Carbon Offsetting: A promising market under siege?

Carbon offsetting is a strategy companies can use to reduce their carbon footprint on the road to a net zero future. However, scepticism over the effectiveness of carbon offsetting has put the market under siege. Now the market must put up a stronger fight or capitulate.

Carbon Offsetting refers to when companies fund a reduction or absorption of CO2 in another industry to make up for the CO2, they produce themselves. This could be through reforestation projects, regenerative agriculture, and carbon capture and storage solutions. Thus, ideally a net balance of CO2 would be the expected outcome.

The market’s growth in the future is still confident, as countries and companies globally pursue net zero by 2050, the likelihood of which being reached seemingly becoming more unrealistic. Still, the market needs to grow a lot more, from the millions of tons to the billions of tons.

Data from BloombergNEF, a strategic research provider, show that issues of carbon offsets are increasing, last year reaching a quarter of a billion tons of carbon offsets. This is also the fourth consecutive year of increasing issues.

However, reports also show that carbon offset retirements fell slightly for the first time since 2016. ‘Retirements’ refers to when the carbon offset is claimed against a company’s carbon footprint to prevent double counting of an offset.

The market now faces a large amount of scrutiny. Protests voice concerns over the quality of carbon offsetting and the difficulty in measuring accurately the amount of carbon that is actually offset. The question arises: do offset projects add to an additional capturing of carbon, above the natural amount without intervention?

Lufthansa faced similar criticism following their announcement of introducing ‘green fares,’ where customers can opt to purchase a green fare ticket, essentially a normal fare ticket with an added fee said to include the cost of offsetting the carbon emissions from the flight. Concerns say that adding a green fare only kicks the can further down the road, and that emissions caused by flying will be the same regardless of the customer having a green fare, economy, or business class seat.

Furthermore, AIGCC (Asia Investor Group on Climate Change) are advising their clients that companies will need to reduce their actual carbon emissions, and that carbon offsetting to make their portfolio greener, making it more attractive for investors, should come only as a “last resort”.

What does this then mean for the future or carbon offsetting? Bloomberg NEF, a strategic research provider, forecasts three possible scenarios for future markets. The first, the status quo, is the ‘voluntary market.’ There is an abundant supply of carbon offsets, but low prices mean slow incentive for investment into technologically driven carbon removal.

Tests for capturing carbon out of sea water have already been developed by MIT researchers, but more and faster progress is needed. For this a second scenario is forecasted, the ‘removal scenario.’ In this ideal market, prices are higher, upwards $250 or more per ton of carbon by late 2030, but carbon capture is more efficient and reliable. It shows that countries and companies alike will have to get comfortable with spending more on finding carbon reduction and offset strategies that actually work.

What is clear is that the current voluntary carbon market is simply not enough. Juerg Fuessler, managing partner at the sustainability consultancy INFRAS, told Bloomberg that “without much stricter rules and oversight, the [voluntary carbon market] will not play a significant role in reaching the Paris Agreement goals; on the contrary, it could end up facilitating more emissions.”

By Alfred Diemer