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## A HISTORICAL PERSPECTIVE ON CARBON OFFSETS

The Creation of a Global Carbon Market, 1960s-2000s

By: Gustav Kruse History

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ABSTRACT: This  paper  examines  how  carbon  offsets  evolved  through  the  marketisation  of  the environment and became one of the primary policies for climate action. Carbon offsets allow firms and individuals to compensate for their emissions by buying reductions from other places, mainly the Global South. The paper argues that carbon offsets is a distinct form of environmental marketisation, created to establish a global market in carbon emissions and to allow trading outside of the cap in traditional capand-trade  markets.  By  using  Michael  Freeden's  notion  of  'thin  ideologies'  and  John  S.  Dryzek's environmental discourse 'economic rationalism' the paper expands on the core concepts used by offset proponents to explain and legitimise offsetting. These concepts display how the application of offsetting changed from its birth in air pollution control to its later use in climate control through the United Nations' Kyoto Protocol.

KEYWORDS: environmental marketisation, neoliberalism, carbon markets, carbon offsets, environmental history

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## Introduction

The concept known as 'carbon offsetting' enables various economic actors to continue emitting greenhouse  gasses  while  claiming  to  be  carbon  neutral.  This  is  done  by  paying  other  people, particularly from the Global South, to reduce their emissions or to plant trees to compensate for already  emitted  carbon.  The  concept  dictates  that  a  tonne  of  carbon  emitted  in  one  place  is equivalent to a tonne sequestered or reduced in another place (Buller 2022: 77-78). Offsetting is therefore a concept which creates a tradable good, the offset, which grants you the right to e.g., emit a tonne of CO2. The justification for this market is that it gives economic actors the flexibility to select the cheapest way of reducing their emissions, even if this is by buying offsets in other countries (Rose,  Tietenberg  1993:  7).  This  marketisation  of  the  environment  is  what  philosopher  Larry Lohmann characterises as central to neoliberal environmental thinking (Lohmann 2014: 158).

To understand the characteristics  of  offsetting  we  have  to  analyse  the  specific  historical  context behind the concept. Since offsets allow firms to call themselves carbon-neutral while continuing emitting carbon, they have become a central part of the global approach to addressing the climate crisis. They are at centre stage in both the UN's and firms' environmental thinking, as shown by how Total and Shell use offsets to sell 'carbon-neutral fossil gas' (Buller 2022: 77-80).

The paper asks: Where did the concept of offsetting originate, and who developed it? How has the use of offsetting been legitimised, and how has the political implementation of offsetting changed historically?  With  these  questions,  the  paper  seeks  to  contribute  to  the  study  of  neoliberal environmental thought, by showing how carbon offsets came to play a significant role in the world's approach to the climate crisis and how offsets diverged from the idea of cap-and-trade and became a distinct form of environmental marketisation.

Cap-and-trade markets allow carbon emissions to be priced, through the creation of a new market. It starts with a government entity setting a fixed cap on the total amount of emissions permitted in

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a certain geographic area. Firms in this area are hereafter allowed to emit as much carbon as they have permits for. If the firms want to reduce or increase their emissions, they can then trade emission permits with one another. Thus, supply and demand in the market determine the price of carbon (Buller 2022, 59). This paper argues that even though carbon offsets are often incorporated into cap-and-trade policies, they are distinct because they allow reduced emissions and captured CO2 from outside the cap, to count as permits within the cap. Hereby making the market global and contesting the idea of a fixed cap on carbon emissions.

There are few historical analyses on carbon offsets. When the concept is brought up, it has mainly been as a side note in works by environmental and economic historians on other topics such as the American Environmental Protection Agency (EPA) and the economic theory used in US public policy (Halvorson 2021; Berman 2022). Scholars from other disciplines have studied carbon offsets and carbon markets with typically two distinct angles. Some study its economic and technical aspects (Kollmus,  et  al.,  2010;  UNCTAD  1999;  Bahnzaf  2020),  while  others  such  as  Larry  Lohmann, Hannah  Wittman,  Adrienne  Buller,  and  Heidi  Bachram  study  its  relation  to  neoliberalism, colonialism, marketisation and inequality through sociology, philosophy, and other social sciences (Lohmann 2001; Wittman, et al., 2009; Buller 2022; Bachram 2004). They see carbon offsets as part  of  the  neoliberal  marketisation  of  the  environment,  which  commodified  nature,  effectively allowing  pollution  to  'be  'nullified'  through  investments  in  renewables  or  'carbon  sinks.'' (Bachram 2004: 7) This, they argue, legitimised the continued extraction and expansion of fossil fuel use for Northern firms (Büscher 2014: 202).

