By Elizabeth Hardee
Companies all over the world are now using carbon offsets to meet at least a portion of their greenhouse gas reduction goals. There are many reasons these corporate entities decide to engage in the carbon offset market — with some going so far as to commit to 100 percent climate neutrality or being 100 percent renewable — but for those unfamiliar with the workings of environmental markets, a basic primer may prove useful in understanding the appeal of purchasing offsets.
Ecosystem Marketplace reports that the typical offset buyer has a disproportionately large indirect emissions obligation — about 35 times that of a company that doesn’t purchase offsets. However, these companies also typically do more to address the emissions they can control than companies with no offsetting program, which provides evidence that offsetting programs themselves are generally indicative of broader carbon reduction strategies.
Once quantified, offsets must be verified by an accredited third-party verifier before they may be transacted. Verification includes thorough review of a project’s monitored data, and often a visit to the project itself.
Since 2013 alone, California’s cap and trade program, has successfully offset over 39 million tons of greenhouse gases using projects that improve the management of forests, avoid the release of methane, and destroy ozone-depleting substances (equivalent to roughly 1 billion trees planted).
Additionally, carbon offset projects have benefits far beyond their greenhouse gas reductions; referred to as co-benefits. Benefits from projects on forested lands include improved water quality and biodiversity, while livestock digester projects avoid the release of methane from manure lagoons, and may provide an additional revenue stream from the sale of biogas—an effective source of energy, and a byproduct of these systems. Carbon projects can help to finance everything from conservation of land, to more sustainable agricultural practices, to distribution of cleaner cookstoves in developing countries.
Corporations are also reaping the benefits by becoming more sustainable. In September 2014, more than a thousand companies signed up for the Carbon Pricing Leadership Coalition. The coalition’s goals include expanding the use of effective carbon pricing policies in order to maintain competitiveness, create jobs, encourage innovation, and deliver a meaningful reduction in emissions. According to Environmental Finance, a recent study looked at a sample of 1,700 leading international firms and found that money aimed at reducing greenhouse gas emissions saw an internal rate of return of 27%—a clear indication that those investments are paying off.
Companies that produce high volumes of carbon emissions are by-and-large under no obligation to reduce those emissions or to pay for their release; carbon “compliance” markets created via regulation, have in some cases been built to address this. In a compliance market, companies are required to turn in allowances that reflect their emissions for the year, and can typically use offsets produced in non-covered (or non-regulated) sectors to meet some portion of this obligation — incentivizing the creation of more carbon offset projects.
Now that we’ve established a basic definition of offsets, and an understanding of environmental markets has been built, we can dive into the key factors to consider when actually purchasing offsets. Keep an eye out for these details in a future post on TriplePundit.
Image credit: Flickr/Climate and Ecosystems Change Adaptation Research University Network
Elizabeth Hardee is the Senior Analyst for The Climate Trust.