Series: The Carbon Game — Part 3
By High Country Advocate Staff Report
When the credits burn
In the expanding world of carbon markets, a “credit” is supposed to equal one metric ton of carbon dioxide removed from or kept out of the atmosphere.
Companies buy those credits to offset their own emissions, claiming net-zero operations.
But nature doesn’t respect accounting.
When drought, wildfire, or deforestation reverses the carbon gains, the offset still exists on paper.
What remains is an environmental IOU—a promise of storage that no longer exists in the real world.
The California wake-up call
The first major test came in 2021 when wildfires swept across northern California.
Those fires burned more than 150 000 acres of forest enrolled in the state’s compliance offset program.
Analysis by CarbonPlan and Bloomberg Green showed that roughly 5 million tons of credited carbon were released back into the air.
The state’s insurance buffer absorbed the loss, but the credits companies had purchased to claim carbon neutrality remained valid.
In accounting terms, the carbon vanished; in marketing terms, nothing changed.
How the IOU system works
Every registry—Verra, the American Carbon Registry, Gold Standard—maintains a “buffer pool.”
When a project issues credits, 10–20 % are set aside in that pool as insurance.
If a project loses carbon through fire or drought, an equivalent number of buffer credits are canceled to maintain the illusion of permanence.
No one pays money back, and the buyer’s offset stays intact.
The atmosphere, of course, is not compensated.
The permanence problem
Scientists define carbon sequestration as effective only if it lasts at least 100 years.
Few biological projects meet that test.
Forests burn, peatlands dry, and grasslands revert after management ends.
Average contract length in voluntary markets is 15–40 years—barely half the required permanence horizon.
A 2023 Stanford review of 26 forest-offset projects found that more than 80 % risked reversal within 50 years under realistic fire and land-use scenarios.
Accounting versus atmosphere
From a policy standpoint, the failure is structural:
- Registries issue credits based on modeled potential.
- Corporations count those credits immediately against their own emissions.
- If the carbon disappears later, there is no mechanism to claw back the claim.
The result is a widening gap between booked carbon and real carbon—a balance sheet filled with atmospheric IOUs.
Global scale of the shortfall
According to research compiled by the nonprofit Carbon Market Watch, roughly one-quarter of all nature-based credits issued between 2010 and 2024 now show signs of non-permanence—through fires, pest outbreaks, or land conversion.
That equates to more than 200 million tons of CO₂ no longer stored.
If priced at $10 per ton, those vanished credits represent $2 billion in theoretical offsets that no longer exist.
Yet the corporations that bought them continue to list the reductions in sustainability reports.
Colorado’s exposure
Although Colorado’s pilot project near Alamosa is much smaller, it faces the same structural risk.
A single grass fire could erase its entire 15-year sequestration goal.
The lease requires a 40-year monitoring period, but monitoring cannot prevent reversal—it can only record it.
Unless the developer repurchases credits or replenishes a buffer, the shortfall becomes another IOU in a global ledger of vanished carbon.
Why buyers still participate
Corporations continue buying credits for three reasons:
- Public relations: “Net-zero” remains a powerful marketing term.
- Accounting: Voluntary offsets are cheaper than cutting direct emissions.
- Lack of regulation: No federal agency audits voluntary carbon claims in the United States.
As long as credits are cheaper than compliance technologies, the market persists—even when the environmental value disappears.
Emerging reforms
Several proposals aim to close the IOU gap:
- Durability scoring: assigning each credit a permanence rating (10-year, 50-year, 100-year) rather than treating all equally.
- Dynamic buffers: increasing reserve pools during high-fire seasons.
- Performance bonds: requiring developers to hold financial collateral equal to the value of issued credits.
- Central registries: linking all carbon databases to prevent double counting and improve transparency.
None of these reforms are mandatory in the voluntary market, though California and Washington are considering rules for state-based programs.
Expert perspective
The Intergovernmental Panel on Climate Change (IPCC) warns that “temporary carbon removals cannot substitute for permanent emission reductions.”
Translation: planting a tree—or restoring 480 acres of grassland—cannot erase a ton of coal burned today unless that carbon stays locked away for centuries.
Until permanence is verified, each credit remains an IOU.
Economic implications
When reversals occur, financial institutions treat them as write-offs, not liabilities.
Credits already sold remain on the books; new projects absorb the loss through reduced trust in the market.
That erosion of confidence has driven credit prices down sharply since 2022, with nature-based offsets falling from more than $15 per ton to as low as $3 on some exchanges.
Developers call it a “buyer’s market.”
Environmental economists call it a race to the bottom.
Public perception and trust
For carbon markets to retain credibility, the public must believe each credit equals a real, lasting reduction.
When fires repeatedly erase those gains, skepticism rises.
Recent surveys by Yale and Columbia universities show public confidence in voluntary offsets dropped from 61 % in 2020 to 37 % in 2025.
As that trust fades, companies risk backlash for claiming “carbon neutrality” based on credits that may already have gone up in smoke.
Policy crossroads
Colorado’s experiment and California’s buffer losses both raise the same question:
Should governments allow private markets to manage the carbon ledger without enforcement?
Several economists argue that carbon accounting should mirror financial accounting—complete with audits, loss recognition, and restatements when assets (in this case, sequestered carbon) are destroyed.
Without such mechanisms, the climate economy remains an honor system.
The human factor
Behind the balance sheets are landowners and small developers who signed long-term contracts based on projected carbon revenue.
When their forests or rangelands burn, they lose the physical asset but often remain bound by paperwork for decades.
Some have turned to insurance markets, but coverage is limited and premiums high.
In the end, the people on the land absorb the risk while corporations retain the benefit.
The lesson
Carbon credits are only as durable as the ecosystems behind them.
When those ecosystems fail, the atmosphere gains what the ledgers hide.
Each reversal adds another environmental IOU to a growing stack of unpaid debts—a silent inflation of the carbon economy.
Until offsets carry the same accountability as emissions, the promise of “net-zero” will remain an arithmetic illusion.
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