is to reduce the cost to the companies or the countries for complying with whatever the rules end up. And so let's make this as low cost as possible. That ends up being the driver that gets the biggest seat at the table, as opposed to let's make sure this is actually mitigating climate change. There are far fewer people at the table trying to push that point, and

unfortunately the cost containment has in effect one out. And you made this point that when you first started on this journey and you saw the idea of Flourish, there was a sense of offsets will eventually go away but now we're talking about the Kyoto Protocol and you're seeing all these countries wanting to adopt it more. It's getting further entrenched into the system rather than going away. What happened.

You know, if all the countries of the world have all these policies in place to reduce emissions and encourage carboncy equestration, there is no room for an offset market, because an offset market is dependent on a supply of sets from sectors that otherwise aren't regulated or capped in any way. And so I think most of us would have assumed, and probably still do assume, that if we really were serious about climate change, we would be using

public policies and measures to make that happen. People have become so frustrated with the lack of policy action on climate change that they're willing to grasp at almost any straw. Carbon offsets is one of those straws, and you know it's not going to work, but it gives people a sense that we're doing something when we don't seem to really be willing to do very much more. Up to the break and then the cure to protocols sort of get stuck right till two thousand and five countries do

not ratify it put it into action. Of course, the biggest potential buyer of these offsets and potential emission reducing country, the US never ratified it. So would you say common offsets had their peak in the Kuto Protocol period. I think they're probably at a higher peak today, but at the time that was something of a peak. And two things that you've mentioned. One of them two things really

sort of torpedoed this idea quite early on. The first was that the United States never ratified the Kuto Protocol, and the United States had been anticipated to be net demand of two billion tons a year for these markets, and so the fact that the US was not in the market just made the market much harder to envision

how it was going to work. The other huge thing that happened was that the way the numbers were calculated for Annex one countries, which included Russia and Eastern Europe at the time, they got credit in a sense for the collapse of the Soviet Union, and they got credit for the collapse of the economy, and so suddenly you had this very large number of tons that in principle could be sold from Russia to the United States, if the United States wasn't buying, but you had this large

number of tons, not really offsets and not additional because it had sort of happened by itself, and that really fouled up the market because you have to remember that to go out and develop good carbon offset projects takes time, it takes money, it's a risk. You're generating these offsets.

Then over five years, ten years, fifteen years, if at some point you think the market might collapse because Russia sells a ton of credits into Western Europe, going to be very nervous about doing legitimate projects and taking that risk. And so the whole between the absence of demand from the US and between this potential availability of hot air supply, which is what it was called from Eastern Europe, it was really difficult for a legitimate offset market to get

off the ground. But all along, the voluntary carbon market for corporations was still pretty active, and you were helping companies go carbon neutral through the use of offset. Right, there were a few companies at the time, this is the mid nineteen nineties that really face no threat of regulation at all, but that we're trying to figure out how to push the needle, so to speak, on mitigating

climate change. And so there were a group of companies at the time, the Carbon Neutral Network, that was starting to explore the idea of what would carbon neutrality look like. Interface Carpet was a big player there, and Nike was

a player there. But we had also been working with stony Field Farm Yogurt, which is now a subsidiary of danone, but at the time was its own independent company led by some very progressive people, and they came up with the idea of could we make our dairy and our operations, could we make them carbon neutral? Figured out how much carbon that all was, and then they went out and purchased carbon offsets to be able to say we're carbon neutral, and they were the first company to actually do that

in nineteen ninety six. And because companies then start using these carbon offsets, people try to make them into a commodity in this voluntary market. And there's this climate exchange that was launched by Al Gore in two thousand and three called the Chicago Climate Exchange, And somehow then things

went downhill. What happened Something I said at a conference of the Party early on was policymakers tend to forget that there are a thousand very smart people in the room next door just waiting to game whatever the rules are that policymakers come up with for carbon offsets, and so you have some people trying to have stronger rules, you have some people using weaker rules. That's really problematic because it ends up in a race to the bottom

of the market. And I think a lot of people would argue that the Chicago Climate Exchange ended up reflecting that because they were embracing methodologies for soil carbon and for other things that were so weak that the carbon offsets involved were literally being sold for pennies a ton, And eventually that just didn't fly anymore and that fell apart.

But it really illustrated this problem that if if anyone can go out and sort of figure out their own methodology, how do you maintain quality in a situation like that, Because if you go into the market saying I'm only going to do really high quality stuff, but all your competitors are selling lower quality stuff, you're not going to survive in that market very long. So it's turned into a very challenging market to be in. In full transparency,

The first carbon offset project that I worked on. You know, we estimated the cost of that at two cents a ton. It's hard to imagine today, but at the time it made sense. And since then we've realized that these projects are actually a lot more difficult to implement than they sound. And so if you're able to buy these offsets at these cheap prices, and this is early two thousands, then why does the market not keep buying them? And why is the interest in offset sort of starting to decline?

In the early twenty tents there were a lot of front page exposs and they those who have continued. So at some point companies say, is this really worth it to risk being charged with greenwashing for going out and buying these low cost offsets. We should just go back to focusing on energy efficiency programs and reducing our carbon footprint. Then twenty fifteen comes around, the Paris Agreement is signed,

and suddenly offsets are back on the table. And now, of course we are talking in twenty twenty two, and it's a huge market, and so what causes companies to rethink this shame has suddenly the quality of offsets become not a problem. If only that were true. What's really happened is that everyone seems to have largely given up on the idea that governments and policymakers will solve this problem.

