Fundamentals

How to Successfully Offset Your Carbon Emissions in 2022 - Everything You Need to Know

We all know that in order to meet the 1.5 degree target, we must reduce our CO2 emissions immensely. As there are unfortunately still many CO2 emissions that simply cannot be avoided yet, the process of carbon offsetting is an important step along the journey to net-zero emissions. 

But what is carbon offsetting? Carbon offsetting is a mechanism that enables individuals and organisations to compensate for the emissions they cannot avoid, by supporting emission reduction projects that avoid, reduce or remove emissions elsewhere. A carbon offset represents 1 tonne of CO2e that has been absorbed or prevented from being emitted into the atmosphere through a carbon offset project. The ‘e’ in CO2e stands for ‘equivalent’ and refers to the 6 greenhouse gas (GHG) emissions defined under the Kyoto Protocol.

The carbon market consists of the voluntary carbon market, where individuals and businesses take voluntary action to limit their carbon footprint, and the compliance market, where industries or governments are bound to meet regulatory targets, such as emissions trading schemes. Here, we refer to the voluntary carbon market. We caught up with Andrea Warburton, Senior Climate Action Expert specialising in Offsetting at Planetly to find answers to three important questions you should ask yourself when offsetting your CO2e emissions: 

How Carbon Offsetting Works

How to Choose the Right Project for Your Company? 

When starting your journey to offset your emissions, you will find that there are a multitude of climate action projects available to offset emissions. So what should be considered when choosing carbon offset projects, to ensure project quality?

Step 1: Choose a reputable offset provider that carries out a due diligence process

The carbon offsetting market can be very difficult to navigate. So how do you know who is the best provider of climate protection measures for your company?

First of all, you should try to make sure that the projects you are choosing are certified by benchmark offsetting standards. For example, the Gold Standard or Verified Carbon Standard are internationally recognised for their robust certification. 

Secondly, when it comes to project quality, it is important that a further due diligence process is carried out. This means making sure that the project developer and that the projects themselves have actually led to quantifiable and scientifically calculated emission reductions. When working together with a reseller, make sure it is a reputable company that has the expertise to advise you. The company should be well informed about the offsetting market and provide you with detailed information about each project.

Step 2: Choose specific carbon offset projects that best suit your company

The next step is to make sure that the projects you choose are the best fit for your business. Here, you can consider different criteria such as project type, project location or sustainable development impacts - also called “co-benefits”.

Which carbon offset project types are there? 

There are many types of projects as emissions reductions can be achieved through various technologies. Basically there are two main categories: carbon avoidance or reduction and carbon removal.

Carbon removal projects, as the name suggests, are about removing carbon from the atmosphere, while carbon avoidance projects are about preventing carbon from being produced in the first place. 

Carbon avoidance or reduction projects include rainforest or forest protection, household energy efficiency, including efficient cookstove projects or clean water projects which reduce the amount of fuel required to cook or heat homes.

When talking about carbon removal projects, one can again distinguish between technical removal and nature based removal. One can already find a variety of natural based projects such as afforestation and reforestation or for example mangrove restoration projects. Technical removal, on the other hand, is still a rather newer field in the area of the carbon market, including technologies such as Carbon Capture and Storage (CCS). In the section below, we will learn more about these types of offset projects as we look at the current trend in the market. 

The amount of CO2 removed or saved as well as the prices of the offset project types vary widely due to demand and running costs. Based on these aspects and on the personal interest of your company, certain project types can be selected.

Does the project location matter?

The project location can be an important decision criterion when choosing carbon offsetting projects. However, it is important to note that it does not matter where the carbon offset project is located, as a tonne of carbon removed or avoided from the atmosphere has an effect, irrespective of location. Projects located in the global south are often favoured as this offers cost-effective solutions to carbon avoidance or removal and stimulates sustainable development and green investment in developing countries.

Anything else to consider when choosing a carbon offset project?

