Can We Overcome the Failure of Carbon Offsets?
By Ang Zhao
A group of researchers suggest that policy makers should either exclude or phase out carbon offsets from carbon-pricing schemes in a Comment piece published in Nature in October 2025. The authors from over handful leading academic institutions of U.S., Germany, Netherlands, Japan and Australia pointed out that carbon offsets have indeed lowered mitigation compliance costs of businesses but failed to deliver actual carbon emissions reduction. Carbon offset scheme has played increasing role in both international climate policy, like the Carbon Offsetting and Reduction Scheme for International Aviation, and domestic carbon-pricing schemes, such as emissions trading and carbon taxes in many regions and countries. If empirical evidence shows that majority of offset projects fail in delivering real and measurable carbon emissions reduction, climate policy makers across the globe should be greatly concerned of the issue.
The researchers’ argument is based on a 2024 meta-analysis about over 2,000 offset projects. The analysis is briefly introduced in a summary under Research Section on this website. The analysis finds that “less than 16% achieved the emissions reductions claimed by developers. In-depth evaluations of avoided deforestation, renewable energy and clean cooking-stove projects have also exposed persistent problems with additionality, inaccurate measurement and impermanence.” As authors put it in the Comment piece, “It is extremely difficult to value the emission reduction achieved by offset projects because calculations require comparing outcomes with business-as-usual projections. " There exist misaligned incentives among the key actors within the scheme. Buyers always prefer to purchase the cheapest project credits rather than the quality ones, which often cost more, but have stronger justification in reducing carbon emissions and generating social benefits. In most cases, project developers do not disclose sufficient information on whether their projects are real additional. For regulators, while concentrating on offset projects’ being additional and generating real reduction, they must confront the pressure of avoiding weakening industries’ competitiveness resulted from high carbon credit prices. This dynamic often drags down credit prices due to either approving too many credit allowances or relaxing regulatory framework of enhancing the quality of offset projects.
Carbon-pricing schemes (emissions trading system or carbon taxation) only cover about 27% of global carbon emissions. Most of the schemes allow businesses to use offsets meet climate compliance. This significantly drags down the carbon prices which motivate emitters to buy more credits in the market rather than cut in-house emissions. This dynamic situation has a serious negative effect on the role of carbon-pricing schemes in signalling the marginal cost of reducing emissions and pushing carbon emissions reduction across the overall economy.
The data show that the vast majority of offset projects have integrity problems on the additionality, the inaccuracy of measuring carbon emissions reduction, and the impermanence of many carbon sinks. Some efforts of improving carbon offsets integrity take place in some places. For example, California policy makers plan to start retiring carbon emission allowances in order to ease the downward price pressure by the unused allowances. Nevertheless, those scattered changes can’t correct the basic flaws of the carbon offsetting scheme. Therefore, the authors present the striking policy recommendation, “excluding or phasing out offsets from carbon-pricing schemes.” It would be interesting to see what policy makers take on this suggestion, especially when the relevant issues will be discussed during the 30th Conference of the Parties(COP30) to the UN Framework Convention on Climate Change in Brazil in November 2025.
Under the current complicated political and economic challenges facing global climate governance, I think carbon-pricing schemes, or climate policy in general, may experience a reflective and adjusting era. I don’t have any clear thoughts about what this era will unfold. Maybe the start point is to reflect some of the key assumptions behind the present climate policy, such as mitigation being more urgent and important than adaptation. Interestingly, Bill Gates, the founder of Microsoft and author of How to Avoid a Climate Disaster, just changed his mind and noted that “climate change "Will Not Lead to Humanity’s Demise”. His lengthy memo published on 28 October 2025 shows that the Gates Foundation will use a different approach to address climate change challenges by prioritizing health and development programs facing those low-income countries around the globe. I suppose that his new position and announcement will be discussed and responded by both liberals and conservatives. While Mr. Gates and his foundation spent hundreds of millions of dollars in climate change mitigation just a few years ago, it might be useful to figure out what factors leading him to change his climate strategy. Is it the big shift of American politics or his personal rational thinking?
(Published on 28 October 2025)
Understanding China’s Green Energy Investment in Global Energy Development
Has China's Green Energy Investment in the past two decades influenced the trajectory of its energy development? The data of the energy mix from 2005 to 2023 show that China’s dependence on fossil fuels not decreases but grows. The same situation can be found in Germany and the United States.
By Ang Zhao
China has been among the top leaders in green energy growth in the past twenty years. Chinese investment in its domestic green energy development has kept a stunning pace for long time. As International Energy Agency (IEA) puts it in World Energy Investment 2025 report, China’s investment in low emission electricity increases from USD 123.3 billion in 2015 to USD 365.24 billion in 2024, 2-3 times of European Union’s investment in the same area, respectively. In addition, Chinese companies and financial corporations have invested hundreds of billions of dollars in the low carbon energy manufacturing and deployment across the globe, especially in dozens of middle and low-income countries since November 2021, when green energy investment, as a national strategy, became the priority for the Belt Road Initiative. Will Chinese overseas green investment dominate the international green energy investment and trade? Has the vast Chinese green energy investment transformed the trajectory of its energy system from more fossil fuels dominated situation towards the one with less dependence on fossil fuels? Let us evaluate the relevance and significance of China’s investment both domestically and internationally in the context of global energy investment in the past two decades.
