CO2 Offset: How It Works, What It Delivers – and What Has to Change

CO2 Offset: How It Works, What It Delivers – and What Has to Change

Many companies buy CO2 certificates to offset their CO2 emissions. How exactly does that work? And how big a benefit does it deliver?

Since 1751, human activities have contributed more than 1.5 trillion tons of CO2 (carbon dioxide) to the atmosphere. More than half of that amount was generated in the last 30 years. In order to drastically reduce emissions and meet the objectives of the Paris Climate Agreement, measures must be taken. One of these measures has been the establishment of the compliance market. In Europe, the compliance market was established in 2005 as the world’s first major carbon market. Today, 30 compliance carbon markets across the globe collectively contribute to a reduction of approximately 20% of global carbon emissions. However, this is not sufficient to achieve the ambitious targets of net zero emissions by 2050 and this is why the voluntary carbon market offers additional opportunities.

A study by Accenture revealed that 34% of the 2,000 biggest companies worldwide (by revenue) have committed to reaching net zero emissions by 2050. Net zero is achieved when all emissions released by human activities are counterbalanced by removing carbon from the atmosphere. However, the study also states that 93% of these companies will not reach their goal if they don’t at least double the pace of their emission reductions by 2030. To reach their CO2 reduction objectives, companies offset their emissions by buying CO2 certificates in the voluntary carbon market for what they can’t reduce otherwise. How exactly does that work?

What Is CO2 Offset?

Imagine an industrial company that generates two tons of CO2 daily while manufacturing car parts. Reducing these emissions may not be feasible, but immediate carbon offset is within reach. This involves compensating for the two tons of daily emissions at one location by making equivalent reduction elsewhere – hence CO2 offset. To achieve this, the company can take actions such as planting trees (which absorb CO2), supporting renewable energy projects (that reduce emissions), or investing in technologies capable of capturing and storing CO2.

In the pursuit of offsetting emissions, a company buys what are known as CO2 certificates. In general, each CO2 certificate corresponds to one ton of CO2 emissions. In our example, the company would need to buy two certificates daily to fully offset its emissions.

Carbon emission offset extends beyond companies and can be carried out by governments, corporations, and individuals alike.

5 Challenges with CO2 Offsets

Given the nascent stage of development in the voluntary carbon markets there are still challenges which need to be overcome. Here are the main ones:

Quality Assurance

Companies investing in carbon credits often face a genuine concern: what if the credits purchased do not meet the high-quality standards they expected? This risk extends beyond mere financial losses; it can also lead to reputational damage. In today’s world a tarnished reputation can have far-reaching consequences.

Integrity Across Value Chain

To address quality assurance challenges, carbon offset projects must uphold uncompromising integrity across the entire value chain of voluntary carbon markets. This includes demonstrating resilience, adhering to transparent standards, and undergoing rigorous monitoring and verification processes conducted by independent third parties. Such rigorous scrutiny ensures that the projects are not only effective but also legitimate.

Assessing Effectiveness

A significant hurdle in the carbon markets is the absence of robust industry standards. Without these standards it becomes challenging for both companies and consumers to assess the effectiveness and legitimacy of offset projects. This lack of clarity can deter potential investors and hinder the growth of the carbon market.

Market Integrity Initiatives

Efforts are underway to establish comprehensive market integrity frameworks. Leading the charge are initiatives such as the Integrity Council for the Voluntary Carbon Markets (ICVCM) and the Voluntary Carbon Market Initiative (VCMI). These initiatives are dedicated to enhancing quality, transparency, credibility, and accountability across the value chain of voluntary carbon markets. They cater to the needs of both suppliers and consumers, ensuring a more robust and trustworthy marketplace.

Regulatory Recognition

In addition to industry-led initiatives, there’s a growing call for the global regulatory landscape to evolve. The aim is to recognize voluntary carbon credits on par with compliance carbon markets. This recognition entails implementing policies that mandate reporting and compliance. This would encourage greater investments in carbon as a tradable and credible instrument.

How Can CO2 Truly Be Offset?

Truly positive CO2 offset initiatives demonstrate the potential to transcend mere carbon neutrality, creating enduring and meaningful benefits for both the environment and local communities. For instance, in reforestation projects, the key lies in planting a diverse array of native tree species in deforested areas. This not only effectively sequesters carbon dioxide from the atmosphere, but also enriches biodiversity by providing vital habitat for wildlife. Collaboration with local communities is integral to these projects. It offers employment opportunities and fosters community involvement.

Another example of a CO2 offset project centers on carbon removal, which entails the capture and long-term storage of carbon dioxide from the atmosphere to combat climate change. One such method is the Direct Air Capture (DAC) technology. The biggest player in this field is the Swiss startup “Climeworks”. Their “orca plant” in Iceland is currently removing 4000 tons of CO2 from the air annually. It’s worth noting that while these cutting-edge technologies hold immense promises, they currently come with relatively high costs and energy demands. Nevertheless, they remain indispensable tools in the ongoing battle against climate change.

What Role Does Blockchain Play in CO2 Offset?

Market participants are recognizing the importance of transparency in assessing the quality of carbon credits, both during issuance and performance monitoring. Blockchain technology has the potential to offer a comprehensive solution by providing a single view for all participants at every stage of the carbon project and credit lifecycle. This can lead to increased transparency, accountability, and trust.

While blockchain is a valuable tool for the development of voluntary carbon markets, it is important to note that it is not a one-size-fits-all solution. There are various short-term and long-term challenges that must be addressed. Most notably, there is a critical need for more regulation and standardization, along with increased transparency. These measures are essential to ensure that CO2 offsets can genuinely deliver on their promises.