Timeline: The 60-year history of carbon offsets

By Aruna Chandrasekhar

Design by Joe Goodman

carbon offset asset

Carbon offsets have made headlines in recent years – often for the wrong reasons.

From investigations into “phantom credits” and “crypto” offset schemes through to late-night comedians running lengthy segments, journalists and researchers have revealed a range of issues that can arise through attempts to “cancel out” emissions.

But the chequered history of carbon offsets – and the ideas, experiments and policies that informed them – is much longer, spanning more than six decades.

Emissions-offsetting took root in US environmental law in the 1970s, particularly amendments to the Clean Air Act. Early experiments with trading offsets of lead, sulphur dioxide and nitrous oxide in the US laid the groundwork for market-based environmental regulation worldwide.

Such mechanisms found support from a chorus of voices, including fossil-fuel companies and conservative politicians from the UK to Australia, who favoured “efficiency” and markets over “command-and-control” environmental regulation.

Many large NGOs, such as the Environmental Defense Fund and Nature Conservancy, also argued for emissions trading over a carbon tax, even partnering with corporations to reduce their emissions.

Below, Carbon Brief’s timeline of carbon-offsetting traces the origins, ideas, arguments, milestones and controversies, from the 1960s through to today.

Offset origins

According to Dr Mark Trexler, who the World Resources Institute hired to oversee the first land-based carbon-offset scheme in 1988, the first batch of offsets projects was “purely a philanthropic exercise”.

He tells Carbon Brief they were designed more as a way of “getting companies and electric utilities to think about carbon dioxide (CO2) for the first time, to make some commitments, even if they were based on using offsets”. Trexler adds:

“No one ever thought that carbon offsets were going to save the world. That just wasn’t the way we were thinking about this. We were thinking: this is an interim measure until public policy gets going. It was a way of getting the conversation started. No one then thought that we would be doing offsets 35 years later.”

By the time the negotiations began around the Kyoto Protocol – the first UN agreement for developed countries to cut emissions – carbon offsets were “critical to [its] politics”, Trexler says, especially for getting buy-in from the US. Eventually, the US signed but did not ratify the protocol.

To meet their binding Kyoto emissions targets, other countries and states began experimenting with emissions trading schemes (ETSs) and carbon offsets. Among them were systems in the UK, Australia’s New South Wales, the Chicago Climate Exchange and, most notably, the EU ETS in 2005.

Meanwhile, increased scrutiny of offsets raised concerns in terms of whether offsets were actually resulting in real, verifiable emissions reductions.

However, even after Kyoto carbon markets unravelled in 2012, carbon offsets took off in the largely unregulated voluntary market, with carbon markets making their way into Article 6 of the Paris Agreement.

To Trexler and other observers who “have been debating exactly the same topics in the same way for 20 years”, he says it seems that policymakers “haven’t learned the lessons” of the collapse of Kyoto markets.

The timeline below charts where progress has – or has not – been made over this period.

Cover of The Social Cost of Carbon by R H Coase

1960: Ronald H Coase publishes his seminal paper, "The Problem of Social Cost", which assigns property rights to pollution and argues that "arbitrage" between actors in a market with low transaction costs can result in efficient environmental solutions. Thirty years later, Coase rued that his work had been widely misunderstood, stating that “its influence on economic analysis has been less beneficial than I had hoped”.

Front cover of “The Problem of Social Cost” in the Journal of Law and Economics. Credit: Journal of Law and Economics
Stock certificate 1975

1975: Facing backlash from industry and economists for its “command and control” clean-air regulations during oil-price shocks, the US Environmental Protection Agency (EPA) investigates the option of sulphur dioxide and nitrogen oxide emissions offsets for oil, gas and steel industries, in response to many states being unable to meet the deadline for national air quality standards. It introduces an emissions trading system in 1977 that allows emissions from new sources to be offset by reductions from existing sources and later allowed for states to bank “excess” emissions reductions.

The amendments, according to EPA administrator Douglas M Costle, “will permit expanded use of coal while maintaining protection of the public health…and provide an acceptable schedule for continued future reduction in emissions from automobiles”.

