Unraveling Offsetting: Legitimate Climate Strategies or Distractions?
The emissions reductions we can achieve over the next decade will make a crucial impact on minimizing the worst dangers of a 1.5°C climate reality. Investors expect companies to develop transition pathways that drastically reduce the accumulation of greenhouse gases in the atmosphere. Leading companies are delivering on their commitments to decarbonize their industries, supply chains, and customers.
Corporate strategies that rely on offsetting, however, do not contribute to internal decarbonization. Instead, offsetting depends on causing emission reductions outside of the value chain and using them to cancel out the impacts from within the value chain. Offsetting may increase a company’s exposure to legal, competitive, and regulatory risks, and may fail to deliver any climate benefit.
Many corporate offsetting claims are backed by the purchase of carbon credits, with each credit supposedly representing one ton of carbon reduced or removed from the atmosphere. However, additionality concerns and methodology scandals have cast doubt on carbon credit value and integrity. Delta and KLM, faced lawsuits from consumers and environmental groups for having carbon-neutral claims backed by dubious carbon credits.
The carbon market is flooded with “junk” credits, largely land-use and renewable energy projects, that do not deliver the climate or community benefits promised. Furthermore, carbon credits can be “double counted,” with the same carbon credit claimed by more than one entity. All these problems weaken decarbonization ambitions and ultimately create higher global emissions.
Focus in the carbon market is shifting from nature-based and traditional offsetting projects to emerging carbon removal technologies. While the U.S. Inflation Reduction Act and the Department of Energy incentivize carbon removal technologies like direct air capture, debate persists about using such technologies in net-zero pathways. Carbon capture technologies face criticism that they cannot be scaled up, are used in enhanced oil recovery and are not economically viable given their use in other emissions-intensive operations. New technologies must enhance sustainability ambitions and not just maintain current emission levels.
Another type of corporate offsetting is based on avoided emissions, referred to as Scope 4 emissions. Avoided emissions compare the life cycle emissions of traditional products to lower-carbon products (e.g. diesel compared to renewable diesel fuel). Avoided emissions are useful figures to demonstrate the benefits of lower emission products, but they should not be reported as emission reductions in Scope 1, 2, and 3. To reduce greenhouse gas accumulation, all Scopes need to be reduced as much as possible.
Over the last year, firms like Delta Air Lines and Nestle made high-profile pivots away from offsetting strategies to focus on internal decarbonization, acknowledging that prioritizing emission reductions within their value chain is the best way to set their businesses up for success and to align with investor expectations. These pivots align with the recommendations of climate experts like the Science Based Targets Initiative and the United Nations’ High-Level Expert Group, which stress that offsets are not a substitute for emissions reductions.
As You Sow is actively engaging with industry leaders, including Valero and Linde PLC, to enhance transparency around offsetting strategies and technologies, as well as address climate-related financial risk. We advocate for best practices that prioritize emissions reductions and maximize shareholder value in the long-term.