Overseas Investment: Fluctuation or Trend?
China's green energy investment hit a record in 2024. But it is still too early to conclude that the momentum accelerating from 2021 onwards has been generating a sustained trend. As IEA's Global EV Outlook 2025 shows, China accounts for 40% of global electric vehicles export in 2024. This target is achieved within just a few years. What a big leap forward! Obviously, Chinese EV manufacturers’ dominance in the world market results from the rapid decline of batteries production cost, the fast-increasing Chinese domestic EV market penetration, and the variety of generous subsidies from local and central government. However, Chinese businesses have realized a series of challenges such as the ongoing trade war with the United States, the recipient countries’ economic concerns of Chinese export dumping and the domestic industrial production overcapacity. Above all, Chinese success in using industrial policy, mainly non-market subsidies initiatives and stimulus, causes the most serious caution and worry from most recipient countries. To address these issues, Chinese manufacturers have been moving many manufacturing lines abroad as early as during the first Trump Administration, when the administration tried to rebalance the trade deficit with China.
According to China’s Overseas Green Energy Manufacturing Investment, a policy brief by Net Zero Industrial Policy Lab, Chinese overseas green energy manufacturing investment, which includes the sectors, from renewable energy, such as wind, solar PV, and storage, to green hydrogen and battery electric vehicles, to critical mineral mining and processing, increases significantly in recent years, from USD 36.9 billion in 2022, USD 66.5 billion in 2023, to USD 71.6 billion in 2024. The recipient countries of Chinese overseas green energy investment are middle- and low-income economies, from members of Association of Southeast Asian Nations, like Indonesia, to Eastern European members of European Union, like Hungary. Individually, the biggest recipient countries from 2022 to the first half of 2025 are Indonesia (USD 67.9 billion), Morocco (USD 18.8 billion), and Hungary (USD 17.2 billion). The investment covers all types of project status, from Under Consideration, Agreement Signed to Planned and Operational/Under Construction.
If only considering the operational/under construction projects, China’s green energy manufacturing investment does not look that much dramatic. If looking into the data of the past three years, the number of investments even fluctuates, from USD 26.2 billion in 2022 and USD 27.5 billion in 2023 to USD 21.9 billion in 2024. Considering the ratio of the investment amount of projects in operation or under construction to the investment amount of all pledged projects, the gaps have been increasing significantly, from 61% in 2022 to 41% in 2023 and 31% in 2024. As the brief shows, Chinese overseas green manufacturing investment up to the first half of 2025 only amounted to USD 23.2 billion. All the projects are at the status of Planned or Agreement Signed. None of them are in Operation or Under Construction. It is expected that the number in 2025 might go much shorter than in 2024. I would argue that American high trade tariff policy on Chinese green energy products, the policy practice started by Mr. Biden, which the second Trump Administration keeps in place, play a big part in Chinese slowing overseas green investment in 2025. In addition, the secondary impacts of President Trump's radical cross-board trade tariffs towards middle income economies can’t be underestimated. Those countries, such as Indonesia and Vietnam, which have been regarded by Chinese investors as the re-export hubs for Chinese low carbon energy products to the United States, must now face higher rate of tariffs from the United States if their exports are directly transshipped from China or contain significant Chinese content.
Is Energy Investment Leading to Energy Transition?
Chinese investment in clean energy both domestically and overseas has been global champion for years. But the fossil fuels dominance in China’s energy mix has not been shaken. China’s vast energy investment, both in renewable and in conventional energy sources, has never bent the energy system towards the trajectory of replacing high carbon energy with low emission sources. What happened is that in the rapid industrialization of the past twenty years, China’s energy use has been ever growing and the share of fossil fuels in the total primary energy use is extremely stable and consistent. China’s total domestic energy investment in 2024 was USD 881 billion, about4.6% of its GDP in the same year (USD 18.8 trillion) according to the World Energy Investment 2025 by IEA. While the investment in End Use and Grids and Storage accounts for 29.2% of total energy investment, the money spent on Fossil Fuels and Low Emission Electricity accounts for 29.4% (USD 259 billion) and 41.4% (USD 365 billion). The investment difference between fossil fuels and low carbon electricity is clear and large. Even though Chinese energy investment in low emission electricity and electric vehicles has been phenomenal in the past decade, about 90% of energy use continues to be met by fossil fuels in China. Based on the data of energy use by country provided by U.S. Energy Information Administration (EIA), China’s primary energy use (in percentage) in 2023 is made up of oil (20%), natural gas (9%), coal (62%), nuclear (3%), and renewable (6%). In 2005, when China’s Renewable Energy Law was enacted and the renewable energy, particularly, wind power, entered into a 15 years period of fast expansion, the breakdown of China’s energy supply, according to IEA’s country profile data, is oil (18.1%), natural gas (2.2%), coal (68.7%), nuclear (0.8%), and renewable (10.1%). In nearly two decades time, from 2005 to 2023, while China’s primary energy use more than doubles (127% growth), the share of fossil fuels in the mix of primary energy use, does not decline, but increase, from 89% in 2005 to 91% in 2023.
