Understanding Carbon Offsetting

Businesses that want to create a net zero strategy are using carbon offsetting as an interim approach to becoming carbon neutral. This is a way of offsetting the carbon emissions that they produce directly (Scope 1) or indirectly (Scope 2) by investing in environmental projects designed to reduce future emissions.

In this EnergyIntel, we’ll discuss how carbon offsetting works, the potential benefits and the risks so you can decide if it is the right decision for your business.

Why would a business choose to offset their carbon emissions?

For many businesses starting on the path to Net Zero, becoming Carbon Neutral is an interim approach towards being more sustainable and can offer these benefits:

• Funds climate solutions: Your carbon offsetting budget will be helping to fund initiatives that are working towards tackling climate change. There are instances of some positive stories where deforestation has been reduced by 75%, meaning there’s been an avoidance of nearly 6 million tonnes of carbon emissions. 
• Improve business reputation: A business can use carbon offsetting as proof to stakeholders that the business is conscious of its impact on the environment and is using offsetting as part of its net zero journey.
• Cost effective: Carbon offsetting could be a more cost-effective approach to other routes, such as purchasing REGOs/RGGOs, upgrading to more efficient machinery, or updating operational processes. Of course, it should be considered cost-effective in the short term only, as over a longer period of time, continually purchasing carbon offsets will eventually cost more than investing in efficiency upfront. 

This is not an exhaustive list of opportunities and benefits that may help your business choose to invest in carbon offsetting, but understanding exactly why your business needs to offset emissions will help you make an informed decision about where to invest.

Types of carbon offsetting projects

Carbon offsetting projects can be based anywhere, but are typically more common in developing countries, and there are different types of projects that a business can invest in to offset their emissions. These include:

Reforestation

Many businesses use tree-planting initiatives as a way of offsetting their emissions. Many benefits to reforestation are not just related to reducing carbon emissions, so it is no surprise that it is one of the most popular projects for companies to get involved in.

Restoring Damaged Ecosystems

These projects help restore those ecosystems that have been disturbed or destroyed by things like: logging, intense grazing, damming rivers, fires, floods and other severe weather. It is a way of getting native species back into their habitat and creating biodiversity – these projects are often closely linked to reforestation projects as they work hand-in-hand to restore natural carbon storage. 

Community Projects

Distribution of items such as more efficient cooking equipment is another common carbon offsetting project. Communities are provided with newer technology and cookware so they can be less reliant on traditional fuels, like firewood or coal, and cut down their overall emissions. 

Bioenergy with Carbon Capture and Storage (BECCS)

When biomass is converted into fuel, the CO2 can be captured and stored permanently. The process of BECCS is the only CO2 removal technique that also generates energy as the CO2 captured from Biomass production can either be stored permanently or used as a feedstock in other products. However, much more investment in infrastructure and storage is needed to make this standard practice in biomass production.  

Direct Air Capture and Storage (DACS) 

Another process where CO2 is captured and stored permanently, but the CO2 is taken directly from the atmosphere. There are two methods of capturing CO2 from the atmosphere, solid and liquid DAC, however, either process is quite energy intensive and therefore more expensive as an option. The CO2 can then be stored or used for other purposes, such as in synthetic aviation fuels. There are currently 27 DACS plants commissioned with another 130 in the development stage. Again, this is not a long-term strategy but this is an important part of the growing technology being created to achieve goals for climate change.

The downside to carbon offsetting 

While carbon offsetting will help businesses to become carbon neutral, it is not the answer to eliminating carbon emissions and becoming net zero. In fact, if a business only focuses on offsetting its emissions as opposed to reducing and eliminating its own Scope 1 and 2 emissions it is simply delaying the inevitable. 

There is also a lack of evidence that all schemes are offsetting emissions as much as they claim. As the schemes are often unregulated and voluntary, evidence-based studies on the emissions that have been offset are not prevalent and so we do not know if any claims that emissions are being reduced are strictly true. There is also the matter of severe weather being a problem, with wildfires becoming an increasing concern for reforestation projects. 

There is also a link between carbon offsetting and greenwashing, with some companies claiming carbon reduction, which uses carbon offsetting as part of the mix, being accused of greenwashing. Greenwashing is a very real issue in business and although a business may use carbon offsets for the right reasons, they may overshoot the benefits of their investment and make incorrect claims about the outcome. There are also more arguments for stronger regulation and governance on how carbon offsetting is used by companies to meet their emissions targets. There shouldn’t be an option for businesses to be able to “buy their way” out of decarbonisation or remove the responsibility of reducing their emissions.  

Is there a difference between carbon offsetting and carbon credits? 

Carbon credits and carbon offsetting are terms that we sometimes see used interchangeably, but they are two very separate products and should be treated as such.

Carbon offsetting is the investment in projects designed to either remove CO2 or other GHGs from the atmosphere, or reduce the levels of CO2 (or other GHGs) emitted in the future. Carbon offsetting is voluntary, any business can get involved no matter how big or small they are. The projects are often unregulated and investment can be stopped at any time. 

Carbon credits are purchased by businesses, usually as part of a compliance scheme designed to act as a deterrent from emitting CO2 (and other GHGs) into the atmosphere. A company will purchase as many credits (or allowances) as they need to balance out their emissions, (up to the cap which may be in place), and there are usually schemes allowing businesses to sell excess credits to other companies. 

Summary

Carbon offsetting can help businesses begin their sustainability journey, but they really should be looking at longer-term strategies such as reducing energy consumption, improving energy efficiency and choosing to use renewable energy directly from the source as a way forward. 

If you want to look at ways of reducing your carbon emissions, speak to our experts who will help you find the right solutions to save you energy, lower your carbon emissions and cut costs.