Is Carbon Offsetting a Solution for Climate Change?

Article by: Freeman Jian, The Climate Crew

Synopsis

This article discusses the viability and efficacy of carbon offsetting as a solution for climate change. It addresses the issues of the carbon dilemma and digs beneath the surface of definitions for carbon offsetting. The Climate Crew postulate that carbon offsetting is not just a case of green washing. There are tangible potential benefits in offsetting as a short-term solution if we adopt offsetting projects with a pragmatic and results-driven approach. Accountability is key, and efforts must be made to weed out the offset initiatives that do not serve an authentic purpose. Expanding on this, the article addresses some key issues around offsetting, such as potential markets, price calculations, and evaluations.

Contents

  1. Why should I care about climate change?
  2. The carbon dilemma
  3. What is carbon offsetting?
  4. How can a company buy and sell pollution?
  5. Can you neutralise an emission-producing activity?
  6. What are the markets for carbon offsets?
  7. How are carbon offset prices calculated?
  8. Examples of carbon offsetting
  9. Do carbon offset projects actually work?
  10. Permanence and carbon offset projects
  11. Carbon offsetting is an effective short-term solution

 

Is Carbon Offsetting a Solution for Climate Change?Why should I care about climate change?

Climate change is the biggest challenge of our time. If we don’t act quickly enough, the world will experience more frequent and more devastating extreme weather events, the displacement of millions of climate refugees, the sinking of entire countries, and the sixth mass extinction of wildlife. In other words, we are majorly screwed if things continue the way they are — and spoiler alert, we aren’t acting quickly enough.

A recent report from the World Meteorological Organization suggests the world could reach 1.5 °C above pre-industrial levels in only the next 5 years. Going past that 1.5 °C danger line means significantly increasing the severity of the climate disaster. So the answer is clear. We need to shut down our biggest sources of GHG emissions ASAP right? Unfortunately, it’s not that simple

The Carbon Dilemma

For many of the world’s biggest polluting companies, shutting down all their operations to reduce their greenhouse gas emissions tomorrow just isn’t feasible. In fact, it’s not even a good idea — not only for the future of the company, but such a drastic change would prove catastrophic for the billions of people around the world that rely on their products, services, and infrastructure. On the one hand, these climate-conscious companies do want (or are going to be forced by their shareholders) to help combat the climate crisis. On the other hand, they need to keep emitting carbon dioxide — at least in the short term while climate technology catches up. One possible solution to this problem is carbon offsetting.

What is carbon offsetting?

In a nutshell, carbon offsetting is a way to compensate for GHG emissions made in one place by reducing or capturing GHG emissions elsewhere. The idea here is to negate the effect of current emissions by investing in carbon-reducing environmental projects around the world, usually in developing countries. This process  mitigates the warming effect of the carbon produced by individuals and companies, “allowing” them to emit  in ways that are more acceptable, at least in the short term.

The carbon offsetting industry is new and booming. Berenberg Bank estimates that the global market for carbon offsets could reach a staggering $200 billion by 2050. But is there any basis behind all the hype? Does carbon offsetting actually work? Who determines whether a company should be offsetting, and how do they quantitatively measures the amount of carbon being offset? To answer these questions and more, let’s briefly review how carbon offsets got their start.

How can a company buy and sell pollution?

In the 1990s, the United States launched the Acid Rain Program, a prototype emissions trading program (commonly known as cap-and-trade) to control acid rain pollutants like nitrous dioxide and sulfur dioxide. It was the first of its kind. The government would set a national cap on the total amount of pollutant permitted over a certain time period, and any polluting company would need to buy permits equal to their emissions.

If — for whatever reason — they had to increase their emissions, they would have to buy those permits from other permit-holders. In essence, emissions trading is a market. Each year, the total cap issued by the government would shrink, and the cost for a permit would increase. In the long run, companies would be encouraged to reduce their emissions naturally, since they won’t want to pay for permits.

This market-based approach to tackling pollution was adopted by many countries for different chemicals. Notably, during the 1990s, anthropological climate change was getting more attention and international efforts began shifting towards the curtailment of greenhouse gas emissions. Greenhouse gases differ from other pollutants in that they are non-localized. Since they mix globally in the atmosphere, reducing GHGs is a truly global effort — a reduction in emissions anywhere in the world will equally contribute to the fight against climate change. That is the core principle behind carbon offsetting: the equalization of carbon emitted in one place through its reduction somewhere else.

Can you neutralise an emission-producing activity?

The key point is this:

Enabling an emission-reducing activity anywhere in the world is equivalent to neutralizing an emission-producing activity of the same level.

In a compliance market for carbon offsets like the EU Emissions Trading System, the legally binding caps incentivize the biggest polluters to engage in carbon offsetting projects. For these projects, companies can receive carbon offset credits which they can use to claim as reductions for their own emission goals. Of course, in the long term, the intention is still for these companies to find ways of operating while reducing their carbon footprint. However, in the short term, they can buy carbon offsets to “negate” their emissions and bring them down to a level that lies within the shrinking cap imposed by authorities.

