Carbon Offsets Explained

With programs such as Climate Neutral, and guidelines such as PAS 2060, companies can now measure their carbon footprint and then pay non-profits to eliminate the same amount of carbon from the atmosphere.

4 minutes
March 6, 2020

According to a recent Vox article, the increasing claims from companies of their virtuous behaviors have led a large number of consumers to begin appealing to third parties to validate the sustainability of the companies they patronize. It is difficult for consumers to sniff out corporate greenwashing (i.e., the practice of making misleading statements that an organization's sustainable practices are greater than they are), hence the value of third party validation of sustainability practices.

Enter carbon offsets, and the rising organizations who have made it their mission to provide new degrees of transparency to sustainability practices.

Carbon offsetting is simply the practice of corporations sponsoring, monetarily, the missions of organizations (predominantly non-profits) who are taking actions that help mitigate carbon emissions at similar levels as were created by the corporation's operations. For example, if a corporation's operations and product production produced 30,000 tons of emissions in the last year, they could donate at least enough funds to a non-profit to capture the same number of tons of methane emissions from landfills.

Guidelines for carbon offsetting have sometimes been a challenge to find, but in 2002 an environmental consultancy Natural Capital Partners published some guidelines and since then others have followed suit. Two more recent examples are the PAS 2060 guidelines by UK-based British Standards Institution (BSI Group), and the carbon offsetting framework of Climate Neutral (an organization led by scholars from Yale and the London School of Economics).

There are two steps for a corporation interested in offsetting their practices: Calculate their carbon footprint, and donate the right amount to reputable non-profits who will offset their footprint. Climate Neutral, for example, provides a framework for corporations to calculate their carbon footprint in what they call three "scopes" of emissions:

  1. Direct emissions: Sources that are owned or controlled by the company.
  2. Indirect emissions: Purchased electricity, steam, heating & cooling for own use.
  3. Indirect emissions: Indirect emissions occurring in the value chain associated with the production of a specific product, such as purchased raw materials, and any shipping/distribution required throughout the value chain.

Climate Neutral also has a list of non-profits involved in actual carbon reduction practices, such as reducing de-forestation and capturing methane from sources such as livestock and landfills. They have a similar framework for those non-profits to calculate how the number of dollars received in donations will allow them eliminate a ton of carbon. Once a corporations has calculated their carbon footprint, they donate a sufficient amount for those non-profits to eliminate the tons of carbon produced by the corporation's operations. Climate Neutral becomes somewhat of a clearinghouse, where a unit of emissions eliminated is bought by those who produced an equal unit of emissions. This is where the term "purchasing carbon credits" emerges. If I have paid enough for a non-profit to remove 30,000 tons of emissions from the atmosphere, then I am now entitled to produce 30,000 tons of emissions, and the atmosphere still remains carbon neutral.

Climate Neutral then allows the company who produced those emissions (and paid to offset them) to use standard Climate Neutral badging on their products, which is a signal to customers that the product they are purchasing has had any emissions related to it offset with carbon elimination practices, and that claims the company makes about that product's footprint being offset are not just a case of greenwashing. Climate Neutral's guidance to companies is that they should measure, offset, reduce, and label.

While programs, guidelines, and frameworks such as Climate Neutral and PAS 2060 are a huge stride in the right direction, in this author's opinion, there are still at least two practices missing that would make the process even more effective:

  1. Begin making steps beyond self-reporting to introduce a stronger element of auditing.
  2. Make the carbon offsetting cost more visible to the consumer, and allow them to opt to pay for the offset at the moment of purchase.

With the first practice, it isn't necessarily practical at this time for the guideline organizations to audit behaviors in-person, but they can at least request more detailed reporting than they currently do.

With the second practice, if customers are given the opportunity to add a few cents or dollars to their purchase in order to entirely offset the carbon emissions that have brought that product to their door, then that will help make participating in programs such as Climate Neutral more palatable to corporations. Not all customers will opt to pay for the carbon offsets of their product, but enough would that it would materially decrease the burden of companies to the point where more become willing to participate.

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