Carbon Offsetting: Removing the Uncertainty

Carbon offsetting is a topic of ongoing debate in the sustainability and net-zero landscape, leaving many companies unsure whether to incorporate it into their strategies. While numerous businesses are eager to expand the use of carbon offsetting to help meet their Scope 3 emission targets, some regulators have raised concerns due to the limited scientific evidence supporting the effectiveness of these activities. This uncertainty has only grown with the recent publications from the Science Based Targets initiative (SBTi).

In this blog, we explore the concept of carbon offsetting, the various types of offsets and how they should be utilised over time. We also delve into the Voluntary Carbon Market and the new stringent standards set by the Integrity Council for Voluntary Carbon Market which aim to enhance the assurance of high-quality carbon credits.

What is carbon offsetting?

Carbon offsetting is when one entity avoids, reduces or removes greenhouse gas emissions from the atmosphere, another entity can purchase it to offset their greenhouse gas emissions.

There are 3 key criteria that define a carbon offset:

1. Emissions are avoided, reduced or removed from the atmosphere.
2. This mitigation output is transferred from one entity to another.
3. This transaction is done to compensate for the receiving entity’s emissions.

Types of carbon offsets:

When it comes to carbon offsets, there are three main types you should know about:

1. Carbon reduction credits : These credits are issued from activities that reduce greenhouse gas emissions compared to a reference or base year. A prime example is projects that improve the fuel efficiency of cookstoves in sub-Saharan Africa, which traditionally burned wood and charcoal.
2. Carbon avoidance credits: Issued from activities that prevent potential future emissions, carbon avoidance credits are crucial for preserving our planet’s existing carbon sinks. For instance, preserving forests to prevent deforestation falls under this category. This is the most widely available type of certified credit.
3. Carbon removal credits: These credits are issued from activities that actively remove and store greenhouse gas emissions from the atmosphere. Biological carbon sequestration, include enhancing or restoring natural stocks such as reforestation projects. Engineered solutions, like carbon capture and storage (CCS), involve capturing CO₂ from the atmosphere and securely storing it.

Approach to utilising different types of offsets

When it comes to carbon offset types, their permanence and longevity can vary significantly. Nature-based solutions, such as reforestation, come with risks. Events like wildfires, deforestation, or disease could reverse carbon removal efforts, releasing stored CO₂ into the atmosphere. As a result, reforestation is often seen as a short-term carbon storage option. On the other hand, engineered solutions like carbon capture and storage are considered more reliable for long-term carbon storage, with a lower risk of reversal.

The Oxford Offsetting Principles suggest that businesses adopt a blended approach, combining different types of offsets that align with their sustainability goals. However, by 2050, the aim is for all offsets to be focused on carbon removal projects with long-term storage capabilities.

What is the Voluntary Carbon Market (VCM)?

The Voluntary Carbon Market (VCM) is a decentralised marketplace where organisations can buy and sell carbon credits to voluntarily offset their carbon footprint. These carbon credits are created by private entities and are issued by independent, non-regulated crediting schemes and standards.

The VCM was originally established to help channel capital toward nature-based climate solutions, such as afforestation and wetland restoration, as well as innovative low-carbon technologies like carbon capture and storage. Additionally, the VCM plays a crucial role in bridging the gap between nature conservation and climate mitigation financing, offering a valuable tool for organisations committed to environmental sustainability.

The Integrity Council for Voluntary Carbon Market (ICVCM), an independent governance body for the voluntary carbon market (VCM), has recently implemented stricter standards to help companies confidently identify high-integrity carbon credits. These new standards aim to ensure that the VCM effectively contributes to reducing carbon emissions.

The ICVCM’s assessment process is divided into two stages. First, carbon-crediting programs can apply for evaluation against the ICVCM’s 10 Core Carbon Principles (CCPs). If a program meets these criteria, it is approved by the ICVCM Governance Board as CCP-eligible. In the second stage, experts assess the specific carbon credit methodologies used by the programs to ensure they also align with the CCP criteria. Successful methodologies are then classified as CCP-approved.

According to the ICVCM, CCP-labelled credits provide a guarantee that each credit represents the removal or reduction of one tonne of emissions. These credits also help scale up private sector investment in high-quality projects focused on reducing emissions and removing carbon from the atmosphere.

Next week, we’ll delve into the challenges of carbon offsetting, it’s role in achieving net zero, and the essential steps companies should be taking right now. Stay tuned for the release!