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What is carbon offsetting?

Carbon offset is a method that is used to fund the greenhouse gas (GHG) emissions reduction/avoidance, or sequestration equal to the remaining emissions of an organization, business or a region that is outside the value chain.

The financing is made possible through purchasing carbon credit. One carbon credit is equivalent to one metric ton of avoided or reduced and stored CO2 (CO2) through the project that is financed by this method.

After purchase, the credit is then retired via publically accessible emission registers held by international standards and exchanges. If a credit is used to offset, it is converted into an offset, and the credit is retired , meaning it can’t be used again (for the sake of transparency and accountability, carbon credit have serial number numbers).

Carbon offset is effectively putting an end to carbon emissions for businesses, which will encourage them to speed up internal reductions, such as supply chain emissions. This will help justification for investment in new low-carbon model of business, and will eventually prove that the status quo is no anymore an alternative.

To achieve net-zero emissions by 2050 on a global basis requires massive investments in geological or biological carbon sinks. Carbon offset plays a crucial part in fighting climate change because it allows funds to be devoted to projects that have high carbon reduction/avoidance or sequestration capacity.

Through the use of finance to fund projects that help reduce or eliminate GHG emissions Carbon offsets that are voluntary become an essential element of an overall climate strategy. It enlists the organization in climate action that goes beyond the value chain.

Carbon offsets are voluntary and can be done in a voluntary manner.

Both the public and private sectors are involved in carbon offset to meet compliance or for voluntary reasons which leads to two kinds of carbon markets: 1.) market for compliance, in which governments establish, for instance carbon taxes or an emission trading program (e.g. ETS, a.k.a.) and 2.) market for carbon that is voluntary, which are where businesses that do not have any legal obligation choose to participate voluntarily and take the responsibility for their carbon emissions, while also providing added value for their customers and investors.

The motivations of these companies are varied in their motivations to take action on the issue of climate change; to provide an added value for their clients either investors, citizens or customers; to anticipate the future of regulation or to participate in a process of collaboration with important stakeholders (e.g. employees, customers or NGOs, media) and others.

Voluntary carbon offsets are a way of financing voluntary actions through buying carbon credits on the market for voluntary carbon (VCM) which facilitates an observable and confirmed reduction or elimination and sequestration GHG emissions in other countries while promoting sustainable development, usually in the countries that require it the most.

The reason carbon offsets are a crucial tool in the climate change toolbox’

Alongside intensive efforts to reduce carbon emissions carbon offsets that are voluntary can help with carbon reduction as well as sequestration efforts outside of a company’s value chain.

In the face of a climate crisis, it provides the opportunity to take immediate actions to help contribute to the mitigation of climate change and increase the pace of collective climate action.

Since more than 10 years the carbon market and the mechanism for offsetting have been evolving through a constant process of evolution, feedback and enhancement. The role it plays in complementing emissions reduction efforts is the issue of scientific consensus. In the Paris Agreement reminded us that net zero in the world is not possible if we don’t utilize every tool we have available to us – carbon offset is just one of the tools. It is the Intergovernmental Panel on Climate Change (IPCC) has highlighted in the final section of their 6th Assessment Report (AR6, April 2022) that the solutions for removing carbon dioxide from the atmosphere are necessary for offset the residual emissions and reach net-zero.

The complexity and the evolution of carbon offsets that are voluntary has resulted in some resistance or even lack of understanding. This guide is designed to help you better comprehend how carbon offsetting voluntary helps achieve net-zero as well as the sustainable development goals. The guide explains the principles and the necessary requirements to implement the voluntary carbon offset method in a rigorous manner, as an addition to and not as a substitute for, a scientifically-based emissions reduction strategy.

We will examine voluntary carbon offset projects in depth, including the guidelines for their implementation as well as the their verification and certification. We will also discuss the various kinds of frameworks, projects, and the best practices we recommend companies take on.

With our practices, commitments and procedures We will show you the steps to implement an effective offsetting strategy and also how you can create new methods and projects.

