Reduce What You Can, Offset the Rest – part two

Common myths about voluntary offsetting

Perhaps the most repeated myth about voluntary carbon offsetting is that it is a way for a company to simply ‘buy its way out of the problem’. Ecosystem Marketplace’s analysis of CDP disclosures over the last two years reveals that this couldn’t be further from the truth.

Rather than greenwashing, the inclusion of offsetting in a carbon management strategy is actually a sign of a deeper climate commitment. The typical offset buyer slashed almost 17% of its direct emissions in 2013 while the typical non-offset buyer reduced direct emissions by less than 5% in the same year.

Furthermore, 87% of offset buyers have established some kind of emissions reductions target compared to 75% of non-offset buyers. Across all sectors, offset buyers spent US$41 billion in 2013 on emissions reductions activities, from switching to cleaner transportation to making their processes more energy efficient, to engaging employees and customers in carbon-cutting behaviour change.

Offset buyers were also more likely than non-offset buyers to raise money for emissions reductions activities in creative ways. Forty-five offset buyers, including Microsoft, The Walt Disney Company, TD Bank, Aviva, and Barclays, have implemented an internal price on carbon – in some cases charging their business divisions an actual price per tonne of CO₂ emitted. The companies can then reinvest that money in direct emissions reductions or use it to purchase carbon offsets. An internal carbon price can also be a tool to prepare for regulation, since it forces companies to literally internalise a price on carbon and factor that cost into decision-making.

The idea that offsets do not represent ‘real’ emissions reductions is also largely a myth. Though the carbon markets (as in any market) have seen their fair share of fraudulent activity, these examples are few and less common now than at the century’s start. To avoid damage to market reputation, legitimate actors have developed and continue to innovate numerous ways to protect consumers and companies against bad actors.

More than 96% of offsets transacted by voluntary buyers come from projects developed to a third-party standard, the most common ones being the Verified Carbon Standard, the Gold Standard, the American Carbon Registry, and the Climate Action Reserve. These standards require that projects are additional (the emissions reductions must be a direct result of the project activities), and give auditors a methodology for verifying the volume of emissions reduced. Carbon markets’ infrastructure and transparency has also developed rapidly, and offsets are now assigned unique serial numbers so that they may be listed and retired on registries, therefore avoiding double-counting.

Voluntary carbon market dynamics

Ecosystem Marketplace has been tracking the voluntary carbon markets for over a decade, publishing an annual State of report that reveals trends in global market size and activities. In 2014, voluntary demand for carbon offsets grew 14% to 87 million tCO₂e. The average price for an offset last year was US$3.8 per t, though prices vary widely according to several factors, including project type, project location, and the standard used.

Most voluntary offset transactions are a result of discrete exchanges between buyers and sellers. The sellers may be project developers – the organisations implementing the project activities on the ground – or they may be retailers or brokers that aggregate offsets from a portfolio of projects and serve as ‘matchmakers’ between companies and project developers or their offsets.

Some companies choose to work with an existing partner to guide them in their offset purchases, while others may ‘originate’ their own unique sponsored project, which they engage with from start to finish.

Several cement companies reported originating carbon offset projects by reducing emissions within their direct or indirect operations. The tonnes from these projects, once verified, may then either cancel out the companies’ internal emissions or be sold into a carbon market.

The future of offset-inclusive carbon management

There are reasons to believe that offsetting will increasingly become business-as-usual for companies operating in a climate-changed world. Offsetting is in fact already common. 14% of companies reporting to CDP last year included offsetting as part of their carbon management strategy, with the number of voluntary offset buyers growing 11% between 2012 and 2013.

On the compliance side, emissions trading systems can currently be found in 35 countries, 13 states/provinces, and seven cities, according to the International Carbon Action Partnership, and carbon pricing policies are proliferating. Notably, China will launch its national ETS in 2016, the same year that South Africa plans to implement its carbon tax. (Both regulations will cover the cement industry.) Carbon markets – especially those in emerging economies – create opportunities to find economic efficiencies around emissions reductions, and offsetting may play an important role.

That’s important for voluntary carbon markets too, because compliance and voluntary systems are not mutually exclusive. In fact, European companies have historically been the most active on the voluntary carbon markets despite – or perhaps because of – the existence of the EU ETS. As compliance markets grow, more companies will become comfortable with market-based mechanisms for emissions reductions.

A close look at companies’ CDP disclosures reveals that many industries are moving up the learning curve and engaging with carbon markets ahead of regulation. For carbon-intense industries such as cement, investing in high-quality emissions reductions projects in unregulated sectors of the economy may become an essential ‘license to operate’ in a carbon-constrained world. These offset purchases can also serve the dual purpose of supporting nearby projects – from a wind farm that churns out renewable energy to a wetland restoration initiative that protects a vulnerable shoreline – that help communities and businesses adapt to the consequences of climate change. Given the climate impacts that cement companies are already experiencing, internalising the real costs of carbon may soon become not just a matter of complying with regulation, but a matter of survival.

Note

Ecosystem Marketplace is a source of global news, data, and analytics on payments for ecosystem services such as water quality, carbon sequestration and biodiversity protection. Find these resources at EcosystemMarketplace.com.

The report that this column is based on, The Bottom Line: Taking Stock of the Role of Offsets in Corporate Carbon Strategies, is freely available for download on the Ecosystem Marketplace website.

This is part two of a two-part article written by Allie Goldstein for World Cement’s October 2015 issue and abridged for the website. Subscribers can read the full issue by signing in, and can also catch up on-the-go via our new app for Apple and Android.

Read the article online at: https://www.worldcement.com/europe-cis/01012016/reduce-what-you-can-offset-the-rest-part-two-14/