You may have already heard of carbon offsetting, a term that is increasingly being used in the field of corporate sustainability. Today, more and more companies are declaring goals to become carbon neutral by offsetting their residual emissions. But what exactly is carbon offsetting and how does it work? And more importantly, can carbon offsetting replace a company’s emission reduction commitments to become more sustainable?
To answer these key questions and bring more clarity to the subject of carbon offsetting, ClimateSeed has prepared a short guide on carbon offsetting and how companies and organizations should act to contribute to global net-zero emissions.
Definitions first: What is carbon offsetting?
A carbon offset is defined as “any activity that compensates for the emission of carbon dioxide (CO2) or other greenhouse gases (measured in carbon dioxide equivalents, CO2e) by providing for an emission reduction elsewhere” (1). In other words, carbon offsetting is a mechanism through which an individual or an organization can compensate for their CO2 emission through the support of certified emission reduction projects that absorb or reduce CO2 emissions. This action is realized through the purchase of carbon credits, where 1 carbon credit corresponds to 1 tonne of CO2 absorbed or reduced by the projects. The price of the carbon credit reflects not only the CO2 reduction capacity of the project but also other ecosystem services, the protection of biodiversity, social benefits, and the contribution to the UN Sustainable Development Goals that the emission reduction project achieves. It is important to specify that carbon offsetting here refers to “voluntary offsetting,” which includes “all the approaches adopted by actors who voluntarily choose the compensation method to limit their CO2 emissions” (2), and must be distinguished from the regulated carbon offsetting market. The regulated or the “compliance market” was established by the Kyoto Protocol and sees companies and governments, bound by law to account for their GHG emissions, trade allowances either to make a profit from unused allowances (CO2 that was not emitted) or to meet predetermined regulatory targets (3). The voluntary carbon market emerged in parallel to the implementation of the Kyoto Protocol for the sectors that the regulatory market did not take into account.
Following the guidelines from the Net Zero Initiative, a new terminology has emerged to define carbon offsetting. The concept of carbon offsetting has been replaced by the idea of climate contributions. This shift is explained by the fact that carbon offsetting refers to the idea of compensating the emissions of CO2, which has gained a negative connotation because it suggests the action of compensating for unfavorable behavior and because this lacks a common definition. Differently, climate contributions are defined as a mechanism to support sustainable projects with environmental positive impacts that allow individuals and organizations to contribute to global carbon neutrality (to discover more about the concept of climate contribution click here). Climate contributions can be an effective practice to enhance an organization’s sustainability strategy and contribute to reach net-zero emissions at a global level. In line with the Net Zero Initiative, we believe that the proper terminology should be to reach global carbon neutrality, defined as the overall balance between the GHG released in the atmosphere and the GHG absorbed (4), as a methodology to reach and assess carbon neutrality at a corporate level has not been defined yet. Furthermore, projects supported through climate contributions go beyond carbon absorption or avoidance and achieve other environmental and social impacts that are aligned with the United Nations’ Sustainable Development Goals (SDGs), such as benefits on health, biodiversity, gender equality, and economic development.
It is important to underline that carbon offsetting must always be combined with emission reduction practices for it to be a viable and effective measure. According to the Science-based Targets initiative’s (SBTi) most recent report, compensation and neutralization measures (carbon offsetting) play a critical role in accelerating the transition to net-zero emissions at the global level, but “they do not replace the need to reduce value-chain emissions in line with science” (5). The report explains that reduction efforts may not be sufficient to achieve the 1.5°C objective set by the Paris Agreement because of residual emissions, the emissions that companies cannot reduce due to technical or economic constraints. Thus, carbon offsetting becomes one of the necessary measures to achieve global net-zero emissions. We will now analyze all the steps that organizations or individuals should take to minimize their impact on the planet and contribute to global carbon neutrality.
How can an organization contribute to global carbon neutrality?
Organizations can contribute to global carbon neutrality following a path consisting of four steps: measurement, reduction, offsetting, and transparent communication. This short guide will detail each one of the four steps to provide a better understanding to set a comprehensive strategy for companies to reach net-zero emissions.
Step 1. Measure: You cannot reduce what you can’t measure.
The first step an organization can take to fight climate change is to measure its carbon footprint. Carbon footprint measurement at an organizational level follows precise rules. Several protocols exist to measure CO2, such as the GHG Protocol, which is the most widely used greenhouse gas accounting standard and is recognized internationally. As illustrated in the graph below, the GHG Protocol divides greenhouse gas emissions into three scopes (Scope 1, 2, and 3), which account for direct company emissions and indirect company emissions from upstream and downstream activities. All greenhouse gas emissions are expressed in tCO2e, tonnes of carbon dioxide equivalent, which includes other greenhouse gases, methane (CH4), and nitrous oxide (N2O) being the two main ones. A company’s carbon footprint (Scope 1, 2, and 3) should be assessed once a year and is usually included in the sustainability or extra financial report of a company. In some countries, such as France, the measurement of GHG emissions is mandatory for companies with more than 500 employees (6).
