Carbon offset is a method used to finance green house gas (GHG) emission reduction/avoidance or sequestration equivalent to the residual emissions of an enterprise, company or any other area that goes beyond its price chain.
The financing is made possible through the purchase of carbon credits. One carbon credit is equivalent to one metric ton of avoided or reduced and trapped CO2 (CO2) as a result of the project funded by this process.
After purchase, the credit is then retired using publicly accessible emission registries that are governed by international standards and exchanges. When a credit is used to offset, it is converted into an offset, and the credit is permanently retired so it cannot be used again (for transparency and accountability, carbon credits have serial number numbers).
Carbon offset is effectively putting a price on carbon for organisations, which will push them to accelerate internal reductions, such as supply chain emissions. This will help to justify the investment in low-carbon model of business, and eventually prove that the status quo is no longer an option.
In order to achieve net-zero emissions in 2050 globally requires massive investment in geological or biological carbon sinks. Carbon offsetting plays an important part in fighting climate change, as it allows funding for projects with high reduction or avoidance of carbon or sequestration capacity.
Through the use of finance to fund projects that decrease or eliminate or sequester GHG emissions carbon offsets, voluntary carbon offsets become an essential element of an overall climate strategy. It involves the company to take action on climate change beyond the value chain.
Carbon offsets are voluntary and can be done in a voluntary manner.
Both private and public sectors use carbon offsetting to satisfy compliance or other reasons which leads to two kinds of carbon markets.) market for compliance, in which governments establish, for instance carbon taxation or an emission trading program (e.g. ETS, a.k.a.), and 2) non-voluntary carbon markets, which are where businesses that do not have any legal obligation choose to engage voluntarily to take responsibility for all their emissions, while also providing added value to their clients and investors.
The motivations of these companies are varied they are motivated to address climate change, to generate more value for their customers either investors, citizens or customers; in anticipation of future regulations, or to be involved in a collaborative process with the key stakeholders (e.g. employees, NGOs, media) and others.
Voluntary carbon offsetting therefore consists of financing voluntary activities by buying carbon credits through the market for voluntary carbon (VCM) that facilitate an observable and confirmed reduction or elimination or sequestration of GHG emissions elsewhere while supporting sustainable development, often in countries where it is needed most.
Contents
The reason carbon offsets are a essential tool in the climate change toolbox’
In parallel with massive decarbonisation efforts carbon offsets that are voluntary can be used to support carbon reduction and sequestration initiatives beyond the value chain of a business.
In the event of a climate emergency, it offers the opportunity to take immediate action to aid in the mitigation of climate change and increase the pace of collective climate action.
Over the past 10 years, the carbon market and the mechanism for offsetting have developed through a continual improvement, development and improvements. Its contribution to emissions reduction efforts is topic of scientific consensus. In the Paris Agreement reminded us that net zero in the world is not achievable if we do not employ every tool that is at our disposal , and carbon offset is among the tools. In the Intergovernmental Panel on Climate Change (IPCC) made clear in the closing part of their 6th Assessment Report (AR6, April 2022) that the solutions for removing carbon dioxide from the atmosphere are essential to offset residual emissions to achieve net-zero.
But, the difficulty and complexity of voluntary carbon offset has created some reluctance as well as confusion. This guide aims to help you comprehend how carbon offsetting voluntary can help achieve net-zero and sustainable development objectives. It explains the underlying principles and the necessary requirements to implement an effective and rigorous voluntary carbon offsetting program as an addition to and not as a substitute of, a science-based emissions reduction strategy.
We will analyse voluntary carbon offset projects in greater detail, including principles for their implementation and related verification and accreditation. We also explain the different types of frameworks, projects and the best practices we advise companies to take on.
Through our commitments, practices and procedures we will demonstrate how you can implement a robust offsetting strategy as well as ways to develop new methodologies and projects.
