Do Carbon Offsets Offset Carbon?

This post is based on the API 165 Paper Debrief presentation, where my colleague Hannah Wang and I explored the pivotal question of whether carbon offsets genuinely contribute to emissions reductions. Carbon offsets are often viewed as a crucial solution to help entities meet greenhouse gas (GHG) reduction targets by compensating for emissions through investments in renewable projects. However, an in-depth analysis by Raphael Calel, Jonathan Colmer, Antoine Dechezleprêtre, and Matthieu Glachant in their study, Do Carbon Offsets Offset Carbon?, raises questions about the true environmental benefits of these offsets, particularly in the context of wind power projects funded under the Clean Development Mechanism (CDM) in India.
Research Question and Core Concern
​The primary question is whether carbon offsets, particularly those generated through CDM wind power projects, truly yield net emissions reductions. The study delves into whether these offsets promote environmental gains or merely support “Blatantly Inframarginal Projects” (BLIMPs) — projects that would have proceeded even without CDM subsidies.
Economic and Policy Context
Carbon markets like the CDM, established under the Kyoto Protocol, have enabled developed countries to achieve part of their emissions reduction targets by funding projects in developing nations. India, a significant beneficiary of CDM support, showcases the potential and pitfalls of such offsets, especially in the wind energy sector. By 2030, CDM is projected to generate approximately 10.65 billion carbon offsets, an amount nearly equivalent to the total emissions of the U.S. and Europe combined in 2019. Yet, the critical challenge remains ensuring that these offsets genuinely result in additional, permanent emissions reductions to support global climate goals effectively.
Methodology and Key Findings
The authors use a counterfactual analysis to distinguish between “marginal” projects — those genuinely dependent on CDM subsidies — and inframarginal ones that would have proceeded regardless. Key elements of the analysis include:

• Benchmarking Turbines: The Enercon E-53 turbine is used as a benchmark for capacity factor calculations, which enables standardized comparisons across projects.
• Connection Costs: A minimum spanning tree algorithm estimates distances from wind farms to electrical substations, which affects the cost of integrating the wind farm into the grid.

Findings from this counterfactual analysis reveal that at least 52% of CDM wind projects in India are classified as BLIMPs, indicating that these projects received subsidies without truly needing them. Furthermore, the CDM’s allocation of carbon offsets underperformed compared to a hypothetical lottery, which would have allocated fewer offsets to inframarginal projects. Consequently, this misallocation is likely to have increased global emissions by 28 million tonnes of CO₂ — roughly equivalent to the annual emissions from seven coal-powered plants.
Policy Implications and Recommendations
These findings highlight the need for policymakers to reassess and refine carbon offset programs to ensure that subsidies exclusively support projects that would not proceed otherwise. Upcoming updates in COP 29 to offset mechanisms, such as the operationalization of Article 6.4 of the Paris Agreement, present a valuable opportunity to integrate stricter additionality checks, improve transparency, and incorporate more sophisticated methods for offset allocation. Future innovations could include satellite-based monitoring and blockchain technology for transaction verification, improving accuracy and accountability.
Conclusion: Toward Genuine Climate Mitigation
This analysis highlights an essential insight for the future of carbon markets: true climate action demands mechanisms that precisely allocate resources where they are most needed. Ensuring carbon offsets lead to real reductions is vital in avoiding a counterproductive outcome where well-intended climate policies inadvertently allow emissions to rise.
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References

1. Calel, R., Colmer, J., Dechezleprêtre, A., & Glachant, M. Do Carbon Offsets Offset Carbon?
2. API 165 Paper Debrief Presentation by Hannah Wang & Noura Mansouri.
3. Aldy, J. E., & Halem, Z. M. The Evolving Role of Greenhouse Gas Emission Offsets in Combating Climate Change.
4. UN Framework Convention on Climate Change (UNFCCC) CDM Database.
5. Bloomberg New Energy Finance (BNEF) for wind project data.
6. OpenAI ChatGPT, assistance in generating post structure and content synthesis.