Part II: Where Carbon Offsets Originated and Why They Are More Important Now than Ever

June 7, 2021

Recent attacks on carbon offsets in both voluntary and compliance markets threaten to stymie evolving carbon markets twenty years into their existence—just as they are both gaining enough momentum to make meaningful greenhouse gas reductions. Net-zero goals by corporations and binding greenhouse gas reductions are being set by more than 197 nations worldwide under the Paris Agreement. Each of these commitments will need offsets in order to reach the deep reductions of 80% of 1990 levels necessary by 2050. Offsets, more than just a recent fad, are incredibly important to keeping the earth’s warming to only a 1.5 or 2-degree scenario. In this series (read part one here), we go back to the origins of why they were used in the first place and trace their trajectory forward.

Part Two: Positive List Additionality

The first compliance offset provisions under the Kyoto Protocol in the Clean Development Mechanism (CDM) resulted in the creation of hundreds of methodologies that quantify the reductions from projects outside of market boundaries that could be developed and used towards reductions in the market. One of the most important keys to a successful offset is determining the “additionality” of a project or proving that it is additional to a business-as-usual situation and requires the carbon revenue for its existence and therefore should count in the market as it replaces reductions made onsite by market participants.

The CDM assessed the additionality of projects on a one-by-one basis, requiring project developers to make a case as to why the project should be eligible. The review of these projects was time-consuming, racked up transaction costs, and was somewhat subjective based on each individual argument made. Therefore, voluntary markets that cater to the reduction needs of individuals and progressive evolved by adopting a “positive list” of additionality that simply defines certain projects as either qualifying or not based on the project type and the regulations in existence where the project is located.

This positive list approach greatly simplified project acceptance and allowed the voluntary markets to scale. Also, financial institutions gained experience with offsets as a revenue stream for projects and with the clearer designation of which projects would qualify, projects were able to incorporate offsets into their pro formas and rely on these revenues for the project’s existence.

Next time: We’ll talk about criticisms of additionality, specifically in forest carbon projects.

Read More From This Series

This article is contributed by

Lizzie Aldrich, PhD
As Vice President of Business Development, Lizzie identifies and acquires new clients in the Low Carbon Fuel Standard and renewable natural gas markets. She also leads the voluntary offset sales efforts where she identifies buyers, develops marketing materials, and negotiates sales agreements.

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