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How Does Corporate Carbon Offsetting Work?

Carbon offset for business is huge current news. Environmental impacts are at the forefront of C-suites across all industries; consequently, companies are seeking out all options to decrease their carbon footprint.

The issue is important the number of net-zero commitments increase and companies will be pressured to keep their commitments.

Carbon offset for businesses is one option you could be contemplating — but you may be unsure about like:

What can carbon offsets do?
Why do businesses employ carbon offset?
What is the cost to operate? Does it really help in moving your business towards being carbon neutrality?

We will explore these questions and many more.

What is Business Carbon Offsetting?

What is the meaning of carbon offsetting in the business world? Carbon offsetting (sometimes called “carbon credits”) is the method that neutralizes the number of carbon dioxide emissions that an individual or company emits in the course of a particular process or during the course of its business. Corporate carbon offset covers the administrative aspect of this.

It’s also gaining momentum; in October of 2020 163 companies of that part of the Fortune Global 500 had publicly committed to meeting climate-related targets and carbon neutrality being the most frequent of these, and cited by companies with 91.

Some carbon offsets are used to comply with regulations; or to fulfill obligations related to emission or environmental performances. Some carbon offset markets are created through the purchase of voluntary carbon credits. This is crucial according to McKinsey observes, not only since carbon credits that are purchased through voluntary purchase boost the amount of carbon offset but also because:

“Voluntary carbon credits channel private funding to climate action projects that otherwise would not be able to get off the ground. They alsoaid in the investment and innovations needed to reduce the costs of advancing technology for tackling climate change.” Additionally, they assist in aiding to “facilitate the transfer of capital for in the Global South, where there is the highest opportunities for economically based, natural emissions reduction projects.”

Business carbon offset is a good idea, as it ticks many boxes and then. However, it’s not always an easy solution, neither is the framework created to help it achieve its goals. Bloomberg estimates that, of the 18 major oil companies with the current net-zero targets, 3.3 billion metric tons of annual emissions would need to be eliminated in order to meet their goals, which is nearly 18 times more than the total number of carbon offsets that will be issued in 2020.

Although your goals may not be as challenging, they could seem equally daunting.

How Do Corporate Carbon Offsetting Function?

If carbon offset is something you are considering for your business it is important to be aware of how it works and what it entails in real life. What is the process for carbon offsets in companies actually function? Can a business actually reduce the carbon emissions of its operations?

Carbon offsetting for businesses (and in fact any carbon offsetting) program operates by assuming that carbon dioxide that is absorbed by the atmosphere will be offset by carbon dioxide released elsewhere.

Based on this idea, businesses can offset carbon with the help of investing into and setting up projects to decrease or store carbon in order to offset the CO2 they generate elsewhere. Carbon credits are which is also used to refer to carbon offset is a way to express this notion of the concept of a quid pro quo in exchange for carbon emissions.

What do these projects look like in actuality? The kinds of projects that could be utilized for carbon offsets in business are:

Tree planting
Forest preservation
Renewable energy sources, like solar farms or wind farms
Projects to improve energy efficiency, such as insulation of the premises of a business or introducing a electric car fleet

What is the reason companies choose to trade carbon credits?

What are the motivations behind corporate carbon offsets? There are many compelling motives:

Increasingly, organizations in all sectors recognize that environmentally-focused strategies are the “right thing to do” as part of a broader ethical and ESG-oriented culture.
They are also subject to increasing pressure from the public to enhance the quality of their ESG performance. 2022 is expected to be the “golden period” of activist investors, with low ESG performance being one of the key requirements to “mark the companies as potential targets” for activists.
This is not all, however, ESG performance is becoming more transparent as disclosure requirements become more stringent and the use of reporting results to evaluate and assess the capabilities of your business as a business, investment supplier or partner.
Imagine that your company produces an enormous amount of carbon. In this scenario corporate carbon offset could be the only viable option to make significant reductions in carbon emissions at least in the short run.

What is the cost to offset carbon?

The shift to a more natural-positive approach could become an option that could be the Holy Grail for many organizations however, in addition to the ethical concerns, businesses still are bound by financial obligations. If you are a CFO or his team the next natural concern is what costs will this incur? How much will companies pay on carbon offsets?

At present, offsets of corporate carbon emissions can cost around $3-5/tCO2e (that is about $3-5 per tonne of carbon dioxide equivalent).

However an article in June 2021 of University College London (UCL) estimates that this will rise to $20-50/tCO2e in 2030 and over $50/tCO2e by 2050, the people responsible for carbon neutralizing projects are appropriately paid and incentivized.

Does Corporate Carbon Offsetting work?

Another important aspect to consider. If the procedure is found as ineffective companies aren’t making any progress with carbon offset. As with all new processes it has received some doubt about carbon offset. However, the evidence that offset emissions can aid in solving but not completely solve the problem that greenhouse gas emissions pose is evident.

The BBC is an British broadcasting and news corporation and broadcaster, says that even though “numerous skeptical people” have suggested that carbon offsets are “ineffective or even illegal” and agrees “they are a completely flawed instrument,” it also concludes that “they definitely can make a difference.”

To determine if carbon offset can be effective, it’s crucial to realize that it’s not an all-purpose solution to climate change. Experts believe it’s an important step in the road to net-zero. No matter how well-intentioned or thorough the strategies of an organization to reduce emissions most businesses will have an environmental footprint that they have to be offset.

While carbon offset for corporate entities alone isn’t enough but it is a crucial component of the solution. Companies no longer have to ask whether they should offset their carbon footprints.

Make the Next Step towards carbon-neutral operations

Climate change is an enormous necessity for everyone -not just to provide reasons to “optics,” or reporting or the balance sheet but for our own survival as a speciesthat businesses must make use of every tool that they have to fight the issue.

While carbon offsetting for businesses isn’t a magic solution for businesses seeking to enhance the quality of their ESG standing, it’s a reliable and tested tool to incorporate into your toolkit and could have a significant impact on the carbon footprint of your business.

Carbon offset for business can result in tangible improvements to your ESG performance when it is part of a systematic approach which focuses on:

Understanding and measuring the drivers of your carbon footprint as a company.
Doing your best to reduce your carbon emissions
In addition to any emissions you can’t reduce by yourself

We hope that this article provided you with an understanding of the principles of carbon offsetting in business and the practical aspects of the implementation of a carbon offset for business strategy.