These carbon offset credits are measured per metric ton of carbon dioxide reduced — or per metric ton of CO2e (MtCO2e), where the “e” stands for an equivalent emission reduction in any of the other greenhouse gases, like methane.

What are the markets for carbon offsets?

Outside compliance markets, there is also a growing voluntary market for carbon offsets. More and more companies realize that the climate crisis is not a threat to be trifled with, pledging to become net-zero. Whether these commitments are only PR stunts is up to personal opinion, but the fact is that the impact is real and this trend only seems to be accelerating. To illustrate, business and government commitments to net-zero doubled in less than a year in 2020.

Since some industries might never be able to fully eliminate their emissions, carbon offsets will play a critical role in allowing them to become net-zero. Carbon offsetting now also provides insurance against the possibility of future regulations that might sharply increase the product price of a polluting company.

How are carbon offset prices calculated?

Digging a little deeper, what is the incentive for carbon offsetting over reducing, which initially seems simpler and easier to control? Like any good market system, the answer is price. Carbon offsetting projects are so attractive because there already exists a plethora of really inexpensive solutions that greatly reduce emissions. According to The Guardian, a single low-energy, $2 lightbulb can save over 40kg of carbon dioxide per year.

Compare that to the problem the University of California faced in 2013 when it pledged carbon neutrality by 2025. To modernize its gas-powered plants — which accounted for 65% of its emissions — the university would have to shell out $3 billion. That’s money the university and many organizations in similar positions simply don’t have. Carbon offsets reasonably average around $10 per ton of CO2e. Their small price tags allow companies to immediately reduce their climate impact while waiting for technology to scale and fossil fuel markets to wane.

UNESCO publications are now officially carbon neutral as of May 31, 2021. It was a feat only made possible by carbon offsets compensating for the GHG emissions caused by in-house and outsourced printing processes. UNESCO’s offset project focused on the development of a new hydropower plant near Virunga National Park in the Democratic Republic of Congo.

Examples of offsetting

UNESCO calculated its 2020 emissions (totaling 284.8 tonnes of CO2e) by taking into account factors such as electricity usage, and the consumption of paper and ink. They then purchased an equivalent quantity of carbon offset credits through the German company Climate Partner, which proposed a hydropower project. This is just one example of how organizations offset in practice — and though UNESCO publications are relatively small, you can see how this could be scaled to much larger companies.  AQ Green TeC, a subsidiary of the renewables-focused Aquila Group, is another business focused on supporting measurement, reduction and mitigation through offset for companies, their employees and consumers.

Carbon offsets aren’t just limited to large organizations  — individuals can also buy offsets. British Airways recently announced the opportunity to offset a business class flight between New York and London for just over $20. They would invest that money into quality assured projects such as renewable energy, protection of rainforests, and reforestation programs.

Do carbon offset projects actually work?

In theory, due to the global nature of GHGs, they do. The issue stands with adoption. Offset projects are often located across the world from the companies that can afford them and the debate  comes down to whether the individual offsetting project has effectively reduced emissions. In general, a project is truly effective when it is both additional and permanent.

An offsetting project has to not only prove that it has reduced emissions, but that such a change would not have happened on its own. Thus, funding a company that’s already in the process of creating a solar panel farm does not count as an offset project, but funding a completely new regenerative agriculture initiative might. Intuitively, this makes sense. That additional investment may have made that project slightly better or more economically viable, but on a whole, those solar panels would have been constructed anyway. The investment did not directly reduce carbon emissions.

Permanence and carbon offset projects

The topic of permanence is also becoming of ever greater importance. Investing in a carbon offsetting project is pointless if those emissions will just be released a couple of years later — as might be the case for tree planting initiatives that unfortunately burn in wildfires. On a whole, it’s impractical to guarantee that a project will remove carbon forever, but a good target to aim for is at least 100 years.

There are a lot of important questions involved when trying to fund a carbon offset project, and usually, these can be handled by companies that specialize in that sector. One way to make sure that your money is going to worthwhile projects is to see whether the company in charge of implementing the offsetting activities is accredited by a third party such as The Gold Standard. These organizations certify the climate impact and sustainable development of carbon offset projects.

Carbon offsetting is an effective short-term solution

Ultimately, is carbon offsetting a good idea? The question centres around the issue of time — a resource the world is currently short on. Carbon offsetting will provide the much-needed time for companies and governments to establish the infrastructure and develop the technologies needed to reach net-zero. Carbon offsetting is cheap, and also supports economies in the developing world.

In the end, the UN has declared that we must reach net zero by 2050. Reducing is important, but we need a solution for the industries, companies, and personal habits that simply cannot change that fast. That solution is carbon offsetting.