Everything that’s wrong with carbon offsets and what can we do about it?

ByHindustan Times
Jan 12, 2023 12:28 PM IST

This article has been authored by Ramnath Vaidyanathan, AVP & Head- Environmental Sustainability, Godrej Industries Limited & Associate Companies.

Carbon offsets are not a new idea. They’ve been around since 1900, but a 23-minute John Oliver segment on emissions, offsets and the controversial idea of “greenwashing” brought it back in the glare of the public eye. On the face of it, carbon offsets are well intentioned and a fairly straightforward premise, but there’s more to it than meets the eye.

Carbon offsets are a mitigation strategy and do not address the pertinent issue of absolute CO2 emissions reduction, which should be the primary driver for climate.(AP (Representative Image))
Carbon offsets are a mitigation strategy and do not address the pertinent issue of absolute CO2 emissions reduction, which should be the primary driver for climate.(AP (Representative Image))

If you’ve been overweight all your life, merely working out while continuing to eat recklessly is not going to solve the problem. In fact, reducing consumption is the more important change required. This is exactly how carbon offsets work; while they can aid the war against climate change, they are meaningless unless they are a footnote to absolute emissions reduction. Offsets are easy, but they are unequivocallynot the magic solution.

Human activity has contributed to an average global temperature rise of 1.1 degree since 1850. This figure is expected to rise further if we do not act immediately – not in 5 years, not tomorrow, but today. Actions to prevent this fatal temperature rise will require two measures - primarily, reduce usage of fossil fuels to reduce the generated GHG emissions; and secondly, remove the CO2 already released into the atmosphere through natural and industrial carbon capture methods. In the absence of pure greenfield operations and a fully renewable grid, industries, particularly those with high growth ambitions in developing economies, can at best reduce their emissions through investments in renewable energy and energy efficient technologies but bringing absolute emissions down to zero is pretty much impossible.

This is where carbon offsets will play a role. There are multiple ways in which an industry can offset its carbon emissions – companies can either invest in carbon capture and sequestration themselves or pay someone else to do it i.e. the carbon exchange market and carbon credits. From a direct investment perspective, companies can go one of two ways - industrial carbon capture technologies can help carbon intensive sectors like cement and steel to capture carbon dioxide and Greenhouse Gas (GHG) emissions at source, or nature-based carbon capture which allows low emission sectors to invest in afforestation programs, watersheds or soil carbon storage. For those that can’t do either of the above, the last option is purchasing carbon “credits” representing a certified unit of emission reduction or carbon removal carried out by someone else in a different geographic location.

On the face of it, there’s nothing wrong with the idea of carbon offsets, particularly when companies invest directly in carbon capture or nature-based. First, there is the issue of the principle of emissions abatement - Carbon offsets are a mitigation strategy and do not address the pertinent issue of absolute CO2 emissions reduction, which should be the primary driver for climate. The problem starts when industry starts believing that writing a cheque to buy credits for their carbon emissions solves the problem. Without investments in absolute emissions reduction, the size of the cheque is only going to get bigger. Purchasing carbon credits should be like gap funding – capped and contingent on investments made on absolute reduction technologies. The primary strategy should always be to reduce emissions at the source and then utilise the offset mechanism for reducing irreversible residual emissions. The carbon trading and regulatory market is also fraught with controversy, with questions around its integrity and authenticity. It is fragmented, complex and riddled with inconsistencies causing a general sense of distrust with the system.

There are also moral questions around offsets. Is it okay to emit mindlessly in Toronto and to offset that, conserve a tropical rainforest in Java? Are the rich, developed nations “shifting the burden” on developing countries as a means to stick to environmental parameters?

The integrity of carbon offsets is also determined by its ‘additionality’. Are you investing in projects that would not have come to fruition otherwise? For example - helping poor rural communities shift to cleaner cooking fuel, which possibly would not have happened without external funding, versus conservation activities in and around forests that would occur naturally.

Another technical challenge when resorting to carbon offsets is that there are not enough offsets for CO2 emissions. We are emitting far more CO2 (36 billion tons of CO2) into the atmosphere than can be absorbed by the carbon sinks. Without reducing that number, we will constantly be fighting a losing battle.

