Climate change is an increasingly tangible concern. Reducing carbon emissions (or achieving net zero emissions) is a priority for individuals, companies, and governments alike. Carbon offsetting is a conceptually neat and cost-effective way to eliminate - or rather, to counteract - carbon emissions. In reality, however, the solution is not as simple as waving the offsetting wand.
While there has been a proliferation of offsetting schemes over the last decade or two, they’re not all created equal. In fact, upon closer inspection, many programmes fail to deliver. For companies turning to carbon offsetting with the best of intentions, i.e. working in earnest towards reducing environmental impact rather than merely seeking a feel-good PR story, this comes as a disappointing blow.
We trust that our customers and partners are invested, as we are, in taking meaningful action where sustainability is concerned. In this blog, we unpack the realities of offsetting - the good, the bad, and the ugly - to show how carbon offsetting can (and can’t) be part of an impactful sustainability strategy for your company.
What is Carbon Offsetting? The theory behind carbon offsetting is simple: when one party emits carbon, they can pay another party to perform equal and opposite actions on their behalf, to “cancel out” their carbon emissions. In other words, through offsetting, institutions and individuals may balance out their carbon output by investing in green technology and sustainable development projects.
Broadly speaking, there are two kinds of carbon offsetting schemes: Reduction Schemes and Removal Projects:
1. Reduction Schemes Reduction schemes aim to reduce future global emissions by improving existing processes. These schemes typically invest in renewable energy projects such as the construction of wind farms.
2. Removal Projects Removal projects focus on the here and now, by extracting or absorbing carbon and other greenhouse gases from the atmosphere. These projects can involve natural methods such as mass tree planting, or they may take a tech-based approach, such as developing carbon capture and storage solutions (CCS) which capture emissions from industry before they are released into the atmosphere, and permanently lock them away.
Carbon offsetting schemes are predominantly invested in by institutions in developed nations, but the majority of offsetting projects are situated in developing nations, often as part of the Clean Development Mechanism (CDM), the United Nations’ carbon offset scheme. CDM projects frequently involve reforestation of woodland or mangrove forests, protecting forested land from destruction, or replacing outdated technology with ”cleaner” alternatives such as introducing fuel-efficient cooking stoves or LED lighting to rural communities. The CDM aims to be win-win, with sustainable development going hand-in-hand with limiting present and future carbon emissions.
Understanding Carbon Markets: The Who, How and Why of Offsetting
Carbon offsetting emerged from the 1997 Kyoto Protocol’s cap-and-trade framework. The “cap” refers to the theoretical limit for each participating nation’s annual carbon emissions, which encompasses all industries and companies.
Each country or company receives a set number of permits for carbon emissions — usually one permit per each tonne of CO2 in their annual allowance. There are penalties in place, in the form of fines or taxes, for exceeding the allocated carbon budget. Carbon permits (known as carbon credits) can be bought and sold on the so-called carbon market. Credits can also be acquired by investing in carbon offsetting schemes. Taken together, this constitutes the “trade” part of cap-and-trade.
The Kyoto framework was designed to set a ceiling to overall global emissions, while allowing flexibility for how (and by whom) carbon quotas would be spent, all while encouraging sustainable development in developing nations, and incentivising investment into new green technologies through offsetting schemes.
There are two arms to the carbon market. First came the “pre-compliance” or “voluntary” carbon market, which emerged before Kyoto rules kicked in, and exists in absence of any third party regulation or certification system. Carbon credits traded on the voluntary market are called Voluntary Emissions Reductions (VERs). Trading occurs between companies, private organisations and individuals wishing to reduce their emissions on a voluntary basis, independent of (or going above and beyond) Kyoto regulations. The voluntary market includes the 100+ developing nations (including India and China) which were exempted from Kyoto Protocol caps, as well as the USA, who never ratified the treaty despite being a signatory. As such, the voluntary market is a significant piece of the global carbon market.
On the flip side is the “compliance” market. As the name suggests, it serves to facilitate mandatory alignment with industry-based emissions limits, as dictated by Kyoto rules. Here, trading is supervised and regulated by government bodies of participating nations, which includes all EU countries. The UN’s CDM is one such regulatory body. Credits traded on the compliance market are called Certified Emissions Reductions (CERs). Companies and institutions can sell their unused CERs to other parties who require additional allowances in a given year. Extra CERs can also be accrued through investment into approved offsetting schemes. Note that VERs cannot be traded on the compliance market to fulfil Kyoto obligations, due to VERs being unregulated. However, this is not to say that CERs are without flaws (see below!).
