Originally, "carbon credits" were created to help the 37 countries committed to reduce their emissions, as part of the Kyoto Protocol signatories, to comply with the emission threshold. To prevent any outreach of this threshold, it was allowed to finance carbon offset projects in a non-committed country and claim the "ownership" of the reduction. Then came the voluntary offsetting market. All the stakeholders, especially the corporate ones, relied on it on a massive scale to "compensate" their own emissions. No regulatory need here : it was only about buying as many carbon credits as needed by a company on a given perimeter, so that a company can rightfully claim itself "carbon neutral". The whole of the carbon emissions could therefore disappear behind a magic zero, as far as a company was making a vain wish to "reduce its emissions as much as possible before compensating through carbon offset projects".
The very term "compensate" refers to a misleading idea
But this mechanism, whilst rather positive (when considered as an additional financing lever to fight climate change), suffer from a poor image, due to its abusive use and a few structural pitfalls.
1. Not reducing its company emissions is equivalent to financing a reduction elsewhere: FALSE
Of course, the climate crisis is a global one. A ton of CO2 emitted has the same impact on the climate regardless of where it was emitted from. Still, in order to aim at a global carbon neutrality by 2050, avoiding the reduction of its own company emissions is not an option. Every sector and every company needs to drastically reduce its emissions and be compatible with a climate scenario limiting global warming to +2°C or +1,5°C, and this effort can not be outsourced. Buying a carbon credit, meaning financing the reduction project of someone else, is something to be encouraged, but will never replace its own efforts.
2. A carbon emission here can be immediately balanced by a reduction or a sequestration elsewhere: RATHER FALSE
Indeed, in terms of temporality, reducing emissions elsewhere rather than in its own company is equivalent if the financed project implies an immediate emission reduction. In other cases, this is false, for example, when the carbon credit comes from a forestry project: the CO2 sequestration happens over the many decades of the tree growth, not on the day the credit is purchased. As the climate crisis continue to worsen and the windows for action are shrinking, even slight differences are significant. Besides, there is no guarantee that the carbon will be stored long enough in the tree, as forest are not immune to climate hazards (fire, strong wind...), diseases or deforestation related to human activities.
3. Buying a carbon credit allows a company to subtract the same amount of emissions from its GHG report: FALSE
It's even forbidden by all the reference organization (UNFCCC, Science Based Targets Initiative, Bilan Carbone, ISO 14064, GHG Protocol…) that have some authority on corporate climate reporting requirements. For this reason, Carbone 4 advise its clients to adopt a new carbon accounting system to report more precisely about climate impacts.
4. Carbon offsetting encourages a company to shrug off its own responsibilities: TRUE
The same old tune: carbon offsetting is used to “ease its guilt”, a 21st century version of the Catholic Church indulgences in the Middle Ages, etc. And this is no surprise: as soon as an initiative dangle the possibility to cancel its bad deeds (meaning emissions) by purchasing the good ones (meaning inexpensive carbon credits), it is immediately tempting not to consent to its own reduction efforts on its value chain. Today, after more than 15 years of existence, a vast majority of companies are still reluctant to use the unpopular "carbon offsetting". And it is a pity, especially when we know the reliability of the voluntary offsetting markets and their ability to raise funds and support low-carbon initiatives, the ecological transition and the improvement of the living conditions of many populations.
Reinventing the semantics to reinvent our relationship to carbon finance
To win the battle against climate, everyone needs to make the required efforts to reduce the emissions at levels that are consistent with a +1,5°C/+2°C global warming objective. But in a spirit of solidarity, and because the climate-friendly financial flows do need to increase, financing the transition beyond its perimeter has to be encouraged as well. However, as long as "carbon offset" hint a possibility to "own" emissions reductions made by others to hide its own, criticism and distrust will persist, and rightly so. We wish to switch from a logic of emissions "ownership" to a logic of "contribution" to those emissions reductions. So far, the voluntary carbon markets were used as a way to compensate its own emissions so that a company can claim itself "carbon neutral", deciding the perimeter arbitrarily. Today, that vision is disconnected from the regional carbon neutrality objectives. It is lapsed, create very few competitive advantage, and is increasingly challenged by the public opinion. To restore the very meaning of the term "carbon offset", we need to consider the voluntary carbon markets as what it has always been : an efficient tool to drive action towards a regional net zero. This is what Carbone 4 stand for since 2018, in its consulting activity as well as in its work through the Net Zero Initiative. In fact, this would encourage the promotion of a company contribution to a regional neutral objective, separately from its own carbon footprint. Every organization would then have 3 indicators to monitor simultaneously:
- The GHG emissions on its entire value chain. Those need to be reduced and compatible with a climate scenario limiting global warming to +2°C or +1,5°C ;
- Its contributions to others' emissions reductions, in particular through carbon credits financing reduction projects ;
- Its contributions to the development of worldwide carbon sinks, in particular through carbon credits financing sequestration projects.
Unlike "carbon offsetting", it is impossible to ignore the first category (the induced emissions) just because an effort is made regarding the two others. It seems safer to consider those three categories as separated and non-fungible, while keeping in mind it needs to be conducted in an ambitious way. Communicate on a "contribution to a territorial neutrality" rather than "its own neutrality" brings several benefits:
- More collective: because the global neutrality challenge (the full measure of which has not yet been taken) will only be tackled by a collective and fair participation. This need to be quantified according to the contributions and efforts of everyone.
- More precise : company emissions are separated, in accounting terms, to other positive contributions it can make additionnally (to help others reduce or increase carbon sinks). In other words, we need to set in stone that a company's emissions do not disappear from the atmosphere when they contribute to someone else's reduction or the increase of carbon sinks!
- More positive : offsetting cancel the bad deeds, contributing value the good ones.
- Fairer : buying a carbon credit means, above all, to support a project. It is a contribution similar to a climate-friendly philanthropy act that should, just like sponsorship, disregard the carbon price (within the limits of its resources), pay more attention to transparency regarding the use of the funds, and question the margins of the third party registered to sell carbon credits.
This position is perfectly consistent with the post-2020 carbon markets taking shape with the Paris Agreement, and stating that only the host countries will be allowed to claim the "ownership" of the emissions reductions according to their NDC (National Determined Contributions). Moving from "carbon offseting" to "contributing" is not a simple semantics change. It is a prerequisite to clean up our collective imaginary about the voluntary carbon finance, which is inhibiting for far too many years the required increase in the financial flows towards low-carbon projects, and fill the "finance gap"*. Helping take the discussion forward, daring to reinvent the very concepts in the light of the new climate change imperatives, while preserving the best existing tools - which will be key advantages to continue shaping the climate action conceptual framework.
This is the second episode of Carbone 4 series to discuss the new carbon neutrality. You can find the first episode by clicking here : For a corporate carbon neutrality committed to its territories * Missing climate investments compared to the current and excepted once.
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