There are also “voluntary” carbon offset programs, where purchasers do  not face legal requirements to limit emissions but may buy offsets for  various reasons. Key Offset Quality Challenges

Experts and stakeholders identified five key challenges to assessing the  quality of offsets in existing programs. Fifth,  the types of projects that are the most difficult to assess—forestry,  international, and certain agriculture projects—may make up the majority  of offsets in a future U.S. program, posing challenges for policymakers  designing an offset program. Additionality Is the Primary Challenge

According to many of the experts and stakeholders we interviewed, the  primary challenge to assessing offset quality is determining whether offsets  generate “additional” emissions reductions—reductions that would not have  occurred without the incentives provided by the offset program. Measuring Emissions Can Be Challenging for Agricultural Soil, Forestry, and Other Types of Offset Projects

As we have previously reported, it can be difficult to accurately measure  emissions from some types of offset projects, particularly soil and forestry  projects. Carbon Stored in Soils and Forests May Not Be Permanent

As we have previously reported, projects that store, or “sequester,” carbon  carry the risk that the stored carbon will be re-released into the  atmosphere, known as a reversal. According to  our review of literature, verification may be challenging because sellers of  carbon offsets may have little incentive to report information accurately to  program administrators, and buyers may have little incentive to investigate  the quality of offsets. For example, some verifiers reported  that it is sometimes difficult to verify whether project developers have  legal ownership of land used in a project. Several Options Could Address Key Offset Quality Challenges, but Most Involve Trade-offs

According to our review of the literature and interviews with experts,  policymakers have several options to choose from in addressing  challenges with offset quality, but many of these options could increase  the cost of offsets and may involve other trade-offs. Nonetheless,  addressing these challenges may be valuable since offsets, in principle,  could substantially lower the cost of a program to limit greenhouse gases  relative to the cost of a program without offsets. 2. Some  experts and stakeholders suggested that a standardized approach may  reduce administrative costs overall but may also involve higher up- front investments than a project-by-project approach. 3. One expert, for  example, suggested that temporary credits would create ongoing  compliance liabilities that offset buyers would be unwilling to carry. Programwide buffer pools. Some  experts and stakeholders stressed the need for rigorous oversight to  ensure verifications are effective and meet specified goals. Limiting the Quantity of Offsets Allowed

According to our review of the literature, one way to mitigate the negative  impacts of non-additional offsets, leakage, and other quality problems is to  simply limit the use of offsets in a cap-and-trade program or other program  to limit emissions. As a result, such limits could  mean that regulated entities could use offsets for all of their required  emissions reductions, assuming a sufficient supply of offsets was  available. Second, some types of  offsets that present quality assurance challenges—such as those in the  forestry sector—also present large opportunities for emissions reductions. Challenges in quantifying offsets range from  assessing additionality and setting emissions baselines to measuring and  verifying emissions reductions. While ideally an offset program would  have measures to address these issues, our previous work suggests that  even a rigorous approval process can still allow a substantial number of  offsets that do not meet quality criteria. An offset program could seek to  compensate for this by estimating the percentage of offsets that do not  meet quality standards in the program overall and then discounting all  offsets by that percentage. For example, some proposals suggest applying a greater discount to  forestry or international projects. Align incentives with goals. Promote transparency. Appendix I: Scope and Methodology

This report examines (1) the key challenges in assessing the quality of  different types of offset projects, and (2) options for addressing key  challenges associated with offset quality if the United States adopted a  program to limit greenhouse gas emissions. Stakeholders we interviewed  included (1) program officials, (2) verifiers, and (3) offset project  developers.
Why GAO Did This Study

Carbon offsets are reductions in greenhouse gas emissions in one place to compensate for emissions elsewhere. Examples of offset projects include planting trees, developing renewable energy sources, or capturing emissions from landfills. Recent congressional proposals would have limited emissions from utilities, industries, or other "regulated entities," and allowed these entities to buy offsets. Research suggests that offsets can significantly lower the cost of a program to limit emissions because buying offsets may cost regulated entities less than making the reductions themselves. Some existing international and U.S. regional programs allow offsets to be used for compliance with emissions limits. A number of voluntary offset programs also exist, where buyers do not face legal requirements but may buy offsets for other reasons. Prior GAO work found that it can be difficult to ensure offset quality--that offsets achieve intended reductions. One quality criterion is that reductions must be "additional" to what would have occurred without the offset program. This report provides information on (1) key challenges in assessing the quality of different types of offsets and (2) options for addressing key challenges associated with offset quality if the U.S. adopted a program to limit emissions. GAO reviewed relevant literature and interviewed selected experts and such stakeholders as project developers, verifiers, and program officials. This report contains no recommendations.

What GAO Found

According to experts, stakeholders, and available information, key challenges in assessing the quality of offset projects include the following: (1) Additionality. According to many experts and stakeholders GAO interviewed, additionality is the primary challenge to offset quality. Assessing additionality is difficult because it involves determining what emissions would have been without the incentives provided by the offset program. Studies suggest that existing programs have awarded offsets that were not additional. (2) Measuring and managing soil and forestry offsets. For projects that store carbon in soils and forests, it is challenging to estimate the amount of carbon stored and to manage the risk that carbon may later be released by, for example, fires or changes in land management. Some studies have estimated that projects involving soils and forestry could constitute the majority of offsets under a U.S. program. (3) Verification. Experts and stakeholders said that verifying offsets in existing markets has presented several challenges. In particular, project developers and offset buyers may have few incentives to report information accurately or to investigate offset quality. According to experts, stakeholders, and available information, policymakers have several options to choose from in addressing challenges with offset quality. These approaches often involve fundamental trade-offs, such as increasing the cost of offsets. Nevertheless, some research indicates that including offsets in a program to limit emissions could provide substantial cost savings that would not be provided by a program without offsets. (1) Additionality. One way to assess additionality is project-by-project approval, a lengthy process that considers the individual circumstances of each project. Another approach is to group projects into categories and apply a standard to the entire group--for example, award offsets to all electricity generators with emissions below a certain level. While such standards may be less subjective and less costly to administer, they may also require a considerable up-front investment to collect data for various project types. (2) Measuring and managing soil and forestry offsets. To address these challenges a program could, for example, adjust the amount of offsets awarded based on measurement uncertainty, or establish a "buffer pool" of offsets to compensate for any re-released carbon. (3) Verification. To address this challenge, a program could, for example, hold verifiers liable for problems with offsets they have approved, contract with independent verifiers, and provide for rigorous oversight. Experts also identified options that could address multiple quality assurance challenges, such as limiting the quantity or type of offsets that can be used for compliance. However, limiting the supply of offsets could also raise their cost. Regardless of the program design, many experts said an offset program should clearly identify goals, align incentives with goals, promote transparency, and continuously evaluate progress.