Alongside reducing carbon dioxide (GHG) emissions that are in line with the scientific method and protecting carbon sinks in their value chain, such as mangrove forests and rainforests along the coast the voluntary carbon offset system allows organisations to finance projects with a large environmental impact that extend beyond the value chain.
How can carbon offsets assist us in reaching net-zero?
There is an immense pressure from all directions to reach zero net emissions as soon as it becomes possible. We are facing a global emergency and that requires urgent and ad hoc action by business in every way.
Organisations cannot offset their way to net-zero. Net-zero is a long-term goal requiring deep decarbonisation of 90-95 percent of emissions, and the elimination of the remaining 5 to 10 percent of residual emissions. In the near term, companies are advised to invest in carbon offset projects that reduce emissions outside their value chain, to close the following gaps in the world:
Timing gap: As a species, we need to decarbonise as fast as is possible. Current planned action from governments across the globe could cause overshooting of the required timelines advised by the IPCC as well as climate science.
Ambition gap according to the Climate Action Tracker, all the global targets and pledges which are currently in force will be able to cause approx. 2.7degC of warming by 2100. In relation to climate-related policies in practice, it can lead to approx. 2.5degC to 3.5degC or warming.
Finance gap: Federal funding of low carbon pathways isn’t enough to be sufficient on their own. According to the United Nations Environment Programme (UNEP) says the finance gap is currently standing at US$ 4.1 trillion. The private sector is crucial in mobilizing capital, and this must be utilized in a productive manner.
Carbon offsetting plays a solid part in helping to bridge these gaps. Even though it should not be seen as the answer, it should be seen as a valuable means to finance sustainable development and support initiatives that are doing essential work to conserve the environment, encourage sustainable development practices and improve people’s lives, while also reducing some of our international carbon emissions.
Existing or developing international initiatives define the importance of voluntary carbon offsets to achieve net-zero emissions at the organisational level. This includes these initiatives: the Oxford Principles for Net Zero Aligned Carbon Offsetting; The Science Based Targets Initiative (SBTi) and the Integrity Council for the Voluntary Carbon Market (ICVCM and the Voluntary Carbon Markets Integrity Initiative (VCMI) along with the ISO 14068 standard. The two last two standards will be released their respective publications in 2023.
According to the Oxford Principles for net zero aligned carbon Offsetting, there are four main elements for the credibility of net zero aligned offsetting
Prioritize reducing your own emissions first, ensure the sustainability of offsets, and disclose how those offsets work.
Shift offsetting towards carbon removal and storage with a long-lived life offsets are a direct method of removing carbon dioxide from the air forever or even almost forever.
Help develop net-zero offsets that are aligned.
Implement a sound, natural-based approach to carbon offsetting, for example, forest restoration.
A framework of strategic business action: the SBTi’s Corporate Net-Zero Standard
In the month of October, 2021 The SBTi announced the Corporate Net Zero Standard framework, in partnership in collaboration with CDP, Global Compact, the World Resource Institute and WWF. The Corporate Net-Zero Standard is the first of its kind in the world for setting corporate net-zero targets which is compatible with science-based climate. It includes the guidance as well as the criteria and recommendations businesses must set scientifically-based net-zero goals that are compatible with limiting global temperature rise to 1.5degC.
How do we ensure the longevity of offset projects?
Climate change is already having an ongoing impact on global ecosystems, with rising sea levels frequently flooding, wildfires, droughts and more. All of these threats must be better integrated , not only in carbon finance, but (and most importantly) into every environmental project.
In the certification process, internationally recognized carbon credit standards demand projects to conduct a risk assessment, including forecasting climate impacts at the level of the project that must be proven through documentation for the project as well as feasibility studies. If, for instance, part of a mangrove area is predicted to be damaged by sea level rising within the next 100 years, then the proper VCS certification methodology stipulates that the area will not be included in calculations until an adaptation measure has been implemented to prevent this erosion. Additionally, they should implement risk mitigation measures (such as fuel treatments, the erection of fire breaks and towers, or conservation easements, etc.) to lessen the risk of reversals.
