Imagine that you are the CEO of a large corporate with plentiful greenhouse gas emissions.
Imagine also that your company has decided to drastically reduce CO2 emissions – say by 50% – over the next five years.
That’s when your company’s head of operations, who had been quite silent thus far, starts talking.
He has some pretty bad news for you: there is no way that your firm’s operations can cut down even 10% of emissions – leave alone 50% – over the next five years.
What can you do? You can use carbon offsets.
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Essentially, you can invest in emissions reductions projects elsewhere – say planting hundreds of thousands of trees in Brazil – to compensate for or offset your emissions and perhaps bring down your “net CO2 emissions” by 50% in five years.
Carbon credits vs offsets
The world had heard about carbon credits for quite a while. Operating under regulated markets, these are tradeable units/certificates for companies that have been alloted a certain upper limit for their emissions. Should their emissions go beyond this limit, they buy certificates from some other firm whose emissions have been lower than the prescribed limit.
Carbon trading and carbon credits essentially provide an incentive mechanism for companies to reduce their emissions.
Carbon offsets, on the other hand, are voluntary. At a fundamental level, they too generate carbon credits, but the key difference – apart from their voluntary nature – is that offsets can generate emissions reductions outside the boundaries of the industrial ecosystem.
The ease with which corporates can reduce their “net CO2 emissions”, and the potential for scale, make the carbon offsets market quite an exciting one in the context of global decarbonization.
Not everyone is impressed with offsets
Both carbon credits or carbon offsets are viewed with a fair bit of scepticism. To many, these appear like a cosy arrangement that let the big corporates continue their emission-making merry.
In that sense, the perception about carbon offsets depended on who were talking to – whether it is an activist with her heart in the right place but perhaps a super large dose of idealism, or a hard nosed business guy who viewed environment as secondary to economy.
Let me clearly state where I stand in the debate on corporates vs environment: I stand right in the middle.
No, I’m not an idealist or an activist who holds placards against large corporations and coal and oil & gas firms. It will be wonderful if all these blokes could stop all their polluting operations tomorrow, but not so wonderful when none of us have any electricity in our homes or petrol to run our cars. No sir, that won’t do.
At the same time, I have worked with corporate top management enough to realize that, whatever they say publicly about their care for the environment, care for their profits and their tangible shareholders’s needs (which again was profits, with environment until now hardly being on the radar) comes first for them.
I wish I were on one of these sides, life would have been easier and simpler. Being in the middle is tough. But it helps me provide some unique insights which someone from either side will not be able to.
It is with this middle of the line position that I try answering the question: Are corporates greenwashing climate actions, and specifically, carbon credits?
The concerns about offsets
If yours were a large steel company throwing out millions of tons of CO2 emissions every year, but unable to reduce these emissions because of the constraints of the current technologies and processes used to produce steel, you can still contribute to “reduced emissions” by investing in decarbonization projects such as a afforestation project or a solar power plant.
This does appear like an excellent transition avenue for decarboniaztion, doesn’t it? A lot better than your steel company doing nothing or hoping for a silver bullet innovation to reduce your own emissions?
The challenges with, and concerns about, carbon offsets are a bit more nuanced.
Some critics feel that offsetting emissions through carbon credits is really like a sinner saying “I will continue sinning but will compensate someone else.” In my opinion, this is a rather harsh analogy because, unlike most sinners who in theory can stop sinning, it will be very difficult – if not impossible – for many corporates to decrease their emissions within a short amount of time. So, for these hard-to-abate sectors, carbon offsets provide a practical, transition pathway to reduce their net emissions for many companies.
But isn’t possible that, because of the avaialbility of offsets these corporates might delay biting the bullet on hard decisions and investments needed to rectify the fundamental reasons for their high emissions?
In other words, is it possible that your steel company would have innovated and reconfigured much faster to a lower or zero emission company without the carbon offsets option than with it?
That’s a tough question to answer – and I doubt anyone has a convincing one currently.
Good offsets vs bad
So, let’s say that it’s quite tough to judge offsets as greenwashing in the case of many companies.
But are there instances in which one can clearly say that offsets amount to greenwashing?
Yes, there are four red flags you can look for to spot greenwashing through offsets: When companies fail to prioritise in-house emissions reduction, effectiveness of offset projects, when the project has no additionality, and when carbon credits get double counted.
Let’s look at each of the three in a bit more detail.
When a company fails to prioritise the reduction of in-house emissions
There are some industries – steel, cement, certain types of chemicals – for which reducing CO2 emissions from their core processes is quite challenging in the short term – within the next five years. For high emissions processes in many other industries (food & beverages, auto components, textiles etc.), zero carbon or at least low carbon solutions are available today, and some of these with reasonably good payback periods. When a company in such an industry fails to take any action to cut down their own in-house emissions and instead invests in offsets, it is perhaps time to ask some tough questions of the management.
