Carbon offset is a process that is used to fund greenhouse gas (GHG) emissions reduction/avoidance, or sequestration that is equivalent to the remaining emissions of an organisation, business or a region that is outside the value chain.
This financing can be achieved by purchases of carbon credits. One carbon credit corresponds to one metric tonne of reduced/avoided or stored carbon dioxide (CO2) as a result of the project funded by this mechanism.
Once purchased, the credit is then retired through publicly accessible emission registries that are governed under international standards and international exchanges. When a credit is utilized to offset the cost, it becomes an offset and the credit is retired so it cannot be reused (for greater transparency and transparency, carbon credits are assigned serial numbers).
Carbon offsetting effectively puts a price on carbon for businesses, which will make them more likely to accelerate internal reductions, such as supply chain emissions, justifying investment in new low carbon business models, and will eventually prove that the status quo is no any longer an alternative.
To achieve net-zero emissions by 2050 globally requires massive investments in the development of biological or geological carbon sinks. Carbon offset plays a crucial part in fighting climate change because it allows funds to be directed to projects with high carbon reduction/avoidance or sequestration potential.
In directing finance to projects that limit or eliminate GHG emissions Carbon offsetting that is voluntary becomes an essential element of an integrated climate strategy. It is a way for the organization to be involved in climate action beyond the value chain.
Carbon offsetting in voluntary form
Both the public and private sectors are involved in carbon offset in order to comply with regulations or to fulfill voluntary requirements, leading to two types of carbon markets: 1.) compliance markets, which governments set up for example carbon tax or emission trading program (e.g. ETS, a.k.a.) and 2.) the voluntary market in carbon, where companies that do not belong to any law decide to engage voluntarily to take the responsibility for their carbon emissions, while also providing added value for their customers and investors.
Their motives vary in their motivations to take action on climate change; to create more value for their customers either investors, citizens or customers; to anticipate future regulation, or engage in a partnership process with principal stakeholders (e.g., employees and NGOs, media) and others.
Voluntary carbon offsets are a way of financing voluntary activities by buying carbon credits through the voluntary carbon market (VCM) and facilitating an accurate and verified reduction/avoidance or sequestration of GHG emissions elsewhere , while also supporting sustainable development, typically in the countries that require it most.
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The reason carbon offsets are a essential tool for the climate change ‘toolbox’
Parallel to intensive efforts to reduce carbon emissions, voluntary carbon offsetting can support both green initiatives and carbon sequestration beyond a company’s value chain.
In the face of a climate emergency, it offers an opportunity to take immediate steps to assist in the mitigation of climate change and accelerate the collective climate action.
For more than ten years the carbon market and the mechanism that offsets carbon have been evolving through a constant process of evolution, feedback and enhancement. The role it plays in complementing emissions reduction efforts is the area of consensus in the scientific community. It is important to note that the Paris Agreement reminded us that net zero in the world is not achievable if we do not use every tool at our disposal – carbon offset is just one of them. It is the Intergovernmental Panel on Climate Change (IPCC) pointed out in the last part of their 6th Assessment Report (AR6, April 2022) that strategies to eliminate carbon from the atmosphere are vital to offset the residual emissions and reach net-zero.
But, the complexity and evolution of carbon offsets that are voluntary has caused some reluctance in some people, and confusion. This guide will help you better know how voluntary carbon offset can help achieve net-zero and the sustainable development objectives. The guide explains the principles and necessary conditions to implement an effective and rigorous voluntary carbon offsetting program as an alternative to and not as a substitute for, a science-based emissions reduction strategy.
We will examine voluntary carbon offsetting initiatives thoroughly, including guidelines for their implementation as well as the corresponding verification and certification. We also explain the different types of frameworks, projects and best practices that we encourage companies to take on.
By demonstrating our commitments, methods and procedures We will show you ways to create an effective offsetting strategy and also how you can create new methods and projects.
