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Trying to be (actually) carbon neutral: Three lessons

Corporations are coming under increasing scrutiny about the quality of the offsets they buy, and so are starting to pay up for high-quality offsets. Read More

(Updated on July 24, 2024)

Image via Shutterstock/Coompia77

Front and center at COP26, carbon markets 2.0 seemed to be finally taking off. Net-zero corporate commitments are fueling demand as firms clamor to offset their hard-to-abate emissions with “high quality” carbon credits. As a result, carbon credit purchases have doubled over the past two years.

It has been touted that we’re at just the beginning of a revamped, high-growth, voluntary carbon credit marketplace — a market that McKinsey estimates will be worth upwards of $50 billion by 2030. Players from across the value chain are vying for a piece of the nascent market — from carbon offset suppliers generating the credits (such as direct air capture firms, reforestation projects) to carbon credit verification bodies and the carbon marketplaces themselves. 

Carbon credits are not new, but the story appears to be changing. There have been millions of credits generated over the past 20 years, but the overall quality has been low. With average prices of less than $5/ton, most climate experts think they do little in our fight against climate change.

In theory, a carbon offset represents one ton of carbon either permanently removed or not emitted into the atmosphere. Thus, carbon offsets come in two types: avoidance and removal offsets. Historical offsets primarily consist of avoidance offsets from renewable energy projects or conservation projects generated years ago, which if companies buy them today, have little to no impact on reducing the concentration of carbon in our atmosphere. Most cheap historical avoidance credits lack additionality — the proof that the action would not have happened without the money from the offset.

Sylvera, a young startup that rates carbon offset quality — like Moody’s in the financial world — found that over half the existing carbon offsets fail to meet minimum quality standards. Similarly, nonprofit CarbonPlan found that about 30 percent of forest carbon offsets were over-credited.

Carbon Markets 2.0: A flight to quality

This new phase of carbon markets 2.0 is different in one key way — this time it’s clear that not all tons are equivalent when it comes to carbon offsets.

Consequently, corporations are coming under increasing scrutiny about the quality of the offsets they buy — and so are starting to pay up for high-quality offsets. While the average price of an offset is still incredibly low $3/ton, companies are showing willingness to pay upwards of $1,000/ton for extremely high-quality offsets.

But what makes an offset “high quality”? Generally, quality offsets have: 

  • Additionality: Carbon would not have been removed or avoided without the offset purchase
  • High permanence: Carbon removed is sequestered for some meaningful number of years
  • Non-leakage: The carbon emissions didn’t just move elsewhere
  • Negativity: Offsets account for the full carbon analysis of the activity, including energy inputs

There has been a recent surge of young carbon removal startups such as Heirloom, Noya and Charm Industrial — all seeing the opportunity to sell their high-quality carbon removal credits to corporate buyers that show an appetite for quality, expensive credits. Buyers such as Stripe, Microsoft, Shopify, Jet Blue and others are showing their willingness to pay significantly more for quality. But will other corporations follow?

How to go carbon neutral, really

My firm went carbon neutral earlier this year, starting with neutralizing all past emissions since our inception. We aimed to purchase high quality offsets that had real climate impact, and do it in the open. That process was quite a journey — trying to figure out what to buy, how to buy it — and a few key lessons came through.

1. Quality is key (and extremely difficult to assess)

Not all offsets are created equal, and corporations looking to fulfill their climate pledge with offsets that have real climate impact need to be able to discern the wheat from the chaff. This judgment is a massive challenge — each type of credit has its own specific hurdles to understanding its quality. For example:

  • How permanent is a reforestation credit, when wildfires across the Western U.S. are burning? 
  • How permanent is carbon that kelp sequesters in the ocean floor when we know less about what happens on the ocean floor than we do about what happens on the surface of mars?
  • How can additionality of a soil carbon credit be proven if the action also increased yields, meaning there was monetary incentive for the farmer to do the action, even without the carbon credit? 

These are hard questions, and the science is still young. Understanding the elements that underpin the quality of each is a truly herculean task. 

One approach is to realize not every firm can be offset quality experts. It’s simply too specific of a skill set for most corporations to have in-house. We don’t have to reinvent the quality indexing wheel each time. Instead, leverage the existing ecosystem of experts whose main jobs are to understand the quality of each offset. My firm looked to CarbonPlan with their simple star rating, to get comfortable with certain offsets to make sure each offset we bought had at least a 3-star rating. 

2. It’s tough to get your hands on high-quality tons

Given the newness of the quality era, even if you want to buy many of these high-quality removal offsets, they are hard to find given limited supply. Most are in the early days of their science, and still need to pass regulatory and R&D hurdles. Others, such as direct air capture, are struggling to scale up as they build out their first commercial facilities.

But the recent corporate initiatives to buy higher-quality credits means demand is skyrocketing simultaneously. While this trend a good thing overall, it can also make it tricky to buy offsets directly, especially if you’re a small firm looking to buy small volumes. Understandably, those suppliers want to prioritize higher volume purchasers.

There are some great new tools on the market to actually make the purchases. We used Patch, as well as Stripe, and even went door-to-door to ask if our favorite suppliers were able to sell us tons directly.

3. Transparency matters 

Far too many corporations with climate pledges refuse to be transparent about what offsets they’re buying. While understandably perhaps reticent to open themselves up to criticism on their offsets’ quality, we think the climate is better served when we buy in the open. We detailed the price and quantity of every ton we bought. Creating a standard of disclosure and transparency will help hold all corporate buyers accountable. 

Parting thoughts

While corporate climate commitments are everywhere, it’s still difficult for buyers to figure out how to get there with offsetting — which credits to purchase, how to assess quality and how to purchase them.

The 2.0 market is still young and developing; as we saw, many elements along the value chain are still being developed. But to make sure the market develops as an effective mechanism of climate impact, we need to insist on transparency in how these climate pledges are being fulfilled.

When a corporation claims it is carbon neutral, we have to know how they got there. How they did their emissions accounting, how they tried to reduce emissions, and what offsets they purchased to fill the gap. We need to ensure the offsets purchased are real and high-quality, so the spend is having real climate impact — not just greenwashing. 

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