The term carbon offsetting is often in the spotlight, causing a little controversy and a whole lot of confusion. Are you still unclear on what offsetting really means, where the money goes, if offsetting is good or bad and whether it is really one of many available solutions to climate change? These answers to the FAQs aim to clear up the confusion and settle the debates.
What is carbon offsetting?
Carbon offsetting is a mechanism used to finance greenhouse gas (GHG) emission reduction/avoidance or sequestration equivalent to the residual emissions of a territory, organisation or business beyond its value chain. This financing is achieved through the purchase of carbon credits in the voluntary carbon market (VCM). One carbon credit equates to one metric tonne of reduced/avoided or sequestered carbon dioxide (CO2) by the project financed through this mechanism. Once purchased, the credit is then retired through publicly accessible registries held by international standards and global exchanges.
What is often missed in the definitions or lost in the debate are the actions behind this financial transaction. The money paid for carbon credits not only helps to protect our environment, but also funds vital social impact projects that help support sustainable development and improve the lives of communities in the world’s poorest countries. Despite contributing little to GHG emissions, these communities are particularly vulnerable to the effects of climate change and have also limited adaptive capacity. Check out this interview with Mathilde Mignot about the positive impact projects have.
What exactly is an offsetting project?
An offsetting project can be many things.
It could be a project distributing cleaner cookstoves to thousands of families who risk fatal diseases daily by cooking on open fires in their homes. It could be a forest conservation project in the Amazon rainforest that reduces deforestation, preserves precious biodiversity and protects endangered species. It could be a tree planting project that sequesters carbon and provides an income to local families. It could be a renewable energy project helping to build the renewable infrastructure needed in a fast-growing developing country, replacing a power generation project that would otherwise have run on fossil fuels such as coal or natural gas.
It must ultimately result in a measured carbon emissions reduction or sequestration, which is enabled by third-party accredited projects that adhere to internationally recognised standards. Through rigorous auditing processes, these standards also ensure that projects provide additional and measured value to the communities in which they operate and do not negatively impact the ability of local communities to earn their livelihoods, as well as protect local and indigenous people’s rights.
Why do prices vary so much?
The carbon market like any other market is driven by supply and demand, competition, and competitive pricing. In addition, market dynamics mean that project developers adjust their pricing to reflect market demand.
The voluntary carbon market encompasses many different project types in many different locations. As well as a range of co-benefits (such as employment opportunities for local communities or education programmes), each project has a unique scope that impacts the cost structure. This has a direct effect on operational costs and is among the reasons why voluntary carbon credits vary in price.
Beyond operational costs, the geography of the project, delivery time and the different types of projects, the price of a carbon credit is also influenced by the volume of credits purchased at a time and the credit vintage. The vintage of a carbon offset refers to the year that its associated credits were issued. The older the vintage the cheaper the price.
It is important to always consider that the price of a carbon credit must account for the costs of setting up a project, its ongoing monitoring, and the cost of gaining verification. Most importantly, it must enable its long-term viability.
Is offsetting good or bad?
As a project developer, we have witnessed first-hand the positive impacts of high-quality certified offsetting projects. For example, for a Sudanese woman, one of our cookstoves could mean her no longer having to spend laborious hours collecting firewood and then inhaling the smoke it produces that can cause health problems for her and her family. It might now give her time to have a job, possibly, even helping to administer the project. Carbon offsetting projects can help empower women and offer life changing opportunities.
Then there is the carbon impact. In 2021 alone, 144 million metric tonnes of CO2 equivalent were retired in the VCM. That is 50% more than in 2020. This is a huge amount of carbon that would otherwise be in our atmosphere and impacting our climate. Controversy aside, the action funded by offsetting can be an incredible force for good.
Why the controversy?
There is a perception that offsetting enables polluters to simply pay to continue polluting. In our experience working with companies, this is not necessarily the case.
Reducing emissions should always be the primary focus of a net-zero strategy. If organisations are merely using offsets as a means to pay to pollute without engaging in reducing their emissions, they will be subject to increasing risks to their business both from the impacts of climate change as well as the risks associated with their reputation, their ability to gain investment and the demands of upcoming legislation. These organisations will not thrive long-term.
Robust carbon offsetting strategies acknowledge that offsetting is no replacement for emissions reductions. Such strategies need to also detail the scopes the offsetting accounts for, and the number of credits purchased (in tCO2e), as well as include information about the projects supported in terms of environmental and social impacts generated. Read our eBook on how to transparently and comprehensively communicate your climate commitments.
For more than ten years, the VCM and the mechanism of offsetting have evolved through a continuous process of development, feedback and improvement. Its complementary role to emission reduction efforts is the subject of scientific consensus. The Paris Agreement reminded us that global net-zero will not be achievable if we do not use every tool at our disposal – carbon offsetting is one of them. The Intergovernmental Panel on Climate Change (IPCC), highlighted in the last part of its 6th Assessment Report (AR6, April 2022) that solutions to remove carbon from the atmosphere are essential to offset residual emissions and achieve net-zero.
How do I know which offsetting credits I should buy?
Only carbon credits from projects accredited by third parties according to internationally recognised standards should be considered.
Verified carbon offsetting projects ensure that the credits are high-quality and offer measured emissions reductions, which have been subject to a rigorous auditing process. They also ensure that the projects provide additional and measured value to the communities in which they operate. As a founding member of the governing body, the International Carbon Reduction & Offset Alliance (ICROA), we work to set and uphold these international standards. Embedded in these values is that we always urge our partners to set ambitious emissions reductions targets alongside any offsetting programme. Supporting emissions reductions is where the majority of EcoAct’s work is focused.
Is offsetting one of many solutions to climate change?
First and foremost, reducing emissions is vital. There is no replacing the urgent need for emissions reductions along a trajectory aligned with climate science.
Having said this, businesses and individuals need to take responsibility today for the emissions that are still being generated in their day-to-day activities. At this point in time, eliminating all emissions is extremely difficult. Realistically, turning global emissions off tomorrow is unlikely. Offsetting is a way for businesses and individuals to take responsibility for all of their emissions now and invest in the transition to a low carbon economy.
As a global society, we need to implement multiple ways of tackling the climate crisis. This includes urgently counteracting deforestation, supporting reforestation and financing renewable technologies and the infrastructure needed to expand their reach. Carbon credits are financing these activities.
We also need to help poorer international communities, many of whom will be/are most impacted by climate change, to develop sustainably and empower people to have ownership of a more sustainable future. We cannot successfully tackle climate change if we neglect social justice and fail to deliver equitable sustainable development. Good quality carbon offsetting projects focus on the additional benefits to people’s lives: their health, their well-being, their economic prosperity, etc.
Projects which sequester carbon and avoid carbon emissions will be one of many vital tools along our journey to a net-zero future and in achieving the reductions required to keep global temperature increase below 1.5°C. Given the lack of time we now have to respond to the climate emergency, we’re unlikely to achieve this in time without them.
EcoAct is a leading project developer and founding member of ICROA. If you are interested in offsetting or project development, please get in touch.