As well as cutting greenhouse gas (GHG) emissions that are in line with science , and also restoring and protecting carbon sinks within their value chain for instance mangrove forests and rainforests along the coast the voluntary carbon offset system allows organizations to also fund projects with a high environmental impact outside their value chain.
How can carbon offset assist us in reaching net-zero?
There is enormous pressure now from all angles to achieve net-zero as soon as possible. We are in a climate emergency that requires immediate and ad hoc action by business using every method possible.
Organisations cannot offset their way to net-zero. Net-zero is a goal for the long term which requires deep decarbonisation of 90 to 95 percent of emissions, and the elimination of the remaining 5-10 percent of emissions that remain. In the near-term, organisations are encouraged to invest in carbon offset initiatives that cut emissions outside of their value chain to eliminate the following global gaps:
Timing gap: As a species, we have to reduce carbon emissions as fast as possible. Current planned action from governments all over the world could lead to overshooting required timelines as recommended by the IPCC and climate scientists.
Ambition gap: According to the Climate Action Tracker, all the global pledges and targets that are in place will lead to approx. 2.7degC of warming by 2100. Concerning climate policies in practice, it could lead to approx. 2.5degC between 3.5degC in warming.
Finance gap: Federal funding of low-carbon paths is not enough for themselves. In fact, the United Nations Environment Programme (UNEP) says the finance gap is currently at $ 4.1 trillion. The private sector is therefore a critical tool in mobilising capital, and it must be employed in a efficient way.
Carbon credit offset plays an important part in helping to bridge the gaps. Although it shouldn’t be viewed as the only solution however, it can be seen as a viable option to finance sustainable development as well as support projects that are performing important work to save habitats, promote sustainable development practices and improve people’s lives, all while reducing our carbon emissions in the world.
International initiatives that are in development or already in place define the value of carbon offsetting that is voluntary in achieving net-zero emissions at the organisational level. This includes those that follow the Oxford Principles for Net Zero Aligned Carbon Offsetting as well as 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 documents in 2023.
For instance, as per The Oxford Principles to Net Zero Aligned Carbon Offsetting there are four elements essential to legitimate net-zero aligned offset:
Prioritize reducing the emissions of your company first. Ensure the environmental integrity of offsets you use and provide a clear explanation of how those offsets function.
Shift offsetting towards carbon removal and long-lived storage offsets are a direct method of removing carbon dioxide from the air forever or almost permanently.
Help develop net-zero offsets that are aligned.
Adopt a credible nature-based method to offset carbon, for example, forest restoration.
A strategic framework for business activity The SBTi’s Corporate Net Zero Standard
In October 2021 in the year 2021, the SBTi introduced the Corporate Net-Zero Standard framework, working with CDP, Global Compact, the World Resource Institute and WWF. The Corporate Net-Zero Standard is the first global framework for corporate net-zero target setting which is compatible with science-based climate. It provides the guidelines, criteria, and recommendations businesses must set scientifically-based net-zero goals that are compatible with the limit of global warming to 1.5degC.
How can we ensure the permanence of offsetting projects?
Climate change has already had an effect on the world’s ecosystems with rising sea levels, frequent floods, droughts, wildfires, etc. These risks need to be better integrated , not only in carbon finance, but (and foremost) into every environmental project.
As part of the certification process, international carbon standards require that projects to conduct a risk analysis and forecast climate impacts at the project level and demonstrating the risk by project documentation and feasibility studies. For instance, if a portion of a mangrove area is predicted to be damaged by sea level rise in the next 100 years, then the proper VCS certification method requires that the mangrove area cannot be considered as part of the calculations in the absence of an adaptation plan implemented to stop the erosion. It is also necessary to put in place mitigation measures for risk (such as fuel treatments, the construction of fire breaks , fire towers or the use of conservation easements, etc.) to minimize the chance of reverses.
