By @Osnat Avital
Last updated July 9, 2023
The climate community was stirred by Nestlé's announcement last week that it would stop investing in carbon offsets as part of backing away from 'neutral claims' on several of its products, including KitKat and Nespresso coffee. Some, including us at Vert, smirked smugly and rushed to write an "I told you so" post. But we are here to give the full picture, so come dive with us into the rabbit hole of reduction-inset-offset carbon mechanisms.
First, let’s draw the connection between ‘carbon neutral’ claims and carbon offsets. Companies use carbon offsets projects to compensate for their own greenhouse gas emissions and achieve carbon neutrality, which is part of PR strategy, not mandatory regulations. This option, to ‘buy’ your path toward ‘carbon neutrality’ claims, caused carbon offsetting to gain traction as a popular strategy for companies to demonstrate environmental responsibility in recent years. Morgan Stanley research shows that the voluntary carbon-offset market is expected to grow from $2 billion in 2020 to around $250 billion by 2050. On the topic of Morgan, J.P Morgan, announced on total investment of $200M in carbon removal a month ago to compensate its direct operations by 2030, just to clarify how significant these amounts are. It is important to mention that not all offsets credits can be issued for different environmental claims, but we’ll touch on that later. For now, a lot of criticism has developed towards the offset mechanism, which has even led to legislative intervention, even if not directly.
The illusion of offsetting - Carbon offsetting may create an illusion that companies can continue with business-as-usual practices and simply buy their way out of responsibility.
Ultimately, corporations are primarily motivated by cost reduction and profit maximization, making it challenging to expect them to address the underlying cause of the climate crisis - the excessive levels of consumption.
Additionality - Determining the true additionality of offset projects - whether the project would have happened anyway - is complex. Some projects may be driven by factors other than the offset funding, raising questions about their actual climate impact.
Lack of transparency and verification - Although in this article it is expected to refer to the problem arising from the reliability of the mechanism, we believe that this challenge has received professional attention in recent years, and sufficient reliable assessment and verification methodologies have been established. Modern corporations, which invest millions not to mention tens of millions, not to mention hundreds of millions in carbon credits every year, have already learned to closely examine the quality of the credits. However, due to the majority of projects being implemented in distant locations, effective supervision is challenging, not only in terms of verifying the reported data but also in addressing concerns such as workers' rights and other environmental aspects. There isn’t one centralized database specifying the locations of offset projects, only market-specific data available on the location of the credits issuance. By examining data from initiatives like the historic Clean Development Mechanism (CDM), we can draw conclusions regarding the geographical distances between credits’ buyers and the actual project sites.
Taken from here, based on data from: Institute for Global Environmental Strategies (IGES) • Programs of Activities are not included (they represent 15% of CDM activities eligible to carryover credits and 4% of registered activities overall)
Carbon offset projects typically focus on specific activities such as reforestation, renewable energy development, or methane capture. By doing so they actually become a significant player in the preservation of nature.
<aside> 💡 Carbon Removals & Nature Based Solutions Carbon removal, also known as carbon dioxide removal (CDR), refers to methods and technologies that capture and store carbon dioxide from the atmosphere or prevent its release. It includes: Nature-based solutions (NBS), Afforestation and Reforestation, Direct Air Capture (DAC), Bioenergy with Carbon Capture and Storage (BECCS). NBS often play a significant role in carbon offsetting efforts. NBS involve using natural ecosystems, such as forests, wetlands, grasslands, and oceans, to mitigate greenhouse gas emissions and enhance carbon sequestration. Unlike general offsetting project, carbon removals can be included in net-zero targets, and neutrality claims.
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Data on the specific contribution of carbon offsetting through nature-based solutions can vary depending on the source and methodology used for measurement. For carbon capture utilization and storage (CCUS), global funding reached $1.1bn in 2021, according to data from CB Insights. The fact that carbon removals are eligible for ‘carbon neutral’ claims increased the prices of quality removal projects in this past year. Specifically for long term projects. {Some might say that in this particular case, Nestle realized that the total cost of removals is getting highly expensive and it might require them to invest few hundreds millions of $ to meet their commitments now.}
While scientists estimate about 10bn tones of CO2 need to be removed from the atmosphere globally each year by 2050 in order to meet climate goals, government are taking no significant actions to reach this goal. The highest efforts come from the U.S. government funding for carbon removal R&D that grew from almost zero before 2020 to $60 million in 2020, to $90 million in 2021, $129 million in 2022, and reached a record of more than $580 billion. The U.S will spend this capital through grants, technical support and tax credits for start-up companies and investors, after the passage of the federal infrastructure bill and the Inflation Reduction Act. But this check has yet to be cashed, while in the private market significant sums have already been invested, e.g., the big Silicon Valley companies purchased $925 million in carbon removal over the next eight years (till 2030).
The best way analogy we find for the debate over offsetting is to imagine a patient on the brink of a life-threatening heart attack, desperately needing urgent medical attention. However, instead of the doctors focusing on saving their life, they find themselves caught up in a debate about the patient's future dietary choices, endlessly deliberating over the perfect menu to prevent any chance of fats sneaking back in. Likewise, in our battle against climate change, we find ourselves in a similar situation where the urgency of investing in nature-based solutions is overshadowed by discussions of neutrality and greenwashing concerns.