February 23, 2017

Carbon Offsets: Corporate Citizenship or Cop Out?

In the policy vacuum of carbon policy that is Australia in 2017, increasingly businesses are looking to reduce their environmental impact without waiting for Federal Government leadership on this issue. Going carbon neutral is a popular choice, whereby a business calculates the emissions associated with its operations, reduces these where possible and then purchases carbon offsets for the remaining emissions.

Going through each step in this process we note that whilst our clients seem comfortable with calculating their inventory and reducing emissions, there seems to be a commonly held view purchasing carbon offsets are a “cop out” and that in buying these, nothing is really achieved for the environment. The cynicism that has become a feature of the carbon policy debate appears to be transferrable to carbon offsets. Whilst the cynicism might have had a place back when we first started debating policy responses to climate change at Rio in 1990, it certainly does not have a place in the regulated carbon offset market of 2017.

What is a carbon offset?

There are two recognised ways in which emissions are removed from the atmosphere: either by sequestration (that is absorbing the emissions into something that then won’t then release them again, such as a tree grown on protected land) or by avoiding doing something that would have created emissions. A carbon offset is documentation demonstrating that one tonne of carbon dioxide equivalent gas (“1 tCO2-e”) has been physically removed and/or has been avoided from emission to the atmosphere.

There are various types of carbon offset units, named after the mechanism through which they are created. A quick summary of some of the common types of units are provided below, noting there are additional units created under the Kyoto Protocol which are not discussed. All definitions are taken from the National Carbon Offset Standard (Version 3.0):

  • Australian Carbon Credit Unit (ACCU): An emissions unit issued under the Carbon Credits (Carbon Farming Initiative) Act 2011
  • Verified Carbon Unit (VCU): A unit corresponding to one metric tonne of carbon dioxide equivalent emissions reduced or avoided, as certified and issued under the Verified Carbon Standard.
  • Voluntary Emissions Reduction (VER): A unit corresponding to one metric tonne of carbon dioxide equivalent emissions reduced or avoided, as certified and issued under the Gold Standard, a global standard for abatement projects under the Kyoto Protocol and in the voluntary carbon market.

(Australian Government, 2015)

How can you be so sure it is reducing emissions?

Carbon offsets are now traded in a mature market and the standards outlined above are relied upon by the Australian and International Government’s to meet their emissions reduction activities. However reputation alone isn’t enough, so the governance and assurance requirements for each offset standard are summarised below.

  • Australian Carbon Credit Unit (ACCU): Administered by the Australian Clean Energy Regulator, projects must meet legislatively approved methodology and have been audited. Audit requirements include reasonable assurance audit once project commenced with routine audits of a frequency dependant on project size and type (frequency set by the Clean Energy Regulator). (Clean Energy Regulator, 2016)
  • Verified Carbon Unit (VCU): Administered by VCS, with project eligibility assessed prior to certification. All projects subject to desk and field audits by both VCS staff and independent third party auditors. (Verified Carbon Standard, 2016)
  • Voluntary Emissions Reduction (VER): Administered by Gold Standard, with project eligibility criteria either consistent with or additional to those required for UN CDM and/or JI projects checked prior to certification. Assurance requirements include scheduled verification site visits and auditing based on the project type and size. (Gold Standard, 2015)

Each standard maintains a project register with each carbon offset uniquely identified. A carbon offset is then either cancelled/retired/surrendered through that registry and through the unique identification can never be used again.

If you can afford to buy offsets you should use that money to invest in emissions reductions at your site instead.

This comment is generally fair, but to a point.

In terms of emissions reductions, the opportunities available are limited by the budget. In an ideal world, each and every business would reduce its emissions to zero and then we wouldn’t need to trade carbon offsets. However, it is a reality that once you have actioned all the emissions and energy reductions activities within the acceptable payback periods, building a business case for additional measures is exceedingly difficult. Where it is more cost effective to buy a carbon offset and it produces the same outcome in terms of world global emissions (reduction of one tonne of carbon dioxide equivalent greenhouse gas), carbon offsets are a sensible economic choice.

How much does it cost?

As with any traded product, the price of a carbon offset varies based on the standard, project, availability and demand for that offset product. To give indicative ranges we ordinarily suggest a “portfolio” approach with a range of AUD $2-$15 per offset unit from a number of different projects to achieve the desired budget and mix of co-benefits.

The largest purchaser of carbon offset units in Australia is currently the Australian Government who as at 24th November 2016 have contracted 178,000,000 tCO2-e at an average price of $11.83 through the Emissions Reduction Fund. (Clean Energy Regulator, 2016)

Want to know more?

To discuss co-benefits, pricing or purchase carbon offsets, please contact the Balance Carbon office on 1300 775 410 or info@balancecarbon.com.