4.1.5

Offsetting and carbon removals

Context

Mitigation and reduction of greenhouse gas emissions must be prioritised as methods of reaching net zero, meaning that carbon offsets should only be considered for emissions that are unfeasible to be eliminated. A net zero claim should only be made when residual emissions are considered unviable to eliminate, and these have been offset via high quality mechanisms. 

The diagram below shows an example reduction and offsetting pathway. Emissions are compensated and/or neutralised while science-based reductions occur, but net zero is not claimed until all feasible reductions have been implemented and residual emissions are neutralised.

Figure 5.1d: Idealized example of progress to net zero, from SBTi, annotated

The concept of paying to fund projects to offset remnant emissions has been long established. However, the merits of doing so have been hotly debated, with concerns raised over both idea that offsetting legitimises continued emissions, and around uncertainty of the efficacy, additionality, and permanence of offsetting projects. More recently, there is ongoing discussion around the relative merits of reducing GHG emissions via projects such as energy efficiency and renewables, versus the need to remove existing carbon from the atmosphere. 

Carbon offsets remain a fluid and rapidly evolving topic, with definitions and standards under an on-going process of review and refinement. As such, for the launch of this roadmap, it has been agreed with the Steering Group that efforts should not be made at this stage to attempt to prescribe the acceptable standard on such a dynamic issue. This sub-section of the Roadmap therefore provides current context, with the expectation that the industry will work to agree its position on offsetting and carbon removals in due course, in part through the BRC Working Group for Pathway 1.

Selecting offsets

Voluntary carbon offset markets remain relatively unregulated in the UK, with HMRC’s internal manual stating that “there are no overarching or compulsory standards or methodologies for creating credits (although there are a number of voluntary standards emerging), and there is no formal requirement to register or retire credits (although some of the voluntary standards do have their own registries).” It appears however that the UK and the world at large is entering a new era of offsetting, with demand for offsets reaching a seven-year high in 2019 as offsets are increasingly integrated into net zero plans. Forecasts for future offset costs per tonne CO2e indicate significant increases as demand (e.g. from airline industry) outstrips supply.

As a result, it is important that offsets are carefully managed to avoid potential risks such as leakage, lack of permanence and lack of additionality. Guidance on high quality offsets recommends that companies looking to offset should ensure that offsets are:

• Real – investment is directed into specific projects where activity results in an absolute net reduction of greenhouse gas emissions;
• Additional – the investment leads to reductions that would not have already occurred without carbon offset purchases;
• Transparent – project details (e.g. type, duration, standards, location) are available and disclosed to the retailer purchasing offset credits;
• Measurable – offset projects lead to reductions that can be quantified following a consistent and transparent methodology;
• Permanent – offsets cannot be reversed by ending of funding or other external impacts (e.g. if trees are planted as offsets but are later deforested and used as bioenergy without carbon capture and storage, the sequestered carbon is re-emitted and the offset is not permanent);
• Valid and verifiable – offsets should be validated and/or verified by an independent third party. Various independent certification schemes exist, such as the Gold Standard and Verified Carbon Standard;
• Synchronous – delivered on similar timescales to baseline emissions scenarios;
• Leakage-minimised – avoiding or accounting for unintended impacts outside of the project boundaries (e.g. preservation or afforestation in one area of forest may increase deforestation in nearby regions due to land scarcity);
• Considerate – aware of potential negative social, environmental or economic impacts of the project. Projects should be designed to provide co-benefits to the local community;
• Enforceable – contractually bound such that companies can ensure offsets take place once agreed upon;
• Registered – registered with an official offset provider, such that offsets are not double-counted;
• Retired – when offsets are purchased via credits, the credits must be retired and can not be further traded if the company is seeking to claim them as part of their offset portfolio.

Finally, when high quality offsets have been purchased and retired, their impact should be recorded separately to any residual emissions, rather than giving a simple net emissions figure. This is to ensure reductions are considered separately to offsets, and to avoid mitigation deterrence.

Compensation and neutralisation

Current SBTi guidance on science-based net zero targets categorises offsets into two forms:

• Compensation: action taken to reduce or avoid emissions of greenhouse gases outside of a company’s value chain, to aid global greenhouse gas emissions mitigation. Common examples of this include financial provision (e.g. purchasing carbon credits, supporting external climate initiatives) or through the use of sold goods that reduce customers’ emissions outside of the products’ direct impact (e.g. fuel-saving tyres, or low temperature detergents).
• Neutralisation (also known as ‘carbon removals’): direct removal of greenhouse gases from the atmosphere, and storage for a period of time long enough to fully neutralise the impacts of the greenhouse gases released. These can take place within or outside of a company’s value chain. Examples include natural methods, like afforestation and agricultural soil management, and engineered methods, like direct air capture or enhanced weathering of minerals.

There is debate around the extent to which companies’ offsetting activities should prioritise carbon removals versus compensation at the current time, especially as many carbon removal technologies are still nascent. This is an issue that should be covered by the BRC Working Group. There is, however, growing recognition that carbon dioxide removals (CDR) may need to become a widespread component of international efforts to reach net zero, due to residual emissions and slow CO₂ mitigation efforts to date.^[20] 

National and international CDR frameworks are still in development. There is limited consensus on the best pathway to invest in and implement these techniques, but retailers can benefit from the guidance of a recent New Climate Institute report on supporting CDR. New Climate recommends limiting CDR measures to those that meet the following criteria:

• First, and most critically, CDR must result in a net overall reduction in atmospheric CO2.
• Second, CDR technologies must store or sequester the captured CO2, rather than use the captured carbon for some purpose such as beverage carbonation, plastic production, cement, enhanced oil recovery (EOR) or synthetic fuels where it would be rereleased.
• Third, a CDR technology must be paired with a storage or sequestration technique that prevents, with an extremely high degree of certainty, future unintentional releases of the captured CO2.

While some CDR projects can be classed as offsets in certain marketplaces, New Climate recommends keeping targets to mitigate, offset, and remove emissions separate. In other words, the hierarchy of mitigating to the greatest possible degree first, and offsetting residual emissions second, should be preserved.

[20] Moving toward Net-Zero Emissions Requires New Alliances for Carbon Dioxide Removal (2020). One Earth.
[21] The Oxford Principles for Net Zero Aligned Carbon Offsetting (2020). University of Oxford.