Reporting ESG

Carbon offsetting vs. avoidance: Which strategy wins for climate protection?

Oct. 31, 2023

Many organizations are seeking ways to reduce their carbon footprint and contribute to a more sustainable future. A great development. But it's often tempting to rely on offsetting emissions as a quicker and seemingly more cost-effective solution – compared to measures that lead to direct emission avoidance.

So, let's dive deeper into why saving emissions really matters. And consider the question of whether offsetting is greenwashing or do both approaches have merit?

Understanding the differences: offsetting vs. avoiding emissions

What is carbon offsetting?

Carbon offsetting is the process of compensating for carbon dioxide emissions produced by specific activities, like the production and transportation of goods, by investing in projects that reduce or remove an equivalent amount of carbon dioxide from the atmosphere. The idea behind carbon offsetting is to achieve a net-zero carbon footprint by balancing the amount of carbon released with the amount being offset.

Carbon offsets are usually traded on the market as carbon credits. A carbon credit is a tradable certificate that is equated to the reduction or avoidance of one ton of CO2. Once an organization or individual has purchased a carbon credit, it is permanently retired so that it cannot be reused.

Carbon offsetting projects can be quite diverse, ranging from natural solutions to technological approaches. Some examples of carbon offsetting could be investing in:

  • Renewable energy projects in developing countries

  • Reforestation and forest conservation

  • Methane capture from landfills

What is carbon avoidance?

Carbon avoidance refers to actions or strategies implemented to prevent or reduce the emission of carbon dioxide (or other greenhouse gases) in the first place, rather than offsetting them after they have been emitted. Essentially, it's about taking proactive steps to minimize or eliminate potential carbon emissions before they occur.

Some examples of carbon avoidance activities could be investing in:

  • Renewable energy resources

  • Energy efficiency upgrades in lighting, cooling, and heating

  • Transition to greener supply chains

Want to dive deeper into greenhouse gas emissions terminology? Take a look at our emissions dictionary.

Navigating the debate: Should your business offset or avoid emissions?

Two-thirds of the world’s biggest companies with net-zero targets are using carbon offsets to help meet their climate goals.

However, despite its widespread use, detractors see carbon offsetting as a quick and cheap way to save emissions, a type of greenwashing rather than an effective way to cut emissions. What's behind all this, and what are the pros and cons of both methods?

The potential of offsetting

While carbon offsetting is often viewed critically, it certainly has its place as a viable method in the fight against climate change. It can, for example:

  • Create an immediate impact: Carbon offsetting allows for an instantaneous response to emissions. Even if your company isn't yet capable of complete decarbonization, through offsetting, you can compensate for your emissions by supporting projects that reduce or remove CO2 elsewhere. This is crucial in addressing climate change because the effects of carbon dioxide in the atmosphere are cumulative.

  • Fund essential projects: Offsetting often channels funds to critical environmental and conservation projects that rely on external funding. Many carbon offset projects are located in developing countries, which benefit from investments of developed countries or larger corporations in clean energy, afforestation, and sustainable development. They close the lack of resources for such projects, helping these regions to reduce poverty, improve living conditions, and combat climate change simultaneously.

The limitations of offsetting

While offsetting emissions has its merits, relying solely on this approach poses several challenges in the long run:

  • Perpetuate dependency: Offsetting can create a false sense of sustainability, allowing us to continue emitting greenhouse gases without addressing the root causes. It can inadvertently perpetuate our reliance on fossil fuels and hinder the urgent transition to cleaner energy source, as it provides only a limited incentive to reduce greenhouse gas emissions in the long term. Plus, offsetting can shift the onus of responsibility from the emitter to the offset project. This shift can create a moral hazard, where businesses or individuals feel absolved of their carbon emissions because they've paid for offsets. Instead of making structural changes to their business operations and practices, they rely on external projects to balance their carbon books.

  • Limited scalability: Offset projects often have limited scalability, with constraints on available offsets or geographical limitations. Depending solely on offsetting can hinder large-scale emission reductions required to meet global climate goals. In addition, many offsetting projects – especially afforestation or reforestation – require years, if not decades, to sequester the promised amount of CO2. During this period, the initial emissions continue to affect our climate, potentially exacerbating the effects of global warming.

  • Risk of saturation: The potential for offsetting is not infinite. As more businesses and individuals lean into offsetting as their primary emission reduction strategy, the availability of quality projects can decrease. This saturation can lead to higher costs for offsets or a compromise in the quality of projects funded.

  • Integrity and additionality concerns: Ensuring the integrity and additionality of offset projects, meaning they genuinely deliver additional carbon reductions, can be challenging. The lack of robust standards and monitoring mechanisms may lead to questionable claims and ineffective offsetting outcomes.

The power of saving emissions

Saving emissions, or reducing our carbon footprint at the source, does not only benefit the environment and our future planet but offers significant corporate benefits that extend beyond short-term fixes. By implementing sustainable practices, your organization can:

  • Drive cost savings: Contrary to popular belief, saving emissions can be a financially smart decision. Investing in energy-efficient technologies, sustainable practices, and waste reduction measures often leads to significant long-term cost savings. Businesses that proactively invest in energy-efficient tools or sustainable resources often find that while there's an initial cost, the savings accrued over time – through decreased utility bills or reduced waste management costs – are substantial. This approach not only conserves resources but also insulates companies from potential energy price hikes.

