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Business use of offsets risks delaying Net Zero

Voluntary carbon markets aren’t working, but get the rules right and they can make a positive contribution to Net Zero, say the CCC in its latest report.

Businesses are increasingly turning to voluntary carbon offsetting as they aim to reach Net Zero. But recent market growth is premature. Offsets can mask insufficient efforts from firms to cut their own emissions, they often deliver less than claimed, and they may push out other environmental objectives in the rush to capture carbon.

The Climate Change Committee has reviewed the evidence on the impact of voluntary carbon markets and offsetting. Their current shortcomings can be overcome with stronger governance to ensure high-integrity carbon credits and clearer guidance for businesses to encourage them to cut their own emissions first and foremost, before turning to offsets.

Chris Stark, Chief Executive of the Climate Change Committee said:

“Businesses want to do the right thing and it’s heartening to see so many firms aiming for early Net Zero dates. But poor-quality offsets are crowding out high-integrity ones. Businesses face confusion over the right approach to take. There is a clear need for Government to make standards stronger and point businesses towards an approach that prioritises real emissions reduction ahead of offsetting. Those businesses that choose to support the economy-wide transition to Net Zero should get the credit they deserve.”

Many businesses have named ambitious ‘Net Zero’ dates but achieving them through an over-reliance on offsets is undermining the economy-wide transition. The development of a clearer definition of a ‘Net Zero Business’ in the UK will help businesses pursue a strategy that complements the national targets – prioritising action to cut emissions ahead of offsetting.

Given better governance and standards, voluntary carbon markets can help deliver finance and funding to areas that need it. The UK already has some of the leading examples of good governance with the Woodland Carbon Code and the Peatland Code. Using these more widely can direct private investment towards new forestry and peatland restoration – two of the largest policy gaps in the UK Government’s current Net Zero Strategy. These codes can also be further improved to deliver wider improvements in biodiversity.

Globally, voluntary carbon markets can also help to pay for nature recovery or more permanent forms of ‘engineered’ greenhouse gas removal technologies, but prices would need to increase considerably to be effective and it’s unlikely that offsets alone can fill the funding gap.

The global market for voluntary carbon offsets has grown rapidly (up over threefold in 2020-2021 to $2 billion). The Government has an important role in raising standards:

  • Government should provide a clear definition of a ‘Net Zero’ business, which can be used reliably. A business or organisation should only be considered to be Net Zero when it has reduced its emissions as far as possible to be at or close to zero and permanently removed CO2 from the atmosphere to compensate for any remaining emissions. Beginning to reduce emissions and using carbon credits to cover the rest requires another term, such as ‘Offset Zero’ or ‘On the pathway to Net Zero’.
  • Government should use the forthcoming ‘Net Zero transition plan standard’ to require UK businesses to disclose their reliance on carbon credits and improve transparency.
  • Government should continue work to improve existing standards for carbon credits in the UK, and to influence and advocate for stronger global standards.

Ultimately, if voluntary carbon markets are genuinely to complement the transition to Net Zero, businesses must be supported to directly decarbonise their operations and supply chains. The role of a carbon credit should be to support, not discourage the reduction of actual emissions.