Carbon offsetting is back. Once vilified by environmentalists and climate change deniers alike, the practice of buying carbon credits to compensate for companies’ direct and supply chain emissions is finding favour again, both within progressive companies and among some green groups. However, in the face of the accelerating climate emergency, advocates continue to disagree on how offsets should be used – while accusations of questionable practice and greenwashing persist.
Recent months have seen large-scale offset purchases from the likes of low-cost airline easyJet, which has committed to offset the emissions from the fuel it uses on all of its flights. Meanwhile, longstanding offset buyer Microsoft has pledged to remove from the atmosphere all the carbon the company has emitted since it was founded in 1975, and oil giants such as Shell and Eni are investing heavily in forest carbon projects to offset the huge emissions caused by use of their fuels.
These new commitments follow on from strong growth last year. Non-profit Verra, which runs registries that track issuance of offsets across a number of voluntary carbon markets, reported a doubling in the issuance of the most popular type, VCUs, from 2018 to 2019.
That growth has continued into 2020.
“Issuance between January and March was through the roof, even beyond expectations set last year,” says Verra CEO David Antonioli. “It is proving to be a very resilient market.”
While activity has levelled off somewhat following the Covid-19 pandemic, it remains above 2019 levels, say market participants.
These offsets are generated and issued by projects, usually in developing countries, that either avoid the emission of greenhouse gases – by providing clean cook stoves that reduce deforestation by using biogas or electricity, for example, or which protect standing forests – or which absorb carbon from the atmosphere; for example, by planting trees.
A big part of the reason for the increase in activity has been a recognition of the urgency of the climate challenge and that companies should take responsibility for their entire carbon footprint, says Edward Hanrahan, chairman of ClimateCare, a UK-based carbon offset project developer.
“It is not OK to say I am going to take responsibility for my footprint in 20 years’ time and reduce a little bit on the way,” he says. “The overriding narrative used to be ‘this is an excuse for a company to do less’. Now, [buying offsets] allows companies to set stretching goals and take responsibility for every single ton of emissions that the business generates in pursuit of profit.”
Those companies that are using offsets are incorporating them into well-elaborated climate strategies, Hanrahan says, which makes them less vulnerable to any Covid-related economic downturn. While he expects demand from the aviation sector to drop given the sector’s dramatic slowdown, that demand only accounts for around 10% of the market. He notes that the tech sector – which has become a major buyer of offsets – is proving recession-proof.
“Recession inevitably leads to a reduction in discretionary spend,” says Stuart Lemmon, a managing director at EcoAct, a consultancy and offset project developer. “The question, though, is whether these purchases are discretionary or not. We have seen a huge increase in pressure around climate change in the last couple of years and with the post-Covid imperative to build back better, there are likely to be a greater number of companies seeing climate action as a necessity.”
No free pass
Advocates of carbon offsets for voluntary commitments are clear that they should not be used as an alternative to companies setting targets that are in line with the goals of the Paris Climate Agreement.
Essentially, Paris will require the global economy to reach net-zero emissions by the second half of this century. Any residual emissions from hard-to-abate sectors, such as aviation, will be balanced out by carbon sucked out of the atmosphere, whether through planting trees or through emerging – and eye-wateringly expensive – engineered solutions such as direct air capture technology.
Because of the limited volume of carbon that can be emitted into the atmosphere before the climate becomes dangerously destabilized, “we can’t offset our way out of the problem,” acknowledges Jonathan Shopley, managing director of environmental consultancy and climate finance advisor Natural Capital Partners.
Allowing companies to continue business as usual, while buying carbon credits to offset their emissions, would not solve the climate crisis.
That has led the Science Based Targets initiative (SBTi), a leading business-focused NGO that champions corporate climate action, to ban participating companies from using carbon offsets to count towards climate targets. SBTi has defined emissions reduction trajectories for specific industry sectors that companies need to follow to align their goals with climate science. It states unambiguously that “the use of offsets is not counted as reductions toward the progress of companies’ science-based targets”.
However, in September 2019 the SBTi began a consultation that, among other things, opens the door to offsets from projects that remove carbon from the atmosphere. It suggests that companies “should resort to removals as an option to mitigate the impact of residual emissions… not as an alternative to decarbonisation”.
This is a position shared by Carbon Market Watch, an environmental group that approaches market-based instruments with scepticism. It accepts the use of carbon offsets as “a last resort” for companies that have already done everything they can to reduce their emissions internally, including changing their business model, says Brussels-based policy officer Gilles Dufrasne.
“In theory, we are not against the idea… but most companies use offsets as a get-out-of-jail-free card,” he says.
The challenge lies in identifying “residual emissions”. For example, Lemmon at Eco-Act applauds easyJet’s commitment to offset all of its emissions, given the limited (and currently very expensive) alternatives to using jet fuel. Dufrasne however, slams the move as greenwashing by a company whose business model is predicated on growth in aviation – but he does acknowledge that there are no hard and fast rules to dictate acceptable offset use.
Many believe that we do not have time to debate the issue.
“We have got ten years to save the planet,” says Lemmon. “Our view is that everyone needs to do everything they can to limit the amount of greenhouse gas going into the atmosphere.”
“We need to throw everything at the problem, including the carbon sink,” adds Shopley.
However, environmental groups advocating investment in carbon reduction projects make a distinction between supporting such projects and counting the resulting offsets against corporate targets. Director of carbon market governance at conservation group WWF Brad Schallert flatly rejects the idea that a company coming up short on a net-zero target should use offsets to close the gap.
“We would say, if you missed your target, you didn’t do it right,” he says.
For most environmental groups, the key distinction is whether the companies involved in buying offsets are making good-faith efforts to decarbonise. They believe that many of the oil and gas firms – despite some substantial investments in carbon offsets generated by forestry projects – fall short on this front.
“Very few oil and gas companies are looking at decarbonisation in line with science, or anything close to it,” says Sarah Leugers, a spokeswoman for the Gold Standard, a not-for-profit which verifies voluntary carbon projects and maintains a registry of carbon offsets. “In such cases, consumers would be right to be sceptical of their [offset] programmes.”
For all the challenges to getting offsetting right, the money raised can be a force for good, especially if projects incorporate other considerations, such as investing in local communities and protecting biodiversity.
“The money that is invested in offsetting projects can have really transformational impacts in the communities involved,” says Lemmon.
However, Schallert at WWF suggests that perhaps companies should be looking past offsets and instead make more “blue sky” investments in addressing climate change and sustainability.
“Companies need to invest more in sustainability generally,” he says. That might involve backing early-stage climate technologies, supporting relevant policy development in poorer countries, such as around land tenure, or protecting forests without seeking to earn carbon credits. Companies should be thinking more holistically [about climate investments], rather than simply asking ‘can I get a credit out of it?’”
Contributing editor Mark Nicholls, co-founder and former editor of Environmental Finance, specialises in sustainable finance and responsible investment, including ESG disclosure and carbon markets.