The Role of Carbon Offsets in Corporate Sustainability (part I)

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Carbon Credits
Carbon Credits

Part I

Exploring how, when, and why carbon offsets are important – as well as their limitations

As more organizations around the globe heed an urgent call for climate action, carbon offsets are one tool they can use for near-term emission reductions. While the impact of investing in carbon offset projects is sometimes debated, these instruments can play an important role in bridging the transition to net-zero emissions. 

In this first article of a two-part series, we’ll explore how, when, and why offsets can play a vital role in companies’ broader sustainability efforts, as well as examine some limitations.

As defined by virtually all market participants, including the Climate Action Reserve, a carbon offset is a third-party verified, greenhouse gas (GHG) emission reduction, removal, or avoidance equivalent to one metric ton of carbon dioxide equivalent (CO2e). Carbon offsets are a funding mechanism to support emission reduction projects within non-regulated sectors, including within an organization’s supply chain. From an environmental integrity standpoint, all verified emission reduction projects must meet the notion of “additionality” – meaning, these reductions would not have been achieved without funding from the sales of carbon offsets. 

There is a rigorous and conservative quantification of the actual emission reductions achieved through a verification process that includes detailed due diligence by third-party verifiers. These verifiers operate under approved methodologies detailing these processes, and must maintain accreditation under relevant standards bodies in order to maintain their status as verifiers. These entities ensure that the carbon offsets generated do, in fact, represent the emissions reductions or removals that are being claimed. 

While there are many different project types, carbon offset projects are often categorized as follows:

  • Carbon removal: Carbon removal projects include nature-based solutions that actually remove carbon from the atmosphere, such as certain types of forestry projects, as well as carbon capture and storage (CCS) projects.
  • Carbon reductions: These projects focus on avoiding greenhouse gas emissions (such as capturing the methane that normally would be released from a dairy farm). While these projects don’t actually sequester existing carbon, they reduce the amount being released into the atmosphere.   

So what is the role of carbon offsets in corporate sustainability initiatives? And why are some detractors concerned?

An offset is not a long-term, singular solution for decarbonization. Yet, some critiques of offsets anchor on an “either/or” premise – i.e., organizations are either going to purchase carbon offsets or pursue longer-term solutions to reduce their emissions footprint. In reality, it’s more nuanced, as explained below….

Do offsets provide permission to “pay-to-pollute”? 

Detractors of carbon offsets often claim that offsets provide permission to “pay-to-pollute” — so businesses purchase offsets but do not actually change their behavior. These critics say that since offsets reflect emission reductions, companies can continue to postpone the systemic change that is required to address climate change and continue to buy offsets instead. 

It’s important to note that most supporters of offsets (3Degrees included) do not believe they are the ultimate tool to address climate change. First and foremost, organizations need to reduce their direct emissions wherever they can. However, it is nearly impossible for an organization to completely avoid Scope 1 and Scope 3 emissions (e.g., emissions from transportation and/or supply chain), which are also difficult to address. In these instances, carbon offsets are an appropriate tool to employ and provide a funding mechanism to support emission reduction projects — including projects that directly address those transportation or supply chain emissions. For many organizations, carbon offsets can also serve as a bridge while they work on developing the necessary long-term solutions, which can be complex and take time to come to fruition. Case in point: Etsy was able to immediately offset their shipping emissions for less than a penny per package using carbon offsets while simultaneously working on a broader strategy that includes collaboration with industry leaders, shippers, and policymakers to lead the shipping industry toward decarbonization. The company is supporting immediate emission reductions and galvanizing action for more systemic, long-term solutions.

But carbon offsets don’t address societal inequities.

Climate change magnifies deep societal inequities: the most vulnerable populations disproportionately experience the negative impacts of climate change. Some groups criticize carbon offsets because the impacts of the offset projects are often not linked geographically, socially, or economically to the environmental impact of the offset-purchaser’s operations. However, by definition, carbon offsets are not mechanisms for addressing all environmental impacts, only climate-related (e.g, greenhouse gas) emissions.  

Even though carbon offsets themselves are not designed to address local impacts, companies can link the selection of emission reduction projects to the major geographical, social impact, and/or economic impacts of their GHG footprint or overall operations. They can also select specific offset projects that provide environmental or social benefits (e.g., local air pollutant reduction, water quality improvement, women’s empowerment, job creation, biodiversity, poverty reduction, etc.) that align with their overall sustainability goals. The impact of these projects extends beyond the carbon benefits. And it’s a step – though many more steps are still needed – to ensure a just transition to a low-carbon economy.

The process around carbon offsets is too complex. 

Carbon offset projects often require complex accounting and in-depth verification to uphold the environmental integrity of the GHG reductions. Critics sometimes point to possible margins of error in carbon offset accounting as a justification for discounting their overall value as an instrument for carbon reduction. This rationale, however, forgets that carbon offset methodologies always err on the conservative side of greenhouse gas accounting, and it also misses the intent of offsets as a tool in a larger sustainability strategy. 

Offset funding acts as an incentive for implementing carbon beneficial changes in industry practices. When an organization selects projects directly related to its industry or supply chain, this impact directly connects to the source of the emissions. For example, when Lyft sought to make all its rides carbon neutral, it invested in projects that offered reductions in transportation sector emissions, like automotive manufacturing and waste oil recycling. Projects like these have a direct connection to the automotive supply chain (and Lyft’s Scope 3 emissions).    

Carbon offsets exist in a complex and intertwined world of corporate sustainability goals, and offset methodologies are inherently complex as they require analysis from technical, policy, and economic perspectives. While critics may highlight shortcomings of carbon offsets as a comprehensive solution, these mechanisms play an important role for organizations who want to take immediate climate action, while also pursuing the long-term work needed for more systemic decarbonization solutions.

Next up: In part two of this series, we explore carbon offset best practices.