At an individual level, a person’s carbon footprint arises from daily activities, routines, and consumption choices. A person’s lifestyle, their dietary choices, how they commute, how often they travel by plane for work or leisure, etc. are all elements that significantly influence the individual’s carbon footprint. The first step for each person to reduce their carbon footprint is therefore to understand their impact on the planet and their sources of emissions. Several tools are available to allow individuals to assess their carbon footprint.
Step 2. Reduce: Take action to reduce your emissions.
At an organization level, measuring the carbon footprint will allow the company to identify the major sources of emissions and design a sustainability strategy to achieve its emission reduction objectives. The Science Based Targets initiative provides companies with emission reduction guidelines that are in line with the achievement of the Paris Agreement objectives. According to the initiative, Scope 1, 2, and 3 targets must be consistent with a level of decarbonization required to keep global temperature increase well below 2°C compared to pre-industrial temperatures (7). To reach this ambition, organizations should set medium and long term targets up to 2050. The SBTi recommends using “the most ambitious decarbonization scenarios that lead to the earliest reductions and the least cumulative emissions.” (8). Reduction strategies vary depending on the sector and the type of company activities; however, some general guidelines can be identified. For example, to reduce Scope 2 emissions, the SBTi recommends companies to source renewable electricity suggesting a target of 80% renewable electricity procurement by 2025 and 100% by 2030 as thresholds. For Scope 3 reductions, supplier engagement is key as well as setting targets to influence the behavior of end-users.
At an individual level, each person can take actions to reduce their emissions by changing their diet, their transportation modes, and their consumption habits. For example, reducing red meat consumption and choosing sustainable modes of transport (as bicycles, electric vehicles, or simply walking) are great ways to reduce our carbon footprint.
Step 3. Offset: Compensate for your unavoidable emissions.
Carbon offsetting is a voluntary action that can be done at either an individual or an organization level. To account for their unavoidable or residual emissions, emissions that persist, organizations or individuals can purchase carbon credits, which are generated by emission reduction projects that either absorb or avoid CO2. These projects not only have environmental benefits but also co-benefits that target the United Nations Sustainable Development Goals, such as biodiversity protection and support local communities. 1 carbon credit corresponds to 1 tCO2e avoided or absorbed, which can account for 1 tCO2e of emitted emissions.
To issue carbon credits, the project must be certified. Following the certification and the credit issues, monitoring, and reporting activities are performed to ensure the continuity of the projects. Successively the project's activities can be monetized and carbon credits can be distributed and retired by the buyers to offset their emissions. This procedure is known as the project value chain.
Carbon credits are issued every year. Third-party auditors verify the number of emissions absorbed or avoided by the project compared to a base-line, following methodologies established by the standards. Then the standards can issue the carbon credits. All credits generated by a certified project are accounted for on the standards’ registry. Registries are of fundamental importance to avoid the risk of double-counting, which occurs when two or more organizations monetize and claim the same credit. Once an organization decides to purchase carbon credits, intermediaries such as ClimateSeed settle the transaction on behalf of their clients, transferring the credits and canceling them once the credits are retired.
There are different types of emission reduction projects that generate carbon credits, such as:
- Forestry and Land Use, projects that protect and restore existing forest areas threatened by deforestation. - Renewable Energy, renewable power infrastructure that contributes to the decarbonization of the local energy grid. - Energy Efficiency and Fuel Switching, energy-saving measures that reduce carbon emissions and replace fossil fuels with sustainable energy sources. - Household Devices, efficient cookstoves that significantly reduce wood consumption, or biogas digesters that provide sustainable fuel to local communities and hence prevent deforestation and avoid GHG emissions. - Agriculture, agricultural practices that store carbon in soils while restoring biodiversity and developing new sources of income for smallholders. - Water Management, projects that supply clean water to households in rural communities removing the need to boil water and reduces GHG emissions. - Waste Management, landfill projects designed to capture the methane released by the waste disposal and that can turn into clean fuel.
When offsetting, companies should ensure they are supporting high-quality projects. Thus, the first element to consider is the project certification, that is if the project is certified by an international standard such as Gold Standard, VCS, Plan Vivo, or Climate Action Reserve. Once the project has been certified, it is verified periodically by a third-party, so the standard can issue the relevant amount of carbon credits the project has absorbed or avoided for that period. For the standards to issue carbon credits, the projects must follow specific rules and procedures. In particular, the project must be real, measurable, permanent, additional, independently verified, and unique.
