Understanding Carbon Mitigation
While businesses and organizations have been exploring ways to reduce their environmental impact and reduce their carbon footprint through emission reductions and efficiency gains, these techniques can only go so far. Carbon mitigation offers businesses and organizations a way to keep having a positive environmental impact, even after they have exhausted efficiency gains.
Carbon Mitigation is an oft-misunderstood concept, yet the underlying premise is quite simple. A carbon credit is formally generated when a certified activity that has a positive environmental impact is converted to a tradeable instrument. This carbon credit is then applied elsewhere to compensate for activities that release carbon into the atmosphere, also known as Greenhouse Gas emissions (GHG).
Greenhouse Gas Emission Classifications
- Scope 1 — direct GHG emissions from sources that are owned or controlled by an entity. These can include emissions from fossil fuels burned on-site, emissions from entity-owned or entity-leased vehicles, and other direct sources.
- Scope 2 — indirect GHG emissions resulting from the generation of electricity, heating, and cooling, or steam generated off-site but purchased by the entity.
- Scope 3 — indirect GHG emissions from sources not owned or directly controlled by the entity but related to the entity’s activities. These include employee travel and commuting, contracted solid waste disposal and wastewater treatment, vendor supply chains, delivery services, outsourced activities, and site remediation activities.
Before the widespread use of carbon offsets, companies were constantly looking for ways to improve efficiencies in their processes that reduced their carbon footprint. Although these efforts were admirable, these efforts could only go so far and at some point companies started facing diminishing returns for the efforts they were putting in — sometimes even frustratingly to the point of saturation.
Where efficiency stopped short, offsets could step in. Now companies were able to purchase carbon offsets and immediately own the responsibility for their actions and produce a positive impact on the environment. Although there is no upper limit to the amount of offsets a company can purchase, offsets should not be seen as a substitute for implementing effective emissions reduction strategies. Many companies, however, did embark on pure mitigation or offset strategies, which led to the term “Greenwashing” and tarnished the reputation of carbon offsets and the companies involved. The cardinal rule should be — “Reduce what you can and mitigate the rest” when adopting an effective emissions management strategy.
What Are Carbon Offsets and How Are They Recognised
Carbon Offsets are essentially credits for reductions in GHG emissions which are awarded by internationally recognized accreditation agencies. The proceeds from the sale of Carbon Offsets are used to fund projects that effectively reduce emissions.
The two broad offset categories are:
- Avoided emissions — which are generated through more efficient business practices and which often include businesses adopting renewable energy while becoming less reliant on the burning of fossil fuels.
- Sequestered emissions — projects that are specifically set up to capture and store CO2 — also known as projects that increase the biomass to leverage photosynthesis.
For a carbon offsetting activity to be recognized, it needs to be quality assessed and it has to fulfill certain criteria. You need to be able to assure that a carbon offset resulted in emission reductions that would otherwise not have occurred, that the same carbon offset does not appear twice (similar to a transactional double-spend dilemma), and that the reduction in emissions didn’t come from an increase in emissions elsewhere.
There are accreditation agencies that attest for the integrity of carbon offsets. To qualify, a natural asset producer would need to fulfill stringent criteria to be accredited and to be issued with carbon credits. Agencies that quantify and certify natural asset providers, such as Gold Standard, Voluntary Carbon Standard (VCS), Plan Vivo, among others, ensure that specific operating standards and requirements have been met and that the emission reductions are real, measurable, permanent and additional.
Gaining Access to Accreditation and Funding
We can all agree that having stringent criteria for a project to be accredited is a good thing. But what happens if not all participants have equal access to the accreditation agencies? What happens if the process is not transparent? How does a carbon offsets producer have his project assessed across jurisdictions?
The accreditation agencies cannot be everywhere at once, and their centralized nature means that they for a market bottleneck. Third-party agents act as middlemen, increasing the supply chain costs and opening up the possibilities for corruption as natural asset producers compete for attention.
If a natural assets provider does not receive accreditation, they have virtually zero chance of their project being funded by businesses. Such barriers to market entry need to be streamlined and eliminated for the market to work efficiently. Without such efficiencies, viable projects are potentially being lost to the process. Without an efficient functioning market for the trading of natural assets, massive scale opportunities are being lost — and the whole idea of carbon offsetting become moot.
The Benefits of the Efficient Operation of a Carbon Offset Market
On the supply side, natural asset producers of accredited carbon offsets can attract funding for furthering and deepening their projects. New participants can are incentivized to seek gains in what would otherwise be well-intentioned, but unprofitable ventures. On the demand side, businesses can continue making a positive impact on the environment even after they have exhausted all efforts to reduce their emissions through improved processes and efficiency gains. The healthy functioning of a carbon offset market offers opportunities for positive environmental impact.