Use of Carbon offsetting poses a reputational risk

In the effort to combat the global climate crisis, a significant number of usually large corporations have made commitments to achieve Net - zero emissions or Carbon Neutrality goals by 2050.

Becoming either ‘climate neutral’ or achieving ‘net-zero’ means reducing greenhouse gas emissions (GHG), but it also means compensating for any remaining emissions through offsetting. This is how a net-zero emissions balance can be achieved. A net-zero emissions balance is achieved when the amount of greenhouse gas released into the atmosphere is neutralised by offsetting any remaining emmissions. This can be done by carbon sequestration, i.e. by removing carbon from the atmosphere, or through offsetting measures, which typically involve supporting climate-oriented projects.

For many large corporations that have made these commitments, a popular way to neutralise emissions is by the use of ‘carbon offsets’. A carbon offset is a financial mechanism that allows businesses and organisations to compensate for their GHG emissions by investing in other activities and projects that reduce or remove an equivalent amount of carbon dioxide (CO2). Organisations and individuals can purchase (either voluntarily or to comply with regulations), carbon offset credits as a part of their sustainability and environmental responsibility efforts usually in another location or by another entity.

For example, several airlines offer an optional carbon offset fee with the purchase of their flight tickets. How this works is that for every tonne of CO2 emitted, the airline chooses to fund an emissions reduction project that develops an equivalent amount, like a renewable energy plant or a reforestation project that plants trees elsewhere. The airline then receives a credit that shows they have offset the generated carbon emissions for one tonne of CO2.

Carbon offsetting may sound like an easy solution for companies aiming for Net-zero, but the market for carbon offsets has sprung a number of doubts for their validity and carbon abatement measurements. Carbon offsetting has been criticized for exaggerated carbon removal claims, lack of accountability and lack of regulations to provide the required assurance for these credits. While carbon offsets can play a role in reducing overall GHG emissions, support the creation of green jobs, protect ecosystems and improve air quality, results may vary in the short, medium and long run. A newly planted forest for instance, will need more than 20 years to start capturing the amount of CO2 that the project promises, and there is no guarantee that these trees will be protected from fires or droughts. There is a need for better quality and verifiable offsets. A high-quality carbon offset project should provide durable and measurable emissions avoidance or carbon removal which has been quantified and is regularly monitored and reported on to ensure it has been correctly estimated. This should be the target, or the future of the carbon offset projects.

At the end of the day, as long as these carbon offsets are loosely verified, the only loser might be the environment while it seems that businesses buying carbon offsets continue to pollute at the same pace while risking falling into the trap of being accused for greenwashing. This practice in fact allows companies to shift their sustainability responsibility to their customers and failing to deliver what we really need – the elimination of carbon emissions entering the atmosphere. The purchase of carbon offsets is expected to increase in the near future due to the low price of carbon offset credits, while the current global and national climate goals seem to be falling behind. If businesses require to pay more than a few dollars to buy carbon offset credits for good quality carbon removal projects, this might help them understand that carbon offsets are merely an interim solution, and it should be treated as an additional practice rather as the main solution. The need to start investing in efforts that are designed to tackle the generation of emissions at its source, like replacing electricity sources such as fossils with renewables, is a more realistic solution to our problem.

Nonetheless, recent developments have shown that things are moving in the right direction. The European Union has introduced several regulations to improve the transparency of ‘green’ activities reported by organisations such as the EU Taxonomy Regulation and the Corporate Sustainability Reporting Directive. More recently, in March 2023, the EU proposed the so-called Green Claims Directive, which aims to reduce greenwashing (making false and inaccurate claims on the environmental attributes of a product or service). The Directive will improve transparency regarding products and services sold on the market, aiming to better inform the consumers. If a company states they sell a carbon neutral product, and it is achieved through carbon offsets, additional information will be needed to substantiate this claim. Together with stricter transparency regulations, standards and guidelines are being developed which are expected to assist companies in carbon removal methods and measurement. The Green House Gas (GHG) protocol, one of the most commonly used protocols for GHG emissions counting, is currently developing a guide on carbon removals (Land Sector and Removals Guidance) which will define approved methods for carbon removals and explain how companies account for and report for these.

Anastasia Ellina, Assistant Manager, Sustainability Services, and Maria Ttakka, Consultant, Sustainability Services, Grant Thornton Cyprus