Carbon offsetting is a mechanism used by a company to offset the carbon emissions it produces and reduce its carbon footprint. This carbon offsetting is done by financing projects that either reduce greenhouse gas emissions or absorb them from the atmosphere. A company can purchase carbon credits from international intermediaries and online platforms, where a carbon credit is equivalent to one metric ton of reduced or captured carbon dioxide (CO2) from the project it finances through this mechanism.
There are two ways for a company to participate in the carbon market. The first is related to the carbon tax or the emissions trading scheme and is considered a compliance market. The second option is voluntary, i.e., some companies are not obliged to enter such a process but choose to participate voluntarily for being responsible for their emissions and increase their value to suppliers.
Below we will list some types of projects related to carbon offsetting.
Forest Restoration & Tree Planting
Wetland - peatland restoration
Waste-to-energy conversion
Community projects
Let's use some examples and look at how carbon offsetting is implemented.
In the first case, a company can earn carbon credits if it finances projects related to tree planting. Growing trees convert carbon dioxide (CO2) into fixed carbon, which can be stored in their trunks and roots. Since CO2 is taken up from the atmosphere, the company can balance this amount with the equivalent amount of CO2 it releases into the atmosphere.
Another case is the restoration of peatlands when in a degraded state (low water quality, vegetation removal, soil erosion) releases large amounts of CO2. Projects related to peatland restoration help prevent the release of greenhouse gas emissions (CO2, CH4), generate carbon credits, and therefore offset an organization's emissions.
A final case concerns projects carried out in small communities, usually in developing countries, and related to their overall development and sustainability. Large corporations fund initiatives that give these regions access to energy-efficient technologies for cooking, transportation, and construction practices. These new green technologies will help communities overcome old and environmentally damaging methods.
With the carbon offsetting mechanism, a company can achieve part of its goal of a carbon neutral zero balance by 2050. But are there drawbacks in this solution?
These are some examples for a company to achieve part of its goal of carbon zero by 2050. Therefore, alongside reducing its emissions to the atmosphere, a company can offset and be considered carbon-neutral by financing the above-mentioned programs.
But are there drawbacks in this approach?
There is great difficulty and uncertainty in calculating the amount of carbon that is absorbed from the atmosphere or reduced throughout these projects. So, it is not clear whether there is an accurate offset of a specific amount of carbon from a company's emissions. However, some new technologies and methods are increasingly improving and making these measurements more accurate.
It is reasonable to assume that it will take many years (likely after 2050) for tree-planting projects to capture the amount of CO2 promised by a carbon offset scheme. To offset a sizable portion of carbon emissions, a large number of trees must be planted and preserved.
Many projects funded for carbon offsets have failed to deliver the desired results, either due to program failure from inadequate protection and conservation of the new forests or the restored wetlands, later deforestation of these forests, and termination of the program for political and economic reasons. Either due to natural factors such as droughts, fires, and tree diseases.
There is no specific framework or legislation addressing carbon credits and proposing quality standards for offset projects. Without standardization, the offset market remains highly unclear. The Science-Based Tentative Targets Initiative (SBTi) is developing such standards, so that offset products are aligned with the net zero carbon target framework.
Companies that rely solely on burning fossil fuels often have no emission reduction action other than purchasing carbon credits and financing projects. That can lead to cases of greenwashing. This widens the gap between the rich few who emit the most greenhouse gases and continue to do so and the many people in the less developed countries. Yes, all these programs are being implemented in their countries, but they are also suffering the various negative effects of climate change, such as natural disasters and inhospitable climatic conditions.
Carbon offsetting requires a change of mindset. Priority should be given by businesses to measures relating to their own activities by adopting innovative technologies and using renewable energy sources, and then to measures in areas outside their own operating environment.
Of course, the solution is not to ban such programs but to a change of mindset. Businesses must prioritize the reduction of their carbon footprint through actions and process changes within their own business. To begin with, they must invest in innovative technologies that involve the direct removal of CO2 from the atmosphere in all their activities and throughout their supply chain. They could then replace all conventional energy sources with renewable sources and focus on the energy efficiency of their equipment and facilities. And as a last solution, they should look at carbon sequestration through projects implemented in areas outside their areas of operation.
In E-ON Integration, in the course of increasing our applications, we closely monitor developments and new technologies related to projects and actions to reduce greenhouse gas emissions. This information, which usually comes from external databases, is combined with a company's internal data, and through the methodologies, we have developed in our cloud tools, the company’s risks, opportunities, and other performance indicators resulting from the climate crisis can be assessed. All information related to the amount of greenhouse gas emissions, reduction actions, and targets of each company is presented clearly and interactively. By doing this, the interested party has all the necessary knowledge on its sustainability to move forward, develop its strategy and accomplish its goals.