Decarbonization Series Part 3: The Pros and Cons of Carbon Offsets

The previous posts in this series discussed energy audits and purchasing renewable energy – two very useful and important tools when creating a proper decarbonization strategy. A third tool in the decarbonization toolbox is the purchase of carbon offsets.

What Are Carbon Offsets?

At a high level, an offset is a tool used to compensate for emissions of greenhouse gases (GHGs) in other locations. The most common type of offsets are CO2 offsets, but they can be purchased for other GHGs as well. In the decarbonization context, CO2 offsets are used to reduce a business's carbon footprint towards a net-zero goal.

Benefits of Carbon Offsets

To properly implement carbon offsets into your decarbonization strategy, it is important to understand the benefits and limitations of carbon offsets so you can ensure you are selecting the most effective projects. Carbon offsets generally pay for the purchase of land where various projects are financed to reduce carbon emissions. The types of projects can vary widely, including funding of additional renewable energy generation capacity, protection of existing forests, more effective soil management strategies, and investments in more energy-efficient buildings. The key benefit of a carbon offset is that such offsets can – when managed correctly– reduce the net carbon footprint of a given business by financing important projects like the ones mentioned above. Despite their ubiquity and ease of use, carbon offsets have some limitations and should be used carefully when other aspects of the decarbonization strategy are not enough to meet the appropriate targets.

Limitations of Carbon Offsets

The first key issue to consider when purchasing offsets is what is referred to as the “indulgence issue”. In brief, this is the theory that carbon offsets just apply an extra fee to carbon-increasing behavior rather than trying to limit or adjust such behavior. There have been many controversies involving businesses that pollute unnecessarily and buy offsets instead of increasing their own energy efficiency, so you should protect your business reputation by ensuring that your organization views the purchase of offsets as a transitionary tool to buy time to implement more sustainable long-term strategies.

Another limitation arises when evaluating the effectiveness of the actual projects undertaken to offset carbon emissions. Unfortunately, some projects have been poorly managed, resulting in circumstances where landowners have taken carbon credits for land they never intended to develop, where invasive species have been introduced, or where slow-growing species of trees are planted but the offsets are recognized immediately. For these reasons, it is critically important to select the right projects which are responsibly managed, appropriately monitored, and effective.

Finally, the changing regulatory environment could result in changes to the required formula for the calculation of offsets, thus endangering decarbonization efforts that rely solely on such offsets as a long-term strategy. One example of this is the Science Based Targets initiative which does not accept carbon offsets to address scope 1 and 2 emissions but is considering it as an option for offsetting value chain emissions.

Carbon Offsets as One Tool in Decarbonization Strategies

In summary, carbon offsets are a popular tool for decarbonization given their ubiquity and ease of use, but they do have some limitations. The offsets are used to fund different projects, and it is important to ensure that your organization is selecting projects which are well-managed and effective. Some businesses have been perceived as ‘indulging’ in polluting behavior using the offsets as a cover, so you should consider implementing them in a transition phase to a more sustainable long-term strategy, or as an approach to scope 3 emissions. Finally, the regulatory climate is always changing and could endanger long-term strategies centered around offsets. For these reasons, Inogen Alliance recommends that carbon offsets be considered just one tool used to allow the organization to develop a long-term decarbonization strategy.

The first part of this series talked about energy audits, and you can click here to read that post. The second post in this series discusses how you can buy energy from renewable sources to further decarbonize once you have completed the facility optimization exercise. You can click here to read it.

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