As the race to net zero accelerates, companies are voluntarily seeking to offset their carbon emissions by buying carbon credits in voluntary carbon markets. Buying carbon credits is a controversial issue that has supporters and detractors.
Supporters argue that offsets provide a valuable tool for reducing emissions. Offset purchases provide funding for research and development of removal technologies. Detractors argue that carbon offsets distract from the true goals of reducing emissions and can be used as a “license to pollute.” Additionally, verifying the effectiveness of offsets is difficult, leading to charges of greenwashing and risks to brand reputation.
This article sheds light on the divisive issue of purchasing carbon offset credits, providing insights to assist organizations in making an informed decision.
What is a Carbon Offset Credit?
A carbon offset credit, sometimes referred to as carbon offset or carbon credit, is a certified transferrable instrument representing an emission reduction of one metric tonne of CO2. The purchaser of an offset credit can “retire” it to claim the underlying reduction towards their own GHG reduction goals.
Carbon offset credits are produced by discrete “projects” that reduce GHG emissions or remove or avoid carbon. Projects also claim to include “co-benefits,” like improving local livelihoods, enhancing water quality, and protecting biodiversity. Carbon offsets in the form of Certified Emission Reductions (CERs—measured in tonnes of CO2 equivalent) can be bought and sold in carbon offset markets.
Types of Carbon Offset
- Nature-based / Technology based: Nature-based projects use natural processes, whereas technology-based projects use technology to reduce or avoid greenhouse gas emissions.
- Removal or avoided emissions: Another dimension to classify projects is based on greenhouse gas removal, that is, removing emissions from the atmosphere or avoidance, that is, avoiding the emission by using a non-emitting substitute.
Reforestation is an example of a nature-based removal offset, while no-till agriculture avoids the release of carbon dioxide stored in the soil. Direct air capture is an example of technology-based removal, while solar energy and electric vehicles are examples of technology-based avoidance offsets.
Considerations for Purchasing Carbon Offset Credits
To avoid the risk of greenwashing and the reputational risks that go with it, it is essential to seek out high-quality carbon offset credits by considering the following:
- The standard used by the carbon offset project to verify the carbon offset
- Durability/Permanence – reflects the planned length of time CO2 will be stored and the risk it’s re-released. Nature-based solutions, like reforestation and soil-carbon storage, are typically less durable, while engineered solutions, like direct air capture, and hybrid solutions, like biomass conversion and sequestration, can store CO2 more durably
- Additionality / Leakage – Additionality is whether the project would happen without the financing provided by carbon offsetting and leakage is when the project increases emissions in a different location.
- Price – The diversity of carbon offset projects leads to high variability in the pricing of carbon credits ranging from $5 to $200 per tonne of CO2 equivalent. The price variability results from the reduction methodology, the quality, the location, the demand for the project, and the co-benefits associated with the project.
- Co-benefits of the projects: Projects produce social and environmental benefits beyond GHG reductions. “Co-benefits” can include improvements to community employment opportunities, enhanced air or water quality, biodiversity, and habitat conservation. These benefits also provide positive outcomes toward UN Sustainable Development Goals.
- Location – local/national/international.
In addition, a company can choose projects aligned with business goals. Companies can also create a portfolio of carbon offset projects that are nature or technology-based, avoidance or removal, and that provide different co-benefits.
Carbon Offset Programs
Carbon Offset Programs perform several functions:
- Define standards that set criteria for the quality of carbon offset credits.
- Review and verify offset projects against these standards.
- Operate registry systems that support the transaction between buyer and seller, ensuring the credit is retired after a sale and not resold.
The Gold Standard, the Verified Carbon Standard, The American Carbon Registry, Climate Action Reserve, and Plan Vivo are well-respected voluntary carbon offset programs. Individuals and businesses can purchase carbon offset credits on the Gold Standard website. A purchaser is sent a purchase certificate and direct links to the credit retirements. Companies or organizations can get Verra Registry accounts and transact Verified Carbon Units certified under the Verified Carbon Standard.
To Buy or Not to Buy
Direct action to reduce greenhouse gas emissions at a pace aligned with science should be the primary focus of net-zero goals. Do not buy offsets until you clearly understand your current emissions and have explored all reduction actions. The first step is to measure your footprint, set science-based goals, identify actions, and implement plans to reach those goals. This includes collaborating with your value chain and working with them to implement decarbonization in their operations for Scope 3 reductions.
Only then, consider buying carbon offsets to accelerate your climate impact further and go beyond your footprint for the following situations:
- Final step for residual emissions: Where the cost of eliminating emissions is too high, or the emission is difficult to eliminate (for example- unavoidable air travel), carbon offsets can be used to retire residual emissions. Offsets offer flexibility in how a company achieves net zero.
- Intermediate step for annual carbon-neutral goals: Setting targets and getting to net zero takes time. Offsets can be used against residual emissions to achieve an annual carbon-neutral goal.
- Historic emissions: The only way to neutralize historical emissions is to remove them from the atmosphere, which can be done by buying removal offsets.
- Purchasing offsets to demonstrate environmental responsibility and support UN SDGs from the co-benefits of projects.
- Purchasing offsets as a market signal to fund nascent technologies like direct air capture and other removal technologies that might be needed at scale in the future.
Used properly, as complementary to emission reduction goals and actions, carbon offsets have a role to play in a company’s net-zero journey and the fight against global warming. Funds from the purchase can accelerate action on climate change and can be used to finance conservation or restoration activities and support projects that either remove, reduce, or avoid CO2 emissions.