Alongside decreasing the greenhouse gas (GHG) emissions that are in line with scientific research and restoring and protecting carbon sinks in the value chain like mangrove forests and rainforests along the coast Carbon offsets that are voluntary allow organizations to also fund projects that have a significant environmental impact that extend beyond the value chain.

How can carbon offset aid us in reaching net-zero?

There is a huge pressure from all directions to reach net-zero as quickly as is feasible. We are currently in a state of crisis that demands urgent and bold action from businesses using every method possible.

Organizations are not able to offset their ways to reach net-zero. Net-zero is a goal for the long term that requires a complete decarbonisation of 90-95 percent of emissions, and the elimination of the remaining 5-10 percent of emissions that remain. In the near term, companies are advised to make investments in offset initiatives which reduce emissions from outside their value chain in order to fill the following gaps in the world:

Timing gap: As a species, we need to decarbonise as fast as we can. The current plans of governments across the globe could result in overshooting the timelines recommended by the IPCC and the climate science.

Ambition gap according to the Climate Action Tracker, all the global commitments and targets that are in place will result in approx. 2.7degC of warming in 2100. Concerning climate policies in the real world, it could result in approx. 2.5degC to 3.5degC in warming.

Finance gap: The government’s funding of low-carbon paths is not enough by themselves. According to the United Nations Environment Programme (UNEP) states that the gap in finance is currently at approximately USD 4.1 trillion. The private sector is an essential tool for mobilizing capital, and it must be utilized in a productive method.

Carbon offset plays an important part in helping to bridge these gaps. While it shouldn’t be viewed as the answer however, it can be seen as a viable option to fund sustainable development and help fund initiatives that do crucial work to protect habitats, promote sustainable development, and enhance people’s lives while reducing some of the carbon emissions that we generate in our global community.

International initiatives that are in development or already in place define the importance of voluntary carbon offsets to achieve net-zero emissions at the organizational level. This includes those that follow the Oxford Principles for Net Zero Aligned Carbon Offsetting and The Science Based Targets Initiative (SBTi) and The Integrity Council for the Voluntary Carbon Market (ICVCM and the Voluntary Carbon Markets Integrity Initiative (VCMI), as well as the ISO 14068 standard. The two last two standards will be released their respective publications in 2023.

For instance, in accordance with the Oxford Principles of net zero aligned carbon Offsetting There are four essential elements that make up an enviable net zero aligned offsetting system:

Prioritize reducing your own emissions first. Ensure the sustainability of offsets you use and make clear how the offsets are used.
Offsetting shifts towards carbon removal and storage with a long-lived life offsets remove carbon dioxide from the air for a long time or nearly permanently.
Encourage the development of net-zero offsets that are aligned.
Choose a sustainable, natural method of carbon offset, like forest restoration.

A framework of strategic business actions The SBTi’s Corporate Net Zero Standard

In the month of October, 2021 In October 2021, the SBTi introduced the Corporate Net-Zero Standard framework in collaboration together with CDP, Global Compact, the World Resource Institute and WWF. The Corporate Net-Zero Standard is first global framework for setting corporate net-zero targets that is in line with the science-based climate. It provides the guidelines of criteria, guidelines, and recommendations businesses must set scientifically-based net-zero goals that are compatible with the limit of global warming to 1.5degC.

How do we ensure the longevity of offset projects?

Climate change has already had an impact that lasts for years on the global ecosystems, including rising sea levels and frequent floods, droughts, wildfires and more. These risks need to be more effectively integrated, not just into carbon finance , but also (and most importantly) into every environmental project.

In the certification process, International carbon standard requires that projects to conduct a risk assessment that includes forecasting the impacts of climate change at the level of the project and demonstrating the risk by project documentation and feasibility studies. For instance, if a portion of a mangrove area is predicted to be destroyed by rising sea levels within the next 100 years, then the proper VCS certification method stipulates that the area will not be included in calculations without a mitigation measure being put in place to stop erosion. Also, they must implement mitigation measures for risk (such as fuel treatments, the construction of fire breaks and towers as well as the use of conservation easements, etc.) to minimize the chance of reverses.

