The Future of Carbon Offsetting: Zero or Hero?

In our previous post, Understanding Carbon Offsetting: Removing the Uncertainty, we broke down the basics of carbon offsetting and carbon credits, including the differences between reduction, avoidance, and removal. In this post, we’ll explore the future of carbon offsetting –the associated challenges, its role in the race to net zero, and what companies should be doing now about their offsetting strategies.  

Challenges associated with Carbon Offsetting 

Despite the dramatic growth in the use of carbon credits and the opportunities they create, the current state of carbon offsetting and the Voluntary Carbon Market (VCM) is not perfect. Over-crediting has eroded both public and private trust in these markets. Additionally, reports of leakage (deforestation occurring elsewhere within or on the border of the project boundary) and a lack of additionality (where a project fails to remove or reduce emissions beyond what would have occurred naturally) have emerged due to inaccuracies in calculation methods. 

It is essential for a company planning to invest in carbon offsetting to evaluate the associated risks and opportunities comprehensively.  

What is carbon offsetting’s role in net zero? 

According to the SBTi’s Corporate Net Standard, carbon offsetting is required to meet net-zero targets. Carbon offsetting can be used to neutralise residual emissions and any emissions beyond an organisation’s value chain (beyond value chain mitigation). 

Carbon offsetting currently does not count as emissions reductions towards science-based targets but does count towards carbon neutrality status. 

There has been encouragement by the business community to expand the role of carbon offsetting to contribute towards meeting net-zero emissions reduction targets as many large organisations are struggling to meet their Scope 3 targets.  

Yet, SBTi’s recently published evidence synthesis report shed doubt on the use of carbon offsetting due to the lack of scientific support for the effectiveness of carbon offsetting. 

61% of evidence submitted to the SBTi suggested various types of carbon reduction and avoidance credits are ineffective in delivering their intended mitigation outcomes highlighting issues around inaccurate methodologies, additionality, leakage and double counting. Additionally, evidence highlighted risks to corporate use of carbon credits for offsetting, with the potential unintended effect of hindering net-zero transformation and/or reducing climate finance. The WWF has similarly criticised carbon offsetting as a tool for reducing Scope 3 emissions, highlighting the lack of rigorous scientific support for offsets delivering real emission reductions and market transformation. 

The Oxford Offsetting Principles and UKGBC strongly emphasise the need to transition away from carbon reduction and avoidance credits. They argue organisations must shift towards utilising carbon removal credits, which have been issued from activities with long-term storage, low risk of reversal and high durability – such as direct air carbon capture and storage – to counterbalance residual emissions effectively and achieve net zero. 

Although the current narrative suggests there is little support for using carbon offsetting as a tool to meet net zero emission reduction targets, the SBTi emphasises its synthesis report is one part of the process towards the revision of the SBTi Corporate Net-Zero Standard. A key limitation of the current evidence provided was how applicable the findings are in different contexts given the broad range of the various types of carbon credits and different methodologies used for determining the mitigation outcomes associated with these credits. Therefore, it’s clear a more comprehensive evidence base is needed to produce more conclusive results.  

SBTi will not decide on the new standards until 2025. 

What should companies do now? 

The recent updates have left many companies feeling uncertain about how to proceed with offsetting. At Acclaro, we understand these challenges and have outlined a few steps that can help businesses continue progressing toward their net zero goals while the specifics around offsetting are still being clarified. 

1. Follow the Net-Zero Guidance: Currently, no formal decision has been made by the SBTi. Businesses seeking to follow the latest guidance should still utilise the SBTi Net-Zero Standard. Companies are also advised to read other guidelines (such as the International Emissions Trading Association, the Oxford Offsetting Principles and the Voluntary Carbon Markets Integrity Initiative) to understand what they can claim when using offsets, how it should be approached and what is typically accepted within offsetting guidance. 
2. Prioritise emission reductions: Companies should continue prioritising the measurement, public disclosure, and reduction of their emissions, including Scope 3. 
3. Invest in Carbon Removal Credits: If a company wants to offset, consider the types of offsets to invest in. Carbon removal credits, although expensive, are the most reputable offsets and require more financing to support scaling up. 
4. Utilise Offsetting for BVCM: The SBTi advice on offsetting for Beyond Value Chain Mitigation (BVCM) remains unchanged, indicating that offsetting can be a useful tool to accelerate net-zero transformation and increase climate finance in efforts outside a company’s direct emission reductions and value chain. 
5. Stay Informed with Acclaro’s Monthly Updates: Stay updated on guidelines and framework updates. Acclaro Advisory releases a monthly regulation update to help companies stay current with the latest information.  Sign up today!
6. Develop an offsetting strategy and integrate into net zero plan: Companies should develop an offsetting strategy that aligns with their business culture and behaviours, ensuring it supports their net zero plan and forms an integral part of the decarbonisation process. This approach enables companies to strategically and cost-effectively plan the use of offsets, helping to avoid potential cost and supply risks.