Carbon offsetting; a risky business for businesses
19 January 2020 Thomas Kræmer Schmidt
As businesses turn to carbon offsetting to meet their CO2 reduction targets, they need to fare with great caution. A new study by Ramboll Management Consulting questions the effects of carbon offsetting, even for approved projects.
Carbon offsetting has caught a lot of media attention the past two weeks with stories of carbon offsetting projects that do not deliver the promised reduction in carbon dioxide (CO2), and unreliable retailers who reuse carbon credits.
Carbon offsetting is measurable, quantifiable and trackable units of greenhouse gas (GHG) emissions reductions typically produced by projects in developing countries that carry out on-the-ground emissions reduction activities. Many companies turn to carbon offsetting to fulfil ambitious CO2 reduction goals with no clear plan on how to reach them and no visibility on how much it will cost.
A highly fragmented market
Ramboll Management Consulting has made a comprehensive study on the voluntary carbon offset market and found over 136 offset project developers, retailers and brokers, besides 13 different standards and more than 18 different types of projects, with prices ranging from 1-145 €/tCO2e (euros per tons CO2 equivalents), making it highly fragmented and difficult to navigate. Investments made into offset projects are risky since there is a large chance that they will not realise the carbon savings promised.
To counter the risk from unreliable projects and retailers, several standards have been introduced. These carbon offset standards are designed to ensure that carbon credits from projects are real and verifiable and come from genuine ‘additional’ activities that would not otherwise have been undertaken. In 2016, 99% of offsets in the voluntary carbon markets were certified by a third-party standard (Ecosystem Marketplace, state of the voluntary carbon market 2017) but this is still no certainty that they will have the promised effect.
"Emission reductions do not necessarily mean additional costs. In the long run, it can even be profitable and lead to optimisation of operations and resources"
Thomas Kræmer Schmidt, Sustainablity Expert, Ramboll Management Consulting
Most projects are over-estimated
According to an analysis on UNFCCC’s Clean Development Mechanism (CDM), which is the first global credit scheme that validates and measures projects’ credibility, all the energy-related projects (renewable energy, energy efficiency improvements or fossil fuel switch) are very unlikely to be additional, despite having been approved by the UNFCCC*.
In 2018, this consisted of 61% of all the carbon offset projects issued by the three largest standards in 2018. In fact, they found that only 7% of the potential 2013-2020 Certified Emission Reductions supply, generated by the CDM, have a high likelihood of being additional and not over-estimated.
What to do
Based on the findings of our study, we recommend the following to companies willing to effectively reduce their CO2 equivalent emissions:
- Make sure that all ways to reduce your actual emissions has been explored: Emission reductions do not necessarily mean additional costs. In the long run, it can even be profitable and subsequently leading to optimisation of operations and resources
- If you know that you have reached the full reduction potential and still do not reach your ambition, look into offsetting. But ensure that project due diligence is carefully carried out internally to avoid lack of impact and related bad publicity/public backlash
- Choose the right verification standard and understand how they verify the projects and for how long
- Understand the difference between the various project types and how they comply with the criterias: Real, valuable, additional and measurable
- Choose recogonized retailers with a documented track record.
And remember that carbon offsetting is not a marketing or branding exercise. But by the right level of scrutiny from customers, the carbon offsetting market will likely improve and by this help businesses and organisations around the world deliver additional GHG-reductions.
* 2016 study by Institute for Applied Ecology
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