The role of carbon offsetting in decarbonisation


You can’t electrify everything and always use 100% Renewable Energy, so carbon offsetting has a role to play in any company’s decarbonisation plan. But, at what stage in your net zero journey should carbon offsetting play a role? And are carbon credits worth the paper they are written on?

What are carbon credits?

Carbon credits (aka “carbon offsets”) are an internationally recognised way to manage residual (unavoidable) carbon emissions. They are tradable certificates that correspond to one metric tonne of carbon dioxide equivalent (tCO2e) prevented from entering the atmosphere.

Carbon credits come from projects or activities that reduce greenhouse gas (GHG) emissions, increase carbon sequestration, or help remove GHG from the atmosphere. Highquality carbon credits adhere to a strict set of standards. You can check this by ensuring the projects are registered with a third-party internationally recognised standard such as the Gold Standard, Verra’s Verified Carbon Standard (VCS), or standards verified by the UNFCCC. These standards highlight additional benefits, for example, how they contribute to UN Sustainable Development Goals around from health to communities. Carbon offset projects must be ‘additional’, and the emissions they remove have to be ‘real, permanent and verified’. Once purchased, the credit is permanently retired so it can’t be reused.

Is carbon offsetting credible?

Some argue carbon offsetting is a robust, immediate, and measurable way for businesses to take responsibility for their current carbon footprint. Others, that it is a guilt-free way to carry on emitting without changing behaviour. In the past the framework for carbon credits was flawed (fraudsters sold the same credits twice!).

A lot has changed and now offsetting can indeed form a key part of an effective carbon management strategy. This year an independent body was established to regulate carbon offsetting. Certainly, we should demand rigour, but also that the biggest polluters provide capital for offsetting projects.

It is true to say, offsetting is no substitute for direct action to cut carbon emissions. Mark Carney, the former governor of the Bank of England and envoy to the COP26 climate talks, said: “carbon offsets are complementary, first and foremost to companies’ efforts to cut GHG emissions – companies must focus on absolute emissions reductions. Carbon offsets can be catalytic, used to fund projects that would otherwise not be funded, such as new technologies.” When offsetting, companies are effectively putting a price on carbon for their business, a voluntary tax. This helps focus the whole business on reducing this cost, initiating behaviour change from the top, and helping justify investment into low carbon business models.

How does it work?

You first need to quantify and verify your annual residual emissions. The next step is to invest in carbon credits to neutralise all annual emissions. Then select carbonreduction projects that align to your budget and CSR objectives.

Instead of buying offsets, a company can invest in its own supply chain (e.g. invest in a CO2 reduction project in a factory in Indonesia that produces a key ingredient used in your European manufacturing process). Known as ‘insetting’, this is the only type of voluntary carbon compensation that holds credence with some organisations (e.g. Science Based Targets Initiative). It also allows you to reduce your Scope 3 emissions at the same time.

Climate neutrality

It must be stressed that claiming carbon neutrality through offsetting is only a step on the path to net zero. Admittedly, the existence of unavoidable emissions means there is no other way at present for a company to compensate for its entire existing carbon footprint. Moreover, going ‘climate neutral’ can deliver a range of business benefits – from demonstrating environmental credentials, to improving staff engagement. But what really matters is reducing emissions as close to zero as possible, in line with a Science Based Target. As your company’s footprint reduces so will the amount you need to compensate for.

To sum up

We cannot decarbonise quickly enough or at enough scale to address climate change without carbon markets. We can’t afford to wait for the global energy transition to run its course before investing in projects that can deliver climate action– right now.

The voluntary carbon offsetting market has come a long way and is now an effective way to take responsibility for your carbon footprint and buys time while you reduce it. Going fully ‘Climate Neutral’ is a way for companies to take immediate action while they set themselves on course to meet their longer-term net zero target.

Alfa Energy helps its clients secure credible carbon offsets to boost their sustainability credentials and progress towards net zero. Get in touch today to speak to a sustainability expert.

Samuel Clements

Samuel is an experienced energy and sustainability professional with 10 years in the industry. Samuel has helped clients manage their energy requirements and implement innovative processes, software and technology to further their carbon neutrality journey, in areas ranging from smart grid and demand response, to electric vehicles, renewable energy and carbon credits. Samuel has a Masters in Leadership for Sustainable Development with Forum for the Future, and a Bachelors in Environmental Science.