BRIEFING: How to clean up carbon offsetting

The Climate Change Committee has called for government action to ensure poor quality carbon credits don’t damage net-zero prospects. Nick Hughes reports.

The use of carbon credits – or offsets – by businesses to meet their net-zero commitments could actually delay the transition to net-zero. That’s according to a recent report by the Climate Change Committee (CCC) which called on the government to put in place stronger guidance, regulation and standards to ensure the purchase of carbon credits is not used as a substitute for direct emissions reduction. “Businesses want to do the right thing and it’s heartening to see so many firms aiming for early net-zero dates,” said the committee’s chief executive Chris Stark. “But poor-quality offsets are crowding out high-integrity ones. Businesses face confusion over the right approach to take.”

Here are six key takeaways from the CCC report:

Demand for carbon credits is growing fast. Voluntary carbon markets (VCMs) allow businesses to purchase credits to offset their residual greenhouse gas emissions. The CCC notes how the global market for carbon credits has grown rapidly in recent years with value up over threefold between 2020 and 2021 to $2bn (£1.7bn). Leon, Benugo, Nando’s and Wahaca are among the hospitality sector brands using offsets as part of their approach to achieving carbon neutrality.

Most carbon credits sold today support investment in projects like renewable energy generation or land-based measures to reduce or remove emissions such as forest conservation or supporting tree planting; however there is growing interest and investment too in so-called “engineered removal projects” where atmospheric carbon is captured and then stored – often underground.

The effectiveness of offsetting is highly contested. Advocates of VCMs point to the potential role of carbon credits in supporting valuable environmental projects as well as wider sustainable development goals. The CCC does acknowledge that financial flows are needed from developed to developing countries to rapidly scale up global investment in low-carbon solutions and says carbon credits are one mechanism for doing this. But it also points to concerns over the rigour of carbon credits and whether their purchase actually slows down businesses’ efforts to reduce their own emissions. There are two reasons for this: either because the low price of offsets means they provide an easier option to reduce net emissions compared to more expensive direct actions, or because projects overstate the emissions saving potential.

Offsetting claims risk being inaccurate. Calculating emissions reduction or removal potential is technically challenging, in particular for land-based projects like those involving forests or peatlands. The CCC says in the past some land-based projects have over-claimed the emissions reduction or removal they are achieving, leading to overinflated claims of impact. Carbon credit projects range in permanence (how long a CO2 removal is expected to last), which is not always accurately captured in reporting. This might, for example, include the risk of newly planted trees being lost at some point in the future to natural events like fires or storms thereby releasing sequestered carbon back into the atmosphere.

Carbon credits must be high-quality. The report says the voluntary purchase of carbon credits could support faster emissions reductions but these need to be “high-integrity” credits. In practice this means they need to be accurate in the emissions reduction or removal they report and are ‘additional’ in so far as they wouldn’t have happened without the purchase of the offset. They must also be consistently monitored, long-lived, transparent and not the cause of other environmental or social harm. The CCC is unconvinced that this is the case with a lot of current credits. It says the evidence reviewed for its report suggests that VCMs are “not currently supporting net-zero globally” with low prices and inaccurate claims meaning credits may not be meaningfully reducing emissions. Moreover, their use may cause buyers to take less action on their own emissions impact.

Offsetting is not a substitute for carbon reduction. The report states that the UK will only reach net-zero once almost all emissions have been directly reduced to zero and the remaining small amount of residual emissions are then neutralised by removals. It says that for a UK company to be on track for net-zero the focus should be on “substantial direct business emissions reduction in the next 10 years” which can be achieved by, for example, installing low-carbon technologies, reducing energy consumption and changing business models – not by offsetting.

There is a need for government intervention. The CCC says there is a role for guidance and regulation over carbon credits to ensure business reliance on them doesn’t slow progress to net-zero. It recommends the government requires UK businesses to disclose their reliance on carbon credits, including the type of carbon credit purchased, the quantity and duration of the credits, what activity is being offset and why. It also wants to see the government provide a clear definition of what constitutes a net-zero business, which should in time be used to inform regulation as well as things like the green claims code (the CCC view is that a business is only ‘net-zero’ once nearly all scope 1, 2 and 3 emissions have been reduced and the few remaining emissions are counterbalanced with long-term removals). Recent research from the Advertising Standards Authority into the public’s understanding of the terms carbon neutral and net-zero found confusion and “little consensus as to their meaning”. Carbon offsetting proved to be a particularly problematic area with the public often feeling misled. The green claims code states that claims like carbon neutral should “include accurate information about whether (and the degree to which) they are actively reducing the carbon emissions created in the production of their products or delivery of their services or are offsetting emissions with carbon removal”.

Stronger standards are needed. The UK government should look to improve existing standards for carbon credits and advocate for stronger global standards, according to the CCC. These standards should also give greater consideration to the risk that offsetting projects (such as tree planting) could have a negative impact on things like biodiversity, equitable land access and sustainable food production if, for example, agricultural land is displaced by the planting of a single tree species. “There is a clear need for government to make standards stronger and point businesses towards an approach that prioritises real emissions reduction ahead of offsetting,” Stark concluded. “Those businesses that choose to support the economy-wide transition to net-zero should get the credit they deserve.”

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