Multiple energy, aviation, and industrial companies are using carbon offsetting practices to 'decarbonize' their operations. As governments put mounting pressure on companies around the world to reduce their greenhouse gas emissions, many firms are using carbon offsetting techniques to respond to reduction targets without directly reducing the amount of greenhouse gases their operations produce. But not everyone is so sure about the efficacy of this practice, with some investors actively avoiding companies that opt for offsetting. So, what is carbon offsetting? A carbon offset is a reduction in greenhouse gas emissions used to compensate for emissions that occur elsewhere. For example, an airline can 'offset' the emissions it produces when burning fossil fuels by planting trees to sequester CO2. Meanwhile, a carbon offset credit refers to a transferrable instrument certified by governments or independent certification bodies to represent an emission reduction of one metric tonne of CO2 or an equivalent amount of other greenhouse gases.
Carbon offset practices are used by companies to achieve lower net greenhouse gas emissions, or at least to convey to the public that they are acting to decarbonize. Carrying out carbon offsetting operations allows companies to reduce costs and respond to government pressures to cut carbon, without actually reducing CO2 from their operations. Carbon offsetting standards can vary from country to country.
In theory, if a company can report lower annual emissions it is complying with carbon-cutting policies and supporting international decarbonization targets. However, some investors believe that not all carbon-cutting initiatives are born equal. DCVC, a Silicon Valley venture capital firm that invests in a multitude of climate tech companies, is not interested in investing in firms that use carbon offsetting. The company's co-founder explains: "We do not look at companies that need to use carbon offsets to make their business model work."
Companies that offset their carbon emissions can purchase a certificate to show how much carbon they have reduced through offsetting techniques. This may be using carbon capture and storage (CCS) technology, planting trees, or other methods. But Bogue states: "There's been some studies out there that up to 90% of carbon offsets are completely ineffective - have had no impact - which is a tragedy of our time, because big Fortune 500 companies are paying millions of dollars to these carbon offsets, and continuing to emit in the meantime." He adds, "these offsets are actually having zero impact."
For example, one white paper showed, of those studied, 52 percent of companies were culpable of "additionality". In some cases, companies had 'protected' trees that were never in danger to offset their emissions. Others saw projects never come to fruition due to climate change events, meaning companies failed to offset their carbon output. This can be seen in California where several companies paid to protect forests that were burnt down in recent wildfires. Bogue believes there is greater potential for carbon offsetting schemes, but that the industry needs stronger regulations and greater transparency.
The environmental organization Greenpeace criticizes carbon offsets by suggesting that although it is a positive step to prevent deforestation and protect ecosystems, it is not a substitute for directly cutting emissions. Greenpeace accuses companies such as BP and Shell, which carry out offsetting practices, of shifting their responsibility for the climate onto the consumer rather than addressing the root cause of the problem.
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Aviation companies are some of the most well-known for carbon offsetting, with several airlines around the world allowing passengers to pay to 'offset' their emissions when purchasing a ticket. However, in 2021, an investigation found that the current system is not fit-for-purpose. The study found that "although many forest projects were doing valuable conservation work, the credits that they generated by preventing environmental destruction appear to be based on a flawed and much-criticized system." Meanwhile, these credits supported the illusion of airlines providing "carbon-neutral flying" and meeting net-zero commitments.
The most commonly used carbon offset accreditation system internationally is the VCS (Verified Carbon Standard), administered by U.S. NGO Verra. In 2019, the market for carbon offsets was still small, at about $300m, but it is gradually growing much larger as governments around the world put increasing pressure on companies to decarbonize. Many companies have announced new ESG goals in the last two years in response to changing consumer expectations for greater transparency and accountability. While it is difficult for energy and aviation companies to decarbonize without the mechanisms and renewable energy operations in place to support direct carbon cutting, they are using carbon offsets to achieve their goals. In fact, Mark Carney, the former Bank of England governor, is heading a task force to transform carbon offsetting into a multibillion-pound annual market.
There is huge potential for carbon offsetting, as funds can be pumped into vital environmental protection projects. However, a global standard with clear methodologies needs to be developed to establish greater transparency and accountability in companies' carbon offsets, where the reduction in emissions can be accurately measured and reported.
By Felicity Bradstock for Oilprice.com
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Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK. More