An illustration in the vignette of a historical stock certificate of the Belco Petroleum Corporation, with a young woman holding a globe in front of oil rigs and a refinery, Delaware, USA. Image: history_docu_photo / Alamy Stock Photo
Physicist Freeman Dyson

1977: Physicist Freeman Dyson publishes, "Can We Control the Carbon Dioxide in the Atmosphere" in the journal Energy, suggesting “it should be possible in the case of a world-wide emergency” to plant enough trees and fast-growing plants to halt annual increase in emissions. He suggests this as a stopgap and not a permanent solution. (Dyson later became notorious for falsely claiming that human-caused global warming was, “on the whole, good”.)

Physicist Freeman Dyson, today viewed by many as a climate sceptic, was among the first to suggest planting trees as a solution to absorb CO2 emissions in the case of an “acute ecological disaster”. Image: Wikimedia Commons
Time magazine leaded gasoline advert 1936

1982-1988: US EPA rolls out lead credits. These trading and banking programmes aim to ease the transition for refineries as part of its leaded gasoline phasedown that began in 1973, even though the oil and automotive industry knew of lead’s toxicity half a century earlier. If a refiner produces gasoline with a lower total lead content than is allowed, it can earn lead credits that it is then allowed to sell. Lead credits are discontinued in 1988 and the US lead phaseout ends in 1996.

An advertisement for leaded gasoline in Time Magazine in 1936. Image: Patti McConville / Alamy Stock Photo)
Satellite map shows ozone above Antarctic in 1983

1987: The Montreal Protocol allows for limited emissions trading. The US, Europe, Canada, New Zealand and Singapore set up markets in tradeable permits and production quotas for chlorofluorocarbons (CFCs) and other ozone-depleting substances.

A satellite map shows the total ozone above the Antarctic region in 1983. Image: NASA/Wikimedia Commons
Photo of deforestation in Guatemala

1988: Applied Energy Services approaches World Resources Institute (WRI) for advice on how to mitigate the climate impacts of its coal plants. WRI recommends that AES should fund an agroforestry project to plant 52m trees, slow local deforestation in Guatemala and offset the emissions of its first coal plant in Thames, Connecticut. This is the first-ever land-based carbon-offset project.

Deforestation in Guatemala. Credit: Phanie / Alamy Stock Photo
Project 88 advocates for emission trading in the US, 1988

1988: Economist Robert Stavins launches Project 88 with two US senators to advocate for emissions-trading and other market-based mechanisms to environmental problems, including climate change. The influential political advocacy project starts as a series of meetings and a report. It advances policies that “deliver improved environmental quality at reasonable cost and which are consistent with American traditions favouring voluntarism over government coercion”.

Contents from Project 88. Image: Harvard University
Professor David Pearce, author of Blue for a Green economy

1989: David Pearce, Anil Markandya and Edward Barbier publish a report called "Blue for a Green Economy". Prepared for the UK’s Department of the Environment (DoE), it suggests how different forms of pollution can be costed and how governments can construct taxation systems and market instruments to fund the cleanup of environmental damage. The report serves as a launchpad for an influential white paper that is considered the Conservative party’s first serious engagement with a green agenda.

Prof David Pearce, director of the London Environmental Economics Centre, a collaboration between UCL and the International Institute for Environment and Development (IIED). Image: Neil Turner / Alamy Stock Photo
Senators confer over amendment to the Clean Air Act in Washington

1990: Spurred by the work of Project 88, the US EPA under the Bush administration legislates amendments to its Clean Air Act that allow for emissions-trading of sulphur dioxide (SO2). Implemented in phases, it places a national cap on emissions and allocates “allowances” to industries to emit (in tonnes of SO2), based on their actual fuel use between 1985-87. The “successful” SO2 market becomes the basis for the US bid for the inclusion of emissions-trading in the Kyoto Protocol.

