Background
Increasingly carbon offsets are being used by corporates as part of their overall climate transition and mitigation strategies.
Whilst in theory carbon offsets are a great idea there are many practical challenges to using them effectively.
We see carbon offsets as taking focus away from the “real game” which is to directly reduce carbon emissions rather than just offset them.
We are seeing an increasing number of transactions in “hard to abate” sectors where carbon offsets form a crucial part of the company’s overall decarbonization strategy.
Let’s have a quick look at the pros and cons of using carbon offsets…
Pros and Cons
Positive: On the positive side carbon offsets give us a feel-good factor that we are helping to immediately mitigate climate change. They also sound good in corporate reporting and give companies the impression that their emissions are reducing quickly.
Apart from this we see limited other benefits to carbon offsets apart from the feel good, reputation, and reporting aspects.
Possibly carbon offsets can be used by countries at an overall aggregated level, however, we don’t believe they are credible to use in large quantities at an individual company level.
Negative: On the negative side, the quality of many carbon offsets is questionable, the permanence of such offsets is also debatable, plus the additionality of whether they change any actual behavior (and whether a forest would have been kept or replaced anyway) is also under scrutiny.
Furthermore, there is a significant credibility gap to the underlying quality of many offsets
External References
Apart from the above, we note that in the Climate Bond Initiative Credible Transition paper notes that offsets should not be permitted.
In addition to this as part of Science Based Targets Initiative, offsets are also not permitted to be used as part of target setting.
https://tinyurl.com/yc3fnx5p
In Conclusion…
Carbon offsets we believe a purely a last resort to remove and negate residual emissions that cannot be otherwise removed.
We need more zero and less net!
Currently the challenges are too great, and it takes too much focus away from the main game of reducing emissions. They should only be seen as a rounding error and final neutralizer.The