  • Build resilience: Taking responsibility for your emissions allows your business to build resilience in the face of future climate-related challenges. By actively reducing your carbon footprint, your company decreases its vulnerability to regulatory changes, supply chain disruptions, and potential reputational risks. Plus, companies that diminish their reliance on fossil fuels and traditional energy sources position themselves against potential energy crises in the future.

  • Foster innovation: Finding ways to save emissions encourages creativity and innovation within your business. It challenges you to think differently, driving the development of new technologies and solutions that can revolutionize industries. This can encourage new product developments, process optimization, innovative business models, supply chain transformation, and more significant developments.

The hurdles of saving emissions

The advantages of carbon avoidance are clear. However, your company must overcome initial financial and organizational challenges, such as the following:

  • Raise initial investment: Transitioning to sustainable technologies or practices can be costly upfront. Whether it's retrofitting a factory for energy efficiency or adopting new sustainable materials, there's often a significant capital requirement.

  • Navigate the adaptation period: Changing business practices, especially if they've been in place for a long time, can encounter resistance. Your employees might need training, and workflows might experience temporary disruptions as everyone adjusts.

The solution? A holistic approach to fight emissions and climate change

One thing is certain: To combat climate change, we need both carbon offsetting and emissions avoidance efforts. To achieve our climate goals, we must dramatically cut our current carbon emissions as well as remove existing carbon from the atmosphere.

The emission mitigation hierarchy

While avoidance of emissions is clearly the favored – albeit most expensive – option, offsetting is the most cost-effective but also the most ineffective measure for achieving climate targets. Minimizing emissions and rehabilitation are the two other measures that fall in the middle between avoidance and offsetting.

  • Minimize/reduce the amount of GHG emissions that cannot be completely avoided in your business operations and along the value chain by making those activities less emission-intensive

  • Rehabilitate/restore degraded ecosystems to recover their ability to remove CO2 from the atmosphere

Emission mitigation hierarchy

When could carbon offsetting make sense?

Offsetting has the potential to be a helpful measure in the fight against global warming. What is essential, however, is that offsetting should not be seen as a substitute for emission avoidance, but as a complement to it.

Convertible vs. incompatible vs. obsolete products

In general, offsetting only makes sense in combination with avoidance – and only when it comes to products that could theoretically still be developed into low-carbon products, but the necessary technology does not currently exist or is not yet ready for the market (convertible products).

The German non-profit organization Atmosfair has found that ”convertible products” is the only product category for which offsetting is reasonable. Why? Let us have a look at two other product categories:

  • Incompatible products/services

= products that can no longer exist to meet the 1.5° degree target, e.g., factory farming

→ Offsetting would only artificially prolong the "dead end" of these products, the focus should be directly on their elimination

  • Obsolete products/services

= products for which a more climate-friendly version already exists, e.g., coal energy

→ Offsetting should not be used to make obsolete technologies appear more climate-friendly, but money should rather be invested in the further development of the newer technology (in this case renewable energy) instead of impeding it

See this example for a convertible product:

Let’s consider long-haul aircrafts. For these types of aircraft, there are potentially clean, zero-carbon fuels (power-to-liquid) that can be produced entirely from renewable energy. However, these technologies are not yet developed to the point where an airline could buy them, so the customer cannot choose them as a (more expensive) alternative either. Offsetting only makes sense for such products because it does not hinder the better solution. This would be the case with products or services that are obsolete or incompatible with our climate objectives.

5 key elements to consider when offsetting is the only possible way

In addition, remember that not all carbon offsets are alike. If you want to use carbon offsets to reduce your carbon footprint, consider the following to make an actual impact:

  1. Ensure that the quality of the carbon offsetting project is verified by recognized standards, e.g., Voluntary Gold Standard (VGS) or Voluntary Carbon Standard (VCS)

  2. Verify that the offsetting project also ensures the duration and permanence of the emissions savings, e.g., guaranteeing the health and longevity of newly planted trees

  3. Request transparency about the price and specific operation of the carbon offsetting project to assure the integrity of the carbon offsetting project, as the voluntary carbon market is often unregulated

  4. Pay particular attention to how the carbon offset is calculated and reported, and that there is clear data confirming the carbon reduction as a result of the carbon offset

  5. Make sure your carbon offsetting project doesn't just shift the problem, e.g., by simply clearing another nearby piece of forest instead of the protected one you purchased

To truly combat climate change, we must embrace a holistic approach that prioritizes saving emissions while considering offsetting as part of the solution. As is so often the case, it is better to prevent the error than to fix it. By focusing on sustainable practices, we can achieve substantial emission reductions and create a more sustainable future.

How Envoria can help you manage your emissions

Finding the path to reduce or even avoid your organization's emissions can be a real challenge. This is exactly where the emissions management tool of our all-in-one ESG reporting software Envoria can support you. Our Emission Management module allows you to centrally administer your GHG emissions (incl. Scope 1, 2, and 3) in one software — highly customizable and including all functions you need.

Use the tool to monitor your measures for avoidance or minimization of emissions and to identify risks. In addition, our broad partner network of ESG consultancies, also with a special focus on emission management, is at your disposal – whether to help out with the implementation of successful climate strategies or impactful offsetting projects.

Sounds like exactly what you need? Learn more about our emissions management tool or book a free software demo.

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