To summarise: Kyoto-mandated emissions caps apply to selected countries (37 nations, if we’re counting), and carbon credits (VERs and CERs) can be traded to comply with the legal emissions caps, or to voluntarily reduce net emissions. Offsetting projects are designed to generate extra carbon credits, which can be purchased to further reduce net carbon emissions. So far, so simple? If only.
In practice, the carbon market is complicated and difficult to navigate, while carbon offsetting isn’t as tidy as theory might suggest. There are multiple tricky variables to wrangle: carbon allowances must be fairly allocated, emissions must be correctly calculated, and credits need to be tracked as they are used, bought, and sold. As for offsetting schemes? The projects must stand up to scrutiny. They must be carefully planned and executed in order to yield the desired emissions reductions in real world terms, rather than just on paper. The carbon market is a minefield, and it can be daunting to know where, or if, to invest in carbon offsetting schemes.
What Makes a Good Offsetting Scheme? Viable and legitimate offsetting schemes adhere to a suite of project design principles. Here are the main hallmarks of a well-designed offsetting scheme:
1. A Project Must Result in additional carbon reductions The first principle is “additionality”, meaning that a project must result in additional carbon reductions to what would have happened without the project. While seemingly obvious, many projects fall at this first hurdle. For example, many schemes purchase forested land to protect it from destruction, using the logic that a unit of forested land holds more carbon than a unit of cleared land. While protecting wild ecosystems is undoubtedly a worthy pursuit, it doesn’t result in additional emissions reductions; those forests already existed, and keeping them there won’t lock away any extra carbon.
Furthermore, there is no guarantee that the protected forest would have been felled without the project’s intervention. It is difficult, if not impossible, to say what would have happened without the offsetting project. Either way, if the project is not actively resulting in additional emissions reductions, it isn’t fulfilling its offsetting purpose.
2. A carbon offsetting project must not lead to emissions shifting elsewhere Let’s use the previous example of purchasing forested land. If the root cause of logging is not addressed (e.g. rampant land clearing to install soybean plantations for cheap cattle feed) then a different forest will be cleared for the same purpose. The net effect is the same, even though on paper one forest was saved.
3. The Offsetting Method Must Lock Away Carbon Permanently Permanence is a third principle. Industrial carbon emissions remain in the atmosphere forever, and so to truly counteract these emissions, the offsetting method must be just as permanent in terms of locking away carbon. Planting trees or restoring peatland is a common offsetting strategy (and is widely implemented because it’s relatively cheap), but trees don’t live forever. At best they die of old age, or they are killed prematurely by fire, drought or disease… or logging. Dead trees (and other plant life) return their stored carbon into the atmosphere when they break down. Unless these dead trees are replaced with new mature trees forever unto eternity, reforestation will only be a temporary way to offset the very permanent problem of excess industrial emissions.
This is where Carbon Capture and Storage comes in. CCS effectively “un-emits” carbon before it reaches the atmosphere, by catching and storing it indefinitely, usually underground. At present, approximately one thousandth of global CO2 emissions are captured by CCS. However, while this technology sounds promising, it isn’t a silver bullet. CCS is unproven at scale, expensive, and often over promises and under delivers. In short, it remains a long shot as a viable large-scale solution, and any bold claims about the efficacy of CCS as an offsetting tool should be viewed with caution.
4. Emission Reductions Are Not Exaggerated Finally, a good offsetting project does not over-promise or exaggerate emissions reductions. One well-publicised scheme in southern India involved replacing traditional cooking stoves with cleaner, fuel-efficient “Chulika” stoves. The traditional firewood stoves produce toxic smoke, while the demand for firewood decimates surrounding woodland. As part of the CDM, the Chulika roll-out promised to improve quality of life for local communities as well as to reduce carbon emissions through protecting the local environment and preventing rampant wood burning.
