How Companies Can Use Carbon Offsets to Achieve their Carbon Neutrality Goals

Part 1 of a 3-part series. Click here to read part 2 and here for part 3.

Rita Reiser, Client Development & Engagement Manager, Cleantech & Carbon Advisory, Schneider Electric

Rita supports Fortune 500 and multinational clients with developing and implementing their strategic sustainability, renewable energy, and decarbonization programs. She serves as a subject matter expert for global energy attribute certificates (EACs) and verified emissions reductions and carbon offsets

The market for the voluntary purchase of carbon offsets is exploding as organizations around the world seek to meet their decarbonization goals. Many leading corporations, such as Maple Leaf Foods and Microsoft, are already using carbon offsets as a key component of their environmental impact reduction strategy. This upward trend is unlocking new opportunities for carbon offset use globally.

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 questions during that webinar. In this 3-part series, we’ll answer the questions most applicable to the broader procurement market, starting with some foundational answers.

Are Energy Attribute Certificates (EACs) the same as carbon offsets?

Although both function as tradable market mechanisms, EACs and carbon offsets are two different things that address different types of greenhouse gas (GHG) emissions.

EACs are the standard method for tracking and trading renewable electricity globally, and depending on the country market and certification scheme, are referred to by different names. For example, in North America, they are known as Renewable Energy Credits (RECs); in Europe, as Guarantees of Origin (GOs). EACs serve as the “proof” that renewable energy has been generated to the power grid, and are used by organizations worldwide to achieve renewable energy and Scope 2 emissions reduction targets.

Carbon offsets, or verified emission reductions (VERs), are leveraged to provide financial support to projects that remove GHG emissions from the environment (sequestration) or keep them from being initially emitted (avoidance). Carbon offsets are applied as a balancing mechanism that enables organizations to address their Scope 1 and 3 emissions that cannot otherwise be ameliorated or avoided. Examples of projects include nature-based solutions such as forest management and conservation (afforestation), capturing methane gas from landfills or agriculture, or switching from one fuel source to another with a lower greenhouse gas impact.

How is the validity of carbon offsets verified? Is it possible for them to be registered by several standards? How is double-counting prevented?

Claiming reduced GHG emissions through the application of carbon offsets is only as valid as the quality of the offsets themselves. Therefore, a variety of third-party organizations have developed robust credibility standards for carbon offsets that verify the emission reductions are occurring as claimed. These standards also track the trading and retirement of offsets, ensuring they are counted by the project developer and end-user only once. This gives organizations assurance that the environmental benefits they have purchased and claimed belong to them and only them. 

Companies can be assured of the value and validity of their carbon offsets through standards such as the Gold Standard, Verified Carbon Standard, Climate Action Reserve, Green-e Climate, CSA Registry, and the American Carbon Registry (while uncommon, there are some carbon offset projects that are verified under more than one standard). Many of these certification bodies also manage publicly searchable databases that identify the retirement of carbon offsets on behalf of specific organizations. Most companies appreciate this transparency and the ability to refer to the details of their commitment in a single, verified, and public domain.

Do carbon offsets actually work for carbon neutrality – or are they just a cheap alternative to doing the real work?  Shouldn’t offsets be a measure of absolute last resort once all means of improving energy efficiency and electrification have been met?

Carbon offsets can be applied to Scope 1 and 3 emissions for achieving carbon neutrality as organizations seek ways to directly eliminate emissions across their operations. Achieving carbon neutrality is a complicated process; clearly defined organizational boundaries, a full accounting of all emissions via a verified greenhouse gas (GHG) inventory, and carbon offset purchases are all critical components to achieving this important environmental goal – even when accompanied by efficiency and electrification.

We expect technological advances to allow for more direct reduction opportunities in the coming years, which may enable carbon neutrality through efficiency and electrification alone, but, in the meantime, organizations need an “all-of-the-above” approach to address the climate crisis. That means employing as many GHG reduction approaches as possible, as soon as possible. Credible and high-quality carbon offsets are a reputable and increasingly common way for organizations to address those emissions that cannot yet be prevented or eliminated.

Further, most companies are still working to quantify and decarbonize their indirect Scope 3 emissions, which include such disparate GHG categories as the value chain, waste management, and business travel. Influencing a step change within an organization’s value chain can be extremely challenging and requires significant time. Carbon offsets represent a viable solution for near-term Scope 3 emissions reduction, and organizations making purchases on behalf of their suppliers and stakeholders set an important leadership example.

Ideally, yes, we will one day eliminate the need for carbon offsets – but that is a future state. Today, carbon offsets are leveraged by organizations of all sizes to reach their goal of reducing environmental impact. When combined with other decarbonization strategies and solutions, carbon offsets provide a credible and immediate path towards carbon balancing.

Learn more about the decarbonization challenge and the “levers” to pull in our new white paper.

Do companies face greater difficulties convincing management to implement energy efficiency and electrification solutions after offsetting?

No, mostly because offsets are an annual capital expenditure without a direct financial payback. By investing heavily in offsets upfront, all incremental efficiency improvements help to reduce the ongoing cost of the offsets. Further, many organizations leverage their carbon offset purchases to establish a proxy price on carbon which is then used to inform the true cost-benefit analysis of implementing efficiency measures. This additional input can often swing the overall financial picture in favor of efficiency.

Reducing or avoiding GHG emissions through efficiency, process improvements, and electrification remains a critical step for all organizations looking to decarbonize. However, measures such as improved manufacturing and design processes, and reduced air travel, cannot fully eliminate the consumption of carbon-based fuels today. These efforts may, in some cases, be cost-prohibitive or operationally impossible for companies to adopt. Therefore, most companies will find that some amount of emissions is unavoidable – which is where leveraging carbon offsets can be highly useful.

Which offsets are the best for companies to use to reach carbon neutral or net zero targets, especially if they have a science-based target? Are projects like cookstoves in India really an option?

The ‘best’ projects will depend on an organization’s unique goals and motivations. There are several factors to consider when choosing which carbon offset projects to support such as project location, vintage, availability, price, and alignment with the UN Sustainable Development Goals, among others. Carbon offsets can also have social and environmental co-benefits, beyond the emissions reduction value, and organizations can choose highly charismatic projects that align with their values, such as projects that support women- or minority-owned businesses or that are located in developing communities.

The use of cookstove carbon offsets is common, and these projects have significant co-benefits and positive impact on the daily lives and health of cookstove users. Worldwide, the wood and charcoal used for fuel generate an estimated 25% of global emissions. These fuels are typically used in home cookstoves that produce harmful smoke and particulates indicted in the deaths of two million women and children every year. By switching out wood and charcoal in favor of lower-emission, cleaner-burning fuels, these impacts can be reduced or avoided altogether. The reduction in the volume of emissions produced by one fuel over another equals the quantity of carbon offset.

While carbon offsets can be leveraged for achieving carbon neutrality, they are not currently permissible by the SBTi for meeting science-based targets (SBTs), so many organizations pursue carbon neutrality in parallel. Forthcoming guidance on the application of carbon offsets is expected from the SBTi later this year under the Net Zero Standard.  It is anticipated that the Net Zero Standard guidance may make distinctions on claims that can be made on the purchase of prevention/avoidance offsets versus the purchase of removal offsets.

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