Voluntary carbon offset program: 3 elements to define for an effective carbon neutrality strategy

Published on 28 October 2020 Read 25 min

As climate change is becoming more and more alarming, companies are increasingly challenged to reduce their carbon footprint following a logical process: identifying and calculating carbon dioxide emissions, avoiding emissions, reducing emissions, and finally compensating emissions. Voluntary carbon offsetting stands out as one of the levers at their disposal in these fourth steps. What are the key elements companies should consider when designing a voluntary carbon offset program?  

Voluntary carbon market : a dynamic market

Voluntary carbon offsetting principle is simple: it consists of voluntarily balancing greenhouse gas emissions by purchasing carbon credits or investing in environmental projects around the world. One credit being equivalent to 1 ton of CO2.

While voluntary carbon offsetting only accounts for a limited share of CO2 reduction (98 MtCO2e, compared to 33 GtCO2e emitted by the energy sector in 2018, i.e. less than 0.3%), it is a dynamic market.

  • In terms of volume: 98.4 MtCO2e (million metric tons of carbon dioxide equivalent) has been offset in 2018, increasing by 6% from 64.5 MtCO2 in 2016
  • In terms of value: The 2018 market was averaging7 million USD, an increase of 33% since 2016, where the market was averaging 199.1 million USD

Contrary to popular belief, airline companies and online room booking platform are not the sole players offsetting their emission voluntarily. Oil and gas, retail, insurance, industrial and high-tech players are also using carbon offsetting to reduce their net global footprint.

Over the past decade, players such as Danone, Michelin, La Poste, Veolia, Schneider Electric, Firmenich and others have invested in funds like the Livelihoods Carbon Funds to support projects for agroforestry, mangrove restoration, and fuel-efficient cooking tools for communities in Asia, South America, and Africa. Several companies such as Microsoft, Danone, and HelloFresh recently announced their intention to achieve carbon neutrality, with carbon compensation being part of their strategy.

3 keys elements to design a carbon offsetting program

Companies willing to define their voluntary carbon offsetting program must consider 3 key elements.

First, companies should determine the offset scope. It could be an offset related to the manufacturing or use of the product. In either case, companies should define whether the compensation will be partial or integral. For instance, Toshiba chose to compensate all CO2 emitted during the full lifecycle of its products (including production, transportation, maintenance, and sheets printed with Toshiba’s printers). The insurance company Co-op compensates 10% of emissions associated with typical car use or home energy consumption for the purchase of a car or home insurance policy during the first year.

Second, companies should define a compensation offer by deciding on which products or services will be applicable to the carbon offsetting program and choosing a pricing strategy. There is no limit; a company can offset either a dedicated range of its product, services, or all of them. In term of pricing, the offset can come at no extra cost for the customer (which is usually the case when the offset scope is related to manufacturing) or come as an extra or with a subscription fee. The British leasing company UK Car Line, for example, offers to compensate the carbon emissions from their vehicles for the period of the contract via an extra fee in the lease agreement.

Third, a carbon-offsetting project must be found to compensate emissions, if possible related to the company activity. Reforestation, and renewable energy projects are among the most spread projects (see Table 1). They are typically developed by specialized actors, such as Camco International group and CO2balance, but new players are emerging. The public charging network Electrify America  recently announced the first-ever validation of a carbon-offset project associated with an electric vehicle charging infrastructure.  Voluntary carbon offsetting can also go beyond compensation of carbon emissions by allowing socio-economic fallout. Financing projects leading to employment, better education, and better living conditions for rural populations can have a wider and longer impact. The “Kariba Project” in Zimbabwe for example is one of the largest registered reforestation project which also aims to improve healthcare, roads and school.

Voluntary carbon offsetting is increasingly used in a wide variety of sectors to reduce companies’ carbon footprints. Players willing to develop these types of programs will have to define three key elements: the offset scope, the associated offer and pricing strategy, as well as the offset project. This will enable them to make it real, efficient, and coherent. To go further, companies should keep in mind that carbon offsetting is the third lever to reduce their carbon footprint. Encompassing these programs in a wider emission reduction strategy -including carbon emission avoidance and reduction, will be key to ensure its success and efficiency.

About the author : Axel, Senior consultant at the Lyon Tech department

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