Around the world, corporations are setting increasingly ambitious carbon reduction targets. Carbon offsets will play a critical role in meeting many targets, particularly in the near-term. Corporations face pressure to craft robust carbon offset strategies, which is driving increasing demand for high-quality carbon offsets and momentum in voluntary carbon markets.
Carbon offsets play a central role in bridging the gap to climate goals for corporations and governments alike. Alongside ambitious decarbonization goals to reduce business’ carbon footprint, high-quality carbon offsets can unlock more ambitious near-term action.
Carbon offsets enable emissions reduction, avoidance or removal projects that compensate for emissions occurring elsewhere (e.g., in a corporate supply chain). Carbon offset solutions that are nature-based also channel investment into critical decarbonization levers, including preservation, restoration, and regeneration of nature's carbon removal machines (forests, wetlands, etc.) putting people at the heart of climate solutions for generations to come.
Although sustainability ambition continues its ascent, climate action is often dominated by skepticism in rapidly changing market conditions, where not all carbon offset credits and projects are created equal.
In September 2021, the number of voluntary offsets retired hit a record high at a total of 42.2 million (BNEF). However, the market is still developing and requires due diligence when purchasing credits.
There are best practices to ensure that carbon offsets do not take the place of a company's internal emissions reductions or decrease the momentum for global climate ambition. In this Corporate Sustainability Spotlight, we will examine the value of carbon offsets, when to activate them, and share our own journey in procuring high-quality carbon offsets to reach carbon neutrality.
A carbon offset, also called "carbon credit" or simply "offset," is a financial instrument equivalent to one metric ton of carbon dioxide equivalent (MtCO2e) avoided or removed from the atmosphere that can be bought, sold, or transferred. Offset credit revenues are used to fund carbon removal, reduction or avoided carbon emission projects. Carbon offsets vary in price, geographic origin and project type. Projects can be either nature-based, such as avoided deforestation, or they can be technology-based, such as direct air capture with carbon storage (DACCS.)
|Direct emission reductions||Emission reductions that occur at the same location the reduction activity is implemented||GHG Destruction: Agricultural methane, Coal methane, Landfill methane, Industrial gas|
|Avoided emissions||Activity that avoids the release of stored carbon into the atmosphere||Reducing Emissions from Deforestation and Degradation (REDD+), fuel switching|
|Carbon Removal||Removal of carbon dioxide from the atmosphere through technological or nature-based approaches that are managed to ensure a permanent reduction of atmospheric concentrations of carbon dioxide||Sequestration: direct air capture, afforestation/reforestation, bio-energy with carbon capture and storage|
|Indirect emission reductions||Projects that cause an emission reduction to occur at a location other than the project site. Requires clear chain of custody to be established for ownership and claims of emission reductions||Renewable Energy generation|
In June of 2020, ENGIE Impact committed to become carbon neutral in 2020 and carbon negative from 2021. After collecting data, measuring our carbon footprint and identifying internal emissions reduction measures, we begin the process of procuring renewable energy certificates and offset credits as the final step in reaching our carbon goal for 2020.
Today, to further our climate action annually, we must invest in high-quality projects that avoid or remove carbon emissions from the atmosphere. Our need to use carbon offsets will decrease over time through the continuous deployment of decarbonization solutions across our business towards our carbon neutral goal.
Our first step in procuring carbon offsets was defining our strategy and determining which project characteristics are most important to our business. Two core characteristics stood out to us: ambition and engagement.
Because of the relatively small size of our carbon footprint, we chose to limit our purchase to two high-quality, nature-based projects that represent both carbon removal and avoided emissions to make up our portfolio of carbon offset projects.
We benefitted from the decades of expertise brought by our carbon markets advising team, who conducted an extensive competitive RFP solicitation specific to nature-based projects, which informed our carbon offset selection. For companies with less internal expertise or capacity, experts at ENGIE Impact can help to evaluate and recommend the best approach or even facilitate the process of carbon offset selection. Our services include issuing RFPs, partnering directly with project developers to originate projects and working with a third-party brokers that have existing project portfolios.
Follow carbon market trends and changing guidance on the appropriate use and best practices for carbon offsets.
After completing an initial screen of the projects submitted through the competitive solicitation, we followed a two-step due diligence process that leveraged:
Engage with Carbon Market consultants to help ensure high-quality carbon projects and reduce exposure to reputational risk associated with investing in complex, long-term projects around the world.
Thoroughly evaluate each carbon project for alignment with key quality criteria.
After completing thorough due diligence, we narrowed our options down to two carbon offset projects that met our requirements. On the 51st anniversary of Earth Day, we asked our employees to vote on their preferred project, giving them a voice in designing our carbon offset strategy. By using a gamification approach and sharing educational materials on the role of carbon offsets and the specific projects we evaluated, we empowered our employees to make the final decision on project selection. Below are more details about the two projects we procured offsets from:
This Reduced Emissions from Deforestation and Forest Degradation (REDD) project was designed to mitigate the effects of a new trans-Amazonian, inter-oceanic road that is being built from Brazil to the Pacific Ocean and Peruvian ports. The project reduces emissions from unplanned deforestation and degradation. This is done by reducing land pressure in the project area and its buffer zone by ensuring sustainable forest management in the timber concessions that make up the project. Environmental benefits include preservation of part of the world’s greatest biodiversity hotspots, Vilcabamba-Amboró, protection of 35 endangered species and improvement of water quality by erosion control and pollution filtration. Additionally, the project will improve the living conditions of local communities. Community benefits including financing, empowerment and support for native indigenous tribes to implement and conduct environmentally friendly activities, as well as the provision of infrastructure and services to indigenous and rural communities, including electricity, health care and emergency services. More information about the project can be found here.
This project removes greenhouse gases from the atmosphere by implementing sustainable grazing management over a large area of northern Kenya savannas and grasslands. Past overgrazing by pastoralists has depleted soils of organic matter and greatly reduced perennial vegetation cover and the potential production of forage for livestock. Marginal livestock production resulting from this degradation has put these pastoralists at risk from the further impacts of climate change and from inter-ethnic tensions over grazing lands and water. The project proposes to have local communities, oriented around 15 wildlife Conservancies organized under an NGO called the Northern Rangelands Trust, engage in new planned rotational grazing practices, as opposed to repeated, permanent grazing simultaneously on all grazing lands. These new practices will allow recovery of perennial grasses and the restoration of soil. Soil carbon storage that results from this improved grassland management has resulted in significant removal of CO2 from the atmosphere and will continue to do so in the future. With expected annual removals of approximately one metric ton CO2e/ha on average, the project should eventually annually remove more than 1.85 million tons CO2e. More information about the project can be found here.
Our final purchase of credits covered all residual emissions from 2020, officially marking the achievement of our carbon neutrality status in 2020. Our purchased offsets were officially retired in summer of 2021, ensuring they have been taken out of circulation and cannot be claimed by any other individuals or organizations.
Empower employees to fuel the success of the sustainability strategy.
We are proud to report continued progress along our decarbonization journey, driving leading-edge sustainability practices. As the market evolves, we are committed to adapting our strategy and considerations accordingly. We’re closely monitoring the evolution of net zero and carbon neutral guidance, the development of carbon markets guidance under the Paris Agreement and changing technologies and standards for what defines high-quality carbon offsets.
ENGIE Impact is going beyond using our expertise to craft our own comprehensive carbon offset strategies and partnering with a wide range of diverse stakeholders to continue to shape the future of carbon markets.
The authors would like to thank Alexia Kelly and Nado Saab for their contribution to this article.
Our experts can define a carbon offset strategy aligned to your organization's unique needs.