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Carbon Offsets: Understanding offset credibility and applicability

This is part 3 of the blog series on carbon offset use in the corporate sector. View part 1 here, and part 2 here.

Carbon offsets have been a long-standing mechanism that corporations have used to reduce their carbon emissions and reach decarbonization goals. Yet, for as long as they’ve been around, there are still many nuances that can be difficult to translate when deciding how carbon offsets fit into a company’s decarbonization strategy.

In our recent webinar, Moving to Carbon Neutrality: The Role of Carbon Offsets, our Schneider Electric team was joined by experts from BNEF, Maple Leaf Foods, and Virgin Voyages to discuss how to build a strategic carbon offset purchasing program.

We received dozens of audience questions during that webinar. In the final blog in this series, we’ll dig deep with Kevin to answer some of the most technical questions we received during the event including how to source credible, verified offsets, and how offsets play into net zero and carbon neutral goal frameworks.

Describe what the “vintage” of offsets means. Is there a limit to an offset’s vintage – or can they be purchased now and used in 10 years? And, how do vintage and additionality relate to each other (or not)?

When we talk about the vintage of carbon offsets, we refer to the time period in which the associated emission reduction or avoidance occurred. Typically, it refers to a specific calendar year. Offsets do not expire – they’re valid until the company that purchased the carbon offsets retires them to make environmental claims.

There’s no overarching guidance dictating when organizations need to retire the offsets they’ve purchased. As a result, the purchasing organization can hold on to the offsets for as long as they like and retire them in accordance with their emissions reductions plans (for example, annually or every five years). The caveat, however, is that certain reporting protocols may have different requirements regarding eligible vintages or deadlines for when the offsets need to be retired. Depending on which third-party standard a company reports against, they need to be aware of the individual reporting guidelines of that organization.

Additionality is a component of the carbon offset project itself – it is not impacted by vintage. Carbon offsets that are sourced from a project that’s deemed to be additional, typically through a third-party certification standard, will automatically have additionality associated with them.

Download our whitepaper to learn more about carbon offsets and their role in bringing organizations to carbon neutrality.

As companies decrease their emissions, and as more advanced solutions become available, the need for offsets decreases. Will the need for offsets ever disappear? Does the declining need pose a long-term financial risk to offsetting programs?

In theory, yes – if companies are able to implement new solutions to achieve absolute decreases in their overall emissions, they would not need to purchase as many, or potentially any, offsets. However, even the most innovative long-term solutions are not likely to address or remove all of an organization’s emissions. We’re also seeing a fundamental shift in the market right now that goes beyond simply neutralizing emissions and instead aims to avoid or remove emissions. In addition, more and more companies are setting carbon neutrality goals, bringing more demand to the market. As organizations get more savvy in reducing and addressing their carbon emissions, compliance programs and third-party governing organizations may set increasingly challenging standards. As a result of these factors, the market for offsets is forecasted to grow even more in the coming years.

There’s been a lot of skepticism in the market lately about carbon offsets – and especially their credibility and validity. How can a company be sure that the offsets its buying are really doing what they say they are doing?

A good first (and probably the most important) step is to ensure that the carbons offsets you purchase are certified by a leading third-party standard, such as the Gold Standard, Verified Carbon Standard, American Carbon Registry, Climate Action Reserve, or the UN Clean Development Mechanism. If offsets are certified by any of these organizations, they have been thoroughly vetted and run through a rigorous certification protocol and can be used as legitimate instruments to address emissions.

There are other standards and project types outside of the aforementioned that use different methodologies for validating carbon offsets. Organizations can still purchase these offsets but may need to perform additional due diligence on them and the projects they come from, especially with regard to their eligibility under any applicable reporting protocols. It’s important for any company that engages in the purchase of offsets to equip themselves with all the appropriate information prior to conducting an offset purchase.

Does Schneider Electric anticipate that offsets will be allowable decarbonization instruments under the pending Net Zero guidance from the Science-based Targets Initiative?

Net Zero guidance currently states that an interim target in alignment with a Science-based Target (SBT) is required. SBTs do not allow for offsets, so companies must show decarbonization prior to any accounting of offsets in line with an SBT (which is a 5- to 15-year target). 

It seems likely that the Net Zero guidance will have some type of permissible carbon offsetting (with the limitations above), though it’s unclear at this point what the rules will be around this. In general, under the SBTi, offsetting should be reserved for hard-to-abate emissions, and investments in decarbonization should be prioritized. 

Watch the full webinar to hear from industry experts on embedding carbon offsets into your company’s carbon neutrality strategy.