Using  the  social  scientist  Michael  Freeden's  concept  of  'thin  ideologies',  the  paper  analyses  the connotations  and  concepts  embedded  within  carbon  offsets  and  offsetting  historically.  Freeden describes ideologies as sets of ideas, beliefs, opinions and values which groups of people use to make sense of the world around them and to drive policy (Freeden 2003: 32, 55). A thin ideology 'does not embrace the full range of questions that the macro-ideologies do, and is limited in its ambitions and scope.' (Freeden 2003: 98) Thin ideologies are distinct from macro-ideologies in their limited scope, but they are often embedded within larger ideologies (Freeden 2003: 98). As such this paper sees  offsetting  as  a  thin  ideology  within  neoliberalism.  The  ideological  form  of  offsetting  will

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hereafter  be  held  up  against  the  political  scientist  John  S.  Dryzek's  environmental  discourse 'economic rationalism' from his 1997 book The Politics of the Earth , to further analyse the central assumptions in the concept (Dryzek 1997: 8, 12-14, 20, 45-49). As Dryzek sees discourses as ways language shapes people's perceptions of the world, those who agree with them articulate what they see as central assumptions about the world. The assumptions embedded in the discourse 'economic rationalism' will therefore be used to expand on how offsetting was sought legitimised by speaking into a particular worldview.

The paper makes use of research papers, books and reports from environmental economists, legal scholars and international as well as US governmental institutions from the 1960s to the early 2000s. The material includes the early ideas on marketising the environment, the first uses of offsetting as well as carbon offsets' implementation in the Kyoto Protocol (Coase 1960; Dales 1968a; Landau 1979; Hahn 1989; Rose, Tietenberg 1993; Carbon Dioxide Assessment Committee 1983). The paper is organised according to the questions it poses; first, it explains the historical background of offsetting. Secondly, it focuses on how offsetting was legitimised as a distinct and useful strategy for addressing the climate crisis. Lastly, it explains the political implementation of offsetting and the evolution of offsetting's application to carbon emissions.

## The market turn in environmental thinking

## Marketisation of pollution in the 1960s environmental economics

As the first offset policy was introduced in American environmental policy in 1976, the following chapter deals with the theoretical origin of environmental marketisation in the 1960s as well as the state of environmental consciousness in the US in the 1960s and 1970s.

Throughout  the  1960s  The  United  States  of  America  saw  an  expansion  of  environmental consciousness and thinking. Citizens Around the country saw air pollution damage trees, buildings, the paint jobs on their cars and irritate their eyes and lungs. The effect was especially severe in large cities such as New York and Los Angeles, but pollution was also seen in rural districts where the agricultural sector both experienced and produced pollution (Halvorson 2021: 10, 13-15).

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This  consciousness  was  simultaneously  felt  among  economists  in  the  field  of  environmental economics, as they began revitalising ideas on pricing pollution. Their focus was on the economic gains and costs related to environmental quality (Berta 2021: 63). Most environmental economists such as Allen V. Kneese, James M. Buchanan and Ralph D'Arge argued that environmental issues had to be internalised in the market by pricing pollution through taxes as this would provide firms with  economic  incentives  to  reduce  their  pollution.  Their  goal  was  to  set  an  optimal  price  for pollution  that  would  balance  abatement  costs  with  the  costs  of  pollution,  making  abatement  as cheap as possible (Berta 2021: 63-64; Halvorson 2021:88, 225).