Yet another issue is of permanence. For example, say, to offset emissions in California, a company carries out an afforestation project in Rio. There are no guarantees that the forest so built will not be razed down 10 years later for other developmental activities. Furthermore, we would have done more harm to the environment since all the sequestered carbon is now emitted into the atmosphere, in addition to the other emissions. This highlights the importance of regulations and periodic monitoring and validation of projects.

Lastly, there is a challenge with the intermediaries in the form of carbon registries that assist individuals and companies to execute their offsets. These entities are also marred with controversy and ambiguity. Several instances of greenwashing and reusing retired carbon credits have occurred. There is a dire need to regulate these organisations, and authenticate their certificatory powers on a periodic basis. As mentioned at the outset, not all Carbon offsets are bad. If they are transparent, verifiable, validated by a registered, authentic entity, permanent in nature, and adhere to the principle of additionality, they are a good, and invaluable, method to mitigate the emissions.

The Lok Sabha on August 9, 2022 passed the Energy Conservation (Amendment) Bill 2022, a welcome step by the Government. The bill details measures to promote use of non-fossil fuels, carbon trading and markets, bringing commercial & residential buildings under the mandate of using renewable energy sources & penalties for non-compliance. The bill is in alignment to the commitments made by India at 26th UN Climate Change Conference of the Parties (COP26), Glasgow. These measures will further incentivise usage of cleaner fuels and promote the carbon markets in India.

One way to prevent the reliance oncCarbon offsets as a primary mover is to set a cap on the percentage of emissions that can be offset, say 15-20% of their emissions, contingent on investments in green energy and energy efficient technologies. At Godrej, our priority is reducing absolute emissions in line with Science Based Targets (SBTs) by upgrading to energy efficient technologies, using clean energy such as biomass, captive solar, rooftop solar, open access purchase, and cogeneration and green storage over fossil fuels. We have set a target to achieve 70% renewables in our energy mix by 2025, our current share as of June 2022 is 67%. We are also signatories to the EP100 commitment, under which we have committed to double our energy productivity (efficiency) by 2030 as against the 2018 baseline. These targets coupled with the inclusion of a carbon price in our investment decision making help us accelerate the transition to low carbon technologies.

Linking carbon offsets to SBTs will be the best way forward. SBT's standards are the world's first science-based certification of companies' emissions reduction targets in line with the Paris Agreement's goal of keeping planetary warming to 1.5 °C. The targets provide a clear defined pathway for companies to reduce GHG emissions and help prevent the worst impacts of climate change. The SBTs are absolute reduction targets but not net-zero targets and do not allow offsets as part of the calculation of abatement. Hence, companies committing to SBTs have to show absolute reduction in line with the required global standard. Beyond these, companies can then use offsets to achieve their own net zero targets. This forms the basis of our strategy at companies like Godrej which are committed to SBTs and have submitted the reduction targets for validation. More often than not, the discourse around carbon emissions has been too strategic and high level. However, there are simple, easy to execute behavioural changes, policy reforms and technology innovations that can contribute to significant emissions reductions.

The shift in mindset is crucial, rather than viewing emissions by industry as something that needs to be offset, we must willingly embrace shift to cleaner technology and fuels. We must get over the trap of thinking that carbon offsets will offer us a smooth ride to combatting temperature rise alone minus the technological shifts required. In medical science, successful treatment for a disease requires addressing the symptoms but treating the underlying cause. To draw from this analogy, carbon offsets are merely a band aid for the climate change dilemma; buying us time to address the real cause – rising temperatures caused by intensive fossil fuel usage.

All our efforts are in vain if not backed by reductions at source, adopting greener operations, cleaner energy and reduction of fossil fuel usage, legislative measures, lifestyle changes, & preserving the sanctity of ecosystems. The decisions and actions we take now have a significant bearing on the time to come.

This article has been authored by Ramnath Vaidyanathan, AVP & Head- Environmental Sustainability, Godrej Industries Limited & Associate Companies.

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