Balancing the promise and pitfalls of carbon offsets: Expert Anuj Saush, leader for the Environmental, Social & Governance Center, Europe at The Conference Board shares a reliable framework for how businesses can assess carbon offsets on the road to net zero or carbon neutrality.
Right now, carbon offsets – a type of credit that individuals, organisations, and companies can purchase to compensate for the carbon emissions they produce – are facing some bad press. Some critics see offsets as a form of greenwashing, a way for buyers to pay someone else to adopt climate-friendly actions rather than make efforts to cut their own emissions. And it seems at least some of this scrutiny may be warranted. Recent investigation into leading carbon offset providers, such as South Pole and Verra, found that credits do not represent actual carbon reductions.
Yet the climate problem is simply too large, complex, and urgent to write off carbon offsets completely as part of the solution. A report from The Conference Board, a global think tank that delivers business leaders trusted insights for what’s ahead, outlines how companies can effectively incorporate carbon credits into their sustainable development. While carbon offsetting can create a contradictory incentive for organisations to avoid investment and structural changes that reduce their own carbon footprint, the practice is an essential aspect of the business journey to net zero. Carbon finance through offsetting can provide a mechanism to direct finance into emission reduction activities, such as renewable energy, reforestation, or energy efficiency. For many sectors, CO2 removals or negative emissions are necessary to reach reduction targets, in order to neutralise residual emissions that cannot be further reduced.
Carbon offsets are both imperfect and necessary for businesses to reach their net zero goals. The good news is that offsetting plays a clear role in this journey, with two important caveats. First, the practice only makes sense when used as a secondary strategy, to balance out residual emissions that are unfeasible to eliminate. In other words, companies can choose to use offsetting to become carbon neutral today, provided they do not use it as a proxy for real climate action. Secondly, the onus is on companies to choose credible carbon offsets.
Poor quality offsets may not really benefit the environment and can undermine the credibility of a company’s climate and sustainability strategy. The costs of offsets can also add up, especially as decarbonisation and net zero commitments continue to increase demand and drive up prices. Companies should proceed with caution when identifying and selecting carbon offsets to ensure they are high quality.
So, what steps should companies follow for how to assess carbon offsets?
Conduct due diligence
It is important to understand how carbon offset credits are generated, transferred, and used. Companies should rigorously examine and evaluate the critical documentation and data before buying offset credits to ensure the offset’s quality and protect the company against potential negative publicity. This process can be outsourced to experts who analyse different projects and options and put together a portfolio of projects that suits the buyer’s needs and objectives.
Stick to lower-risk project types
One way to reduce the risk of purchasing low-quality offsets is to opt for credits from lower-risk projects. These tend to meet carbon offset integrity criteria more easily but may offer less in terms of social and environmental co-benefits. For instance, a nitrous oxide emission avoidance project in a nitric acid plant is easily quantifiable, highly additional, causes no harm, and can be seen as permanent but offers no external co-benefits to the community or environment. But the nitrous oxide project is considered as a low-hanging opportunity and, as such, not accepted in mandatory carbon markets. Lower-risk projects frequently meet all offset criteria, while higher-risk projects may require more caution.
Shift to carbon removal offsetting and long-lived storage
While the use of nature-based solutions may be more widespread today, their offsetting potential and scalability is limited, and so companies should focus on upscaling engineered and hybrid solutions to meet their targets. Currently, these solutions are in the early development phase and relatively costly, but companies should gradually increase the proportion of engineered and hybrid offsets—the growth in demand will spur development and supply. Addressing climate change will also require long-term solutions for storing this carbon with a low risk of reversal over centuries to millennia. Similar to carbon removal technologies, these solutions are not yet fully developed and will require additional investment to scale them up and increase demand.
Dealing with discounts
Discounting is when a project achieves greater GHG reductions than the number of credits issued to the project, but the term is also used to more broadly describe any strategy that applies more reductions to offset fewer emissions. Discount offsets hedge against the risk that some of the purchased offset credits turn out not to effectively reduce emissions, for instance, credits could be non-additional, overestimated, impermanent, or claimed by other projects. However, discounting should be the primary aspect of an offsetting strategy, as it does not address the quality issue head on.
Avoid relying on price or “vintage” status
Cheap offsets – around US$1–2 per tonne – are typically a sign of low-quality projects with a weak case for additionality, especially for new projects. That said, some project structures can result in relatively low-cost GHG reductions. Generally, truly additional projects will simply cost more to reduce emissions, and the offset credit price will reflect this cost in order to be financially viable.
Using carbon offsets to address climate change is not without risks. When applied carelessly, offsetting can slow real progress and be a way for companies to greenwash without making meaningful improvements in the short term. It’s also challenging to measure offsetting’s true and enduring impacts on the environment. However, when used responsibly, high-quality offsets are a fundamental tool for companies striving to reach net zero targets. The real value of offsets is that they’re a way to compensate for the more difficult to reduce residual emissions, but it’s the responsibility of each individual company to ensure their offsets are credible and robust.
About Author
Anuj Saush is the Leader for the Environmental, Social & Governance Center, Europe at The Conference Board, where he works with members globally to embed and enhance sustainable business strategies. He has over a decade of experience in sustainability consulting and corporate strategy roles, including at PwC and EDF.
Anuj has published thought leadership on topics such as climate strategy, circular economy, and ESG reporting. He holds a master’s degree in environmental policy from the London School of Economics, is a Chartered Environmentalist, and has completed a sustainability leadership program at the University of Cambridge. Anuj is also a trained coach and a member of the Institute of Environmental Management and Assessment.
