Scope 5 encourages our clients to purchase carbon offsets in the context of a broader carbon pricing scheme. First and foremost, enterprises should continually seek to eliminate or reduce carbon emissions by shifting away from fossil fuels and towards renewables where possible*. A portfolio of carbon offsets should then be employed to offset those enterprise emissions that cannot be eliminated. Microsoft’s Internal Carbon Fee is a great example of a broader carbon pricing scheme that uses carbon offsetting as one of its components.
Building Your Carbon Offset Portfolio
So you’ve reviewed your operations, shifted to renewable electricity through a combination of RECs and renewable PPAs, employed other innovations to reduce fossil fuel use where possible and now you’re ready to offset the balance.
How Much to Offset?
The first step in building your offset portfolio is to determine the size of your portfolio – to do so, it’s necessary to conduct an accurate emissions inventory. Emissions inventories should be comprehensive, transparent and fine grain and should be updated on an ongoing basis. Scope 5 can help your organization maintain the kind of rigorous emissions inventory that should underpin any offset investment portfolio.
Upon conducting your emissions inventory, you will ultimately arrive at a figure in tonnes of CO2e (carbon-dioxide equivalent). One key consideration in conducting an emissions inventory and arriving at this number is the determination of boundaries. What activities do you consider to be within your enterprise boundaries? Traditionally, enterprises start by considering their Scope 1 and Scope 2 emissions – those over which they have more or less direct operational or financial control. However, most enterprises these days have come to the realization that their impacts and opportunities to effect change extend way beyond Scope 1 and Scope 2 emissions, such as business travel, employee commute, material sourcing, and various other value chain categories.
Types of Carbon Offset Projects
Once you’ve arrived at a quantity of emissions to offset, the next step is to decide the type and scope of projects that you’d like to support through your offset purchases. Depending on the amount of offsets you’ll be purchasing and your budget, you may choose to focus on one project (or a small number of projects) or you may choose to diversify across a large number of projects. Thousands of projects are available; they fall under a number of categories:
- Renewable energy – renewable energy projects are often supported through the purchase of RECs as opposed to offsets. This article from the EPA is helpful in understanding the difference between the two. Generally, we recommend that an enterprise purchase RECs to offset its Scope 2 emissions and may or may not choose to offset additional emissions through renewable energy offsets.
- Energy efficiency – whereas renewable energy projects are generally focused on generating carbon-free energy, energy efficiency projects focus on reducing the need for energy. These projects can span many economic sectors – ranging from transportation (and freight in particular) to industrial process projects such as fuel switching to residential projects.
- Fugitive emissions from industrial processes – many industrial processes emit greenhouse gases unrelated to energy use. These gases often have high global warming potentials. Various projects abate these fugitive emissions.
- Methane capture and management – one type of fugitive emission that may or may not be industrial in nature is methane. Methane has a global warming potential that is an order of magnitude greater than carbon and can be a byproduct of agriculture and waste management as well as industrial processes and natural gas mining. As such methane capture projects span a wide variety.
- Forestry, agricultural and land use – these types of projects range from reforestation (or avoiding deforestation) to encouraging agricultural practices that reduce fugitive emissions or sequester emissions in soil. Of all project types, these often support poorer populations.
- Carbon Capture and Storage (CCS) – these projects are generally associated with heavy industry and seek to capture and bury deep within the earth, carbon emitted from coal and other fossil fuel combustion.
Local or Global, Communities Impacted
In deciding which projects to invest in through your offset portfolio, consider the geographic range and the communities impacted by different projects. While it’s valuable for RECs to be co-located, this is not necessarily the case in considering carbon offsets. However, co-location does have the added benefit of supporting local communities.
Some industrial projects may have high impact but may not align with sustainable development goals (SDGs) beyond climate change. Agricultural projects can have an equally high impact while simultaneously supporting SDGs such as no poverty, zero hunger, good health, and well being and others.
