Vishal Kumar is an Analyst at Canbury, with expertise in TCFD reporting and scenario analysis. He has achieved Distinctions in both the MSc Climate Change Finance and Investment at the University of Edinburgh and BA Jurisprudence at the University of Oxford. His professional experience spans geographies, including work with the Centre for International Environmental Law in Geneva and Monitor Deloitte in Dubai.

Carbon offsets are a controversial part of decarbonising the economy. They have made headlines a number of times, most recently due to the Science Based Target Initiative’s (SBTi) Board of Trustee’s announcement that they intend to allow “Environmental Attribute Certificates” to be used in the attainment of companies’ Net Zero targets. This was met with pushback from SBTi staff, who noted the lack of evidence that it would be ‘science-based’ to use offsets in this way. The way forward regarding the SBTi’s approach is unclear, but the whole situation underscores the need to understand the world of carbon offsets and why they should be seen as a last resort, not a first port of call. This article aims to set out a beginner’s guide to carbon offsets – explaining what they are, how to choose them, and the potential pitfalls they bring with them.

Understanding carbon offsetting

In the 2015 Paris Agreement, a global target was set to limit temperature rise to well below 2°C above pre-industrial levels. To achieve this goal, countries and businesses worldwide must drastically reduce their greenhouse gas emissions. Primary methods to do this include shifting energy use to renewable sources, increasing energy efficiency, and decarbonising key industries such as transport, agriculture, and manufacturing.

However, some of these key economic sectors, such as aviation, shipping, and heavy industry, face significant challenges in reducing their emissions due to technological limitations and the lack of viable alternatives. For these hard-to-abate sectors, carbon offsetting provides a way to mitigate their environmental impact while they work towards long-term decarbonisation solutions. Other types of companies are also looking to carbon offsets to address difficult emissions reductions, especially those along their value chain (known as ‘Scope 3 Emissions.’)

Carbon offsetting involves investing in projects that remove or reduce greenhouse gas emissions to compensate for emissions generated elsewhere. Some argue that investing in such projects legitimately reduces the carbon emissions attributable to a company, such that they can subtract the emissions generated from the offset project from their carbon account. This would enable them to make claims that they achieve, or are on track to achieve, alignment with Net Zero emissions by 2050.

There are several types of carbon offsetting schemes available, including:

1. Reforestation and afforestation projects, and other nature-based projects such as rewilding.

   These projects involve planting trees or restoring degraded forests to absorb carbon dioxide from the atmosphere. Nature-based projects more generally seek to improve the quality and carbon sequestration potential of ecosystems.

2. Renewable energy projects.

   Investing in clean energy sources, such as wind, solar, or hydropower, can displace fossil fuel-based energy generation and reduce greenhouse gas emissions.

3. Energy efficiency improvements.

   Projects that aim to reduce energy consumption, such as retrofitting buildings or upgrading industrial processes, can lead to significant emission reductions.

4. Methane capture.

   Capturing and utilising methane from landfills, agricultural waste, or other sources can prevent this potent greenhouse gas from entering the atmosphere.

Choosing a carbon offset

When choosing carbon offsets, it is crucial for businesses to ensure the credibility and effectiveness of the projects they invest in. Some key factors to consider include:

1. Additionality.

   The project should demonstrate that the emission reductions would not have occurred without the offset investment.

2. Permanence.

   The emission reductions should be long-lasting and not subject to reversal, such as through change of government policy.

3. Verification.

   Independent third-party verification is essential to ensure the integrity of the offset project.

4. Transparency.

   Offset providers should be transparent about their projects, methodologies, and monitoring processes.

Businesses can look for offset projects certified by standards such as the Gold Standard or the Clean Development Mechanism (CDM), to ensure the quality and credibility of their investments. Companies may also wish to engage with their employees to select projects that resonate for their workforce or improve the local environment.

Issues with carbon offsetting

While carbon offsetting can play a role in mitigating greenhouse gas emissions, it is not without its challenges and criticisms, as seen in the fervour around the SBTi announcement. Some key issues include:

1. Lack of regulation.

   The voluntary carbon offset market lacks strict regulation, which can lead to varying quality and credibility of offset projects.

2. Delayed impact.

   Many offset projects, such as reforestation, may take years or decades to fully realise their emission reduction potential.

3. Insufficient scale.

   The current scale of the voluntary carbon offset market is insufficient to address the magnitude of the global climate challenge.

4. Creation of complacency.

   Some may view carbon offsetting as a substitute for other emissions reductions activities, such that they become complacent. It is generally recognised to be better to not create emissions at all than to emit liberally and rely on offsets.

To this end, business can take many measures to avoid such complacency. Following the old adage, ‘what gets measured gets managed,’ companies can perform carbon accounting exercises such as those recommended by the Task Force on Climate Related Financial Disclosures. We at Canbury can help get a full picture of where a company’s emissions are coming from, to enable the organisation to take targeted steps to reduce these.

Some key approaches will likely include:

1. Energy efficiency.

   Implementing energy-saving measures and technologies to reduce overall energy consumption.

2. Renewable energy.

   Transitioning to clean energy sources, such as wind, solar, or geothermal power.

3. Sustainable transportation.

   Adopting low-carbon transportation options, such as electric vehicles or optimising logistics to reduce emissions from freight.

4. Circular economy.

   Embracing circular economy principles to minimise waste, optimise resource use, and reduce the demand for carbon-intensive raw materials.

5. Collaboration and innovation.

   Engaging with industry partners, researchers, and policymakers to develop and scale up innovative decarbonisation solutions.

Conclusion

Carbon offsetting has been the subject of much debate, and rightfully so. By investing in projects that reduce, remove, or avoid greenhouse gas emissions, companies can support the transition to a low-carbon economy – but this only if the projects invested in are credible and effective. Further, carbon offsets must not be seen as a panacea, but rather as a tool only used once a company has taken all possible other steps to decarbonise their operations and value chains.