The effectiveness of the offset projects
Carbon offset projects could involve investments in renewable energy projects, energy efficiency solutions, carbon sequestration efforts such as afforestation etc.
As you can easily guess, some types of projects are likely to be more effective than others.
For instance, an offset investment in an energy efficiency solution for a large public utility in a developing nation is likely to provide sustained emissions reduction benefits. But investing in a forestry program is more tricky – how do you ensure that the tens of thousands trees planted are maintained and nurtured, and not felled by some locals? Or not destroyed by forest fires?
Earlier, monitoring and reporting on the effectiveness of offset projects such tree planting, soil sequestration and forestry projects were very difficult. But currently, there’s an increasing use of digital authentication for carbon offsets. By moving the voluntary carbon market onto a blockchain and publicly tying each credit to metadata attesting to its quality and origin, those wishing to offset their emissions have access to an reasonably authentic emissions reduction. These technologies also allows watchdogs to track claims of carbon neutrality directly back to the source.
When a company invests in projects with no additionality
Real offset credits should qualify on additionality.
Until I started reading up on carbon credits a few years back, I did not know that the English language had this word: Additionality. It somehow sounded like a word that the folks at Oxford University Press (publishers of the famed Oxford Dictionary) would not condescend to include in their work.
Leaving these vocabulary concerns aside, here’s what additionality means: If a carbon offset project generates credits from emission reduction that would have occurred regardless of a corrporate investment, it is not considered additional. Let us say your steel company invests in a solar power plant developed by an independent company which the developer would have implemented because the project was economically profitable – this project is not considered additional. On the other hand, if your company invests in a soil CO2 sequestration program that is implemented by farmers only because your company was willing to incentivize the farmers for the same, then the project has additionality.
You can think of additionality this way: For a project to be considered additional, the option to sell carbon offset credits must play a “make or break” role in the decision to implement it.
You may well ask: Why is additionality needed for a genuine offset? Isn’t an emission reduction good, whether or not it is additional?
But the counter to these questions, and which forms the spirit of the offset mechanism, is: The real contribution of your corporate to these emissions reductions is not the money you invest, but that you make viable a valuable decarbonization project.
When carbon credits are double-counted
This had been a persistent challenge in the world of carbon offsets – a company’s offset getting counted twice or even more number of times! This could happen because of the way such counting happens – an example could be when your steel company invests in an Amazon forestry project in Brazil whose credits get counted by you as well as by the Brazilian government to its nationally determined contributions or climate target. This double-count is contradictory and considered greenwashing because, in reality, only one reduction occurred, yet it is counted twice.
Such double counting could also be utilized to fraudulent ends by unscrupulous firms.
My take on carbon offsets
Considering all the above, what is my opinion on carbon offsets?
The challenges with effectiveness, additionality and double counting have become quite managable with today’s digital technologies, streamlined procedures and enhanced oversight.
My concerns are primarily with regard to the prioritizing of reducing emissions over offsets by corporates in many industries. My reading and analyses in the last two years of corporate actions in dozens of industries have led me to believe that many companies are taking the easy way out with offsets when they can do a lot more about their CO2 emissions – this is especially true of companies in industries such as textiles, food/beverages logistics etc.
We should remember that globally, as well as in India, the largest emissions are from power generation, industries and transportation, with agriculture being the fourth source of emissions. Investments into renewable power in India will happen regardless of corporate offset investments – so there is no additionality. Within transport and industry, investments into biofuels, energy efficiency and similar avenues are again not likely to have additionality. That leaves offsets coming mainly from schemes such as afforestation, soil CO2 sequestration etc., as carbon capture & storage projects are unlikely to become a reality until 2030 in India.
How many trees and how much forest area can one grow in India? And remember, it takes time for afforestation projects to provide real emissions reductions as trees start sequestering more carbon as they grow larger. Soil carbon sequestration by farmers could be a far more attractive avenue as that puts extra money in the hands of farmers – always a nice thing – but the decarbonization metrics for soil carbon sequestration are still evolving, so there will be hard questions on the amount of CO2 offsets from this avenues at least for the next few years.
On the other hand, offsets are perhaps the only avenue for many large corporates in select industries – in India and outside – to really make an impactful emissions reduction in the short term.
With all the above in mind, my specific answer to the question: Are carbon offsets just greenwashing? is:
To a large extent, they do not represent greenwashing anymore, but they may not be as effective a decarbonization avenue as they are made out to be.
Originally published at Ask Narsi
