Carbon offsets are about to become a lot less attractive to companies

For companies, a decision about whether to buy carbon offset credits mostly comes down to a simple calculation: Is it cheaper to pay for forest conservation, renewable energy, or carbon removal outside the company, or take steps to reduce its own carbon footprint directly?

Today, with low-cost clean-energy options still relatively sparse, and most corporate carbon footprints tied up in complex global supply chains, many companies are leaning toward the former, and see offsets as the most cost-effective way to reduce their emissions in the short term. Global offset trade grew nearly 30% from 2020 to 2021, and is poised to surge further after diplomats at the COP26 summit agreed on long-overdue rules for a centralized global offset market.

But the offset market is rife with shoddy accounting and greenwashing, and may just help airlines, oil companies, and other major purchasers appear to make progress on climate without much actual change to their business. That strategy may not be tenable for much longer, according to a Jan. 10 forecast of carbon offset prices from BloombergNEF.