As businesses and individuals seek to cut carbon emissions, there is a growing move towards the implementation of ‘offsetting’. As the World Economic Forum discusses, in the past offsetting would likely have involved planting trees or investing in a reforestation project. Yet today businesses can instead “buy carbon credits to establish an ongoing programme of carbon offsetting, so that for every action – a new division or building, a new fleet of vehicles, or a flight and so on – you simply buy more credits to cancel out your emissions.”[i]
There are a wealth of examples as to how business may use carbon credits. For example, in the EU, airlines operating flights between EU member countries can use carbon credits to meet mandatory limits on their emissions under the EU Emissions Trading Scheme (EU ETS) which has been operating since 2005. Further, in Colombia, companies can pay their carbon taxes using carbon credits, and in May 2020, the US Treasury issued new rules requiring companies claiming carbon-capture tax credits to verify the amount of carbon captured by the schemes they invest in[ii].
“Companies can meet their climate targets by purchasing credits for their current emissions although some, like Microsoft, have committed to going further and using credits to compensate for all their historic emissions – in Microsoft’s case, going back 45 years.”[iii]
Source: Bloomberg[iv] referencing TSVCM
The practice is certainly on the rise, former governor of the Bank of England, Mark Carney previously stated that he believed the unified market for carbon offsets could be worth $100 billion by the end of the decade, up from about $300 million in 2018[v]. Carney himself is head of the Taskforce on Scaling Voluntary Carbon Markets (TSVCM). Launched in September 2020, the Taskforce aims to quantify the stock of existing voluntary offsetting schemes as well as ensure credibility and avoid issues such as double counting. Previously, Voluntary Carbon Market Forums (VCMF) chair Dame Clara Furse was quoted by Edie.net as saying: “Carbon credits are an important step in securing a path to net-zero. The work of the Taskforce has been essential in setting out a clear pathway towards significantly scaling voluntary carbon markets, whilst ensuring they are transparent, well-governed, verifiable, and robust.”[vi]
Greenwashing is a term which is gaining increasing attention in the Net Zero space, essentially, it relates to the action of a company or business to portray themselves or their products as being ‘green’ or ‘environmentally friendly’ when in fact this is not necessarily the case, and such information is potentially misleading. A such, carbon offsetting, and subsequently the purchase of carbon credits, has seen some environmental groups and NGOs label it as a tool for greenwashing. Their argument is that carbon offsetting is simply used to avoid addressing the real issues with pollution and carbon emissions. As Owen Hewlett, Chief Technical Officer of the Gold Standard, one of the most robust of the standards, has commented, using carbon offset “as a social license to indulge in unnecessary activities … is a dangerous path. Offsetting can be great if it’s used to compensate science-based residual emissions and if the credit itself has integrity.”
These concerns have led to the emergence of internationally agreed standards such as Clean Development Mechanism (CDM), Reducing Emissions from Deforestation and forest Degradation (REDD+) and Verified Carbon Standard (VCS), as well as the Gold Standard. CDM was the first, included in the Kyoto Protocol, while more offset projects have aligned with REDD+ than any other mechanism, with the Norwegian government alone allocating over $2.5 billion to REDD+ projects. However, the proliferation of standards also raises issues around the standardisation and the legitimacy of the credits themselves, with the industry open to fraudulent activity due to its lack of central regulation. The mechanisms themselves have also open to abuse in the past, particularly around issues of additionality. For example, a 2016 study for the EU found that 73% of the carbon offset under CDM had a low likelihood that they led to new carbon reduction.
Branching off from the work by TSCVM, is a new platform launched in February 2022. The product called Carbonplace, follows on from a pilot in 2021 dubbed ‘Project Carbon’. The platform has been made to help address some of the legitimacy issues around the trading of carbon credits through voluntary schemes with “clear and consistent pricing and standards, amid persistent concerns around the credibility of credits and whether pricing trends could cause issues for organisations relying on offsetting to achieve net-zero commitments.”[vii] The project uses the work of REDD+ and Gold Standard to provide legitimacy for companies seeking to utilise this form of offsetting by using blockchain technologies. It aims to reduce the barriers that hold back the use of legitimate offset in climate change mitigation.
At the same time, the standards themselves are constantly developing and improving, aiming to close the loopholes that later lead to claims of greenwashing. Effective offset needs to ensure that reductions are more than simply additional. The savings also need to be unique, and claims-based on independently verified measures. Further, these need to lead to permanent carbon removal and sequestration, rather than simply paying for carbon reduction, and thus demonstrate wider social value. For example, the award-winning Luangwa Community Forest Project, which is both REDD+ and VCS verified, has created a safe habitat for elephants, giraffe and lions in 9,436 km2 of African jungle. It has also introduced clean water, supported entrepreneurship, and generated employment for 217,000 people, as well as saving over 1.3 million tons of carbon dioxide each year.
To achieve zero carbon in an efficient and equitable way will require carbon offset and the emergence of a carbon market. The development of the TSCVM and of platforms like Carbonplace show that the growing pains of carbon offset may soon be over and the market is now maturing. With confidence that offset is providing additional carbon saving, independently verified using a robust methodology, carbon offset is likely to be an increasingly important weapon in the fight against climate change.
[i] What is carbon offsetting? | World Economic Forum (weforum.org)
[ii] What are carbon credits and how can they help fight climate change? | World Economic Forum (weforum.org)
[iv] Carbon Offsets: New $100 Billion Market Faces Disputes Over Trading Rules – Bloomberg
[vi] New governing body formed to oversee voluntary carbon markets (edie.net)
[vii]Finance giants team up to launch digital carbon offset trading platform (edie.net)
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