There was heavy investment into the Chulika scheme and other similar projects. However, the project yielded disappointing real-world data : for various reasons (largely to do with humans not behaving predictably!), neither smoke output nor demand for firewood dropped as much as expected, meaning that the project dramatically underperformed. Projects like this result in an erroneously inflated number of carbon credits being made available on the offsetting market. For offsetting to work, projects must be realistic about their emissions reductions.
Ideally, all carbon offsetting schemes should adhere to the principles outlined above.
Unfortunately, only a slim minority tick all boxes.
VERs: Investing in Hot Air (and How to Avoid It) There is a burgeoning industry of commercial offsetting providers selling VERs to companies and individuals. Type the word “offsetting” into your search engine and you will see what we mean! Unfortunately, because the voluntary carbon market is not overseen by any regulatory body, the quality of these carbon credits is variable and there is potential for mismanagement or outright fraud. Commercial offsetting providers are often many degrees of separation away from the projects their customers invest in. Rather than being hands-on with projects, they commonly sell carbon credits acquired from other companies and funds who have in turn accumulated credits from individual offsetting projects. The process is opaque from the end customer’s point of view, with little clarity into the credentials of the project they are buying into.
VERs could potentially be issued as the result of fraudulent claims on emissions reductions. For example, schemes massaging baseline figures to make their projects appear more successful, schemes pretending to be operating an initiative which doesn't exist, or schemes which exist but which don’t produce any net saving at all, e.g. a forest planting initiative where the land is sold and trees are felled shortly after. The VERs market is chaotic and unpredictable. Sadly, most of the offsets that consumers buy (eg. offsetting flights) are of this nature, where the reality of low emissions reductions can be hidden or distorted.
The carbon market is huge and complex. For every institution paying attention to the quality of carbon credits, there are countless others who aren’t. Many market players aren’t aware of the difference between high and low quality credits, making the market an easy place to hide if you are trading poor quality credits. At this point in the climate crisis, it is deeply unfortunate that it is possible to buy false solutions in the form of dodgy VERs disguised as offsetting.
How can companies avoid these issues? It is a challenge for the end consumer to sort the wheat from the chaff, and to be confident that they are investing in schemes which fulfil their promises. Are the proposed emissions reductions realistic? Does the project actually exist? Are there any adverse knock-on effects to the local environment or communities? This is where verification and certification becomes important, as it provides a means of quickly gauging the quality of projects and any resulting carbon credits
CERs: If You're Gonna Do It, Do It Right Without certification or third party verification, the offsetting industry is vulnerable to mismanagement. The most successful projects are verified with the CDM, or even further, the Gold Standard. Certified credits, aka CERs, are in many ways more reliable than VERs.
A quick refresher: the CDM is the carbon offsetting scheme run by the UN . The CDM takes an international approach to carbon mitigation by allowing countries to pay for emissions-reducing projects elsewhere, in developing countries. The parties paying for projects can then claim those emissions savings (in the form of carbon credits) as part of their own effort to meet global Kyoto goals. The CDM aims to facilitate the growth of developing nations in a sustainable way, thus setting them - and the entire planet - up for a greener future.
In order to qualify as a CDM-backed project, offsetting schemes must fulfil a suite of criteria. However, there has been criticism that the criteria are insufficiently stringent. In fact, according to this study by the European Commission, only 2% of UN certified emissions reductions had a high likelihood of actually reducing carbon emissions, which is a rather bleak statistic. This is where the Gold Standard comes in.
The Gold Standard is an independent benchmark founded in 2003, supported by the WWF and “owned” by a committee of dozens of environmental and development NGOs. It has positioned itself as a standard-setter, in response to the CDM being insufficiently robust or ambitious. To gain Gold Standard verification, offsetting projects must meet CDM criteria, as well as complying with additional Gold Standard criteria which are designed to ensure that qualifying projects yield genuine and measurable environmental benefits, while successfully delivering sustainable development to communities. Carbon credits generated by Gold Standard schemes are regarded to be of the highest calibre. Gold standard certification can be awarded to projects on both the voluntary and compliance market:
“The Gold Standard certification is there to highlight the best of the compliance market and to legitimize real efforts in the voluntary market.” Gold Standard
To be eligible for Gold Standard certification, projects must adhere to three main principles: (1) They must involve paradigm shifting energy technologies, (2) they must feature inherent additionality and sustainability attributes, and (3) they must have widespread support from environmental NGOs. Gold Standard screening aims to prevent CERs from being awarded to business-as-usual schemes, and instead filters for projects where (a) the activity would not have occurred in absence of the project, and (b) the activity results in lower emissions than in the absence of the activity.
