What is Carbon Offsetting? What You Need To Know

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Learn all about carbon offsetting: its purpose, methods, and environmental impact. Get the facts in our comprehensive guide.

What is Carbon Offsetting? What You Need To Know

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As the scale of the climate emergency has started to reveal itself in recent years, it has become increasingly clear that inducements of some form or another would be necessary to nudge society towards a more sustainable future. One of the most prevalent inducements has been carbon offsetting, but such initiatives have at least proved as controversial as they have been successful, with some environmental groups claiming that such initiatives are often more about giving the impression of acting sustainably than actually doing so.

What Is Carbon Offsetting?

Carbon offsetting may be loosely defined as a process through which companies or individuals compensate for their greenhouse gas emissions by investing in the equivalent removal of such emissions from the atmosphere. This compensation can take many forms, from reforestation to rolling out clean energy technologies, and they often take place in developing countries.

Carbon offsetting came about as a result of the Kyoto Protocol, which was adopted in December 1997 and put into law in 2005, binding 37 industrialised countries to a commitment to reduce greenhouse gases for the sake of the environment. Whether carbon offsetting has worked is debatable, but it remains a viable option for businesses who are genuinely looking to reduce their carbon footprint.

How Does Carbon Offsetting Work?

There are essentially three steps to carbon offsetting.

Calculate Your Carbon Footprint

This is simpler than it might at first look. The formula to calculate the carbon footprint of a business is to multiply what is called ‘activity (or consumption) data’ by its corresponding emission factor. ‘Activity data’ comes in three forms:

  • All direct emissions from activities under your control. These include onsite gas boilers to heat your home or office, the petrol and diesel you use for transport and commuting, or air-conditioning leaks that could increase your electricity bills.

  • Indirect emissions from the electricity you purchase and use. The emissions you create during the production of the energy.

  • All other indirect emissions from activities, are from sources you don’t own or control. These are usually the greatest share of the carbon footprint, covering emissions associated with business travel, procurement, waste and water.

Choose a twelve-month period and calculate your data. You’ll need, amongst other things, electricity and gas use in kilowatts per hour, water supply and treatment in cubic metres, fuel used in company-owned vehicles, receipts for details of staff travel and distance calculation websites to obtain flight, rail, and road distances and waste disposal and recycling in tonnes. Once you have these figures, the government publishes annual conversion figures which you can use to report, along with a full guide on how to complete your calculations.

Reduce Your Greenhouse Gas Emissions

Once you’ve calculated your greenhouse gas emissions, you can use this data to both reduce your emissions and save money. You can set suitable targets achievable over five to ten years that compare your emissions over time to the first year you have reliable data. This can be done by reducing waste and energy use, switching to more sustainable forms of energy, or travelling less for business.

Buy Carbon Offset to Cancel the Rest

You mustn’t use carbon offsetting to get away with business as usual. If your emissions (or your carbon expenditure) are as low as possible, then the amount of offsetting (or your carbon revenue) to break even can be equally low.

There’s a limit on how much carbon pollution a company can create; allowable emissions. If your company emits more carbon than its allowance, you're responsible for making up the difference by purchasing carbon credits. These are tradable certificates that represent one ton of CO2e (carbon dioxide equivalent) taken from the atmosphere.

Once purchased, the credit is then retired through publicly accessible emission registries held by international standards and global exchanges. When a credit is used for offsetting, it becomes an offset, and the credit is permanently retired so it cannot be reused (for transparency and accountability purposes, carbon credits are assigned serial numbers).

Benefits of Carbon Offsetting

The assumed benefits of carbon offsetting apply to both the environment and your business:

Improved Reputation

By offsetting emissions, your business can show your stakeholders and customers that you’re taking action to reduce your carbon footprint and contribute to the fight against climate change.

Compliance With Regulations

Carbon offsetting offers businesses a solution to meet regulatory requirements by enabling them to balance their emissions that exceed regulatory limits through the funding of emission reduction projects.

Cost Savings

By offsetting emissions through the purchase of carbon credits from projects that reduce or remove GHGs, your business can achieve its targets without having to invest in costly technology upgrades or operational changes. Reducing energy use and waste will also reduce your bills.

Risk Management

Participating in carbon offsetting projects can help your business manage operational risks, such as potential operational disruptions caused by new regulations, new technologies, and shifting consumer preferences.

Business Growth

By investing in low-carbon technologies and projects, your business can demonstrate its commitment to sustainability. It can also enhance relationships with stakeholders and attract new customers who prioritise environmentally conscious businesses.