Stressing the information problem, in 1968 Canadian neoliberal economist John H. Dales argued against the use of government set prices as 'The administrative problem of approximating optimum shadow prices by actual user charges promises to be a nightmare.' (Dales 1968b: 791) Instead, Dales wanted to marketise environmental issues by creating a new market for tradeable pollution rights within  confined  geographical  areas  i.e.  cap-and-trade,  since  only  markets  would  be  able  to consolidate  information  effectively  (Dales  1968b:  799,  803-804;  Berta  2021:  64,  71).  Dales  is important for the development of the first offsets in the US since he is credited as being the father of cap-and-trade markets, with his 1968 book 'Pollution, Property and Prices' (Berta 2021: 64). Even though Dales is Canadian, he matters to the American case as a result of his work on pollution in the Great Lakes, his connections to the Chicago school of economics and the circulation of his ideas in the early 1970s in forums such as the Economic Report of the President of the US and the White House Council on Environmental Quality (Berta 2021: 69, 77).

In Pollution, Property and Prices, Dales references the economist Ronald H. Coase, whose 1960 article 'The Problem of Social Cost', was the first to advocate for a market of tradeable pollution rights (Rose, Tietenberg 1993: 4). Coase argues that the goal should be to 'secure the optimum amount of (…) pollution, this being the amount which will maximise the value of production' (Coase 1960: 42). For Dales, this 'optimal' amount of pollution could not be found since the world was  too  complex  to  calculate  the  economic  damage  caused  by  every  margin  of  pollution  (Dales 1968a: 28-31, 35-40). Instead, a new market should be created to gather the needed information and be used as a tool  to  reach  a  politically  decided  maximum  amount of  pollution  in  the  most

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efficient  way.  Dales  hereby  abandoned  cost-benefit  analysis  and  turned  his  attention  to  costeffectiveness (Berta 2021: 61, 65).

The market proposed by Dales required an expansion of property rights for natural resources such as water and air, as he argued that unlimited common rights to a resource led to its destruction and overuse as no one was held accountable (Dales 1968a: 67). For Dales property rights were not the rights over an object, but the rights to use it in certain ways. The expansion of property rights on the environment therefore meant that the state would set a quality standard for air and water and issue  a  corresponding  number  of  pollution-rights  to  firms  (Dales  1968a:  58,  62-63,  65).  The pollution-rights would allow their owners to emit a certain amount of pollution and could be traded on a market. If the amount of issued rights were less than what firms demanded, they would result in a pricing of pollution. Dales argued that even at a miniscule price per right, some companies would profit from reducing emissions rather than buying rights, causing them to be able to sell off their remaining stock (Dales 1968a: 85-86, 93-95). Since firms could decide for themselves what amount of emission reductions minimised their costs, the market would result in the most costeffective abatement, and as Dales argued, 'the best way of implementing a policy is the least costly way' (Dales 1968a: 99). His conclusion however, relies on a considerable optimism in the market's ability  to  allocate  resources  as  effectively  as  possible  (Berta  2021:  72-73).  This  notion  is  heavily criticised by Adrienne Buller, who argues that a pollution-rights market would require a bigger and more expensive state apparatus than command-and-control policy, to prevent abuse and cheating (Buller 2022: 68-69).

## The EPA and environmental problems

The growing environmental consciousness and the revitalised ideas on pricing pollution coincided with a growing national environmental movement, driven by countercultural youth, middle class suburbanites, traditional conservationists, and academics, who advocated for government action to address the environmental issues. A turning point for the movement was the first 'Earth Day', held in  April  1970,  where  20  million  Americans  gathered  to  demonstrate  for  a  more  ambitious environmental  policy.  At  the  same  time  82%  of  Americans  said  that  improvement  of  the environment was among their most important political issues (Halvorson 2021: 29-30). President

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Nixon therefore saw a need to cater to the environmental movement if he wanted to win re-election in 1972. The result was the creation of the EPA in 1970, and its first restrictive law for air pollution control in the 'Clean Air Act' (Halvorson 2021: 2, 32-33).

