How To Refine California's Carbon Offset Bill

By Chris Yoko

Two major carbon offset projects that were supported by California businesses, including Salesforce and Patch Technologies, were accused recently of participating in a timber laundering scheme in Brazil — a fraud that undermines the integrity of the carbon offset industry as a whole.

It’s the project proponents that sell these fraudulent offsets that a bill being debated in California's legislature would crack down on, applying the state’s false advertising standards to the wild west market of carbon offsets.

The idea of carbon offsets has drawn scorn and scrutiny over the last few years, as investigations by the media have uncovered misleading reporting and significant mismanagement of the offset market. Several of the carbon credits that companies and individuals purchased over the years were found to be scams — funding already existing projects, or selling the same offsets multiple times over. 

In the best case scenarios, these offsets had a net-zero impact. In the worst cases, they made the climate crisis worse. 

It’s a tragedy for the carbon offset market, and the environmental community at large; bad actors operating in an unregulated environment were able to take advantage of a system for financial gain. It’s an age-old story, but one that still leaves a bad taste in the mouth, like a bad run-in with a dishonest building contractor. It doesn’t mean all builders are bad — but it will be hard to convince you otherwise for quite some time. 

California’s latest legal action is an attempt to bring some of these offset companies back into regulated territory, holding them accountable for anything the state deems false advertising under California’s existing legal parameters. 

California’s proposed law is far from an ideal solution. It rightly goes after parties making money off of a corporation’s desire to do better for the planet, but it still leaves too much unstated. The new bill doesn’t stipulate what form carbon offsets should take, or give guidance as to what level of scrutiny companies should use to evaluate their offset providers.

That the federal government has been slow to address regulation around carbon offsets is no surprise. The SEC has said they would like to begin tracking organizations’ offsets but, with no clear legislative direction, federal agencies have danced around the offset issue. That, in turn, has created a landscape that depends on the case-by-case due diligence of the marketplaces and businesses buying the offsets. 

Currently the carbon offset exchange markets are dominated by two major players: Verra and Gold Standard. Luckily, both of these groups take the issue of offset diligence seriously, adopting comprehensive standards to determine the viability and ultimate effect of a given project. 

The hope for many of us in the carbon exchange community is that the standards that Verra and Gold Standard have set could be the ones that we eventually see the federal government adopt. 

This process mirrors one aspect of how disabled access standards were created for the internet; the FTC initially tried and failed to establish accessibility standards, so the World Wide Web Consortium created the Web Content Accessibility Guidelines (WCAG). Eventually, the federal government, via the ADA, adopted those same standards for the regulatory framework. 

A similar process could happen in the carbon exchange world as well — with governments, formally or informally, adopting the standards created by private groups. 

Of course, the danger is in what happens when some bad actors still get through. The CEO of Verra stepped down last year as the organization was facing scrutiny over the legitimacy of a large percentage of their rainforest carbon offset projects and chosen methodologies.

As someone who runs a company that purchases offsets, I can say first-hand that it’s not always easy to determine which offsets are completely substantive and which projects are bunk. A lot of the offsets these credits support are run on the other side of the world from the companies buying them, and require experience and judgment to know when they’re not what they seem. 

Critics of the bill in California argue that increased regulation of the exchange market could have a chilling effect on the offset market at large; the cost of the offsets will escalate if a more thorough screening process knocks junk projects out. Companies who may already be skeptical users of offsets will be required to put more money down in order to counteract their footprint.  

That said, something’s got to give. Just like we pay to get our junk hauled away, we’re paying these carbon exchanges to provide a similar service. You’d be upset to find out that the junk hauling company had merely picked up your trash and dumped it in your backyard. Carbon should be no different. 

More regulation is certainly coming  — California is only the start. The EU just introduced their own preliminary standards and, as governments push to track the emissions of companies, ensuring that offsetting work is done correctly will be all the more important. 

If California’s bill passes, it will be the next step in bringing much needed regulation to the wild west of carbon exchanges. Carbon costs are a future inevitability. Tomorrow’s regulations will be shaped by the standards and bills introduced today.

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Chris Yoko is the founder of Carbon Off, a carbon offsets marketplace for employers.

Image via shutterstock

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.