Derisking your carbon offsetting
by ClimeFi | Aug 31, 2022 | Articles
The voluntary carbon market is complex & presents many different risks. Companies can be criticised for engaging, but also for lack of action, presenting a true double edge sword. And sometimes, not doing anything is better than engaging wrongly!
De-risking your carbon credits is critical to protect your company’s environmental integrity, financial investments, and reputation. The list of companies reprimanded or fined for wrongfully communicating climate or Net-Zero claims grows by the day. And so does the pressure from employees, customers, shareholders, regulators and the media – recent exemples here, here, here and here (and the list goes on).
While it is not always easy to navigate the voluntary carbon market, doing it diligently can prevent a lot of worries and future problems. Here are five approaches that will help:
Focus on high-quality offsets
When your company emits CO2, it will stay in the atmosphere permanently (or at least for a very long time). For your offset to make sense, you need ensure that the carbon has been removed from the atmosphere and stored away permanently (e.g. deep underground or in rocks). Other important criteria to look for are additionality (does it result in net new carbon being removed, or does the project takes credit for removal that was already going to happen), net negativity (the emissions from the activity of eliminating carbon nets out in the offset calculation) and verifiability (ensuring the offset actually delivers on what it promised to do).
The Oxford Principles offer a helpful framework to ensure your credits meet the integrity required for an offset. Unfortunately, the overwhelming majority of the market today does not meet those standards.
Don’t overpromise
Companies claiming Net Zero emissions today risk their credibility, in particular as they are in all likelihood based on offsets that do not remove CO2 from the atmosphere – or if they do, they do not remove it permanently.
When you go on the voluntary carbon market and look for offsets that truly remove carbon permanently, you quickly realise that those offsets are scarce and expensive. However, this does not mean your company cannot already position itself today. You can commit to buying when those offsets are created (i.e. carbon that will be permanently removed in the future). Doing so also helps the projects looking for early demand access further financing and scale their operations.
Instead of buying low-quality offsets to claim Net Zero today, it is therefore better for your company to set Net Zero targets in the future (e.g. 2030 or 2040 depending on your level of residual emissions) and work towards those goals transparently and truthfully, with offsets that indeed are offsetting.
Do your due diligence
Nothing can replace your due diligence on the company and the project developing the offsets. How long have they been in business? Who are their customers and what are they saying? How solid is their technology, and in what development stage? What system do they have in place for to measure and track the CO2 removed? How credible is the project’s plan for scaling carbon capture and sequestration?
Answering all these questions can be time-consuming, but they are critical to ensure that you engage with the projects that will deliver on the high-quality offsets that you need.
Take a portfolio approach
While it is almost impossible to eliminate all the risks in your purchase and to predict which projects will successfully deliver on their promises, the most effective strategy is a similar one you would employ to manage your own retirement savings: buy a range of offsets from different projects, technologies to diversify the risk.
It is not always easy to anticipate which projects will successfully deliver on their commitments, and a diversified portfolio will help mitigate the risk and increase the probability of accessing high-quality offsets.
Overcommit if you can & recurring setup actions
You can create a buffer against the risk of non-delivery by purchasing more credits than you may need. While this opens the possibility that you buy more than you initially intended, if you focus on permanent offsets, those credits become assets on your balance sheet and can be used to offset your residual emissions in a subsequent year.
Reaching Net Zero is not a one-time event. Once accomplished, it needs to be done repeatedly every year. Implementing a systematic and sustainable procurement strategy is, therefore, essential.
Monitor your commitments and follow the market
New technologies emerge, scientific standards improve and evolve, and, regulations change. Certain type of offsets become more attractive, while others decline in desirability.
Doing your research, watching market trends and monitoring your commitment are critical to protecting your environmental commitments and maximising your chances to access high-quality carbon offsets.
Conclusion
Diligently following all of the steps exposed in this article can be complex, resource intensive and sometimes daunting for companies to manage, particularly when they already have plenty to do in managing their day-to-day activities, servicing their customers and meeting shareholders’ expectations.
This is precisely why we have launched Carbonx, a platform that manages the risk of engaging in carbon markets for companies, and handles the procurement from end to end to ensure the delivery of carbon offsets, whilst protecting the environmental integrity of your company. For further information, please get in touch!