Historian  Charles  Halvorson  notes  that  in  the  1970s  there  were  two  different  perspectives  on environmental issues. There were liberal environmental activists on one hand who believed that a clean  environment  was  a  natural  right  and  who  supported  state  regulation  as  beneficial  and necessary. On the other hand, economists such as Dales argued for a monetary cost-benefit framing of environmental issues where abatement costs had to be balanced with pollution costs. Until the mid-1970s, the liberal wing of the environmental movement had an almost unrestricted ability to pursue their policy aims (Halvorson 2021: 10). These policies for further environmental control resulted in increased expenditures which became heated topics of debate following the 1973 OAPEC oil embargo and the subsequent economic stagnation (Berman 2022: 98). Industrial firms warned that  environmental  control  was  too  expensive,  and  that  they  had  to  shut  down  plants  and  fire employees  if  forced  to  comply  (Halvorson  2021:  101-102).  As  such,  economic  rationales  for environmental  action  focusing  on  effectivity  and  cost-benefit  began  to  gain  traction  in  political spheres after 1973. Even though these rationales consistently led to market-based solutions with the stated intention of making environmental control as efficient and effective as possible, they were seen value neutral, technocratic, and even apolitical (Berman 2022: 98, 116).

As Dales was the first to propose a cap-and-trade market, where a state sets a pollution cap and grants firms tradeable rights to pollute, he should be considered an influential figure in the creation of the first cap-and-trade market (Berta 2021: 65). This happened in 1976 when the EPA reformed their Clean Air Act to incorporate tradeable pollution rights. These rights were called 'offsets', and they  denote  the  first  time  offsetting  is  used  to  describe  a  market-based  compensation  option  in relation to pollution (Halvorson 2021: 113-114). During the 1970s these offsets and cap-and-trade were essentially the same thing as all the trading happened within the caps, but offsets would in the 1980s  and  1990s  diverge  and  become  qualitatively  different  from  cap-and-trade,  with  its  own internal conceptual framework (Bahnzaf 2020).

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## Offsetting's ideological form and assumptions about the world

## Flexibility and cost-effectiveness

As the EPA incorporated offsets in their Clean Air Act in 1976, it was to balance 'air quality and economic development.' (Landau 1979: 578) The previous air  pollution  policy  was  disliked  by industrial interest since they saw it and the environmental movement as 'a reactionary anti-growth movement that in its present form is wholly irreconcilable with economic growth.' (Landau 1979: 577-578) From 1976 it became possible for firms to expand their production and emissions, in polluted areas,  if  they  could  make  other  actors  reduce  their  emissions  in  the  same  area  (Landau 1979: 578-579). The EPA adjusted the offset policy in 1977 and 1978 allowing firms to keep their offsets for later use and to see industrial plants as enclosed bubbles ,  where all emissions originate from the same place. This gave firms the flexibility to decide for themselves, where they wanted to reduce their emissions as long as they did not overshoot the allowed cap within the bubble. 'In effect  a  small-scale  offset  policy  was  being  applied.'  (Landau  1979:  583)  These  changes  show flexibility  as  one  of  the  core  concepts  in  offsetting,  as  it  allowed  firms  to  choose  the  most  costeffective solution (Landau 1979: 585-586).

## The right to pollute

Another core concept in offsetting concerns the strengthening of property rights. As the EPA gave US states 'the option of treating offsets as purely private property', resources such as air were no longer common goods (University of Pennsylvania Law Review 1989: 946). Economist Robert W. Hahn wrote that property rights were central to understanding offsets, as they gave firms the legal right  to  pollute.  If  the  market  for  these  rights  was  constructed  correctly,  they  would  minimise abatement costs (Hahn 1989: 96-97). The industrial sector also advocated the private ownership of offsets. Without this, they argued, the economic incentive to reduce emissions would go away and offsets would no longer be cost-effective solutions (University of Pennsylvania Law Review 1980: 947).

