Are carbon offsets critical to net-zero or a zero-sum game?

The furious row over whether companies should be allowed to use offsets as part of their net zero plans shows no sign of abating.

The Science Based Targets Initiative, a U.N.-backed nonprofit that audits the emission reduction plans of companies, last week [KL1]?confirmed that it will publish an assessment in July of whether it should soften its line on allowing companies to use carbon credits to help compensate for supply chain emissions in its revised Corporate Net-Zero Standard later this year.

“Any decisions on changes to the standard will be made after a rigorous process of research, consultation, pilot testing, approval by the tTechnical cCouncil and adoption by the SBTi bBoard of tTrustees,” the organisation said.

SBTi’s board had triggered a revolt among staff in April by announcing its intention to allow use of carbon credits in the new standard, amid accusations that the SBTi initiative’s technical council had been “neither informed nor consulted”.

Last week[KL2]?, further flames were added to the fire when Reuters reported that it had seen a n confidential preliminary internal report at SBTi that found offsets to be largely ineffective.

While the findings are subject to further analysis and review, “If upheld, they would represent a major obstacle to SBTi's board of trustees adopting carbon offsets as part of companies' emission reduction plans,” Reuters reported.

In his analysis of the controversy for The Ethical Corporation Magazine, Ben Payton reported that allowing offsets as a valid part of a net-zero strategy would have huge implications for the $2 billion a year carbon offsets market.

Sebastien Cross, co-founder and chief innovation officer of carbon credit ratings agency BeZero Carbon, said recent media reports exposing projects suffering from serious methodological flaws, had made offsets a “very hard internal sell” because of the perceived risk of reputational damage through greenwashing accusations.

In a research note, BloombergNEF said the change could set the market on a path towards reaching $1.1 trillion by 2050.

Commentary published by The Ethical Corporation also reflected the divisiveness of the debate. Maria Mendiluce, CEO of the We Mean Business Coalition, and Mandy Rambharos of the Environmental Defense Fund, said in their joint commentary that the SBTi’s proposal to include carbon credits was “on the right side of climate history”.

They pointed out that while the number of companies committed to SBTi targets increased by more than 500% from 2018 to 2023, annual corporate climate finance increased only 5% during this same period, to $192 billion. Yet more than $5 trillion will be needed annually by 2030 if we are to reach net zero by 2050, according to the IMF.

“Potential reforms to SBTi’s guidance to companies could expand the arsenal of science-based tools available, particularly in accelerating progress on Scope 3 emissions. It's not a carte blanche for companies to use any instrument at their disposal, but a strategic – and limited – addition to their climate toolkit.”

?In their comment piece, however, Joanna Cabello and Ilona Hartlief of SOMO, the Centre for Research on Multinational Corporations, argued that the SBTi rule change would only serve to deepen the climate crisis by opening the door to a “dangerous expansion” of the offsets market.

“Being able to use offsets, companies can appear to be addressing their emissions on paper while actually adding, and enabling others to add, more greenhouse gases to the atmosphere,” they said. “This is because, by design, offsets do not lead to an actual reduction in emissions entering the atmosphere. At best, emissions are theoretically ‘cancelled out’ by offsetting projects, such as forest conservation schemes, that claim to be removing, reducing or avoiding ‘equivalent’ emissions – a zero-sum game.”

A lot is riding on the work of the Integrity Council for Voluntary Carbon Markets, the body tasked with raising standards in the market for carbon offsets. As reported by Reuters, the ICVCM added Verra and Architecture for REDD+ Transactions (ART) ?to its list of programmes that meet its Core-Carbon Principles rule book. With ACR, CAR and Gold Standard already having qualified, it means that governance and transparency standards now cover 98% of the market.

The next step will be an assessment of some 100 different carbon credit methodologies, ranging from afforestation to cooking stoves, and eventually the issuance of Core Carbon Principle-labelled credits onto the market. ?

Pedro Barata, co-chair of the expert panel for ICVCM, said its standards will mean that companies can invest in "high quality" carbon credits without needing to worry about accusations of greenwashing.

ANOTHER TYPE OF environmental credit was in the spotlight in April, at the U.N. plastics treaty negotiations in Ottawa, where big consumer goods companies joined Verra in lobbying for “high-quality” plastics credits to be included in the treaty.

The market for plastics credits, a mechanism that allows companies to theoretically balance the plastic waste they collect and process against the waste they put out on the market, is growing, dominated by the Singapore-based Plastic Credit Exchange (PCX).

According to Bloomberg (subscription required) PCX has sold millions of dollars’ worth of plastic offsets to the Filipino subsidiaries of major consumer brands, in some cases forming the basis for declarations of plastic neutrality.

Investigative organisation Source Material found that, rather than being recycled, more than 80% of the plastic collected by PCX has been delivered to cement manufacturers, who burn it instead of coal for fuel.

Meanwhile, the Financial Times reported (subscription required) in April that Danone had collaborated with an Indonesian waste management company to establish five recycling facilities across the country, with the intention of selling plastic credits through Verra’s plastic credit standard. But complaints from local people about health impacts from pollution from one the plants led the French multinational to pull out and Verra to suspend credits.

Like carbon offsets, the ability of plastic credits to make a difference shouldn’t be dismissed out of hand. ?I wrote an article for The Ethical Corporation’s issue on the plastic waste crisis last year about how the ability to earn plastics credits through Verra could allow tiny Icelandic recycling startup Pure North to scale up operations to serve the entire domestic waste market in Iceland, which currently exports 95% of its waste, while Mark Hillsdon reported on how plastics credits were helping fund collection of plastic waste on remote Thai beaches and on farms in North Queensland in Australia, preventing plastic leaching into the Great Barrier Reef. ?

Yet as Mark Hillsdon reports in his analysis of the plastics treaty talks in Ottawa, real progress on ending plastic pollution won’t be achieved until companies are prevented from producing?so much of the stuff in the first place – a solution that environmental groups lamented was largely absent from the talks.

Just 9% of plastics are currently recycled and yet figures show that plastic production is projected to triple by 2050. He visited Mombasa, Kenya’s second largest city, to see how cities in the Global South, with their poor waste management infrastructure, are already drowning under the weight the?400 million tonnes of plastics?that are produced globally a year.

Turning off the plastics tap was also the prescription of Dr Pete Myers, of the Plastic Health Council, in his oped for Ethical Corporation during the talks, He urged negotiators to heed the warnings of scientists about the insidious health impacts of plastics: “Plastics use is so ubiquitous and diverse today that unsafe amounts contaminate our blood, brain, lungs and the bodies of our children. We are like a morsel of cod in a rich bouillabaisse, absorbing toxics leaching from our fast-food wrappers, canned food linings, water bottles and more.

Other recently published articles include Oliver Balch’s interview with Heather Buchanan, who heads up Bankers for Net Zero, and was one of our 2024 Trailblazing Women in climate, and a Reuters Events survey highlighting how sustainability professionals are using AI to help meet new sustainability reporting rules. Meanwhile, Mike Scott in his latest ESG Watch, looks at why climate change is leaving mining firms between a rock and a hard place.

We’ve also featured commentary from Wawira Njiru, CEO of Food 4 Education, on why stopping children from going hungry must be part of Africa’s fight against climate change, Anders Wijkman, of the International Resource Panel, on the need to live in a less material world, and Alexandra Mihailescu Cichon of RepRisk on why ESG, despite its flaws, is the most important change-management exercise of our time.

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