Carbon offsetting – a key part of holistic climate strategies

June 4, 2021

Climate awareness has increased greatly over the last year. Politicians and law makers were finally able to bring themselves to adopt stricter guidelines for climate action in the EU, the UK, and even in the USA. Our 2020 client survey shows that companies are making bold commitments towards Net Zero as part of strong climate action strategies. Consumers also clearly see the importance of climate action in their daily lives – a finding highlighted in our recent Climate Awareness Report.

This is encouraging news, as we need as much awareness, participation and engagement as possible to tackle climate change. Interestingly, the growing awareness of climate action has also coincided with debates around carbon offsetting to reduce carbon emissions. The issue is being discussed publicly, with many parties raising multiple questions about, and offering a wide spectrum of opinions, surround the concept of carbon offsetting and what it is able to achieve. It is obvious that expectations need to be managed concisely and transparently.

The hierarchy of green investments

Understanding the impact of carbon offsetting and what it can achieve can help to define the best possible ways to increase its efficacy within climate action strategies. One point is clear: companies should always prioritise investments in reductions above offsets.

Moving a vehicle fleet over to electric, procuring renewable energy, paying more for a low carbon raw material, and implementing energy efficiency measures are all examples of investments that companies can act on today. If they have limited budgets, these should always be prioritised over carbon offsetting. But if an organisation is fortunate enough to be able to afford to do all the above, then this should not be an either/or situation. We are in a climate crisis, and when dealing with crises we should mobilise as much money and resources as possible for every solution.

Most carbon reduction initiatives are often part of a long-term strategy and hard to invest in immediately. They often require a company to engage with its supply chain or various other stakeholders, and re-think the business model with circular economy principles. They might even involve nudging a company's customers to change their behaviour and often require cross-industry collaboration. None of these transition efforts can be implemented quickly, and few are in a company’s direct influence. It can be an arduous, complicated, and a lengthy process.

Offsetting is therefore quite often the only immediate action companies can take today. It is not radical, but it is often enough for a company to start a holistic climate action and sustainability journey with no return ticket. Our ‘carbon budget’ is likely to be exhausted in less than 7 years. We therefore must act now and deploy large-scale financing across multiple solutions without delay.

Communications challenges

Carbon offset projects exist with multiple technologies, in various countries, addressing various climate challenges. If their setup is robust and of a high quality, they will have been 3rd party certified for avoidance, reduction, and removal of CO2 emissions from the atmosphere, they have regular audits, and they comply to a rigorous standard set up by a consortium of NGOs (non-governmental organisations), scientists and experts.

Despite differences in project types, they all have one thing in common: as they save CO2 emissions, companies that help to make that happen by investing can balance their own emissions.

Emilien Hoet, Head of ClimatePartner UK sees the companies' motifs for using this principle for their marketing purposes as the origin of many misconceptions around offsetting:

"What seems to irk some parties is mainly that companies get to make claims off the back of investments in offsets. But this is precisely the reason why investments can be justified and get sign off in the boardroom in the first place. A lot of this financing may not even see the light of day if marketing claims couldn't be made."

Realistically speaking, if companies could invest in offsetting measures but not talk about it, then many would simply not bother. But even if marketing opportunities were the only drivers for a company's climate strategy, it still is a strategy with concrete measures, validated impact and beneficial effects on climate.

Hoet adds: "I recently spoke to a company that had planned a major offsetting campaign for their deliveries (in addition to providing subsidies for their delivery drivers to transition to electric and low carbon vehicles) but decided to table the investment altogether because of fears of being accused of greenwashing. What ended up happening was that no investment was made at all."

It is also important to observe that continuous footprinting and offsetting enables companies to reduce their carbon emissions. If they do not reduce and only want to offset their emissions, they quite rightly will be accused of greenwashing and will need to act soon enough. Making public statements like being ‘Carbon Neutral’ or selling ‘Carbon Neutral products’ places a lens of accountability on these businesses.

The science

The IPCC states that "if global temperature temporarily overshoots 1.5 °C, Carbon Dioxide Removal (CDR) would be required to reduce the atmospheric concentration of CO2 to bring the global temperature back down."

Even if we take optimistic targets and pledges made by governments and companies around the world, we are still on track for way above 2 °C presently. We are already at a dangerous 1.1 °C of global warming above pre-industrial levels.

This means that without carbon removal, it is not possible to limit global warming to 1.5 °C as it currently stands. We need this category of carbon offsetting (carbon removals) to achieve the necessary climatic balance. Companies that finance carbon removal are helping with innovation and ensure we can all get to Net Zero.

The Science Based Targets Initiative (SBTi) also states: "Companies that plan to reach Net Zero with higher reliance on carbon removal are required to conduct additional carbon removal that supports early development and provides greater accountability". It is not a case of waiting until all reductions are complete before offsetting begins.

Although the consultation on an official Net Zero standard is still in progress, in late 2020 the SBTi identified the most ambitious pathway to Net Zero as including a recommendation to compensate for emissions today as they are reduced and eventually neutralised.

The SBTi makes a distinction between carbon offset projects which avoid or reduce carbon (compensation), and removal (neutralisation). The former is optional but recommended if financially feasible.

Academics at the University of Oxford who investigated how we should get to Net Zero also recommended offsetting in conjunction with reductions. They outline an illustrative offsetting portfolio approach that is Net Zero aligned. This comprises of projects which avoid carbon entering the atmosphere (e.g. forest protection), reduce carbon (e.g. clean cookstoves) and remove carbon entirely (e.g. afforestation, direct air capture).

Conclusion

All effective solutions currently available need to be deployed to fight the climate crisis we are in; this includes carbon offsetting. It must be done correctly and subject to the highest quality standards. Additionally, it must not be seen as a standalone solution, but as a key aspect within a holistic scenario that focuses on clear, traceable, and enduring reduction and avoidance effects.

This is where managing expectations comes into place. Companies that support offsetting must make clear what role it has within their wider climate action strategy. They also need to transparently report on the impact and effects, so that the public can receive a full understanding of the process and the results.

Illustration: Oxford Net Zero Aligned Carbon Offsetting Report 2020.