The traditional carbon offset market is well-intentioned but far from perfect. Many carbon offset projects overstate their benefits, don’t deliver the promised results, and lack transparency. At best, cheap carbon offsets are a waste of money. At worst, they divert well-needed funds from legitimate projects and undermine real efforts at climate change mitigation. Here’s a closer look at the danger of cheap carbon offsets and what the true cost of CO2 really is.
- Buyer Beware of Cheap Carbon Offsets
- Does TMA “Sell” Carbon credits?
- The True Cost of 1 Ton of CO2
- Price of Carbon in TMA’s Community Reforestation Program
Buyer Beware of Cheap Carbon Offsets
Bargain shopping may make sense for things like socks or pencils. But when it comes to projects aimed at restoring the biosphere, this is not advisable. From what we’ve seen across the industry and learned from our work on the ground, a carbon offset project that is priced in the range of $5-10 per ton of CO2 should be viewed with a healthy dose of skepticism.
Effectively implementing a project that achieves a net carbon benefit—especially if it involves reforestation—requires the coordination of many people and activities, not to mention material costs. And then comes the costs of monitoring and verification. Even in a developing country with a relatively lower cost of living, it’s difficult to believe that a project could truly be implemented at $5-10 per ton of CO2.
What’s more likely is that many carbon projects end up quoting prices based on what they believe buyers are willing to pay. Even if you’re in the business of selling socks, your business will ultimately fail if you charge $5 for a pair of socks that actually cost $10 to produce.
So how do these carbon offset projects pull it off? One possibility is that they use carbon offset money to cover part of the expenses, and then they cover the rest of the expenses through other means. In this case, the price they charge does not reflect the true price of their service. This has the effect of depressing market prices. That’s nice for the consumer…except when you consider that, in this case, the “product” is our biosphere.
The second category of cheap carbon offsets are projects that truly are limited to funding from the carbon offset market. Because the market price is below the true cost of their service, they simply cannot perform this service. They are forced to cut corners and inevitably fall short of expectations.
A third possibility is that some projects have somehow discovered an extremely cost-effective way to achieve real carbon benefits. If such a project exists, we’d love to learn more about it.
Does TMA “Sell” Carbon Credits?
TMA does not “sell” carbon credits. Instead, we use the “direct sponsorship” model of carbon offsets. Individuals, businesses, and other institutions directly sponsor a specific family (or families) to reforest specific parcels of land. We monitor and verify every single reforestation parcel using a combination of site visits, digital monitoring technology, satellite imagery, and aerial photography from drones.
All of the above is shared directly with each sponsor. This way, sponsors can literally watch the forest grow over time. We also share parcel-by-parcel performance metrics and cost structure. Our commitment to sponsors is absolute transparency.
This unique approach is a response to what we believe to be flaws in the carbon offset market as it is known today. The standard model is beginning to lose credibility because many projects overstate their benefits, don’t deliver the promised results, and lack transparency. TMA’s Community Reforestation Program was carefully designed to overcome each of these three pitfalls.
Lastly, a general problem with the carbon offset market is the suspiciously low prices of most of the carbon credits that are offered. When it comes to bargain shopping for carbon offsets, our advice is this: buyer beware.
The True Cost of 1 Ton of CO2
In 2018, William D. Nordhaus of Yale University was awarded the Nobel Prize in Economic Sciences for his pioneering efforts to determine an optimal carbon price. Using a model requiring fewer than 20 main equations, he concluded that each ton of CO2 should be priced at $40.
Nicholas Stern, of the London School of Economics, published a massive report that calculated the true cost of carbon (also called the “social cost of carbon”) at $100 per ton. Other analyses have come up with carbon prices ranging from $200 to $400 or more per ton. Canada passed a law that sets a carbon tax of CAD $170 ($137) per ton by 2030. As of June of 2021, the price of carbon in Europe’s Emissions Trading System (ETS) reached $60 (€51).
The leading methodology for calculating the true cost of CO2 is what economists and policymakers call the social cost of carbon.
“The social cost of carbon (SCC) is an estimate, in dollars, of the economic damages that would result from emitting one additional ton of greenhouse gases into the atmosphere. The SCC puts the effects of climate change into economic terms to help policymakers and other decision-makers understand the economic impacts of decisions that would increase or decrease emissions.” –Resources for the Future (“Carbon 101”)
The social cost of carbon is currently used by local, state, and federal governments to inform billions of dollars of policy and investment decisions in the United States, Europe, and throughout the world. It is currently set at a price of $51 per ton of CO2 at a 3% discount rate and $76/ton at a 2.5% discount rate.
The Price of Carbon in TMA’s Community Reforestation Program
The total cost to effectively reforest one hectare of land in our Community Reforestation Program is $7,475, which equates to $3,025 per acre. Each hectare is projected to achieve a net carbon benefit of 192 tons of CO2 (78 tons/acre). This equates to a total cost of $39.15 per ton of CO2. That is the true cost of carbon in the context of this particular project.
To see how we calculate, monitor, and verify carbon sequestration, check out: How We Measure Carbon Sequestration Rates: A closer look at the technology, formulas, and numbers.
To learn more about how our Community Reforestation Program works, check out our 2-minute animated video below.