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Carbon Offsets as One Tool in Decarbonization Strategies

What are Carbon Offsets?

On a broad level an offset can be described as an instrument used to offset the emission from greenhouse gas (GHGs) from other places. Carbon offsets can be found in two forms: reduced emissions or avoided emissions. One example of a avoided emission is to convert landfill gas into a fuel for combustion. This reduces the emission of landfill gas into the atmosphere, and reduces emissions from the extraction of traditional fossil fuels.

One example of emission reduction is projects to afforestation that absorb CO2 from the atmosphere and then store it in the biomass sink. The variety of offset types and project types is customized to the company’s environmental and social governance plan and used in narrative development. In the context of decarbonization, carbon offsets can be used to decrease a company’s carbon footprint to achieve a net-zero target. But, businesses are discovering new ways to make use of carbon offsets, such as offsets for business travel or events, the launch of the introduction of new products, as well as the transportation of goods sold.

In order to properly incorporate carbon offsets in your strategy for decarbonization It is essential to know the advantages and drawbacks to access carbon offsets, so that you can be sure you are choosing the most efficient projects to figure out the best way to use them in the overall strategy for decarbonization.

Benefits of Carbon offsets

Carbon offsets transmit a direct market signal, putting an the economic value of a commodity which has not previously been priced. The purpose for carbon offsets is to set the price of GHG emissions based on their economic and social impacts. This is known as the carbon cost to society.

A project has to be able to pass additionality prior to moving forward to determine if the methodology meets requirements set out by the registry organizations. Additionality examines projects to find out whether it is “additional”. The test will determine if the project is contributing to the reduction or elimination in GHG emissions. The most crucial additionality test is an analysis of investment. In other words, could the project not have been approved without the financial benefit of carbon offsets being sold? If not, the plan is not accepted. This ensures that the environmental benefits derived by the end-users of a carbon offset have contributed in reducing GHG emissions that wouldn’t be possible without the financing.

Projects that receive offset allowances for trading on the market for voluntary transactions must to comply with the registry’s rules and regulations, adhere to specific methods that are approved by a third party, track emissions reductions and avoidances and be verified by third-party verification agencies. It is suggested that businesses looking to offset offsets purchase offsets that have been issued by the top registry. The top registries include: The Voluntary Carbon Standard, The Gold Standard, American Carbon Registry as well as The Climate Action Reserve.

Carbon offsets come in a variety of projects which can assist a business in not just reducing its emissions, but also in creating an image. Certain projects can provide benefits that are co-beneficial, such as conservation of ecosystems and gender equality, enhancing poor communities, safe drinking water, and so on. One example is providing solar cook stoves for women living in South America. It is a benefit socially for the women living there and reduces the amount of biomass that is burned and improves the air quality in this region in the globe. Another example is the conversion of the land used for cattle grazing back into its original land-use, like a rainforest. This project also has the benefits of wildlife and eco-system management.

Offsets can be a great method to cut down on a company’s carbon footprint and create a narrative , but they must be utilized correctly. Certainly, using offsets only to achieve zero will cause lots of scrutiny. It is suggested to use offsets to decrease the unavoidable scope 1 emissions as well as the scope 3. (value chain) emissions. This should be done in conjunction with stakeholder engagement and operational modifications.

The Carbon Offset limitation

The biggest problem with carbon offsets is that they’re not a panacea. They are a tool for decarbonization , but they must be utilized in a responsible manner. In addition, offsets are an expense. Other strategies, such as solar energy installations, energy efficiency and downsizing can generate an investment return in the long run for businesses and are recommended to be first utilized in conjunction with offsets. It is probable that the cost of offsets will be passed on to the consumer at the end of the day, but it is possible to argue the reverse. The idea of putting a price on carbon will have a direct market impact. If consumers are forced to pay higher prices for GHG heavy products, they will be more likely to choose products with lower costs and less GHG intensity.

Other limitations to offsets are related to target setting. They are not able to be used for setting targets. Science-Based-Target Initiatives (SBTi) does not permit offsets to count towards targets in scope 2, and only permits them after operational changes are made to emissions in scope 1. Offsets are definitely allowed in internal plans and strategies, and could be advertised as carbon neutral, but when used for SBTi targets, they must meet the requirements. Renewable energy certificates are able to use to offset the scope 2 emissions as per the SBTi.

There have been numerous controversies in which businesses pollute without justification and purchase offsets instead of improving their efficiency in energy use, therefore it is advised that companies safeguard their image by making sure that their company sees the purchase of offsets as an opportunity to offset emissions in tandem with changes in operations, to cut down on emissions that are unavoidable as part of internal goal setting strategies, and to offset the historical emissions.

In the in the midst of the global decarbonization process, many businesses will be forced to make use of these credits in order to meet their net zero targets at a minimum in the short-term to mid-term long.

Carbon Offsets as a Tool in Decarbonization Strategies

In the end, carbon offsets are a well-known method of decarbonization due to their simplicity of use and co-benefits, narrative construction and innovative use-cases however, they have limitations. They provide direct financing to various projects, but it is crucial to ensure that you choose projects that are registered with the most reliable registry companies. There is the possibility of being seen as engaging in harmful behavior, and using offsets as an excuse, therefore businesses ought to think about implementing offsets in order to create a narrative, decrease the risk of unavoidable scope 1 emissions. the scope 3. (value-chain) emissions and historical emissions, as well as events as well as business travel. The regulatory environment is constantly changing and could threaten long-term strategies that are based on offsets. This is why Inogen Alliance recommends that carbon offsets should be considered as a single instrument in the overall strategy to reduce carbon. Carbon offsets when paired together with certificates for renewable energy or power purchase agreements and other operational adjustments such as: energy efficiency, on-site renewables reduction in size, and green product source can be an effective method to achieve carbon neutrality.