A crypto company is the world’s largest buyer of carbon offsets — Quartz

Cryptocurrency platforms, airlines, automakers and oil companies were the biggest buyers of carbon offset credits in 2021, according to a new Bloomberg analysis of data from Verra, the largest offset brokerage. Far topping the list was the Toucan Protocol, a crypto trading platform that captured carbon offsets worth 17 million tons of carbon dioxide.

Carbon offsets apparently allow the buyer to claim a reduction in their carbon footprint, since the money goes to support a project – usually renewable energy systems or forest conservation – that keeps new greenhouse gas emissions out of the atmosphere. In theory, carbon offsets should be a way for high-carbon companies that cannot cut emissions directly at a reasonable cost to finance carbon cuts elsewhere, effectively reducing net emissions. But in practice, many offsets are based on questionable assumptions and calculations that give a veneer of climate progress without actually reducing emissions.

Toucan’s goal was not to offset its own corporate emissions, but to turn the offsets into digital tokens that customers could trade on the platform, creating another commodity with a seemingly green core. Indeed, Bloomberg found that most corporate offset purchases were made with customers in mind, to provide specific products—from seats on a flight to shipments of natural gas—that could be resold as “carbon neutral.” (Data on offset trading is limited to what buyers and sellers voluntarily disclose, so the Bloomberg analysis covers only about half of the total global market).

Crypto’s time at the top of this list is probably over, at least for now. In May, Verra said it would ban the “tokenization” of displacements because it created what a Verra executive called a “mind frying” level of abstraction and distance between an intangible financial instrument and the physical emissions it is meant to represent. Still, both Toucan and Verra continue to tinker with ways to more credibly link carbon offsets to cryptocurrency technology.

The biggest problems with carbon offsets

Even starting crypto companies from the offset market would not fix other stuck problems. The biggest is the concept of “additionality”: If not for the sale of an offset credit, might, for example, a forest block have been cut down, or a solar farm never built? If the forest was never at risk, or the solar farm was economically viable anyway, the counter-buyer is effectively subsidizing an activity that would have happened anyway, and therefore exerts no real downward pressure on global net emissions. (An offset derived from a carbon removal facility, on the other hand, has a stronger, more easily quantifiable chain of cause-and-effect. It is therefore “additional.”) Additionality is notoriously difficult to prove, but it is particularly problematic for clean energy and “ avoided deforestation’ projects – which together were the source of 90% of the offsets purchased in 2021.

Another problem is that most offsets are old: 60% of offsets purchased in 2021 were originally created in 2015 or earlier, Bloomberg found, when the rules for how offsets are calculated were even more lax. This means that a buyer deletes from their current balance sheet tons of emissions that were avoided years ago and may never have been extra to begin with. Only 0.2% of the offsets sold in 2021 were created in that year.

The last problem is geographical. The vast majority of offsets come from projects in Asia, Latin America and Africa, and are sold to buyers in Europe and the US. These transactions create an accounting problem. If company X in the US buys 100 tons of emissions from a forest project in Vietnam and subtracts them from its carbon footprint, that number eventually feeds into economy-wide estimates of US emissions, which appear to be shrinking. But there is nothing to prevent the project developers in Vietnam from counting the same 100 tonnes against that the country’s carbon footprint. So on paper, global emissions appear to have dropped by 200 tonnes.

Climate negotiators at last year’s COP26 in Glasgow agreed in principle on rules to deal with most of these issues, and last week published a first draft of “core carbon principles” that an offset must meet to achieve an international stamp of quality. These rules are open for public comment until September 27.

But even after they are adopted, they will be guidelines, not legally binding, meaning the carbon offset market is likely to remain awash in junk for the foreseeable future. And as more companies face pressure from their customers and authorities to show progress in the climate area, the offset market is growing rapidly. Bloomberg predicts its total value could reach $190 billion by 2030 — up from just $1 billion today.