Carbon Offsetting – what businesses need to know when aiming for net zero

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Carbon Offsetting – What Businesses Need to Know When Aiming For Net-Zero

With an estimated market worth up to $50 billion in 2030, the market for carbon credits is entering a new era. [1].

The number of companies committing to climate neutrality is constantly increasing. Well-known examples include tech giants Google, Amazon, or Microsoft. This, however, raises the question of how large organizations can reach carbon neutrality and grow at the same time? As opportunities to reduce emissions through circularity or efficiency improvements are still limited, carbon offsetting has become a popular method to compensate for emitted greenhouse gases. While supporters consider carbon offsetting as an important tool to reach net zero, critics argue that it can have counterintuitive effects on global warming. This article provides insights about offset providers and their offset projects enabling companies to choose a meaningful compensation strategy.

Carbon offsetting can be an appropriate tool to address the climate crisis but only if compensated greenhouse gases cannot be avoided in the first place.

Carbon offsetting entails a reduction of greenhouse gases by compensating for emissions made elsewhere or by directly sequestering greenhouse gases from the atmosphere. As such, carbon offsets can represent an effective tool to address the climate crisis but only if the emission of greenhouse gases cannot be avoided in the first place. After accounting for their emissions, businesses should try to avoid and reduce them in a first step. When the availability of offset projects leads to a diminished willingness to avoid and reduce emissions, carbon offsets do in fact incentivize polluting behavior. In such a scenario, carbon offsetting exacerbates climate change instead of mitigating it.

Nevertheless, carbon offsetting represents an important solution for businesses struggling to reduce their carbon footprint. When means to reduce emissions have been exhausted, carbon offsetting is an effective tool to reach net zero and, thus, limit global warming. Consequently, businesses should primarily aim to reduce their emissions and compensate what is left in a meaningful way.

The following landscape provides an overview of current offset providers in the DACH region for businesses as well as private customers. Besides big players like south pole, startups like Offsetra or are included. The depicted providers differ not only in company size but also in their approach to offset emissions: While most providers offer forestry conservation projects, for example, carbon sinks and waste-to-energy projects are rather rare.

14062021 Carbon Offsetting Providers overview v Final 1

From an environmental perspective, offset emissions cannot be set equal to avoided ones.

Due to given risks and limitations of current offsetting practices, compensating emissions is still not as effective in tackling the climate crisis as avoiding them. Here is why:

  1. Uncertainty. Since some offset methods such as afforestation projects remove emissions from the atmosphere only over the long term, offset providers need to ensure that each carbon sequestration project keeps operating throughout its expected lifespan. As offset providers cannot predict risks in the future, it is impossible to make such long-term assurances. If offset projects do not reach their maturity, e.g., due to fires, flooding, or mismanagement of tree plantations, they do not have the intended impact. Consequently, offset providers offer guarantees to compensate the full amount of sold carbon savings by replacing failed projects with successful ones.

  2. Mission drift. Offset providers are vulnerable to mission drift. Since the amount of CO2 captured drives the price of their offset projects, offset providers have a financial incentive to maximize the promised amount of CO2 captured by their projects. To prevent fraud, there are official standards for carbon credits set by independent bodies. Examples include the Clean Development Mechanism (CDM), the Gold Standard, the Verified Carbon Standard (VERRA), and the Community and Biodiversity Standard (CCBS).

  3. Additionality. Offset projects must prove that the emission savings are additional to savings that would have occurred in the future anyway. For instance, the reforestation of desertic areas provides additional emission savings while existing forest land that has just been declared as an offset project does not.

  4. Quantification. While the total emission reduction of some offset methods such as waste-to-energy can easily be quantified, this is not the case for all of them. For instance, quantifying precisely how many emissions will be saved by a community project is almost impossible as potential savings depend on diverse factors that can hardly be monitored and thus only be estimated.

  5. Forward selling. The sequestration of emissions can take time - sometimes centuries. For example, reforestation projects need time for trees planted to grow to maturity and thus reach their full capacity to bind carbon dioxide. Nevertheless, offset providers sell emission savings, that will take place in the future, upfront. On the other hand, there are offset projects that reduce or bind emissions instantly, such as nature-based carbon sinks using biochar. Once processed and stored, the full amount of sold CO2 is captured immediately.

  6. Displacement. Many carbon capture-based mitigation projects do not sequester carbon forever. Trees release sequestered carbon dioxide at the end of their life, in wildfires or when used as fuelwood. Other sequestration methods have been found to release stored carbon dioxide again. For instance, CO2 which has been injected in declining oil fields leaked after being stored underground. By applying sequestration methods in general, root causes of the climate crisis are not solved, but only delayed. That notwithstanding, there are climate projects such as the reforestation of moors that have the potential to store carbon dioxide safely for millennia.

Be guided by the principle: Calculate – reduce – offset.

To holistically fight climate change as a business, it is crucial to understand different strategies and limitations to reach net zero. While offsetting represents the number one go-to-strategy for many companies, it is advisable to check possibilities to avoid and reduce emissions first. Many carbon accounting and management providers offer support for businesses to calculate and reduce their emissions. Only when carbon reductions are fully exhausted should carbon offsets be considered.

To choose meaningful offset projects and to avoid possible pitfalls, check our QuickStart Guide below:

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In conclusion, carbon offsetting should not undermine our efforts to actively avoid and reduce emissions in any case. Nevertheless, when polluting is inevitable, we should aim to compensate for emissions by funding meaningful and effective climate projects only. This can be achieved by considering the following key take-aways:

  • Choose an accredited offset provider to avoid mission drift and fraud

  • Check the offered offset projects to avoid displacement and forward selling but ensure additionality

  • Look for certified offset projects that have an immediate and quantifiable effect