Apart from China, Germany is also regarded as a world pioneer and consistent implementor of green energy investment and deployment thanks to the government-driven industrial policy and diverse and generous subsidies. What happens to the share of fossil fuels in the Germany’s energy mix from 2005 to 2023? According to the data from the EIA, fossil fuels account for 85.9% of its total primary energy use in 2005 and 86.8% in 2023. The powerhouse of European green energy manufacturing and deployment has not reversed its fossil fuel lock-in in the decades if green energy booming. Different from China and Germany, the United States had applied a bottom-up and market-dominated approach to invest and deploy its energy system during the same period. The government’s role in financing and subsiding the low carbon energy growth under both Obama and Biden Administrations is quite limited in terms of the scale of tax credits and financial subsidies. What does the evolution of the United States energy mix look like? The percentage of fossil fuels in the energy mix slightly declined, from 87.6% in 2005 to 84.1% in 2023. Among the three major fossil fuels, oil’s share has remained stable, but coal has gone down deeply, and natural gas has grown dramatically. This structural change is attributed to the mass and quick substitution of coal with natural gas in the power generation sector. The substitution could not take place without the shale gas revolution from 2010 onwards, which totally makes American fossil fuels sector a different landscape. By 2015, the production of shale oil and shale gas accounted for over 50% of total oil/gas production. While in 2010, the share of shale gas/oil was only about 20%. The fracking technology not only secures the energy supply but also makes the country one of the biggest exporters of oil and gas in the world market.
Compared to China and Germany, the United States has invested more into fossil fuels supply and less into low emission electricity in the past two decades. For example, IEA’s World Energy Investment 2025 shows that in 2015 the U.S. investment in fossil fuels supply (USD 284.2 billion) is four times of the investment in low emission electricity (USD 70.4 billion). The energy investment portfolios of China, U.S., and Germany in the past twenty years are evidently different, but the three pathways do not produce different pictures of the energy mix. The fossil fuels sector still dominates the energy system of all three economies. What are we missing?
Chinese Overseas Energy Investment: a case in Indonesia
China’s green energy investment in the past two decades has not reversed its dependence on fossil fuels in the energy system. What about Chinese overseas green energy manufacturing investment? Does it play a big part in supporting a recipient country’s energy transition? Let’s talk about the case of Indonesia as the country is the largest recipient of Chinese overseas green energy manufacturing investment since 2021.
Indonesia is the fourth largest populous country in the world and fast-growing and the biggest economy in Southeast Asia. Many pundits expected that the country could break the path dependence on fossil fuels with forward-looking green energy investment both from domestic investors and foreign partners. The domestic energy investment in Indonesia in 2024 amounts to about USD 40.6 billion. As a middle- and low-income economy, Indonesia still distributes most of energy investment in the areas of energy security and universal energy coverage and supply due to lack of sufficient financial and technological capacities to accelerate the deployment of low carbon energy technology. This situation may highlight the importance of international investment in supporting the country to develop green energy at a faster pace. China has pledged to invest USD 67.9 billion to help the country expand its green manufacturing sectors as the Net Zero Industrial Policy Lab’s brief suggests. However, the most Chinese investment goes to critical mineral mining and processing sector. IEA’s World Energy Investment 2025 shows that “Chinese investment is driving Indonesia’s nickel refinery sector, amounting to USD 30 billion in 2024, and Chinese companies account for around 75% of refining capacity in the country.” Only one industry, the nickel refinery industry, contributes to nearly half of Chinese green energy manufacturing investment. The fast-expanding nickel refinery sector may play a big part in supplying batteries for EV manufacturers across the world but is far from helping the country reduce its reliance on fossil fuels. On most occasions, the power supporting refinery plants comes from coal, the most affordable and accessible energy source in the country.
Indonesia has kept its annual GDP growth at about 5% on average in the past 25 years according to the data from the World Bank. Its energy system continues to depend on fossil fuels. The total primary energy use grows 136% from 2005 to 2023, while in the same period, the share of fossil fuels sticks to a prominent level, a slight fluctuation from 98.6% in 2005 to 96% in 2023. Indonesia is still a big exporter of coal in the global market. More than 40% of primary energy production goes to other economies. In 2023, Indonesia exported over 60% of coal produced in the country. In 2005, the share was 79%.
Can We Put Confidence in the Future?
The global energy investment and deployment in the past two decades, no matter in China, the biggest green energy investor, Germany, the pioneer of feed-in-tariff policy in low carbon power generation, or the United States, the most developed and competitive energy market still prioritizing the fossil fuels investment, just confirm a consistent reality, global energy system's dependent on fossil fuels. The trend of energy transition from fossil fuels to low carbon energy technology has been much slower than we expected. If the data of energy use from 2005 to 2023 in China, Germany, and the United States, show an enduring dominance of fossil fuels, how can we ensure that China's ever-increasing green energy investment can make a difference in the future?
(Published on 25 September 2025)