Carbon offsetting is a polarising, frequently misunderstood concept. Some view it as an opportunistic way for polluters to appear sustainable without reducing their carbon emissions. Others see it as a short-term tactic for jump-starting the transition to Net Zero.

In truth, offsetting is a valid strategic tool for companies committed to the Race to Zero. It can unlock ambitious, near-term action, but is even more important as a lever in a longer-term decarbonisation strategy.

A scientific consensus supports using high-quality carbon offsets, avoidance and removals to neutralise residual, persistent emissions. That’s one reason the global market for carbon offsets is primed to explode, from $6B in 2019 to $200B by 2050.

How Does Carbon Offsetting Work?

Realising the full potential of offsetting requires a disciplined, strategic approach. In particular, there are three areas you need to focus on:

  1. TimingDetermine when to integrate offsets into your Net Zero strategy. You should generally follow the mitigation hierarchy that prioritises, or does not compromise, internal reductions.
  2. QualityTo avoid reputational risk, utilise high-quality avoided emissions and removals in your carbon neutrality strategy.
  3. Procurement StrategyOffsetting is not a tactical credit purchase; it is a strategic approach that should be aligned with your corporate vision and values.


Integrate Offsets with Other Levers of Decarbonisation at the Right Time

Again, timing is critical. Either introduce offsets right at the start of your decarbonisation process, or phase them in once it is already established. Either way, don’t wait to determine the right time to deploy offsets. Make that decision early, while you are setting your Net Zero strategy. Consider two timing options:

  1. Offset Immediately

This enables you to address today’s emissions rather than let them build up in the atmosphere. At the same time, you can work to displace offsets by ramping up internal decarbonisation measures.

  1. Transform First, Then Phase-in Offsets

Phasing-in allows an organisation to incorporate high-quality offsets after having initiated significant operational changes.


Use Avoided Emissions and Removal Credits

When deploying offsets, it’s crucial to purchase quality credits. As long as the carbon credits are high quality, you may utilize the simpler, cheaper avoidance credits as well as the more costly carbon removal credits.

At some point, however, you will likely have to use offsets from carbon removal projects, even if they are more expensive. Interim guidance from the Science-Based Targets Initiative (SBTi) suggests that purchasing these offsets – whether nature-based or technological carbon removal projects, which are more cost effective in the long run – will be necessary to achieve Net Zero in the target year.

How to determine and validate the quality of the carbon offsets?

High-quality offsets meet the following standards and are recognised by a credible program such as the Verified Carbon Standard:

  1. Measurable. Emissions reductions are quantifiable using recognised tools.
  2. Additional. The project is not feasible without carbon finance.
  3. Independently audited.
  4. Permanent. The benefits are irreversible.
  5. Avoid leakage. The project will not cause higher emissions elsewhere.
  6. Unique. Single use.
  7. Has no adverse effect on the environment.
  8. Produce socio-economic benefits for local communities.


Shift From Tactical Credit Purchases to Strategic Investment

A strategic approach is needed when procuring offsets. This might require a shift from a volume-based, price-driven ‘spot’ purchasing approach to a multi-year offset approach aligned with your overall Net Zero strategy and additional sustainability goals.

Your approach will be science-based, but should also enable adaptation to changing market trends, regulations, or requirements from different climate standards.

Align your procurement approach and investments with your strategic intent. A more strategic approach typically relies on longer-term investments, in which the company has a greater stake and control over projects.

Build a Trustworthy Global Market for Carbon Offsets

There is no single path to Net Zero and the journey will be different across industries. That said, most companies could accelerate their pathway by temporarily utilising high-quality offsets. As you align stakeholders around your Net Zero strategy and principles, make sure you also secure agreement on an offset strategy that is based on your emissions profile, decarbonisation levers and business strategy. Get this right and you will move faster toward Net Zero. You will also help build a more trustworthy market for offsets and accelerate the world’s transition to Net Zero.

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