Carbon offsets

What is a carbon offsets?

Carbon offsets are reductions of greenhouse gas emissions or increase carbon storage via afforestation or land restoration that a company can use to offset emissions created in other locations. 

How does carbon offset work?

A carbon offset starts its life with an emission reduction and not all reductions qualify as an offset. It needs to meet a specific quality criterion based on the methodology used related to the kind of carbon project like energy, forests, and livestock wherever reduction takes place. Methodologies help to quantify the impact of carbon reduction. 

In 1992, the Kyoto Protocol outlined the first offset provision under the Clean Development Mechanism (CDM) which allowed companies to offset their emissions by investing in environmentally positive projects. This led to the establishment of “ Compliance Markets” for carbon credits. 

These methodologies are complex as carbon projects differ with a number of variables that need to be accounted for along with accuracy. There is a need to evaluate the impact using the methodology after which a project can be developed. 

These developers apply standards to review the project against the methodology which involves gathering scientific data that needs to be validated. Using the methodologies, the project activities are outlined, and a baseline is established for the reduction of emissions. These efforts then need to be reviewed and certified by an independent third-party validator who acts on behalf of the standard. All offset programs require a third-party auditor to validate a project’s baseline and the projected and achieved emission reductions. 

Once a project is validated, it is ready to be officially registered and approved with a carbon offset program. It is now ready to start generating carbon offsets. 

Verification is key in these projects. Firstly they need to meet the program’s eligibility criteria and secondly validate that data was collected in accordance with the program requirements and that the calculations were estimated according to the approved methodology and protocol. Projects are verified to ensure the integrity and quality of data and there is transparency and accountability in the carbon market. 

As these offsets travel through the journey of methods, validation, and verification it enters the next phase of trading ie. buying and selling of offsets. This is where Carbon markets come into play. 

How much is 1 carbon credit?

A carbon credit is worth one tonne of CO2e (tCO2e) emissions which is equivalent to 556.2 cubic meters of volume.

What are some examples of carbon offsets?

Some examples of carbon-offsetting projects are the following:

• Forestry. Tree planting projects restore areas facing deforestation. Trees absorb and hold carbon. Without them, that carbon would be in the atmosphere, making global warming worse.
• Agriculture. Farmers grow crops using technology and techniques to maximize resources and reduce waste when growing crops.
• Aviation. Airline operators optimize flight paths with AI to minimize the creation of contrail clouds.
• Renewable energy. These projects replace fossil fuel use with clean, renewable energy, such as that generated from a wind farm.
• Water management. Projects get clean water to areas with polluted or otherwise contaminated water so that they can reduce the need to chemically treat or boil water.
• Waste management. Projects capture the methane generated in landfills from waste disposal.
• Carbon sequestration. Projects use carbon capture and storage to put carbon in places where it’s unlikely to be released back into the atmosphere. They take carbon out of the air and store it in soil, in swamps, in trees, and even in rock.
• Energy efficiency. Projects aim to improve the efficiency of existing infrastructure by upgrading building insulation, for instance.

What are the pros and cons of carbon offsets?

Pro’s

• The immediate claim of environmental benefits from an offset project
• Co-benefits of offset projects such as ecosystem management, forest preservation, sustainable agriculture, renewable energy generation in third-world countries, etc.
• Can count towards internal reduction goals, unavoidable scope 1 emissions, and scope 3 (value-chain emissions)
• Provide market demand signals to a commodity that has historically been undervalued.
• Innovative offset opportunities such as business travel, hotel accommodation, events, product lines, etc.
• Registry-accredited projects are third-party validated (Verified Carbon Standard, Climate Action Reserve, American Carbon Registry)
• Great tool for narrative building within ESG strategies.

Con’s

• Not a fix-all solution for reducing corporate GHG emissions
• Are not accepted for offsetting avoidable scope 1 emissions for science-based-targets
• Are not accepted for offsetting scope 2 emissions for science-based-targets
• Offsets are a cost and do not have a financial return on investment compared to other operational efficiencies such as on-site solar.
• Can be viewed as “greenwashing” if used improperly