January 19, 2022
C is for Carbon Offset.
Next up in our A-Z of Sustainability, we look at carbon offsets. You’ve probably heard of companies using carbon offsets in a bid to be greener, but what actually are they? And how is the global offset market changing the future of sustainability? In this article, we demystify the subject of carbon offsets!
Many companies and nations are striving to reduce their carbon emissions - this is being driven by public demand, government regulation, and the increased pressure to meet net-zero targets.
As most of us cannot yet reduce our carbon footprint to zero, after reducing our climate impact, the transition to a low-carbon future will involve offsetting any unavoidable emissions in the short term.
What are carbon offsets?
A single carbon offset is used to certify that a single tonne of carbon has been removed from the atmosphere permanently (either through reduction or avoidance).
Carbon offsets come in four categories:
For example: planting a new forest of trees can help alleviate some of the damage caused by carbon emissions which contribute to climate change. As trees grow, they take in carbon dioxide from the air and incorporate the carbon into their leaves, trunks, and roots, as well as the soil under them. A single tree can absorb almost 11kg CO2 in one year, however, to offset a single flight from New York to London, you would have to plant more than 54 trees. For this reason, trees aren’t always the most effective way to offset.
Other offsets can also have various co-benefits, such as community building, economic development and biodiversity protection, which make them doubly attractive to offset buyers.
What makes a ‘good’ carbon offset?
Sounds pretty straightforward so far, right? Just plant trees, build wind farms or stop deforestation and your carbon will be offset. However, there’s an added criteria: offsetting schemes must be “additional” i.e. they should only exist by virtue of the money paid for them.
Offsetting schemes must be additional i.e. they should only exist by virtue of the money paid for them.
Many companies want to join in on the carbon offset craze, but they can find it tricky to choose offsets that wouldn’t have existed otherwise. Consider a nation expanding its electricity supply due to a growing population. It might be choosing between a coal-powered plant or a wind energy farm. If the wind farm were the preferential choice anyway, then the project wouldn’t have been able to present itself as an offset. However, if the coal plant were to be cheaper, but by selling offsets the wind farm can achieve price-parity, then the wind farm could be used for offsets as the total additional cost was bridged by the offsets.
In short, offsets must come from additional projects.
Offset project developers are also required to demonstrate the integrity of their venture. To do this, they must seek certification from an internationally recognised standard that will provide third-party verification. Here are some of the most well known:
By using one of these, it means that the project developers can demonstrate a certain level of rigour when creating their carbon offset, and the buyer can be confident that it will have the intended impact.
Even within these global standards, there is some variation in the quality of the offset. At Alectro we can help you to choose the most appropriate offset for your business.
Carbon offsets: an increasingly scarce commodity
Typically service-based companies purchase offsets on the voluntary carbon market rather than schemes from the more formalised government-regulated market, such as the EU Emissions Trading System, used by larger industrial corporations.
As such, the sales volume of voluntary carbon offsets in 2030 could be worth between $5 billion and $30 billion. As the market becomes increasingly popular, prices are hiking as a result. On the market, renewable energy projects are currently the cheapest that a company can buy. In comparison, forestry offsets can cost up to four times more.
As we transition to a greener future more and more renewable energy projects are becoming the standard and as a result, will not be deemed a suitable carbon offset (because they would have been created anyway). This will erode the availability of cheaper offsets making the market more competitive.
What does this mean for offset buyers?
These aren’t the only problems facing buyers and sellers of carbon offsets. High-quality carbon offsets are also becoming more scarce because accounting and verification methodologies are becoming stricter.
This isn't a bad thing though, and hopefully, standards will increasingly share strategies and merge methods to provide buyers with additional confidence.
The inventory of the cheapest offsets (energy-based offsets such as renewable energy projects) are being snapped up quickly, and as a result, companies are now moving on to more expensive offsets.
Carbon offsets may still have an air of mystery around them, they are helping the world take a step in the right direction
While the offsets might be shifting for consumers, for Planet Earth, this isn’t necessarily a bad thing. The fact that the market is becoming more dynamic and reflective of the true price of a tonne of carbon, will in turn change the habits of corporations.
These new dynamics will increase the incentives for corporations to reduce, rather than offset. When the cost of offsetting increases significantly, it is rational for organisations to seek other methods to mitigate their emissions.
When the cost of offsetting increases significantly, it is rational for organisations to seek other methods to mitigate their emissions.
Higher carbon prices also incentivise forest protection and reforestation over other land uses. To date, carbon prices have been too low to discourage alternative land use, such as logging, mining and agriculture.
We can take initial ownership of our flight emissions through actions like tree planting, but it is expected that offsets will act as a mechanism to inspire greater behavioural changes and technological advances that will benefit us all.
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This article was originally published on LinkedIn: Carbon offsets will ultimately drive companies to reduce their footprint