Senators conferring over amendments to the Clean Air Act assemble in Washington DC. Image: mark reinstein / Alamy Stock Photo
Greenhouse Gas Emission Offsets by Sheryl Sturges

1993: In an article titled, “Greenhouse gas emission offsets: a global warming insurance policy”, Sheryl Sturges of US utility and power company AES sums up the company’s foray into forest offsets by suggesting that CO2 emission offsets could be “one way to preserve coal and gas as fuel options while mitigating any adverse global climate change effects they may have”.

Opening of “Greenhouse gas emission offsets: a global warming insurance policy” in The Electricity Journal. Source: The Electricity Journal (1993)
Angela Merkel at COP1 Berlin

1995: In Berlin, the UNFCCC’s first Conference of Parties (COP1) launches a pilot phase of “activities implemented jointly” (AIJ), allowing countries to voluntarily implement reduction or removal projects in other countries, but without accruing credits. Avoided deforestation is hotly discussed, but is, ultimately, left off the table for financing. This drives projects to the voluntary market.

Angela Merkel, then Germany’s federal environment minister, at COP1 in Berlin. Image: Sueddeutsche Zeitung Photo / Alamy Stock Photo
Official celebrate the adoption of the Kyoto Protocol at COP3

1997: The Kyoto Protocol introduces three different “flexible mechanisms” for nations to engage in carbon-trading. These are: emissions-trading between countries with binding targets; the Clean Development Mechanism (CDM), where developed countries can buy credits from projects in developing countries; and Joint Implementation (JI), where developed countries can get credits from projects carried out in other developed countries.

At COP3, officials celebrate after the Kyoto Protocol is adopted. Image: Newscom / Alamy Stock Photo
Environmental Defense Fund newsletter hails BP's new emissions trading scheme

1997: Environmental Defense Fund partners with oil major BP to help operate its in-house emissions trading scheme. The next year, BP pledges to reduce its emissions 10% below 1990 levels by 2010, a move EDF calls a “magnificent example of a corporation acting responsibly” and a commitment “going beyond what the Kyoto Protocol would require”.

A clipping from the Environmental Defense Fund’s newsletter in November 1998 hailing BP’s new climate commitment. Source: EDF (1998)
International Emissions Trading Association logo

1999: A group of companies and business associations – including Transalta, BP, Rio Tinto, Mitsubishi, KPMG, Norsk Hydro and the Emissions Trading Association of Australia – form the Internatinal Emissions Trading Association (IETA), the first “purely business” group dedicated to pricing and trading greenhouse gas reductions. One year later, the group publishes the first voluntary carbon-market standards, to help companies looking to voluntarily offset their emissions and demonstrate corporate responsibility.

Source: IETA
UK prime minister Tony Blair on a flight to Sedgefield, 2002

2002: To meet the EU’s Kyoto commitments and national targets, the UK becomes the first government to introduce an economy-wide emissions trading scheme with a five-year lifespan. Individual firms are required to commit to a specific level of emissions cuts in 2006, in exchange for a subsidy per tonne of emissions below that level.

UK prime minister Tony Blair on a flight to Sedgefield being interviewed by the Independent in April 2002. Image: Independent / Alamy Stock Photo
Price of CO2 in EU emissions trading scheme

2003: EU member states agree to an ambitious EU ETS to help achieve the EU-wide emissions reduction target under the Kyoto Protocol, “with the least possible diminution of economic development and employment”. In its early phases, the scheme puts a cap only on the EU’s CO2 emissions from fixed industrial installations, leaving out other greenhouse gases and sectors. These early phases lacked reliable baseline data, encouraging emitters to inflate their emissions and profit from CO2 allowances. Carbon prices, however, remained lower than levels believed to effectively reduce emissions.

Price of CO2 in the EU Emissions Trading System. Image: Wikimedia Commons
Photo of officials at COP11 in Montreal

2005: The discussion on reducing emissions from deforestation (REDD) begins at COP11 in Montreal, under a proposal put forward by Papua New Guinea and Costa Rica.

