What Does Carbon Offsetting Mean?
Carbon offsetting happens in the context of carbon markets and carbon-related claims. Firstly, there are two main carbon markets:
1. Compliance carbon markets.
2. Voluntary carbon markets.
Just as Rugby Union looks the same as Rugby League to the untrained eye, compliance carbon markets are quite different to voluntary carbon markets. The compliance carbon market is driven by regulatory obligations to buy carbon credits, whereas the voluntary carbon market is driven by voluntary action (with no obligation at all). Voluntary carbon markets are a bit like voluntary strawberry markets – both the buyer and the seller are participating voluntarily.
Compliance Carbon Market
The compliance carbon market in Aotearoa New Zealand is the New Zealand Emissions Trading Scheme (NZETS). Here a relatively small number of companies in the energy, transport, and industrial processing sectors are required by the government to surrender carbon credits to the government to offset their emissions. These entities are often referred to as ‘points of obligation’, or ‘demand-side participants’ in the NZETS. The way the NZETS was designed means that these demand-side participants do not have specific emission reduction targets (gross emission reductions). Instead, the emissions they are responsible for can be accounted for through offsetting.
New forests that are registered in the NZETS are the source of these carbon credits. These credits are called New Zealand Units (NZUs). The demand-side participants buy these carbon credits from supply-side participants at the carbon price. The carbon price in the NZETS is determined through a combination of government price controls, and supply and demand dynamics.
Voluntary Carbon Market
The voluntary carbon market is focused on voluntary action of organisations, events, and/or products pursuing a voluntary carbon-related claim such as ‘net zero carbon’. Here, the net zero carbon aspirant typically seeks certification from a certifying organisation. Getting this certification with Ekos requires the following steps:
1. Measure your carbon emissions.
2. Develop an emissions reduction plan based on the emissions profile of your organisation.
3. Price your carbon emissions to account for the cost of those emissions on society (the social cost of carbon).
4. Pay this price as a voluntary carbon charge by purchasing carbon credits at a price aligned to the social cost of carbon (i.e., not cheap foreign carbon credits).
5. Use this cost as a financial incentive to reduce emissions as much as you can.
6. Implement your emissions reduction plan by reducing emissions through time and reduce the volume of carbon credits you need to buy and the voluntary carbon charge you are exposed to.
7. Repeat annually to maintain certification.
Unlike the NZETS, demand-side participants in the voluntary carbon market may be required to reduce emissions by their certifier. Also, unlike the relatively small number of demand-side participants in the compliance carbon market, the voluntary carbon market can be used by all organisations, events, and products in the economy.
Is voluntary offsetting the same as “buying the right to pollute”?
No. The right to pollute already exists because it is not illegal to use electricity, drive, receive mail or freight, use a refrigerator, fly, buy food and clothing, build a house… and all the many things we do to live our lives. So voluntary offsetting is voluntarily taking responsibility for your carbon pollution.
Is it cheaper to buy carbon credits or reduce emissions?
This will depend on the type of emissions. Some emissions are expensive (or impossible) to reduce, while others are cheap or even cost negative. For example, reducing the number of flights you take reduces your emissions and reduces the money you spend (i.e., is cost negative). In contrast, changing the heating system in a building from a coal-fired boiler (fossil fuel) to a wood-pellet burner (biofuel) is expensive. In turn, removing the carbon emissions from the process of concrete manufacture for the foundation of your house is impossible (whereas paying for an equivalent volume of carbon credits is not).
Is ‘net zero’ certification greenwashing?
No. Getting to zero greenhouse gas emissions by reducing emissions alone (gross zero) is usually impossible and/or prohibitively expensive. This is why carbon accounting uses the term ‘net’ zero emissions. Here, an organisation takes responsibility for the emissions it cannot reduce by causing carbon benefits to the atmosphere elsewhere (e.g., planting a forest).
If an organisation voluntarily measures and reduces its emissions it has done a good thing, even if it stops there. But if the same organisation goes the extra distance to take responsibility for emissions it could not reduce, then it is doing even more good. Remember, this is voluntary action we are talking about. If the carbon credits used for offsetting come from a nature-based solution that, say, helps to reforest our waterways and erosion lands and helps us build climate resilient landscapes, then there is an additional good thing happening.
Moreover, net zero will not be enough to avoid dangerous climate change. We need to go carbon negative for a lengthy period of future decades – this means taking more carbon dioxide out of the air than we put in. This will require even more offsetting, while at the same time we reduce as much emissions as we can.