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  • Sidhant Pai

A Short Guide to Carbon Removal and Offsets

StepChange Primer. Sidhant Pai, Chief Science Officer, StepChange Inc.

StepChange Primers provide brief overviews of important subjects in corporate sustainability.

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Over the past few years, a large number of businesses and organisations have committed to increasingly ambitious net-zero and carbon-neutral goals.

While there is some consensus around where to start (carbon measurement, carbon accounting, decarbonisation of business operations, decarbonisation of the supply chain, etc.), it is equally clear that many of these companies will find it challenging to fully meet their targets without (1) fundamentally disrupting their means of supply, production and distribution or (2) finding a way to ‘neutralise’ their emissions via the purchase of ‘offsets’.

While Option 1 is likely the direction we are heading as a society in the long-term (and the only real way to get to true ‘NetZero’), Option 2 could provide an important bridge solution for enabling short-term carbon neutrality and funding impactful projects around the world.

Unfortunately, an offset-heavy NetZero strategy also comes with meaningful moral hazards. The purpose of this primer is to introduce you to some of this nuance but is NOT intended to advocate a particular position on offsets (stay tuned for another blog on that subject). Without further ado, let’s dive in.

Companies with carbon-neutral goals that continue to have a substantial emissions footprint, even after exploring emissions reduction options, often invest in ‘carbon offsets’ as a way to neutralise the negative impacts of their emissions. These offsets can take various forms, ranging from projects intended to sequester existing atmospheric CO2 (like tree plantation projects) to other interventions intended to reduce GHG emissions relative to a business-as-usual baseline.

While some standards and guidelines are slowly emerging, there is a lot of heterogeneity in the quality of the different offset offerings from different providers - ranging from projects that are truly additional (in that they result in the real-world manifestation of carbon sinks or reductions that would have otherwise not occurred) to projects that offer blatantly greenwashed solutions and do not sequester or reduce any additional carbon relative to a business-as-usual baseline. This dispersion in offset quality means that companies interested in exploring offset solutions need to take the time to understand the differences in the available offerings.

Before even considering offsets, it is crucial that companies take the requisite time to understand the primary sources of their emissions and dedicate meaningful resources towards the reduction of these emissions. However, in certain cases, organisations might continue to generate large quantities of emissions that are challenging to abate given our current technological constraints (think of sectors like cement, etc.). This is where a well-thought-out offset strategy could play an important and impactful role.

Carbon offsets vs carbon removal

Though often conflated, it’s important to note that carbon offset projects and carbon removal projects are conceptually quite different:

Carbon Offsets: Fund incentives for external stakeholders to reduce or avoid a certain amount of carbon emissions relative to what they might have emitted in a business-as-usual scenario.

Natural Carbon Removal: Fund the extraction and sequestration of carbon dioxide from the atmosphere via natural solutions like afforestation.

Anthropogenic Carbon Removal: Fund the extraction and sequestration of carbon dioxide and other GHGs from the atmosphere via engineered solutions (direct air capture, kelp sequestration, enhanced weathering, etc.)

It’s important to note that, as we move towards a true NetZero world, offsets (as defined in the paragraph above) will play an increasingly less effective role since they don’t necessarily lead to net CO2 reductions.

Carbon removal, on the other hand, is likely to take on an increased salience. Even with that being the case, some experts argue that dollar-for-dollar, funding decarbonisation efforts over carbon removal efforts is a more effective route to global NetZero. A detailed discussion of the pros and cons is outside the scope of this short primer, but stay tuned for a follow-up blog post!

What makes for a good carbon offset/removal project?

In order for an offset or removal project to provide real-world impact, it should (at the very least) adhere to some basic tenets:

1. Measurability - Is it possible to measure and calculate the amount of carbon emissions being avoided/sequestered using science-based techniques?

2. Transparency - Are the underlying measurements and project meta-data auditable and reproducible?

3. Additionality - Does the funded solution meaningfully change business-as-usual actions (ie - would the funded action have happened anyway without the purchase)

4. Permanence (no leakage) - Is there long-term defensibility to the number of carbon emissions being sequestered or avoided?

5. Scalability - Is the underlying approach scalable and cost-effective, with limited overhead costs relative to other alternatives?

So how should companies think about carbon offsets?

Because of the moral hazards associated with offsets and removal solutions, it is important to take a thoughtful and deliberate approach when incorporating them into a holistic carbon management strategy. This post does not take a stance on the appropriate balance, since that is highly context-specific and nuanced, but here are a few considerations that any organisation should keep in mind when considering the purchase of these instruments:

- What is your target price per tonne of carbon? How does that relate to the marginal price of decarbonisation within your organisation?

- What degree of operational oversight do you require? Would you like to conduct the diligence yourself or work with a partner?

- What information do you need for your environmental reporting requirements?

- What is your time horizon? Are you looking to purchase credits now (to achieve carbon neutrality within the current reporting year) or is your purchase a part of a longer-term net-zero strategy?

There are strong arguments both for and against the use of offsets and removal solutions, and the choice to incorporate them into a carbon management strategy is highly dependent on the context of an organisation’s carbon footprint (and the other reduction approaches available to it).

Well-managed, highly additional, offset and removal projects could play an important role in achieving our societal climate goals, but it is extremely important that organisations rigorously diligence and evaluate these solutions before incorporating them into their sustainability roadmaps.

StepChange is a climate-tech startup that helps companies and brands accelerate their sustainability journey and transition to NetZero. Learn how we may be able to help your organisation through our website or simply follow us on LinkedIn to stay tuned! To share this article, use the social icons below:

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