Episode 33: An Overview of Carbon Offsets: Are They Right for Your Company?
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Many companies have been purchasing carbon offsets to achieve their Net Zero goals. Are carbon offsets right for you and your company? Are carbon offsets actually effective and how should they be used? In this episode, Tad and Julianna answer these questions and discuss decarbonization, science-based targets, and the steps in the decarbonization roadmap. Tad also explains what carbon offsets are, the standards and requirements for carbon offsets, and what the future could look like for carbon offsets.
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what is decarbonization?
“In our past podcasts, we talked a lot about the different emissions that are created. There's scope one, scope two, and scope three. Scope one are the emissions that are emitted from a company that burns fuels. The fuels can be in their manufacturing, facilities, vehicles, or fleets. Scope two are emissions that come from another source. For example, most of us do not have the ability to generate electricity on our properties, so we are connected to the grid and we get electricity over the grid, which usually is created from a power plant. Scope three emissions are the emissions that are created from other entities that we do not control. For example, if you are a company that manufactures something and you buy a lot of parts and materials and bring them into your products, your scope three would be from those suppliers. Because you are ordering materials and parts from them and they are supplying them to you but they are the ones that are actually making them. So their scope one and two emissions are actually your scope three as a manufacturer. The easy way to think about it is scope one is the things we burn, scope two are the things we buy, and scope three are beyond our control. So most companies are understanding their scope one and two emissions. They are looking at fuels, they are looking at the electricity they utilize in their facilities and operations, and they are saying we need to set a strategy to reduce our carbon footprint from those emissions. Decarbonization means they are thinking about the best pathway to get there and reduce those emissions. There are multiple steps in that but these emissions are generated from the operation. The fuel you burn as well as the electricity or other energy sources that you're purchasing, but the companies are responsible for them. They are under their control.”
What Are Science-Based Targets?
“Science-based targets are actually targets that provide a clearly defined pathway for companies to reduce their greenhouse gas emissions. The goal of them is to prevent the worst impacts of climate change and future proof business growth. This is being designed around The Paris Agreement, which is looking to limit global warming to well below 2°C, above pre-industrial levels, and pursuing efforts to actually limit warming to really 1.5°C. A lot of these companies are saying they are making a goal to reduce their carbon footprints and they are going to decarbonize. They are actually making those commitments more formal by setting science-based targets and getting them reviewed and approved by the Science Based Targets initiative (SBTi). This is trying to improve the commitments from just, “Oh, we are going to do this'' to “Actually, we are putting some science and knowledge behind it and we are making decisions on our goals and how we can actually get there.” I am not going to lie, these science-based targets and goals that these companies are setting are pretty lofty. One thing that is important to note is that science-based targets are going to require that the companies look at their scope one and two but if their scope three emissions are more than 40% of their footprints, then they also have to include scope three. It is pretty complicated and there is a lot of work to do there in terms of figuring out how you are going to first estimate your scope three emissions.
Then the next thing you have to do is figure out how you are going to set a strategy with your suppliers and all the different categories that impact your scope three. It is a very solid way for companies to establish goals and we are seeing a lot of companies set science-based targets. In fact, I think there's over 4,000 companies now that have set science-based targets. These companies have a lot of effort and work to do to figure out how they are going to make these goals, which are typically being set for 2040 or 2050.”
What is a Carbon Offset?
“It would be a type of activity in the market that is proven to reduce carbon emissions. Different activities that would be proven would be things like forest management. We know that trees perform photosynthesis, absorb CO2, and give off oxygen. So you would look at how much CO2 is absorbed for a certain area of forest and the way the forest is set up. Is it an old growth forest? Is it new growth? Is it growing? Or is it properly managed? Then you would assign a value to that to say, ‘This particular forest offset is absorbing ‘x’ tons of CO2 per acre.’ That is what would be out there and there are different groups and standards.
Verra has a standard on what carbon offsets are. So just like for renewable energy credits, we know there is a standard called Green-e that looks at a renewable energy credit to make sure it is a legit credit and it gets retired once it is purchased because you can't double count it. Carbon offset would work the same way. There are a number of different groups out there that are selling offsets that are having their own standard and they are trying to retire them. Other proven offsets might be things like clean cooking or forest conservation. You are protecting areas that you know are going to absorb carbon. There could be other things like household solar. We have almost 6kWh of solar on our house and we are doing things to offset our electricity but there are ways that you can look at solar as well for carbon offsets. We are also seeing carbon offsets that are emerging. That would be like mangrove conservation. Mangroves are growing in wetland areas in different parts of the world and they are huge sinks for carbon. Regenerative agriculture is another example.
We also are looking at small forest owners. I have a couple acres and some of it is forest and we are maintaining that. There eventually might be a way to aggregate those small plots to basically get an aggregation of those offsets. There are also experimental ones out there. Carbon capture is a hot topic right now where companies can absorb CO2 out of the atmosphere and do something with it, whether they inject it back into the earth or they put it into a product. There is a company that absorbs CO2 in some way and then they inject it into concrete. We saw another company that was absorbing CO2 out of the atmosphere and making it into soda ash. Another one is biochars where you are basically taking organic materials and heating them up and creating fuel that is made out of renewable fuels instead of fossil fuels. It is complicated and there is no standard or regulation. There is going to be a finite amount of these available.”
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