To reduce emissions across all sectors of the economy, more companies will need to explore carbon offsetting.
Although strategies to avoid, reduce and substitute harmful greenhouse gases must come before offsetting, we can’t deal with all our emissions that way. The technology costs too much and might not be readily available for a few decades yet.
So, as businesses transition, carbon offsetting is one way for them to neutralise any emissions generated from their activities, or elsewhere in their value chain.
How can companies offset carbon footprints?
Businesses can buy permits – or carbon credits – generated by projects that are cleaning up our atmosphere, to compensate for the emissions they haven’t yet eliminated. There’s scepticism around the quality of some carbon offsetting projects but, when done well, they support local economies and fund work that is making a real impact.
So right now, organisations are helping to plant trees and mangrove swamps and are supporting re-wilding projects. It’s an area that’s set to grow, and fast. And while it shouldn’t hamper efforts to tackle emissions more holistically, it will help to build a healthier, more sustainable planet.
The voluntary carbon market will have to expand substantially – 15-fold by 2030 and 100-fold for us to achieve net zero by 2050 (even once all other emissions are avoided, reduced and substituted). Currently valued at $300 million, the market could reach $50 billion in the near future.
It’s also facing a shake-up. The Taskforce on Scaling Voluntary Carbon Markets, led by with former Bank of England governor Mark Carney, created a blueprint of the target marketplace.
This Taskforce has now been superseded by the Integrity Council for Voluntary Carbon Markets (ICVCM) which will help carbon markets scale, without compromising carbon credit quality, through the development of the Core Carbon Principles (CCPs). The CCPs are expected to act as a global benchmark for a high-quality carbon credits. Any uncertainties that remain will hopefully be addressed at COP 27, if not sooner. One thing is certain; change at scale is well underway.
Should I think about CO2 offsetting?
First, ask, ‘what is my climate ambition and how can I achieve it?’ What emissions can you avoid altogether? Which ones can you eliminate, reduce and substitute? For those that are harder or more expensive to remove permanently, consider offsetting.
What schemes are available to offset carbon emissions?
There are two types:
Reduction schemes cut emissions by improving processes. Think renewable energy projects like windfarms, or initiatives that involve installing solar cooking stoves or LED lights.
Removal projects absorb or eliminate greenhouse gases. They’re either nature-based – re-forestation for example – or technology-based, such as carbon capture and storage solutions.
What is important is your level of ambition. When working with clients, we typically advise considering reduction projects for delivering CO2 offsetting as part of a carbon-neutral target. For net zero, you would need to rely on removal schemes, as the focus is on taking greenhouse gases out of the atmosphere rather than compensating for them.
Buying a credit gives the holder the right to offset one tonne of carbon or greenhouse gas equivalent.
How do I choose the right carbon credits?
It depends on your strategic priorities, but consider:
- Quality: Is it of good, auditable, verifiable quality? Which standard does it adhere to and has it been validated and verified by an independent third party?
- Strategic alignment: Do the projects generating carbon credits fit with your core business model or responsible business priorities?
- Cost: The market isn’t standardised, centralised or organised, so credits can currently cost between $3 and $65 per tonne. And price is more often an indicator of disparity not quality. We expect this to change though.
Where can I buy credits?
You can approach suppliers directly, which is challenging as they’re located across the planet. Alternatively, you can purchase through brokers or intermediaries who bring buyers and suppliers together, creating pools of liquidity in specific niches.
Carbon insetting is an interesting concept that is now being actively explored. It would allow organisations to offset carbon emissions within their own value chain, removing the need for third-party suppliers.
How will the voluntary carbon market change?
The Taskforce on Scaling Voluntary Carbon Markets, co-founded by Mark Carney, is looking at creating a central marketplace for carbon credits. He describes it as an ‘imperative.’
At the moment, there are market weaknesses around definitions and standards, supply issues, with no obvious place to go for advice. But the new marketplace would:
- Connect buyers and suppliers.
- Offer the official liquidity needed to achieve net zero.
- Provide pre and post-trade transparency and proper pricing.
- Standardise contracts by introducing a taxonomy.
Ultimately, it could create a market like the one we have across financial services.
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