In addition, Gold Standard certification puts an emphasis on the health of local communities, by including safeguarding principles which aim to prevent social or environmental exploitation from occurring as a result of offsetting schemes. Safeguards include stakeholder consultations in the local language to manage land use rights, and the rights of marginalized groups.
The Gold Standard is not the only independent standard on the market; one competitor is the Verified Carbon standard (VCS) which was developed by business associations. However, the Gold Standard has the most widespread backing from a wide variety of NGOs. The Gold Standard has also forged a close relationship with the UNFCCC, and is part of the Secretariat’s “Climate Neutral Now” campaign which includes offsetting as part of its strategy.
Is the Gold Standard Good Enough?
We’ve seen that unregulated carbon credits (VERs) are often not worth the investment, and that applying strict and transparent certification criteria is a key factor to running successful offsetting schemes. The Gold Standard is arguably the most rigorous certification system for offsetting projects. According to the Gold Standard website , the scheme has certified over 1700 projects to date, in over 80 countries, with 134 million tonnes of reduced CO2 emissions. As far as offsetting goes, the Gold Standard is the best option we have.
Having said that, the Gold Standard isn’t without flaws. Critics argue that the Gold Standard still isn’t strict enough, especially in terms of protecting local stakeholders from human rights violations and land grab issues. While there are theoretical safeguards in place, local communities remain vulnerable to damage caused by projects which are thrust upon them, in a manner akin to colonial exploitation. Consider the instances of communities displaced from ancestral land so that it can be “protected”, or the broader ethics of richer countries paying poorer countries to reduce emissions on their behalf. Should the persistent mistreatment of local communities be accepted as a reasonable price to pay for carbon mitigation? Surely not.
The main criticism of the Gold Standard goes beyond the standard itself: Rather than focusing on whether the Gold Standard is good enough, the question should be whether offsetting is a good idea in the first place. There is a growing chorus of voices across the climate justice movement which is pushing for an end to all carbon offsetting. Many NGOs argue that offsetting provides a false solution to our planet’s climate woes, because it distracts from the major point which is that emissions need to come down dramatically. Using offsetting to buy more carbon credits and continue business-as-usual industrial emissions is the big ideological problem we are facing.
So, should companies and governments feel confident in investing in Gold Standard offsetting projects? The answer is yes… and no. The Gold Standard is the best metric we have, but It’s also time to rethink how offsetting is approached by industry. High quality offsetting can be a useful tool when used sparingly and thoughtfully, but it shouldn’t be the first thing companies turn to when managing their emissions.
More Than a "Fig Leaf" for the Carbon Market
Countless companies, across industries from food to beauty and beyond, describe themselves as “carbon neutral” or “net zero”. While these crowd-pleasing buzzwords may be used in good faith, and reflect ambitious green intentions, they don’t always reflect ambitious action on the sustainability front. “Net zero” can merely mean that business-as-usual emissions are being offset (perhaps using poor quality VERs rather than Gold Standard CERs) while the company has not made any efforts to directly reduce their own carbon emissions. In this way, offsetting acts as a “fig leaf” for industry and the carbon market, by allowing climate inaction to continue. Now that we know more about the limitations of offsetting, it’s time to step away from using “net zero” as the ultimate goal for industry. We can no longer pass the buck to offsetting and assume that we are doing enough.
Offsetting should be seen as a way of mitigating unavoidable emissions: We must prioritise pushing towards actual zero emissions by improving industrial practices, with offsetting being a tool for “mopping up” all remaining emissions. In other words, offsetting should be happening in addition to, not instead of, direct emissions reductions.
Economic incentives must shift to align with desired outcomes. The rationale behind the carbon market is that companies will choose to invest in offsetting (i.e. buy more credits) because it’s cheaper than paying fines for exceeding their carbon allowance. The desired overall effect is reduced net emissions. However, as offsetting projects frequently fail to deliver, the result is that companies continue emitting business-as-usual levels of carbon with nothing to counteract the emissions, all while avoiding the hefty fines they would have otherwise paid, and which were designed to encourage taking direct action on reducing emissions.