It should also be remembered that many of these benefits are assumed or implied and that there are valid criticisms of carbon offsetting, such as ‘greenwashing’, whether the offsetting goes anywhere near far enough in tackling climate change, or whether it’s even possible to make an ethical choice to ‘offset’ a carbon footprint.

Carbon Offsetting Types

There are essentially two types of carbon offset:

Removal Offsets

These are activities which pull carbon out of the atmosphere, projects which focus on restoring degraded landscapes to enhance their carbon sequestration–the process of capturing and storing atmospheric carbon dioxide–potential, or projects which seek to restore landscapes degraded by industrial activity.

Avoidance Offsets

These are activities which result in a decrease in carbon emissions compared to a baseline scenario. For example, financing a solar power plant in a region dominated by fossil fuels would be considered an avoidance offset.

Carbon Offsetting Methods

Forestry and Conservation

In theory, this sounds like an obvious offset to make. Cut down a tree, plant a tree; simple, right? Not quite. Research has shown that most reforestation projects have not reduced deforestation significantly, and those that did, had benefits substantially lower than claimed.

Renewable Energy

Investing in renewable energy infrastructure may have more tangible benefits. Greenhouse gas emissions have continued to rise at alarming levels, but it is also unreasonable to expect countries in Africa or Asia to stifle their own growth in a way that already developed countries never have. This level of investment allows for these economies to continue to grow while reducing their dependency on fossil fuels and the huge environmental costs that come with them.

Community Projects

Community projects often help to introduce energy-efficient methods or technology to undeveloped communities around the world. Such projects not only help to make entire regions more sustainable, but they can also provide a sense of empowerment and independence that can lift communities out of poverty.

Waste to Energy

Waste to energy projects commonly involve capturing methane and converting it into electricity. Sometimes this means capturing landfill gas, human or agricultural waste. In this way, waste to energy projects can have considerable positive impacts upon communities in developing countries.

But some of these activities have a mixed reputation. Questions have been asked about the efficacy of reforestation for years, while carbon offsets that rely on land use in developing countries run the danger of transferring the burden of reducing emissions from wealthier countries to those already feeling the impact of the climate crisis.

Carbon Offsetting and Greenwashing

The most pervasive criticism of carbon offsetting is that it’s little more than a form of ‘greenwashing’, the pejorative name given to the practice falsely or misleadingly promising to be sustainable, biodegradable, or environmentally conscious for promotional or reputational reasons. But not all carbon offsetting is created equal. Reforestation has been widely discredited, but at the other end of the spectrum Direct CO2e removal is considered highly effective in reducing emissions over both short and long-term periods since it offers additionality and permanence.

Why Businesses Should Avoid Greenwashing

There are both moral and legal implications to greenwashing which your business should want to avoid. Firstly and most obviously, it is ethically reprehensible to publicly present your business as being environmentally conscious if it isn’t. Customers are increasingly prioritising this when choosing who to do business with, and it is effectively swindling them to make such claims when they’re untrue.

There are currently no laws or legislation specifically relating to greenwashing, but the Competition and Markets Authority (CMA) does now have the power to impose direct civil penalties on companies for making such false claims. In September 2021 they published a Green Claims Code. The Advertising Standards Authority (ASA) has also updated its guidance and issued rulings for misleading environmental claims and social responsibility.

How to Avoid Greenwashing

The most obvious way to avoid accusations of greenwashing is to be completely honest in the way in which you do business. Don’t overstate your achievements or wrap your advertising in potentially misleading claims. The single most important thing about switching to more sustainable business practices is that it becomes a value that your organisation lives and breathes. Don’t use carbon offsetting as a ‘get out of jail free’ card for environmentally unfriendly practices elsewhere. Consider your business energy needs, and consider moving over to more sustainable energy sources wherever possible.

Practical Alternatives - Sustainable Practices Beyond Offsetting

Even for those who get involved with carbon offsetting with the best of intentions, it can be extremely difficult to verify the effectiveness of any of these schemes, because they all rely on things happening in the future. For some, carbon offsetting is mandatory, but for both those companies and those for whom it’s voluntary there are other actions that you could take which will have more immediate effects. “Practice-based credits”, in which you reward changes in practices rather than paying for results that can be hard to quantify and guarantee over the long term, are a more effective way of seeing immediate results, as is carrying out an energy audit and acting upon its results.

Carbon offsetting cannot change the world alone, but that was never really its mission. It remains a valuable part of the armoury of actions that should be taken if we are never to get anywhere near net zero, and although it has earned a bad reputation in recent years there are plenty of ways in which it can be done which can be genuinely transformative. Your overarching business aim should be to move towards that net zero figure, to leave no carbon footprint. Done properly and for the right reasons, carbon offsetting remains a valuable tool at your disposal.

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