To ensure that a project is of the highest quality, ClimateSeed performs additional checks, which include banking due-diligence and review and validation from our internal Sustainability Committee.
How should you select a carbon offsetting project?
These are some recommendations to select projects that are not only high-quality emission reduction projects, but also meet your organizations’ needs and objectives. In particular, the WWF has outlined several characteristics for carbon credits to be considered high-quality (9):
- Be real: each carbon credit must legitimately measure a tonne of CO2 absorbed or avoided by the project. - Be measurable: carbon credits must be computed based on robust scientific data and verified methodologies. - Be additional: “carbon credits must represent emission reductions or removals that would not have otherwise occurred without the added incentive resulting from the carbon market”, as stated in the WWF report. - Be permanent: the emission reductions represented by the carbon credits cannot be reversed after the issuance of the credit. - Avoid leakage: generating carbon credits must not generate emissions elsewhere. - Be monitored, reported, and verified by credible third-party verification systems. - Comply with social and environmental safeguard: the generation of carbon credits must not violate any law, regulation, or treaty and must meet the international best practice standards for social and environmental safeguard.
Additional recommendations - Ensure that the selected projects match your organization’s environmental and social goals. You can rely on experts to select the appropriate projects. - Ensure that the price margins are clear, and the money you are paying for actually reaches the projects and the local communities. - Match the project location to where your organization operates or sells its products. - Match the project typology with your company’s activities or interests. - Ensure that the project meets the highest quality standards by ensuring that the project is certified by either an international or national standard such as Gold Standard, VCS, Plan Vivo, or Climate Action Reserve.
Step 4. Communicate your climate action to your stakeholders.
For carbon offsetting strategies to be successful, companies must be able to communicate about them in an accurate and precise way. A good and transparent communication strategy will protect an organization from greenwashing accusations and malpractices. Hence, a valuable communication strategy consists of proper disclosure of information about the projects supported, the environmental and social impacts generated as well as the co-benefits, such as biodiversity, and the SDGs targeted. It also requires an additional explanation of the carbon finance mechanism and its role to achieve the 1.5°C climate goals. Using the correct terminology to communicate about climate action is key to a successful communication strategy.
Following the Net Zero Initiative’s guidelines, here are some useful communication tips for an effective communication strategy: - Avoid the terminology “carbon offsetting” and favor “climate contribution” instead. The concept of climate contribution is not to compensate for negative emissions, but to contribute to projects that capture or avoid CO2 emissions to accelerate the fight against climate change. Projects supported through climate contributions go beyond carbon absorption or avoidance and achieve other environmental and social impacts that are aligned with the United Nations’ Sustainable Development Goals (SDGs), such as benefits on health, biodiversity, gender equality, and economic development. The more we contribute to high-quality emission reduction projects, the bigger the positive impact on climate and natural ecosystems. - Avoid being vague and quantify your impact. Make sure to define the scope (1,2,3) your climate contribution accounts for. - Refrain from claiming your company to be “carbon neutral” as a universal definition of carbon neutrality at a company level has not been defined yet. - Disclose the number of credits purchased, in tCO2e, to support an emission reduction project. - Communicate about your climate action by following ISO 14021. - Educate and inspire your stakeholders to also support an emission reduction project to generate a larger positive impact.
Measure, Reduce, Offset, and Communicate. These are the 4 steps for an effective strategy to reach net-zero emissions, which has today become a necessity to reach the 1.5°C goal established by the Paris Agreement. In addition, supporting emission reduction projects can allow companies and individuals to achieve a truly positive impact on the environment and society.
We hope that this short guide on carbon offsetting has helped you to better understand the importance of supporting emission reduction projects and has provided you with relevant information to reach net-zero emissions.
Discover more on our projects and how ClimateSeed can help you build your climate action strategy on https://climateseed.com
Science-based Targets Initiative, “Foundations for Science-based Net-Zero Target setting in the corporate sector”, 2020, available at: https://sciencebasedtargets.org/wp-content/uploads/2020/09/foundations-for-net-zero-full-paper.pdf
“WWF position and guidance on voluntary purchases of carbon credits”, October 2019, available at: https://c402277.ssl.cf1.rackcdn.com/publications/1310/files/original/WWF_position_and_guidance_on_corporate_use_of_voluntary_carbon_credits_EXTERNAL_VERSION_11_October_2019_v1.2.pdf?1591194127