When offsetting doesn’t fulfil its promises, all it does is make it cheaper for excessive emissions to continue, while reducing the incentive to invest time and money into improving industrial sustainability practices. To be clear, this is a systemic problem. It’s not fair to point the finger at companies who have turned to a solution which seems cost-effective, simple, and legitimate. The issue is that carbon offsetting frequently isn’t legitimate, and the carbon market needs to reflect that. As long as the “trade” part of cap-and-trade continues to be like the Wild West, these problems will continue.
On the flip side, the “cap” part of the cap-and-trade framework is still valuable. Within this system, the amount of carbon credits supplied each year can be reduced over time to keep up with targets (as per EU strategy). Setting a carbon limit, and gradually reducing it, remains an effective means of reducing carbon emissions long-term, rather than swapping carbon credits which may represent theoretical and potentially fraudulent emissions reductions. Carbon offsetting should only ever be a secondary strategy, coming behind efforts to minimise outright emissions.
Overall, it is wildly unrealistic that offsetting could provide a major solution to the vast issues we are facing, namely: undoing the effects of ongoing mass industrial emissions. This is because offsetting only succeeds under very tightly controlled conditions, and very rarely at scale. Offsetting simply can’t achieve as much as we wish it could. Instead, the best approach to reducing mass industrial emissions is to prevent them from being emitted (to the extent that it is possible) in the first place.
Offsetting: What is it Good For?
Absolutely ... something!
Offsetting can’t, and shouldn’t aim to, replace driving down emissions. But it does have a part to play, albeit a much smaller one than once hoped. For companies wishing to invest in offsetting in addition to minimising their own emissions, certification metrics such as the Gold Standard (or any improved future metrics) can provide confidence that schemes will fulfil their promises while minimising harm to local communities and habitats.
There remains a strong economic argument for offsetting and selling emissions reductions. The logic is that some industries will have access to more cost effective methods to reduce emissions than others. In theory, these cost-effective sectors should attract investment, as they provide more bang for buck in terms of emissions reductions (and resulting carbon credits). Thus, there would be an incentive to develop emissions reducing technology, as well as a drive towards investment into the greenest sectors. Of course, while an economist might support this practice, there are still the pitfalls of VERS and CERs to navigate regardless, concerning fraud and manipulation.
As for the value of offsetting projects? We need to reframe their purpose beyond the goal of offsetting: Many schemes have intrinsic value, and should continue to be invested in on their own merits. Sustainable development, habitat protection and restoration, and investment into green technologies should still be incentivised and encouraged without need for a secondary purpose of offsetting carbon emissions.
Beyond Offsetting: Building More Sustainably
Carbon offsetting, at its worst, is a smoke screen behind which all manner of entrenched environmental malpractices continue. There is a temptation to try to pay the emissions problem away, by trusting that offsetting will do as it promises, despite facts to the contrary. However, the way we see it, a greener future involves all of us - every country, industry, company, and individual - taking responsibility for our carbon impact.
The construction industry is a huge generator of carbon emissions. Cement production alone results in more than 2.8 billion tonnes of annual CO2 emissions , which is enormous; the USA’s annual emissions hover around 5bn tonnes, while China’s are around 10bn tonnes. Of course, cement production is not the industry’s only source of emissions. There is also the embodied carbon of other materials (e.g. steel, bricks and glass), as well as the energy demands of powering construction sites (including generators and machinery), and the upstream energy demands of powering buildings. Taken together, the carbon impact of our industry cannot be ignored.
“...building and construction are responsible for 39% of all carbon emissions in the world, with operational emissions (from energy used to heat, cool and light buildings) accounting for 28%. The remaining 11% comes from embodied carbon emissions… associated with materials and construction processes throughout the whole building lifecycle” World Green Building Council
While the figures above from the World Green Building Council are sobering, the construction industry has access to mitigation measures which, if widely adopted, can significantly reduce its carbon (and other greenhouse gas) impact. All of these measures involve lowering emissions directly, rather than reducing net emissions through offsetting. These measures tackle emissions produced at the construction stage, as well as factoring in future emissions resulting from long-term operations of buildings and structures. Let’s take a look at what they are.