The concept of additionality is crucial in considering offsets. To a large degree, as an investor in offsets, you need not evaluate a project for additionality so long as it is verified or certified by a reputable authority (verified projects are required to be additional). Simply put, additionality requires that the project you are offsetting would “not have occurred otherwise.” This phrase is somewhat problematic, as discussed in this article on additionality but the gist of it is that you should invest in projects that actually lead to reductions in emissions over business as usual, as opposed to projects that just move emissions around.
Verification or Certification
The Kyoto Protocol defined the Clean Development Mechanism (CDM) which identifies the criteria that carbon offset projects must meet in order to qualify for Certified Emission Reduction (CER) credits. All mandatory offset programs (such as the European Union Emissions Trading Scheme or the California Air Resources Board Cap and Trade Program) require that offsets meet the requirements of the CDM.
In the US, most enterprises are offsetting voluntarily and as such, do not strictly need to meet the requirements of the CDM, however, in the interest of assuring that your investment is having the intended effect, it is important to invest in verified projects. There are a number of reputable verification authorities. These include, among others:
- Gold Standard
- Verified Carbon Standard
- Climate Action Reserve
- American Carbon Registry
Which Organization to Buy From
There are hundreds of organizations selling voluntary carbon offsets. Examples include, among others:
- The Climate Trust
- Cool Effect
- Native Energy
Depending on the scale and goals of your investment you may choose to go through one or more such offset ‘brokers’ or you may choose to invest directly in projects that you identify. Regardless, be sure that your investment is verified by a reputable verification authority.
No discussion of carbon offsets would be complete without addressing the price of offsets. Offset prices range widely, from less than $1 per tonne to close to $50 per tonne. There are many factors that impact price and price may be but is not necessarily indicative of the quality of an offset. Generally, verified offsets will cost more than non-verified offsets (both because of the cost of monitoring and verifying projects as well as the bar that is set to ensure the project meets the verification requirements).
How Scope 5 Can Help
As noted previously, the first step in putting together your offset portfolio should be conducting an emissions inventory that is comprehensive, transparent, fine grain and up to date. The Scope 5 software service was designed from the ground up with this type of emissions inventory in mind. Investing in an offset portfolio without a thorough understanding of your emissions profile is akin to choosing a financial investment strategy without understanding your income and expense budget.
In the context of carbon offsets, the emissions inventory tells you exactly the quantity of carbon you’ll need to offset. The precise sources of your emissions can be a valuable guide in deciding which specific projects to invest in.
Granularity and Transparency – Allocating Costs
If your offset portfolio is part of a bigger carbon pricing scheme in which offset costs are allocated across business units, then it’s critical that your inventory is granular enough to allocate those costs fairly and transparent enough for each business unit to track their share of the costs. Keeping the inventory current enables those business units to see the impact of their business decisions and behavior changes on emissions so that they can control their costs as they are incurred, rather than ‘looking in the rearview mirror’ once a year when they receive their bill.
Regardless of whether you’re actually passing costs on to business units, you’ll benefit from seeing how emissions are allocated so that you can focus on the high emitters and low hanging fruit.
Communicating Your Work
Most enterprises find it valuable to communicate their offset programs and to share progress with stakeholders. These can range from specific executives to rank and file employees to the public at large. Many of our clients use Scope 5’s charts and dashboards to show the impact of their offsets at a glance. Some use our public or private storyboard functionality to share a combination of narrative, charts, and images (including photos of current projects).
Wherever your organization may be on your carbon offsetting work – whether that’s just starting to think about how to assemble an offset portfolio or deep in the implementation and execution of an internal carbon fee, the Scope 5 software service and consulting team can be a valuable asset to help you in your work.
*Many enterprises are able to make meaningful strides towards renewables through the purchase of RECs (Renewable Energy Certificates) for all electricity consumed. RECs bear many resemblances to carbon offsets with the advantage that generally RECs tend to more directly eliminate carbon emissions rather than offset them.