What is a carbon offset worth?
Carbon offsets are all the rage. As companies declare their net zero targets, they are reaching for offsets to make the numbers add up. Landowners see carbon farming as a new revenue driver. The missing bit is any serious attempt to do the valuations properly, and to avoid greenwashing and all the reputational damage it could cause. The key steps to valuation are: establishing a natural capital baseline; specifying the counterfactuals as new policies on carbon and public goods unfold; projecting carbon prices; creating discount rate scenarios; calculating end-of-life scrappage values; and estimating the value of all the other natural capital impacts and other potential revenues from the offset investments. Done properly, carbon offsetting has the potential to bring the sequestration side of the carbon equation properly into play, which is every bit as important as the emissions when determining the carbon concentrations in the atmosphere. Done badly, it could be a silo-type policy disaster with lots of collateral damage, as the single-minded pursuit of timber production was to forestry over the last century.