M-RCBG Associate Working Paper No. 120

California Compliance Offsets: Problematic Protocols and Buyer Behavior

2019 Dunlop Thesis Prize Winner

Jack B. Smith



Carbon offsetting is a ubiquitous feature of emissions mitigation strategies that reduces the cost of compliance with mandatory greenhouse gas regulation and enables unregulated firms to meet voluntary emissions goals. Worldwide, compliance and voluntary offset markets have generated more than three billion offsets, which, in theory, each represent one metric ton of CO2 -equivalent emissions that have been prevented, sequestered, or otherwise mitigated outside of a regulatory regime. 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. California's compliance offset market, given its size, transparency, and recent establishment, presents a perfect opportunity to study the extent to which current carbon offset policy can produce legitimate offsets. This thesis analyzes four compliance offset protocols that have supplied more than 145 million offsets to the California Compliance Market and finds that all four have the potential to generate illegitimate offsets, compromising the integrity of California's cap on greenhouse gas emissions. The current US Forest Projects Protocol is both the most productive and most problematic; so far, it has produced more than 115.6 million illegitimate offsets, 79% of California's total compliance offset supply. To reduce the risk of protocols generating illegitimate offsets in California and other markets, this thesis will suggest improvements to additionality tests and emissions quantification that can be added to current and future offset protocols. It will also suggest alternatives to offset reduction goals. Last, this thesis will argue that even if offset protocols guarantee legitimate offset production, achieving carbon neutrality via voluntary carbon offsetting hinders progress toward a zero-emissions future.

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