With the Paris goals slipping out of reach it’s crunch time to reduce global emissions. Carbon offsets can help, but only if we use them properly.
Stapling offsets to fossil fuels sends a powerful message to markets; ‘fossil fuels do have a place in a net-zero emissions economy’. The practice of attaching a carbon offset to coal, oil, or diesel is like spraying a protective coating over these commodities, allowing them to penetrate deep into a future economy no longer tolerant of them.
It’s often argued that offsets support an orderly transition towards a net-zero emissions economy, allowing a managed transfer of capital from polluting industries towards cleaner technologies of the future. And although it’s true that climate change hasn’t featured in any financial crises to-date, that’s simply because the transition has been so painfully slow. As a consequence, the global economy remains way off course to meet the Paris Agreement warming goals.
The last thing anybody wants is a disorderly divestment from fossil fuels that takes the entire global economy with it. But we do need to ask an uncomfortable question: are offsets really accelerating our transition towards a net-zero emissions future?
High-quality nature-based offset projects not only effectively suck carbon out of the atmosphere, but they can also generate broader socio-economic and environmental co-benefits. But high-quality nature-based offsets are a precious commodity, time-consuming and expensive to create.
So, we need to carefully consider how high-quality offsets should be allocated to help us achieve the Paris Agreement goals (requiring net emissions to halve by 2030). Do we really want swathes of our land locked up in nature-based offset projects just so that we can lock in fossil fuel use for the next 30 years? Where will that get us?
The international Taskforce on Scaling Voluntary Carbon Markets (TSVCM), a private sector-led initiative with the support of global energy and resources giants, stresses that corporations need to follow a mitigation hierarchy of i) Reducing, ii) Reporting and iii) Compensating for emissions. It also emphasises that a company’s net-zero transition plan must primarily depend on direct emissions reductions.
The hierarchy and sentiment expressed by the TSVCM’s report is correct, but the report glazes over the level of commitment to direct emission reductions that corporations should show before being allowed to reach for the offsets lolly jar. This level of commitment is critical because offsetting should always be a last resort on the pathway to carbon neutrality, a sort of defeatist reflex triggered only after every viable avenue to reduce emissions has been explored and progressed. Otherwise, global emissions simply won’t come down fast enough.
Could offsetting legitimise slower tech financing?
Global emission reductions require technological innovation and a faster flow of financing to green technology R&D to help disrupt polluting technologies. Large corporations not only have a responsibility but also an ability to accelerate this flow of financing towards green technologies so that they can reduce future emissions in their direct operations and supply chain.
But accelerating financing to low emissions technologies is not in every corporation’s interests, particularly where this might accelerate the demise of a core business, and risk exacerbating write-downs on existing emissions-intensive assets and investments. We often talk about trees locking up carbon, but what if investment in these trees is locking away precious disruptive capital, and in doing so, retarding the technology transition?
In recent years, global energy majors have been investing heavily in nature-based offset projects. While these projects bring environmental benefits, this shouldn’t distract us from the opportunity costs of these investments. Every dollar invested in a tree planting project is a dollar diverted away from nascent technologies that could precipitate a more rapid energy transition away from fossil fuels. And while all the financing in the world won’t get us to zero emission tomorrow, how many times have we heard CRCs and tech companies decry that if only they could secure more investment capital they could commercialise their technologies faster?
Of course, not all offsets are ‘nature-based’ and there’s a huge market for offsets from projects that avoid emissions by adopting new technologies that accelerate the technology transition. But there’s a sickness plaguing international offset markets meaning that millions of outdated credits from older technology projects are still freely available to corporate bidders. These unloved credits don’t reduce emissions from our current atmosphere but are being used by corporations to christen themselves and their products ‘carbon neutral’.
Similarly, in Australia, we’re witnessing a wave of corporations being certified carbon neutral under the federal government’s Climate Active program. Yet amongst several excellent certifications, we’re seeing a worrying number of low impact certifications because of three design glitches within the Climate Active Carbon Neutral Standard.
Firstly, the current Standard allows for the usage of mouldy international offset units as we’ve noted above with next to zero positive impact on our current climate or economy. Secondly, the Standard fails to provide sufficient guidance on what makes a good quality offset, and how to avoid dubious offsets. Thirdly, it allows corporations to reach for offsets without first having made any direct emission reductions. Although the Standard encourages direct emission reductions, it certainly doesn’t mandate them.
This approach should have TSVCM members shaking their heads, but what about the federal government?
What needs to change
The misalignment between the government’s own Carbon Neutral Standard and its Technology Investment Roadmap is stark. The Roadmap is described by government as “a strategy to accelerate development and commercialisation of low emissions technologies”. So, wouldn’t it be great if the Climate Active Standard were updated to support the Roadmap’s objective by putting old and dubious offsets out of reach and placing greater emphasis on direct emission reductions?
At an international level, the TSVCM talks about setting up ‘Core Carbon Principles’ and governance mechanisms to ensure that carbon offsets are of high integrity. The ideas are excellent but will count for little if we don’t also create a governance framework to slap the hands of corporations reaching for the offsets lolly jar before first demonstrating leadership in direct decarbonisation through technology financing and supply chain engagement.
Carbon offsetting is part of the solution and if used properly will help us reduce global emissions. But if we really want to meet the Paris Agreement goals it’s high time we remove the stale lollies and place the jar on a higher shelf.
Evan Stamatiou is director of Carbon Risk Management