The scale of offsetting changed significantly from the 1970s to the 2000'. In the 1970s offsets had to originate from the same local area as the emissions (Hahn 1989: 99). As such they still functioned

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as  cap-and-trade  markets.  The  later  carbon offsets  were  made  global  and  could  come  from  both reduced emissions and captured atmospheric CO2, from outside the cap (UNCTAD 1999: 17-20). Hereby,  the  conditions  for  obtaining  the  legal  right  over  a  quantity  of  pollution  changed significantly as carbon offsets made emissions from within the cap replaceable with emissions from other locations. As Larry Lohmann writes, this involved a 'simplification, abstraction, quantification, [and] propertization' of the environment (Lohmann 2014: 161-162, 178). Without this  expanded  notion  of  property  rights,  the  marketisation  of  the  environment  would  not  be possible, as dividing pollution up and selling it on a market could not happen (Lohmann 2014: 178; Hahn 1989: 101, 110).

Buller agrees with this notion by stating that offsetting implies that 'two or more entities can be substituted for one another, insofar as they have certain comparable traits.' (Buller 2022: 49, 251) It  was  not  all  traits  that  had  to  be  alike,  only  the  amount  of  CO2,  implying  that  actions  and emissions with widely different social, economic and environmental consequences could substitute each other. The strengthening of the property rights for pollution should therefore be seen as central in offsetting.

## Offsets as rational

Another core concept is rationality as this was inseparable from the desirability of cost-effectiveness. In  1972  the  environmental  economist  W.  David  Montgomery  stated  that  the  market  handled information much more effectively than state bureaucracy as it 'makes the necessary calculations independently in the course of reaching equilibrium.' (Montgomery 1972: 411) Market solutions such as cap-and-trade and offsets are 'superior to taxation' and command-and-control policy and this superiority can even be calculated and proved mathematically (Montgomery 1972: 411, 417). The market would effectively, cheaply, and rationally calculate its way to the best possible outcome. There  was  no  need  for  command-and-control  policy,  you  could  just  follow  the  rational  market (Montgomery 1972: 396).

This logic was in the 1970s equally present in both cap-and-trade and offsetting, but during the 1980s economists began criticising the geographically confined cap-and-trade markets for providing

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inadequate cost savings. In 1989 Hahn wrote that the cost savings of the EPA's tradeable pollution rights, called offsets, fell 'far short of the potential savings which could be realized if there were more external trading.' and 'where barriers to trading are low, more trading is likely to occur.' (Hahn 1989: 101, 108) As such, barriers for offset trading had to be lowered to allow for more trading and a better working market.

This perspective continued and in 1993 economists Adam Rose and Thomas Tietenberg related it to climate change. As greenhouse gasses are global in nature, they were perfect for an offset market as the market could be made global, leading to the largest potential for cost savings (Rose, Tietenberg 1993: 1, 4-5, 7, 19). International organisations such as the 'United Nations Conference on Trade and  Development'  (UNCTAD)  also  argued  for  expanding  the  offset  market  to  climate  change (Bachram 2004: 13-14). In their 1992 report 'Combating Global Warming' they argued that carbon offsets should allow bought emission reductions outside the cap to nullify emissions inside the cap. Thus, creating a new and bigger market with no cap (UNCTAD 1992: 18). This expansion of the scope  of  the  market  was  seen  as  a  rational  use  of  market  forces  to  maximise  cost-effectiveness (UNCTAD 1992: III-VII).

The  concepts  used  to  create  and  legitimise  offsetting  reveal  the  concept's  internal  framework (Freeden 2003: 127). This framework stresses offsetting's ability to achieve cost-effective outcomes, but as Carbon Trade Watch wrote in 2003, it is problematic to assume cost-effectiveness to be a universal goal since it always results in different outcomes for different groups of people. What is cheap and efficient for firms might not be the same for farmers in for example Uganda. Especially not if 150.000 Ugandans are displaced to make space for carbon offset projects. This was the case in the region around Mount Elgon, where from 1993 to at least 2003 the Ugandan government displaced the people living in the area to make room for a new reforested national park without any 'encroachers'. The Ugandan government had made a deal with a private carbon offset provider, with connections to the Dutch Electricity Generating Board who wanted to provide offsets for a new coal fired power plant, to reforest and sell of the forest's CO2 sequestration. As such, for the sake of cheap offsets, there was no space for the people already living in the area (Carbon Trade Watch 2003: 12-13; Cavanagh, et al. 2014: 58-59).

