Idea In Brief

The Problem

Markets for carbon trading function poorly, and many traded offsets do not actually perform as promised.

Why It Happens

Without robust protocols for monitoring offsets and in the absence of proper accounting mechanisms, market-based approaches to reducing atmospheric GHG will be vulnerable to misrepresentation and fraud.

The Solution

This article presents an accurate and auditable accounting framework based on five accounting principles. The first two define what can and cannot be counted as an offset and what may or may not be traded. The remaining principles set out basic accounting guidelines for offsets.

Three sources account for the great majority of human-created greenhouse gas (GHG) emissions: burning fossil fuels for energy, industrial chemical processes unrelated to energy production, and agriculture. Even with advances in “clean” energy technologies, the world remains heavily dependent on fossil fuels, and we do not have a realistic path to sustaining society without using current agricultural or industrial chemical processes, which together account for over 25% of GHG emissions today. Any plausible strategy for addressing climate change must, therefore, include removing GHG emissions from the atmosphere.
A version of this article appeared in the July–August 2023 issue of Harvard Business Review.
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