This is a difficult exercise that requires foresight on a project levels, yet lets us reflect on the importance of adapting. This is a crucial aspect to be considered: in order to stand greater chance of success, a carbon offset project such as restoration, reforestation, or afforestation or conservation, should immediately implement measures to improve its adaptation capabilities and think about climate risks.
In short, developers of projects have a real interest in making every effort to prevent this type of event from impacting their projects by taking the appropriate steps and measures prior to the event.
In the event of severe weather conditions, malicious actions (e.g. deliberate fires), or negligence, standards, such as the VCS have created “buffer reserves” (also known as “pools”) that which each project is responsible for placing aside a certain number of offset credits, which can’t be sold on the market the credits are ex-post. This means that the emission reduction is already taking place.
In accordance with the procedure in an insurance plan, the credits set aside (reserved) are able to be accessed to pay for reversals for any project. In the event that a reverse occurs, the reserved credits are removed by the reserve buffer to ensure that issued credits still represent real reductions in emissions.
The amount of credits that the project has to reserve is typically based on an assessment of the project’s risk for reversals. The current trend of diversifying the projects (types as well as locations) makes sure that buffer reserves are durable and are not affected even by extreme weather events or other malicious acts, such as deliberate fires, or negligence.
For Gold Standard accredited projects, they have the concept of a “Compliance Buffer” which remains unaltered even after the crediting time of the project, further reducing the probability of non-permanence and reverse.
The buffer reserves are frequently revised to keep up with the evolution of scientific knowledge particularly in the field of climate change. Information and data regarding the reserves are available online.
Type of carbon offsetting projects
Restoring the ecosystem (reforestation of degraded forest, mangrove restoration Agroforestry, conservation of ecosystems as well as reducing deforestation etc. ).
Renewable energy production on a smaller scale or in areas not connected to the electricity grid (solar or wind, biomass, etc. ).
Improved energy efficiency (energy-saving and more efficient cookstoves).
Better disposal of waste (biogas biochar, biogas. ).
All these types of projects are endorsed from the community of scientists according to the most recent IPCC report, published by the IPCC in April of 2022 (AR6 WGIII).
It is crucial to help offsetting projects that deliver both environmental and social benefits for individuals, and are aligned with UN SDGs. These include targets like combating poverty in every form, providing adequate sanitation and clean water to everyone, ensuring gender equality as well as giving all girls and women etc. Beyond protecting the environment, offset projects should aim to bring tangible and measurable benefits to the communities within which they operate, empowering them to own sustainable development.
For instance, EcoAct’s award winning Sudan Low Smoke Cookstoves project is the first project to be created in a conflict zone, provides economic and health advantages for Sudanese communities, with a special focus on female empowerment.
The Hifadhi-Livelihoods Cleaner Cookstoves project (financed via The Livelihood Fund and developed in partnership EcoAct) EcoAct) is teaching local artisans as well as project officials to oversee the distribution of more efficient and cleaner cookstoves to rural Kenya that has positive effects on communities, families, as well as the environment.
Many carbon offsetting projects are part and parcel of nature-based solutions
Nature-based solutions are described in the International Union for Conservation of Nature (IUCN) as “actions to protect environmentally sustainable and manage and restore natural and modified ecosystems that address societal challenges efficiently and adaptably, while providing biodiversity and human well-being benefits”.
Nature-based solutions include:
The preservation of ecologically healthy and functional ecosystems
Sustainability in the management and management of ecological systems
The restoration of ecosystems damaged by degradation or the creation of ecosystems
In the State of Finance for Nature in the G20 which was released in January 2022, showed that current G20 investment in nature-based solutions is insufficient. Nature-based solutions are a valuable means of climate mitigation and adaptation . They can also offer numerous social and environmental benefits. This is why they can play an important role in making sure that we have a sustainable environment and supporting an equitable global transition.
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