What on Earth’s going on with offsetting?!

As the climate crisis intensifies, the concept of carbon offsetting has emerged as a seemingly convenient solution for businesses (and individuals) looking to bolster their sustainability efforts. 

At its core, carbon offsetting involves compensating for our carbon emissions by investing in environmental projects that promise to reduce or absorb an equivalent amount of CO2. While carbon offsetting may offer some short-term benefits, it is not a sustainable long-term solution to the climate crisis. By allowing companies to continue their polluting practices under the guise of environmental responsibility, offsets distract from the critical need for change.

As a result, there’s a lot going on in the carbon offsetting space at the moment – in fact,  it’s fraught with controversies. If this distrust is to continue, it could even erode public support for broader climate initiatives, making it harder to achieve the collective action needed to address the climate crisis effectively. 

But what actually are the issues involved, and what should we all be aware of when it comes to decisions about whether to offset, or not to offset? 

The elephant in the room 

The biggest challenge with carbon offsetting is that it fails to address the root causes of climate change. Instead of reducing their own emissions, companies can purchase offsets and continue their business-as-usual practices; this approach creates a dangerous illusion of progress, distracting from the urgent need for systemic changes. 

As an example of the magnitude of change required, the Net Zero Standard from the SBTi suggests that companies should be cutting their emissions by more than 90 percent by 2050 before turning attention to permanent carbon removal and storage. And so as noted by the Smith School of Enterprise and the Environment at Oxford, relying on our current approaches will never achieve the level of emissions reductions necessary to meet global climate goals.

The environmental efficacy of many carbon offset projects is highly questionable. An investigation by the Guardian and Corporate Accountability into the legitimacy of the top 50 most popular offset projects found that 78 percent of them offer no real atmospheric benefits because some of their characteristics undermine their proposed emission cuts. 

Another study, focussing on forestry projects by the University of Berkeley, found that almost 300 carbon offset projects have consistently allowed developers to claim far more climate-saving benefits than justified.  The stats are alarming, and these examples are just a snapshot into the many other investigations into the legitimacy of projects, showing just what a complex landscape carbon offsetting is to navigate, understand and trust.

It’s not just about the carbon

Given many offset projects are located in developing countries, they can exacerbate existing inequalities and perpetuate a form of climate injustice. 

As Souparna Lahiri, a climate adviser for the Global Forest Coalition, explains: “The carbon market and the rich west, for the last 25 years has actually done nothing to mitigate the climate crisis, rather, protected their high-emitting industry, production, consumption and lifestyle. It’s a story of continuing and widening inequality and climate injustice.”

This is especially true when you consider that the 3.5 billion people living in poverty only contribute 10 percent of global CO2 emissions, according to Oxfam, yet they are the most affected by the climate crisis. 

Reports of human rights abuses, such as the sexual harassment of female employees in offset projects, underscore the lack of adequate oversight and due diligence by companies purchasing these offsets. And many of these projects solely positioned as economical carbon reduction strategies also fail to take into account the alternative benefits of the landscape in which they operate, such as its aesthetic beauty, wildlife habitats, or any possible spiritual or religious significance, thereby negatively impacting and devaluing the very people that live and work there. 

A ticking trust time bomb

The voluntary carbon market, where these offsets are traded, is largely unregulated, leading to widespread concerns about the accuracy and transparency of reported climate benefits and the potential for fraud. Although international standards and certification bodies exist, such as the American Carbon Registry (ACR), Climate Action Reserve (CAR), Verra (Verified Carbon Standard) and the Switzerland-based Gold Standard, their methodologies and the consistency of their applications remain contentious, making it very difficult to know who and what sources to trust. 

Even the SBTi has been under fire in recent months, as they announced in April that they were considering allowing scope 3 emission reductions through ‘environmental attribute certificates’ which includes offsetting schemes. This news of a potential shift in policy caused quite the stir; many have seen this as a ‘betrayal‘ of SBTI’s founding principles and have condemned this approach because it’s a way of not having to take tangible real climate action.

Unsurprisingly, the market for carbon offsets shrank dramatically last year, falling from $1.9bn (£1.5bn) in 2022 to $723m in 2023, according to Marketplace Ecosystem, because of the fears of verification and transparency and a growing distrust among consumers and stakeholders regarding their effectiveness and transparency.

Reliance on offsetting also risks fostering a public perception that climate responsibility can be outsourced, thereby undermining the urgency for direct action. It’s why more than 80 nonprofits have in the last month issued a joint statement opposing the use of carbon credits, arguing that permitting companies and countries to meet climate commitments through carbon credits is likely to hinder global emission reduction efforts.

Could the future look bright?

We are also seeing a movement towards “insetting”, which focuses on companies doing more good (rather than less bad) within their value chain with multifaceted sustainability  benefits. It involves the implementation of and investment in nature-based solutions such as reforestation, agroforestry and regenerative agriculture to transition to resilient and regenerative business models.

This obviously sounds like a no-brainer on the surface but the catch is that insetting is a lot more complex; requiring a lot more time, resources and more importantly, organisations will need to be more forward thinking. As if this landscape isn’t confusing enough! Fortunately, an example of what this could look like for businesses is available from the International Platform for Insetting’s Practical Guide. Unlike offsetting, this approach will be uniquely tailored to a companies’ value chain, with several companies already underway with their insetting journeys. 

So what now for businesses?

If you’re confused and hesitant about offsets, you’re not alone, that’s for sure – recent research from the We Mean Business Coalition (WMBC), Intercontinental Exchange (ICE) and Bain & Company found that 78% of businesses not already purchasing carbon offsets, or planning to, wouldn’t consider entering the market. This was primarily because of legitimacy concerns and potential exposure to reputational risk and missing their targets. 

Trends are echoed in another recent study conducted by a handful of UK Environmental Organisations. Only a third of those questioned believed carbon offsetting is a “viable strategy” for achieving net-zero and just 37% of businesses had employed it as a strategy to reduce their emissions. We’re now also seeing more companies completely turning their back on offsetting, even some of those in the UK from the Forbes’ Global2000 list.

To that end, overall, we must prioritise direct emission reduction strategies and adopt more holistic approaches that address the root causes of climate change, promote social justice, and ensure genuine environmental benefits. Only through such comprehensive efforts can we hope to mitigate the impacts of climate change and build a more sustainable future for all of us.