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## Economic rationalism and carbon offsets

The environmental discourse 'economic rationalism' from John S. Dryzeks 1997 book 'The Politics of  the  Earth' helps  to  further  expose  offsetting's  world  view  (Dryzek  1997:  15-17).  'Economic rationalism may be defined by its commitment to the intelligent deployment of market mechanisms to  achieve  public  ends.'  (Dryzek  1997:  102)  Just  like  offsetting,  it  seeks  to  strengthen  property rights  for  natural  resources  and  the  environment  to  marketise  them  and  create  cost-effective solutions  (Dryzek  1997:  112-113).  Importantly  for  our  understanding  of  offsetting,  just  like economic rationalism it lacks any acknowledgement of ecosystems or nature as anything else than natural resources. It does want to protect these resources, but only for human economic gain (Dyzek 1997: 112). Even when ecosystems are mentioned, this is in a context of marketisation where the 'ecosystem' fits into geographically enclosed areas (Robertson 204: 361-362, 369). The idea of large and interconnected ecosystems doesn't exist, as nature, like a machine, can be torn apart, sold, and assembled again. Thus, underlining the need for the environment to be divided into small privately owned and tradeable parts, to most effectively reduce emissions (Dryzek 1997: 112-115). Just as offsetting's ideological form developed over time so did their implementation in policy.

## From air pollution to CO2

## Offsetting and local air pollution

The EPA's introduction of offsetting in the 1976 Clean Air Act gave firms the ability to increase their  production  in  air  polluted  areas,  if  they  arranged  for  reductions  in  the  same  area.  In  the beginning, the terms were strict as firms couldn't buy offsets without also complying with several environmental demands (Landau 1979: 578-579). In the following years these terms were loosened with the bubble concept and offset banking (Landau 1979: 583, 585). Market liberals such as the EPA's  Assistant  Administrator  David  Hawkings  welcomed  these  changes,  saying  the  increased flexibility would lead to more emission reductions. Landau furthered this point by stating that offset banking was 'one of the most important air quality regulations to be promulgated by the EPA.' as it  gave  'much  needed  flexibility  in  meeting  air  quality  and  economic  development  demands'

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(Landau 1979: 585-586). The legal framework for offsetting was loosened from the beginning to create a larger and more flexible market.

When Hahn analysed the effect of the EPA's offsets in 1989, offsetting had led to billions of dollars saved on environmental control. However, Hahn recognised that the number of sold offsets could have been larger and critically that the programme had not led to any noteworthy improvements in air quality levels (Hahn 1989: 100-101). The lack of environmental improvements did not lead to a discontinuation of offsetting. Instead, it was argued that we needed more offsets. This required a global  market  and  an  environmental  policy  where  offsetting  was  a  core  element,  not  just  a supplement  to  already  existing  command-and-control  policy.  Offsetting  should  therefore  be implemented for global warming (Tietenberg 1990: 18, 25-26, 31).

## Rising climate awareness and the first carbon offset

Even though the first offset-policies only affected local pollution problems (Hahn 1989: 97-103), research was still done on the increase of CO2 in the atmosphere, and this research would become important for carbon offsets from the 1980s and forward. An example is the physicist Freeman J. Dyson who in 1976 argued for controlling CO2 levels by planting trees on a global scale, since this was 'less drastic than the shutdown of industrial civilization' (Dyson 1976: 288). He argued for reasonable costs since third world countries with low wages could be paid to plant the trees (Dyson 1976: 288, 290). According to the World Resources Institute (WRI) who oversaw the first carbon offsets, Dyson's paper proposed the first notion for solving global warming via tree planting (Faeth, et al. 1994: 2). Tree planting and the protection of already existing forests would later become a central way of making 'reductions' for carbon offsets (Faeth, el al. 1994: 1-2). Alarmingly, carbon offsets didn't have to stop deforestation just make it slower or less likely to happen (Lohmann 2014: 21).