So when the Kyoto Protocol basically failed in terms of there was no renewal of the protocol after its first term, we switched to a totally different paradigm with the Paris Agreement, where everything is suddenly voluntary. Everyone voluntarily comes in and makes commitments, and you hope that those commitments will add

up to what is required. The IPCC, the Intergovernmental Panel on Climate Change, comes out and says that if we're going to meet the two degree target or a two degree target, if we're going to do that, we need to be net zero by twenty fifty globally, and that then led companies to say, well, why don't we go net zero? So this was sort of the next iteration

from carbon neutrality. But as companies started to step up and say we'll go net zero because that's what needs to happen, then suddenly they realized, oh, we're going to need enormous numbers of offsets to be able to go net zero by twenty fifty, So let's get offsets going again, and can offsets get us to net zero. It sort of depends what you mean. You know, the potential supply

of low quality, illegitimate offsets is virtually infinite. I mean, just for example, something that's happening right now in this market is that countries that have always done a good job of protecting their forests, their tropical forests, they have not been able to participate in offset markets because the forest has to be under threat. If a forest is not under threat, then you can't do an offset project.

And the countries like Gabon for example, that have done for whatever reason, they've done a good job of managing their forests low deforestation rates, they have been very upset that they've been locked out of this mechanism. So they have now started selling carbon credits into the market that

basically don't have any additionality. And if you start selling billions and billions of tons from standing forests that isn't under any immediate threat, yeah you could accomplish at zero, but it won't actually have the climate change benefit that you're hoping for because it's all just a mirage. But that's weird, right. You go through these phases where carbon offsets become an interesting tool, then there's sort of a boom bus cycle of the commodity life happening here and

all the time. People have these problems that many become aware of them, somehow they forget, and then other groups of people become aware of why. Well, it's weird only in the sense that in an ideal world it wouldn't happen. I mean, we see this kind of thing happening in all kinds of areas all the time. Back in two thousand and eight, people were cold calling retirees telling them you really should invest in carbon offsets for your retirement funds because you'll make a lot of money. This was

two thousand and eight. The market collapsed in two thousand and nine. Now people are out telling retirees you should be a investing in carbon offsets because you're going to make a lot of money, And maybe they're right this time. I can't predict the future better than anyone else. I can say that these markets are incredibly fragile. This is a commodity that you can't see, you can't smell, you can't feel. It's sort of like the Emperor's invisible clothing.

So it's a very strange commodity. And unless you're very careful with how you manage that commodity or regulate that commodity. You really are just selling a lot of emperors invisible clothes. But a lot of people have a lot of money at stake in doing just that. I don't think people are going into this with nefarious intent, but you know, they're able to convince themselves that what they are doing is good for the planet, etc. But when you look at the whole picture, it is not having much of

an effect. So officers don't work as they are intended to, yet they're everywhere. Is there any way to fix them? Well, I think the two ways you could go about fixing them. One is to go back to a decision that was made very early on in terms of a positive list versus the alternative. And the positive list was somebody would sit down and decide what offsets are good offsets, and those would go on to a positive list and only

those could be brought into the market. And this was abandoned very early on in the process because no one knew, well, who's going to do it, how would they pay for it, how long will it take. Let's do more of an ad hoc system, which quickly turned into sort of a

creative writing exercise to get projects proved. So the other thing that could make a significant difference is giving buyers the ability to differentiate between lower quality and higher quality offsets, and that could be done through a scoring system, and my team many years ago developed the first carbon offset scoring system, where basically all offsets would be ranked or scored between zero and a thousand to say, here's how much confidence you can have that this offset is satisfying

the criteria of additionality, permanence, and leakage. Ideally, people would buy eight hundreds and would not buy two hundreds. So if we're going to have offsets, the idea of scoring offset seems to me an option that could do a lot of good. So, given all the problems we've talked through, you've still stuck with this market for thirty audios. Why this is by no means my primary focus. I'm focused on climate risk issues and how can we better communicate

climate risk. But I do continue to get drawn back into the offsets issue just because I have been around it for so long. But I personally really do despair that will ever use offsets in the way that we could as a climate change mitigation tool. It's just too easy to do it wrong, and we just keep seeing that repeatedly. Mark, thanks for coming on the show. Thank you very much. I've been writing about carbon offsets for a few years now and I still haven't plumbed all

the depths or grasped all the complications. However, talking to Mark has allowed for probably the clearest understanding of where things stand today. If you want to read more about the dodgy world of offsets and how big brand names continue to fall for them, check out a three part investigation that Bloombergreen published recently. You can find it at bloomberg dot com, slash green, or in the show notes.

I want to recommend the podcast A Matter of Degrees, Doctor Catherine Wilkinson and doctor Leah Stokes talk about the forces behind climate change and the tools we have to fix it. They just put out a bunch of episodes about what individuals can do. I recommend part to the Professional, where you can follow along as an oil worker tries to change jobs and go green. Thanks so much for listening to Zero. If you like the show, please rate, review and subscribe, Tell a friend or tell a cabin

trade expert. If you've got a suggestion for a guest or topic, or something you just want us to look into. Get in touch at zero pod at Bloomberg dot Net. Zero's producer is Oscar Boyd and senior producer is Christine riskoll Our. Theme music is composed by Wondering. Many people help make the stories we featured on the podcast special. Thanks to Natasha White and Demetrius Podcasts for their interminable attention to detail. I'm Akshatti back next week.