Another important criterion can be the Sustainable Development Impact of the projects. Perhaps it is, as a part of your sustainability strategy, particularly important to your company that the projects fall under the Sustainable Development Goal of the United Nations. These include for example no poverty, good health and wellbeing, gender equality, sustainable cities & communities. Carbon offsetting can be much more than simply offsetting of carbon - your company can contribute to the solutions of social development problems.

In order to make an informed decision, one should be aware of which criteria play the most important role for one's own company. The decision for certain offsetting projects does not have to lie exclusively in the hands of the person responsible for the offsetting process. Often it can make sense to base portfolios on what the internal teams want to support the most. In this way, employee engagement can be promoted and cohesion within the company strengthened.

What are the Trends on the Carbon Offsetting Market?

Another important point for an optimal offsetting process is, as in many other areas, the question of what current trends there are and how future developments on the carbon offsetting market might look like. Since the market is a very dynamic and a fast-growing one, we can currently identify both a general trend of increasing demand in the market, but also project-specific developments. 

Increasing demand in carbon offset projects

In recent years, there has been a significant increase in demand for offset projects and also in the prices for a tonne of avoided or removed CO2. Due to increasing regulations and requirements for sustainable reporting, the demand is likely to grow further in the next few years and also we may see another sharp increase in the prices if the supply does not increase at the same rate as the demand. It is therefore important to weigh these future price risks against current financial opportunities for offsetting in order to make the best possible decision on how many tonnes of CO2e to offset at which time.

Carbon removal projects

In addition, project-specific trends in the carbon offset market can also be identified. Carbon removal projects, for example, are gaining more and more attention. Although emission reduction strategies are crucial, they alone will not be enough. Many scientists and the IPCC agree that, in combination with a science-based reduction strategy, it will be necessary to commit to such projects and actively remove emissions from the atmosphere in order to achieve our climate goals. The market in this area is moving at a great speed to ensure that there is enough availability for the growing demand. 

To do so, both natural based and technological strategies exist. Nature based solutions are already known to us, while technological ones are still rather new to the carbon market but form a very promising field. A few players to watch in this area include Climeworks, Charm Industrial, and Carbon Cure.

Only recently we saw an enormous investment in Climeworks, who are using the “Direct-Air-Capture-Method” to remove carbon dioxide from the atmosphere by means of chemical reactions. The filtered carbon dioxide will then either be sold for further use or stored underground. Currently, such technologies are new to the carbon market and methodologies are being formulated to ensure that the emissions reductions are real, measurable and verifiable. But we will start to see carbon credits being generated from such projects in the coming years.

What are the Carbon Offset Costs?

The price for a tonne of avoided or removed CO2e can vary greatly, as it depends on many different factors, such as the location of the carbon offset project, the operating costs of the project, and the demand and supply on the carbon offset market.

Prices for voluntary market projects currently range from under 10€ per tonne for VCS or Gold Standard renewable energy projects up to 65€ per tonne, for European nature-based projects. Prices for renewable energy projects saw a surge in demand over the last year, driven by demand for low cost credits. In addition, quality nature-based solutions projects are limited in supply and, combined with the high demand, we are seeing prices continuously increasing. 

The decision to offset should of course be primarily about climate action, however it is also important to weigh up the risks of the future carbon price. With tighter regulations and increased obligations to offset CO2, there is a possibility that companies will have to offset their emissions in the future, which would increase the price of carbon offsets immensely. It is therefore important to find potential solutions at the time that is best for your company and to achieve the best possible prices with high-quality projects.

Carbon offsetting is only part of the solution to reaching climate goals

Carbon offsetting is an important method on a pathway to reaching individual climate goals, and a great opportunity for addressing environmental and social development challenges. Nevertheless, it is important to emphasise that carbon offsetting is only a viable and effective solution when combined with the reduction of value chain emissions. This can be planned along a net-zero pathway, combining offsetting with a reduction strategy.

We hope that this has given you a little guide to the world of carbon offsetting. Here at Planetly we offer you expert advice in order to manage this complex process. We look forward to helping you select projects that fit your company and its climate strategy while ensuring that everything is analysed in line with the GHG Protocol and ESG regulations.  Contact us to start your net-zero journey today!

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