Climate thinking also effected the US government in the 1970s and 1980s, as seen in the state financed report from 1980, 'Environmental Control Technology for Atmospheric Carbon Dioxide'. The report argued for controlling  atmospheric CO2 through the capture and storage of already emitted  CO2.  The  report  proposed  dumping  carbon  in  the  ocean,  planting  trees  or  burying  it

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underground (Steinberg, Albanese 1980: 2, 9, 12-14, 18). Even though several of these solutions were  seen  as  problematic  because  of  energy  efficiency,  technology,  and  price,  the  report  still highlighted  these  solutions  over  real  decarbonisation.  The  report  had  a  clear  focus  on  the technological possibilities of climate abatement and showed that forestry projects were not the only form of carbon capture considered (Steinberg, Albanese 1980: 28).

Through the 1980s the US government's discussion of climate change changed as economics took centre stage. An example is the 1983 report 'Changing Climate', which argued for simply adapting to a changing climate, as future growth and technology would make this economically preferrable to expensive environmental control now (Carbon Dioxide Assessment Committee 1983: 87, 449, 471-475,  481-482).  Even  with  state  sanctioned  recommendations  for  inaction,  climate  change received more political attention as more research was done and four of the warmest years on record occurred during the decade (Bell 2021: 309-311). Demands for CO2 reductions surged but the economic  approach  was  kept  and  the  reductions  had  to  be  as  cheap  as  possible.  However,  the Reagan-administration with its 'regulatory freeze' stopped any new governmental regulation after the  saying  'not  (…)  better  regulation,  but  simply  less  regulation.'  (Halvorson  2021:  154)  As  a result,  climate  action  was  stifled,  and  the  first  carbon  offsets  were  undertaken  on  a  private  and voluntary basis rather than by governments (Halvorson 2021: 184-188; Buller 2022: 83).

The first carbon offset was bought by the US energy firm Applied Energy Service, Inc. (AES) in 1989. They wanted to reduce their emissions from a newly build coal fired power plant, but found this technologically impossible to do at source (Wittman, et al. 2009: 713; Faeth, et al. 1994: 2). There is reason to doubt the technical infeasibility of reducing CO2 on site, as scrubbers which can remove air pollution particles from emissions, had been in use since the 1970s (Halvorson 2021: 86-87). Instead AES's reason for choosing offsetting should probably be seen in the price, since 'Alternatives in the United States to avoid the release of carbon dioxide or sequester it at the source appeared to be considerably more expensive.' (Faeth, et al. 1994: 2) AES therefore invested in an ongoing forest project in Guatemala, whose previous focus had been on poverty alleviation, to offset their emissions, causing the focus of the project to shift. The project however, never realised the expected reductions as only around 1,7% of the expected CO2 had been captured by the project in

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1999.  Furthermore,  the  project  resulted  in  the  criminalisation  of  practises  such  as  fuelwood gathering and a shift away from community control and management of forests. Simultaneously, the shift towards carbon sequestration took money and manpower away from poverty alleviation work and caused the project managers to slow down their work with small and poor farmers and communities, to instead focus on the larger and better off farmers (Wittmann, et al. 2009: 714716). But as it was cheap and good PR, the market for voluntary offsets expanded exponentially (Swisher, et al. 2003: 15; Faeth, et al. 1994: 2-3, 7).

## Clean Development Mechanism

As the voluntary offset market was not seen as optimal, talks on a UN-sanctioned market on global pollution  rights  began  appearing  before  the  1992  'Rio  Earth  Summit',  as  seen  in  UNCTAD's establishment  of  a  department  working  towards  cap-and-trade  and  their  lobby  organisation 'International Emissions Trading Association' in 1991. In 2003 Carbon Trade Watch saw this as the Global North's reaction against structural change and legally binding treaties to continue the economic status quo, since offsets and market solutions passed the responsibility on to consumers instead of governments or firms. With this, politicians and firms did not have to fear repercussions if climate goals were not reached (Carbon Trade Watch 2003: 10-11; Buller 2022: 74-76, 84-85). Despite these developments, market solutions and offsetting would only garner enough support to be formally pursued as policy in the mid-1990s (Carbon Trade Watch 2003: 11).

