Mitigation deterrence and unrealistic expectations: the future costs of forest carbon offsets

This study examines the economic and societal impacts of using Forest Carbon Offsets (FCO) as a negative emissions technology in climate mitigation strategies. FCO includes afforestation, reforestation, and reduced emissions from deforestation and degradation (REDD) initiatives aimed at achieving global climate targets, such as limiting temperature rise to 2 °C by 2100. Despite their potential, challenges such as the impermanence of carbon storage, overestimation of carbon removal, and mitigation deterrence—where reliance on FCO reduces other climate actions—persist. Using the WITCH integrated assessment model, this study analyzes the effects of FCO on energy sector investments, carbon pricing, and mitigation costs under scenarios with perfect foresight, myopic behavior, and varying degrees of forest carbon loss (FCL). Results indicate that heavy reliance on FCO leads to mitigation deterrence, with renewable and carbon capture investments decreasing by 8.6 % and 31 %, respectively, while fossil fuel investments increase by 1 %. Scenarios with 100 % FCL by 2045 could increase global GDP loss by 0.5 percentage points, surpassing the costs of not using FCO. Non-OECD countries, more vulnerable with lower economic resilience, could face mitigation costs up to 1.7 percentage points higher than OECD countries in similar FCL scenarios, raising equity concerns in climate policy. This research underscores the need for careful FCO management, accurate carbon sequestration estimates, and equitable policy frameworks to prevent moral hazards and ensure effective climate action. Clear definitions of which emissions can be offset versus those requiring direct reduction are essential to prevent over-reliance on offsets and maintain a balanced mitigation approach.