It is a challenging task that requires foresight at the project level , but also lets us reflect on the significance of adapting actions. This is a crucial aspect to think about: in order to have the best chance of being successful the carbon offset project such as restoration, reforestation, or afforestation or conservation, should be able to implement measures for adaptation and take into account the climate risk.

In the end, project managers are interested in taking every step to stop such an event from disrupting their plans by taking the appropriate steps and measures prior to the event.

In the event of severe weather conditions, malicious acts (e.g., deliberate fires) or negligence, standards, like the VCS have set up “buffer reserves” (also known as “pools”) which are pools to which every project contributes by placing aside a certain number of offset credits that can’t be offered for sale on the market These credits are ex-post, which means that the reduction in emissions is already taking place.

In accordance with the procedure in an insurance plan, the reserves set aside (reserved) are able to be used to pay for the possibility of reversals in any project. In the event of a reversal occurs, the credits reserved are removed out of the buffer reserve, which ensures that the credits issued still reflect actual reductions in emissions.

The amount of credit the project has to reserve is typically based on an evaluation of the project’s risk for reverses. The current trend of diversifying the projects (types as well as locations) guarantees that buffer reserves are able to withstand and not impacted even in the event of extreme weather or malicious actions, like deliberate fires or even negligence.

For Gold Standard accredited projects, they rely on the existence of a “Compliance Buffer” that is not accessed after the crediting period has ended for the project, thereby reducing the chance of non-permanence and reversal.

The buffer reserves are frequently adjusted to reflect the advancement of science especially in relation to climate changes. Details and information about the reserves are available on the internet.

Projects to offset carbon emissions of various kinds

Restoration of ecosystems (reforestation of forests that have been degraded, mangrove restoration Agroforestry, conservation of ecosystems and reduction of deforestation etc. ).
Renewable energy production on a smaller scale or in regions not connected to the grid (solar wind, biomass and so on. ).
Improvements in energy efficiency (energy-saving and better cookstoves).
Better disposal of waste (biogas biochar, biogas. ).

These types of projects are endorsed from the community of scientists, according to the most recent IPCC report, which was released on April 20, 2022 (AR6 WGIII).

It is crucial to help offset projects that provide both environmental and social benefits to people, in line with the UN SDGs. This includes goals like the reduction of poverty in all forms, providing safe drinking water and sanitation to everyone, achieving gender equality and empowerment of all girls and women, and so on. Beyond protecting the environment, offset initiatives should be focused on delivering tangible and quantifiable benefits for the communities within which they operate, and empowering them to take ownership of an environmentally sustainable future.

For instance, EcoAct’s award-winning Sudan Low Smoke Cookstoves project which was the first one to be designed in a conflict zone provides economic and health advantages for Sudanese households, and with a a particular emphasis on empowerment of women.

The Hifadhi-Livelihoods Cleaner Cookstove (financed through The Livelihood Fund and developed in collaboration together with EcoAct) is providing local artisans and project officers on how to oversee the distribution of more efficient and more efficient cook stoves in rural Kenya that have positive effects on communities, families and the environment.

Many carbon offset projects are part of natural-based solutions

Nature-based solutions are described in the International Union for Conservation of Nature (IUCN) as “actions to safeguard sustainable management, conserve, and restore natural or altered ecosystems that tackle societal issues efficiently and flexibly, while offering human wellbeing and biodiversity benefits”.

Solutions based on nature include:

The protection of ecologically healthy and functional ecosystems
Ecosystems that are sustainable in their management
Reconstruction of ecosystems that have been degraded or creation of ecosystems

A report entitled The State of Finance for Nature in the G20 released in January 2022, revealed that the current G20 investments in solutions based on nature is not enough. Nature-based solutions can be a beneficial method of reducing climate impacts and adaptation , and they can offer numerous social and environmental benefits. They are essential to creating a sustainable future as well as helping to ensure a fair transition in the world.