Without credible plans for carbon offsets today, there will be no carbon offsets for tomorrow
Many key lessons can be garnered from the Voluntary Carbon Market’s ups and downs over the last 20 years, the most pertinent of which is that offsetting, despite its many drawbacks and highly publicised mistakes, is here to stay.
Why are offsets necessary for a net zero strategy?
The ‘net’ in net zero emerged as scientists modelled various scenarios on how to reduce emissions globally in line with a 1.5C degree pathway. While companies mitigate emissions throughout their firms’ operations and value chains, there are certain hard-to-abate or ‘left-over’ emissions that either:
have few alternatives,
are too expensive to mitigate or
organisations simply lack control over.
According to SBTi and other target setting frameworks, these emissions would be suitable for counteraction with offsetting as a last resort. Whilst innovation and wider system transformations will eventually result in Zero Carbon by reducing the residual emissions in the very long-term, high-quality carbon offsets will be required to bridge this gap and maintain the trajectory to achieve 2050 net zero ambitions.
Rapid and strategic scaling up of availability and integrity of the offset market will be essential to meet ever-growing list of net zero pledges.
The IPCC concurs, saying the removal offset market – as opposed to lower quality avoidance offsets – must be scaled to keep pace with current decarbonisation plans:
“The deployment of CDR (Carbon Dioxide Removal) to counterbalance hard-to-abate residual emissions is unavoidable if net zero CO2 or GHG emissions are to be achieved.”
Graph highlighting requirement of carbon removal to reach net zero and beyond. Source: https://www.npr.org. Daniel Wood/NPR. Graphic based on IPCC Working group III report.
How can offsets be used strategically to mitigate risks and maximise opportunities?
Even while companies have rapidly accepted that offsetting is a solution of last resort, they still require a strategic understanding of the role of offsetting today to avoid risks associated with waiting until milestone targets are looming tomorrow.
Crucial to this is developing an understanding of how the offset market is likely to evolve and will ultimately affect an organisation’s access to high-quality offsets at a feasible price.
According to the Oxford Principles for Net Zero Aligned offsetting, the market will and must shift towards long-term high-quality removals, which suggests that growing the supply of removal credits is of the utmost importance.
Shockingly, according to Carbon Direct, only 3% of credits issued over the period of January 2021 to May 2022 were pure removals. If all offsets by 2030 should be verifiable, additional and provide a high-level of certainty in their impact in sequestering or avoiding carbon permanently, the market has a long way to go.
For those with experience in renewable energy procurement, this shift to ‘high-quality’ should sound familiar – customers and regulators are evolving from low-quality basic green tariffs towards deep-green high-quality tariffs or PPAs that promote additionality.
Why, if targets are years away, is action required today?
As the first milestone years of net zero ambitions edge closer, and regulatory pressure on offset integrity highlights the importance of removal credits, the warning bells are ringing loudly of an impending supply crunch unless urgent action is taken. Exponential growth in demand for removal credits, demonstrated by the dozens of corporate net zero commitments made daily, will not be met by the current low supply of high-quality offsets.
Long lead times associated with high quality removal projects will contribute to a lagged reaction on the supply-side, as well as a lack of ‘frontier’ technologies that have not received sufficient funding early enough to become deployable at the required scale. Think ‘Direct Air Capture’ where global giants with financial backing have been able to engage directly but opportunities are very limited for smaller players.
The forecast supply crunch will have several consequences for firms looking for over-the-counter offsets, or that have left their offsetting strategy to the last minute. The lack of supply will price many companies out of the market, with increases up to almost 3000% predicted by 2029.
This availability issue may lead some firms to be unable to reach set targets due to the unaffordability of high-quality removal credits.
How can lessons learned from renewable energy procurements apply to offsetting?
As with renewable energy power purchase agreements (PPAs), carbon purchase agreements with developers today can lock-in prices and supply for the future, whilst providing clear market signals and funding for nascent removal technologies to develop and supply the future market. Like renewable energy, offsets projects are largely infrastructure projects that take time to be developed.
Approaching offsetting strategically, as companies have started to treat renewable energy procurement, will help mitigate the risks of being priced out of the market or simply unable to access quality credits. It will also accelerate the growth of high-quality, long-term removal projects required to reach decarbonisation goals globally.
In both cases, moving early and being well-informed provides a clear advantage to securing supply and vastly increases the chances of reaching the minimum* end goal of achieving net zero.
Footnotes:  https://sciencebasedtargets.org/resources/files/SBTi-criteria.pdf  IPCC Sixth Assessment Report: https://www.ipcc.ch/report/ar6/wg3/downloads/report/IPCC_AR6_WGIII_HeadlineStatements.pdf