Zachary Bogue, Co-Managing Partner of Data Collective LLC, speaks at the “Future of Innovation: Spotlight on Artificial Intelligence Conference” on Thursday, June 22, 2017 in San Francisco, CA, USA. The AI technology market is estimated to generate more than $60 billion in productivity gains annually for U.S. businesses.
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Silicon Valley venture capital firm DCVC invests in a variety of climate technology companies, including geothermal power, aerial methane imaging, advanced nuclear fission reactors, fabrics made from mycelium, wastewater filtration technology, and more.
But DCVC co-founder Zack Bogue isn’t investing in one category of climate technology: carbon offsets.
“We really don’t underwrite or like to see companies that are using carbon offsets,” Borg told CNBC in an interview at his Palo Alto office in late September. “We don’t consider companies that need to use carbon offsets to make their business models work.”
A carbon offset is a certificate or voucher purchased by a company or organization that represents a reduction of one metric ton or 2,205 pounds of carbon dioxide emissions. If companies or organizations are unable to eliminate greenhouse gas emissions from their operations, they can purchase carbon offsets to compensate for their emissions.
“There are studies that show that up to 90% of carbon offsets are completely ineffective – having no impact – which is a tragedy of our time as large Fortune 500 companies are paying millions of dollars for these carbon offsets and continue to simultaneously emissions,” Borg told CNBC. “And those offsets are actually zero impact.”
The effectiveness of carbon offsets is a matter of debate, but at least one white paper published in April 2021 by Finnish nonprofit and startup Compensate found that 90 percent of carbon capture projects are ineffective. Compensate is both a not-for-profit advocacy agency and a company that sells what it believes to be high-quality carbon offsets. For the white paper, Compensate analyzed more than 100 nature-based carbon offsets certified by third-party verification agencies in the field.
Of the carbon offsets that Compensate considers failed, 52 percent committed what Compensate calls “additional”—for example, offset credits sold to protect trees that were never in danger of being felled. Another 16% of projects analyzed by Compensate were deemed to have failed because their durability was deemed to be in jeopardy. For example, coastal restoration projects in Bangladesh’s mangroves were threatened when floods devastated the country, Compensation said.
The same is true, Bogue said of local projects in California.
“Some of the forests north of here are the subject of carbon offsets, and someone is paying millions of dollars not to clear the forest, and whether that’s legal or not, we can just set it aside — because these forests are being burned,” Borg said. So they actually release the unreleased carbon that the company pays for as well as the carbon that the company emits.”
DCVC does not currently invest in companies using carbon offsets, but this is not an indictment of the idea.
“To be clear, I hope I want them to exist,” Borg told CNBC. “I want a carbon tax, I want carbon credits, carbon offsets.”
But Borg said the industry lacks sufficient transparency or accountability. To properly support the industry, Bogue said, there needs to be an agency similar to the U.S. Food and Drug Administration (FDA).
“You need a very rigorous process to go from discovery to administering a molecule to humans: You need to show that it’s effective, you need to show that it’s non-toxic,” Bogue said. “I would say the necessity to reduce carbon dioxide is for humans Necessity for health, like putting small molecules into our bodies. Completely stop.”
Until then, uncertainty in the industry is too high for the money DCVC invests on behalf of its limited partners, such as university endowments and hospitals, among others.
“It needs to be rigorous, apples to apples, and verifiable and recordable,” Bogue said. “That’s not where it is today. That’s where we need to get, but that’s why I don’t think it’s an investment.”