Photo by Austin D on Unsplash
Photo by Austin D on Unsplash

In the year that the UK hosts the COP 26 Climate Conference and the month that the government has put more flesh on its plans for net-zero carbon emissions, a key question for many business leaders is what precisely should they be doing in to ensure their business complies with the impending emissions targets?

One of the most commonly used tools for companies plotting their path to net-zero is payment into a carbon-offsetting scheme.

Participation in such schemes are frequently likened to paying for absolution while you continue to sin.

This certainly was the criticism levelled at former Bank of England governor Mark Carney when he claimed carbon neutrality for an investment portfolio which offset fossil fuel investment with the backing of wind power projects.

So is carbon-offsetting really a viable tool for achieving net zero? And should your business go anywhere near such schemes?

Back to basics

The only way of answering this question is to start with the first principles of what net-zero means and its role as a stepping stone to the ultimate goal of zero emissions.

In the UK, the government has committed to a net-zero emissions target by 2050. This means that any emissions produced by the country as a whole ‘must be balanced by schemes to offset an equivalent amount of greenhouse gases from the atmosphere’.

For net-zero to happen as a country, the government needs most of us to get as close to zero emissions by 2050 as is feasibly possible. This is to allow for sectors which may be unable to eliminate emissions entirely, such as the airline, steel and construction industries.

So, whilst eliminating emissions entirely before the 2050 deadline should be the ultimate aim for every business, the first step for many is a committment to achieving net-zero.

This means eliminating carbon emissions as far as possible, and then balancing any remaining ones with the equivalent amount of carbon sequestered or offset in natural systems like soil or forests, through carbon capture and storage technology; or, by buying carbon credits to make up the difference.

Carbon offsetting: schemes and pitfalls

While we necessarily need carbon-offsetting schemes to achieve our net-zero targets, the key issue for any business or board to understand is that not every carbon-setting scheme can be relied upon to contribute net-zero targets.

Before we look at why that it, its first worth understanding the two broad kinds of scheme which are out there.

Carbon avoidance works by paying money into projects which stop emissions that would otherwise have occurred. These range from the funding of renewable energy projects that do away with fossil fuel power stations to the consveration of forests at risk of being cut down.

Carbon removal projects involve paying to remove emissions from the atmosphere for as long as possible.

Currently most removal projects are nature-based. They include tree planting, habitat restoration, sequestration through agriculture, ocean fertilisation or the use of algae.

Other removal projects include bioenergy with carbon capture and storage (BECCS), capturing and storing carbon from biomass combustion. Engineered processes for carbon capture, use and storage (CCUS) have been around since the 1930s, but it is still an underfinanced and emerging industry.

Schemes in both of these categories are subject to a range of common drawbacks.

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Most significant of these is the lack of regulation. This opens the door to schemes which don’t achieve the reduction or avoidance promised as well as being actively fraudulent through double-counting.

Another criticism focuses on whether the amount you pay reflects the true cost of offsetting: can you really reduce your carbon emissions for the £2 per tonne on offer from some scheme providers? Many disagree. And even if you ignore the cost, many commercially available carbon offsetting schemes are based on a 60-year duration, which may not be sufficient or effective when a company is emitting the carbon today.

A third argument facing these schemes is the difficulty of proving ‘additionality’. Carbon reduction projects are an additional benefit only if they result in an action that would not have happened without you paying into the scheme. This is difficult to prove and is open to misuse. Some carbon reducing activities  – like reducing landfill emissions  – might be required by law, so paying into them is not providing anything additional. Similarly, if a renewable energy project was going to happen anyway then paying into it is of no additional benefit.

A lot can go wrong with offsetting schemes. A tree-planting scheme may seem like an obvious low-risk option but to be successful many factors have to align. Do you know if the trees will be in the right location? How will you know if they grow to maturity and won’t be felled or damaged prematurely? What protection and safeguards are in place for the lifetime of the scheme. These questions matter because if the scheme doesn’t work, then you are not balancing your emissions.

What’s more, avoidance or reduction amounts attributable to a particular project are hard to measure. This complicates the goal of balancing your company’s carbon emissions with the same tonnage of carbon offsets.

The final issue with carbon offsetting schemes is that they allows rich businesses to continue polluting and contributing to the climate crisis, which disproportionately impacts the poor, whilst claiming green credentials.

The counterargument is that offsets can be a way of transferring wealth and the benefits of development from the rich to the poor – such as investing in cheap, renewable energy projects in a developing country.

Offsetting and your road map to net-zero

This litany of potential risks does not mean that carbon offsetting should play no role in your road map to net-zero.

That is because climate change is a complex problem that requires a variety of solutions and carefully selected carbon offsetting projects, whether that is around avoidance or removal.

Without a combination of genuine efforts on forestry conservation, habitat restoration, ensuring a just energy transition, financing renewable energy projects, natural sequestration, engineered CCUS and others, we are unlikely to meet our goal of net zero emissions.

However, it is wrong to see offsetting as a get-out-of-jail free card for carbon emissions. It should only be considered as an additional effort on your ‘ultimate road to zero’ to balance today’s emissions while you work to eliminate them structurally in the medium-term.

Emissions avoidance and reduction in your own business and supply chain should always be the first step.

All carbon offsetting schemes have a risk of failure, but some are better than others.

So if there is one thing to take-away from this, it is that proper preparation, investigation and a demand for transparency is key to evaluating whether a carbon-offsetting scheme will genuinely deliver on your organisation’s committments

This will increase the chance of success whilst reducing the risk of adverse impacts – The Gold Standard Scheme or the Verified Carbon Standard are considered good places to start.

Businesses who approach their journey to net-zero in this way have little to fear and everything to gain.

Those who start soonest are likely to benefit most from the support of customers and investors who are not only rewarding those can demonstrate decarbonisation in their business but penalising those who don’t.

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