This  happened  in  1997  with  the  adoption  of  the  Kyoto  Protocol,  whose  goal  was  to  reduce participating countries' emissions by 5,2% under their 1990-level by 2012. Centrally, this was to be done via a pollution market with offsets playing an essential role via the 'Clean Development Mechanism' (CDM),  a  policy  the  US  in  particular  had  pushed  for  (Bell  2021:  328).  The  US however, choose to not ratify the protocol (Bachram 2004: 6). The protocol wanted climate action after  the  slogan  'common  but  differentiated  responsibility',  where  countries  had  different responsibilities for reducing their emissions (Buller 2022: 184). As such, only developed countries legally bound themselves to reductions. However, the CDM allowed and legitimised not reducing at source, and instead buying offsets in developing countries (Lohmann 2001: 2). As such offsetting

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allowed firms to go outside their respective emission caps and nullify their emissions by investing in projects that would either capture already emitted carbon or reduce future emissions.

Carbon  emitters  did  not  have  to  worry  about  the  consequences  of  their  offsets,  since  an institutionalised  monitoring  programme  of  the  CDM-projects  wasn't  voted  through,  making 'transparency, public engagement, and accountability' difficult to guarantee (Wittman, et al. 2009: 712). Even UNCTAD admitted that an offset market without extensive monitoring had a tendency for  corruption . 'As  (…)  there  (…)  exists  an  incentive  to  over-report  emission  reductions'  to maximise economic returns (UNCTAD 1999: 72-73). It  is  therefore  not  surprising  that  a  2016 report to the EU Commission concluded that 85% of all CDM offsets 'had failed to generate a meaningful reduction in emissions.' (Buller 2022: 84) Furthermore, it can be argued as climate scientist Kevin Anderson does, that carbon offsets are 'worse than doing nothing', since they lock investments in fossil fuel, keep political focus away from real decarbonisation and destroy livelihoods for citizens in developing countries (Buller 2022: 89). Despite this, offsetting has managed to create a  'dominant  narrative  frame  of  climate  change  policy  based  on  offsetting  rather  than  reducing emissions' (Wittman, et al. 2099: 712, 723).

## Conclusion

The concept of offsetting originated from the marketisation of nature and the environment from the 1960s USA. This marketisation was a part of a growing awareness of pollution which in 1970 pressured the US government to establish the EPA. The environmental economist John H. Dales with  his  idea  of  a  pollution  rights  market,  became  decisive  for  the  EPA's  implementation  of offsetting  in  their  Clean  Air  Act  from  1976.  At  the  time  offsetting  revolved  around  local  air pollution, but it would later expand to encompass CO2.

A framework for offsetting  was  legitimised  and  made  distinct  from  cap-and-trade  by  stressing  a number of concepts. Significantly, it was argued that offsets should be acquirable both from within and  outside  cap-and-trade  markets,  as  this  lead  to  flexibility  for  firms  and  thus  cost-effective emission  reductions.  To  do  this,  it  was  necessary  to  strengthen  property  rights  for  pollution,

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allowing it to be owned and sold globally. As such, government created offset markets was seen as the best way of solving environmental problems.

Shortly  after  1976  offsetting  saw  an  increase  in  market  size  and  flexibility  as  this  led  to  greater economic  gains.  Since  the  market  for  carbon  offsets  could  be  worldwide,  CO2  emissions  were perfect for offsetting. The first voluntary carbon offset was sold in 1989, but political support for offsetting was lacking until 1997, when the Kyoto Protocol was adopted. Here, the market solution was prioritised, and offsetting played a central part in the protocol through the Clean Development Mechanism.  The  international  community  thereby  recognised  offsetting  as  a  legitimate  and preferred climate action. Offsetting, however, is often shown to be worse than climate inaction, as it  rarely  results  in  meaningful reductions, leads responsibility away from governments and firms, slows down real decarbonisation and often creates considerable human consequences in developing countries.  Offsetting  has  become  a  central  part  of  the  world's  approach  to  climate  change  as  it promises cost-effective reductions. However, much suggests that its promises are hollow and that its primary goal is to maintain the fossil industry's central position in the global community and the economic status quo (Buller 2022: 15, 89, 276-277).

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