This is an extremely difficult task that requires foresight at project levels, yet allows us to reflect on the importance of adapting. This is an important aspect to be considered: in order to stand an increased chance of functioning, a carbon offset project such as restoration, reforestation, or conservation, must be able to implement measures for adaptation and take into account the climate risk.
In the end, project managers are interested in making every effort to prevent such an event from hindering their work by taking the appropriate actions and steps in advance.
In the case of extreme weather conditions, malicious act (e.g. deliberate fires) or even negligence, standards, such as the VCS, have established “buffer reserves” (also called “pools”) which are pools to which every project contributes by placing aside a certain number of offset credits that can’t be sold on the open market These credits are ex-post, meaning the emission reduction has already been achieved.
Based on the mechanisms in an insurance plan the credit set aside (reserved) can be drawn upon to compensate for reversals of any kind for any project. When implemented, in the event of a reversal occurs, the reserved credits are cancelled from the buffer reserve, ensuring that issued credits still represent real reductions in emissions.
The amount of credits that a project must set aside is usually based on an assessment of the project’s potential risk to reversals. Currently, the diversification of the projects (types or locations) guarantees that buffer reserves are resilient and not impacted even from extreme weather conditions or other malicious acts, such as deliberate fires or negligence.
For Gold Standard accredited projects, they rely on the existence of a “Compliance Buffer” that is not accessed after the crediting time of the project, thus reducing the risk of reversal and non-permanence.
These buffer reserves are regularly adjusted to reflect the evolution of scientific knowledge particularly in the field of climate change. Details and information about the reserve credits are accessible on the internet.
Carbon offset projects of all kinds
Ecosystem restoration (reforestation of degraded forests, mangrove restoration Agroforestry, ecological conservation and reduction of deforestation etc. ).
Renewable energy production at a smaller area or in areas that aren’t connected to the grid (solar wind, biomass, etc. ).
Energy efficiency improvements (energy-saving and better cookstoves).
Improved disposal of waste (biogas biochar, biogas, etc. ).
All of these kinds of projects are highly recommended to the scientists, according to the most recent IPCC report, which was released on April 20, 2022 (AR6 WGIII).
It is crucial to help offset projects that provide both the environment and social benefits to people, which are in line with the UN SDGs. These include objectives like combating poverty in all its forms, ensuring the cleanest water and sanitation to all, achieving gender equality as well as empowering every woman and girl, etc. Beyond climate protection, offsetting initiatives should be focused on delivering tangible and quantifiable benefits for the communities they operate, and empowering them to have ownership of the future that is more sustainable.
For instance, EcoAct’s award-winning Sudan Low Smoke Cookstoves project that was the first to be created in a war zone, has been delivering economic and health benefit to Sudanese family members, with an emphasis on concentration on women’s empowerment.
The Hifadhi Livelihoods Cleaner Cookstoves (financed with the help of The Livelihood Fund and developed in partnership EcoAct) EcoAct) is teaching local artisans as well as project officials to oversee the distribution of better and more efficient cook stoves in rural Kenya and has positive effects on communities, families, and the environment.
Many carbon offset initiatives are part of solutions based on nature.
Nature-based solutions are described by the International Union for Conservation of Nature (IUCN) as “actions to preserve environmentally sustainable and manage and restore natural or modified ecosystems that tackle societal issues efficiently and adaptably, while offering human wellbeing and biodiversity benefits”.
Nature-based solutions include:
The preservation of ecologically healthy and functional ecosystems
Sustainability in the management and management of ecological systems
Reconstruction of ecosystems that have been degraded or creation of ecosystems
A report entitled The State of Finance for Nature in the G20 released in January 2022, showed that the current G20 investments in solutions based on nature is not enough. Nature-based solutions are an effective way to mitigate climate change as well as adaptation. They also offer numerous social and environmental co-benefits. Therefore, they can play an important role in creating a sustainable and sustainable future and aiding in a more equitable transition to a global economy.
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