Why offsetting’s recent challenges should spur market reform, not market collapse

Welcome to the first edition of The Net Zero Roundup, from the Carbon Trust’s Net Zero Intelligence Unit.

Business leaders, policymakers and financial decision-makers all have a stake in the transition to a decarbonised future. But keeping up with what matters for Net Zero is no easy task, let alone trying to contextualise how far along the path to Net Zero daily developments take us.

Every month, we will whittle down the stories most worthy of your attention, analyse why they matter, and share our latest experience-led insights on how to make progress towards Net Zero.

To keep up with Net Zero developments in the decade of action, make sure you are subscribed!

Under the spotlight

Valid criticisms need not spell the end for carbon offsetting, but must spur market reform.

A recent study has generated a fresh wave of scrutiny around carbon offsetting, where individuals or organisations looking to counterbalance (offset) their emissions buy carbon ‘credits’ which fund climate projects. An investigation into carbon credit certifier Verra found that 94% of their rainforest protection offsets do not lead to genuine carbon reductions. This is alarming, considering Verra certifies 75% of offsetting schemes worldwide, and rainforest credits are some of the most popular offsets going.

Voluntary carbon markets (VCMs), which sell these credits are booming. The global market expanded by 48% in 2021 alone. However, the availability of high-quality offsets has struggled to keep pace with this surging demand. Since the early years of VCMs, the Carbon Trust has advocated for a robust and credible accounting methodology to ensure carbon credits deliver on claimed climate benefits. To be credible, the Carbon Trust recommends five key quality criteria for offsets. They must be:

• verified according to an established standard
• additional (e.g. rainforest protection credits are only valuable if the forest was genuinely at risk of deforestation)
• permanent (if credits are used to plant trees which later burn down, re-releasing any carbon they stored, more credits must be bought to sequester an equivalent amount of carbon)
• cause no leakage (e.g. if protecting one forest just leads to more logging elsewhere, no carbon reduction has actually taken place)
• involve no double counting (credits cannot be sold twice, allowing multiple parties to claim the same carbon reduction)

So what does this mean for Net Zero?

International standards, including those from the UN and ISO, are clear that offsets do not replace the need to urgently slash emissions and cannot contribute towards emissions reduction targets. However, used alongside an ambitious emissions reduction strategy, offsetting can channel private investment into the novel technologies we will need to reach Net Zero, including those which remove carbon from the atmosphere, and help to support broader environmental objectives on biodiversity and nature. The market must now evolve to ensure there are enough high-quality offsets to meet growing demand.

Quick intelligence

Policy: US and EU must not overlook developing countries’ needs amid green subsidy race

Major economies are competing to create the most competitive cleantech industry. Last year’s Inflation Reduction Act marked the US’ biggest ever investment in decarbonisation, with $369 billion allocated towards tackling climate change. New tax incentives for investments in clean energy and low-carbon manufacturing mean that, for many companies , moving their operations to the US is very attractive. In response, the EU has been working on its own package of green subsidies to attract industry, including looser limits to state aid, a European Sovereignty Fund and faster approval for green projects. Although this could catapult us closer to Net Zero, it must come alongside a step change in funding for developing countries that may not be able to participate in these markets, taking forward the Bridgetown Initiative which gathered attention at COP27. The Carbon Trust’s experience in developing countries highlights the urgent need for increased technical assistance and low-cost finance to help those countries mitigate and adapt to climate change.

Business: corporate Net Zero plans should include interim targets and align finances with climate transition

More companies than ever have set Net Zero targets, but recent studies revealed few have robust plans to get there. CDP found that less than 1% of almost 19,000 companies who submitted climate disclosures last year have credible transition plans for reaching Net Zero by mid-century. Fortunately, a shining example of best practice is on its way. The UK’s Transition Plan Taskforce (TPT) is currently putting the final touches to its ‘gold standard’ climate transition plan, which will align with the ISSB’s upcoming international standards for transition plan disclosures. CDP noted that interim targets and forward-looking financial details to support a climate transition were particularly lacking last year, so businesses should leverage the TPT’s advice to set 5-10 year interim targets and detail the financial implications arising from their transition plans. In the Carbon Trust’s experience, a robust transition plan brings?strategic benefits for companies, including stronger risk management systems and greater investor confidence.

Finance: anti-ESG sentiment in the US could stall green finance progress

A war over ESG investing is coming to a head in the US. President Biden has said he will veto a Senate vote that aims to prevent pension fund managers from considering ESG factors when investing. This could be an important step in protecting the guardrails of fiduciary duty that enables a broader greening of the financial system. However, this is just the latest of several attempts in the US to undermine efforts to align finance with Net Zero. This makes it all the more important for asset managers to ensure their commitments are transparent and accountable; impact reporting methodologies, like those developed by the Carbon Trust, can capture and communicate the long-term value of ESG investments to stakeholders.

From the Net Zero Intelligence Unit

Since the launch of the Net Zero Intelligence Unit in November 2022, we have released several publications, with our most recent below. You can also read more here .

?We sat down with 3 Carbon Trust energy experts to discuss the benefits of demand-side flexibility (customers adjusting their energy usage) and how automation can unlock its potential.??

?? We assessed the Net Zero commitments of the world’s 10 largest beauty companies. To learn what the leaders are doing, as well as where the industry can improve, read the report:??

??MP Chris Skidmore spearheaded an analysis of how the UK can reach its 2050 Net Zero target in a ‘pro-growth’ way. Read our “useful summary” (Skidmore’s own words!):? ??

?Need to remind yourself (or your colleagues) why Net Zero matters, and the conditions to enable progress? These might come in handy: ??

On our radar

Recent academic research is a welcome reminder that Net Zero can be achieved. Agrivoltaic farms, which use land for both farming and generating solar power, provide an opportunity to scale renewables at the rate needed to reach Net Zero by 2050, without threatening the agriculture sector.

But last month, scientific research found that agrivoltaic farms also make sheep happier and healthier!

Check out this video on the subject from the World Economic Forum:

Read more about the benefits, from well-rested sheep to fewer weeds on solar panels, here: Putting solar panels in grazing fields is good for sheep ????

Thanks for reading our first edition. To ensure you don’t miss out on future monthly Net Zero Roundups, click here to subscribe.

The Net Zero Intelligence Unit produces experience-led insights to accelerate global progress towards Net Zero. If you’re a journalist or event organiser and would like to get in touch with us, please email [email protected] or [email protected] .