COP11 in Montreal, Canada. Image: IISD/ ENB-Leila Mead
Plane Stupid campaigners protest carbon offsetting in Oxford

2007: In the first-ever widely publicised protests against carbon-offsetting, Plane Stupid campaigners hand over a parcel of herring – to symbolise a red herring – to senior staff at the offset company Climate Care in Oxford, UK. Protestor liken offsetting to “being a member of the RSPCA then going home and kicking a dog”. The incident marks one of the first specific protests against offsetting.

Plane Stupid campaigners protest against carbon offsetting outside the office of Climate Care in Oxford, UK. Image: G.P.Essex / Alamy Stock Photo
Credit crunch protest outside Bank of England, 2008

2008: The value of global carbon markets soar 84% to $118bn amid a global financial crisis, with the EU’s allowances accounting for 80% and CDM credits 13% of the value. The "carbon rush" in Kyoto’s first commitment period means that offset markets begin to see more scrutiny.

A “credit crunch” protest outside the Bank of England on Threadneedle Street in London. Image: Homer Sykes / Alamy Stock Photo
Coal wagons on their way to Adani’s Mundra power plant in the state of Gujarat in India

2012: Markets go into “carbon panic” mode as CDM credit prices drop to less than $3 per tonne of CO2 in response to oversupply. This is largely due to the EU stopping the purchase and use of indsutrial gas credits and Japan deciding against buying credits, in the aftermath of the Fukushima disaster. Trade in CDM credits collapses just five years after the mechanism’s launch, while developed countries face criticism for “hot-air laundering” credits generated in other developed countries.

Coal wagons on their way to Adani’s Mundra power plant in the state of Gujarat in India. In September 2012, Adani claims Munda is the world’s first coal-fired plant to receive carbon credits under the CDM. Image: Dinodia Photos / Alamy Stock Photo
French president Francois Hollande, COP21 president Laurent Fabius, UN secretary-general Ban-Ki-Moon and UN Climate Change’s Christiana Figueres celebrate the adoption of the Paris Agreement, 2015

2015: The Paris Agreement, reached by nations at the COP21 climate summit, contains Article 6, which covers “voluntary cooperation” to help countries meet their climate goals. This includes two “market-based” approaches that set the stage for two new avenues by which all countries can trade offsets with each other.

The French president Francois Hollande, COP21 president Laurent Fabius, UN secretary-general Ban-Ki-Moon and UN Climate Change’s Christiana Figueres celebrate the adoption of the Paris Agreement. Image: Imago / Alamy Stock Photo
Protests in Australia against prime minister Scott Bryan's inaction on climate change

2020: After years of pressure, Australia’s prime minister Scott Morrison agrees to abandon a long-standing plan to use “carryover” credits from the Kyoto Protocol to meet the country’s Paris Agreement targets.

Protesters hold signs protesting Australian government inaction during a rally for climate change action. Credit: Marlon Trottmann / Alamy Stock Photo
Anti-carbon market protesters at COP26, Glasgow

2021: A year after the Paris Agreement regime officially begins, negotiations over its “rulebook” come to a close in Glasgow. Regulations around Article 6 carbon markets that could “make or break” the deal had been a key sticking point. Countries close off “double-counting”, which would allow more than one entity to count offsets towards their emissions reductions, but agree to controversial carryover Kyoto credits generated since 2013. They also signal an independent grievance mechanism for disputes around carbon-offsetting projects, a key ask from Indigenous groups.

Anti-carbon market protesters at COP26, Glasgow. Image: dpa picture alliance / Alamy Stock Photo
atherine McKenna, Canada’s former climate minister and chair of the UN secretary-general’s High-level Expert Group on Net-Zero Commitments

2022: A report by the UN high-level group on the net-zero commitments of non-state actors calls for “zero tolerance for net-zero greenwashing”. It warns companies against buying cheap, low-integrity credits instead of making immediate emissions cuts, while asking the voluntary carbon market to respect human rights and consult affected Indigenous and local communities “responsible for the stewardship of…ecosystems used for offsetting projects”.

Catherine McKenna, Canada’s former climate minister and chair of the UN secretary-general’s High-level Expert Group on Net-Zero Commitments. Credit: Dominika Zarzycka / Alamy Stock Photo


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