The primary drivers for reducing construction-related emissions: embodied carbonA primary route towards reducing emissions involves lowering the embodied carbon of structures and infrastructure, by designing with lower-CO2 materials in mind. The development of “green” concrete is promising, and we welcome further developments in this field. Examples include are Cemfree (which promises an 80% reduction in embodied carbon), or Wagners EFC (Earth Friendly Concrete), which uses chemical activation of two industrial waste by-products to make low-carbon concrete which performs just as well, if not better, than traditional concrete.
Reducing embodied carbon also means doing more with less: we must pivot away from excessive over-design, and instead focus on utilising lightweight construction methods and fewer materials as a matter of priority.
operational carbonReducing emissions can be achieved through lowering operational carbon , by designing structures which operate with a low energy demand. Heating, cooling and lighting account for the lion’s share of a structure’s carbon impact, over the course of its lifespan. Lowering this impact can be achieved through better thermal insulation and use of thermal mass, as well as design which reduces lighting requirements (e.g. taking advantage of open spaces, natural lighting and reflective materials).
Construction needs to undergo a mindset shift, towards designing with durability in mind. Building new structures comes with a carbon impact, so the less often we need to replace structures, the better. In addition, we need to design with re-use and recycling in mind, by incorporating materials and components which have the lowest likelihood of ending up as landfill when a structure reaches the end of its lifespan.
4. Assessing trade-offs and weighing up overall impacts It is imperative that the above measures are approached with care, as the interactions between them can be surprising and counter-intuitive. For example, concrete has relatively high embodied carbon and should theoretically be used as sparingly as possible. However, there is a trade-off: concrete also provides a lot of thermal mass, which is incredibly useful for reducing heating and cooling costs. In this instance, minimising the embodied carbon may actually increase the energy requirement for the building over its lifespan. Thus, designing with sustainability in mind isn’t always straightforward, and is instead a balancing act.
Truly sustainable solutions must assess and incorporate the whole-life environmental impacts of a structure, using a recognised environmental certification scheme (such as BREEAM in the UK, or LEED in other parts of the world), to allow designers to make choices which result in the most effective outcome overall.
Beyond these measures, it’s also important to consider the other environmental impacts related to construction, beyond greenhouse gas emissions. For example, extraction of primary materials (sand, gravel, etc.) has a significant impact, as does water usage, water contamination, and demolition waste.
All in all, the issues our industry faces are major, but they are not insurmountable - provided that we take action now.
Sustainability is a core part of our mission at Converge, and we’re here to help you move beyond offsetting as a carbon mitigation strategy. Our team develops intelligent products which make it easier to optimize the sustainability metrics of every build, all while ensuring a profitable and viable business model for all. In particular, our intelligence softwares and sensors are Greentech and Cleantech solutions that drive massive efficiencies across the construction site, helping you to decrease emissions and reduce your environmental impact in real terms, beyond offsetting and “net zero” goals. Here are some of the ways our technology is tackling the major sustainability issues facing our industry:
Concrete accounts for the lion's share of the construction industry’s carbon output , so that’s precisely where we’ve started. The first weapon in our arsenal is ConcreteDNA: Our AI-powered concrete intelligence software - and little blue Signal Sensor - are here to help you go green! ConcreteDNA allows you to lower the embodied carbon of your concrete mix, thanks to insightful concrete performance analytics which optimise for both performance and sustainability when designing your concrete mix. Similarly, ConcreteDNA promotes the use of low-carbon materials: Our reporting gives you confidence that materials meet safety and quality standards, thus enabling you to pioneer the use of ultra-low carbon and cement-free concrete at scale.
Our technology allows you to minimize concrete usage and waste . Traditionally, concrete strength is tested destructively, via the “cube crushing” method. Converge reduces the need for destructive testing - and the associated concrete use - by using ConcreteDNA to measure early strength gain, and to increase confidence in the pour. Converge also improves the quality assurance of cured concrete with accurate data from our embedded sensors. As a result, you have fewer cracks, and much less wasted concrete.This is a win-win as, in addition to saving concrete, this saves time and helps to keep projects on track.
