6.1 Understanding Carbon Offsetting Mechanisms
Although reducing scope 1 and 2 emissions, such as energy, is vital, it is almost impossible to eliminate an organisation's total emissions across the value chain. Therefore, offsetting any remaining carbon liabilities with carbon credits is a typical pathway towards carbon neutrality.
What are Carbon Liabilities?
Simply, a firm’s ‘carbon liabilities’ is synonymous with a company’s ‘CO2e emissions’. It’s coined with financial connotations because, like liabilities in a balance sheet, you would ideally balance ‘carbon liabilities’ with carbon offsets.
What is Carbon Offsetting?
To compensate for the release of GHG emissions, organisations employ carbon offsetting, which involves leveraging environmentally beneficial initiatives such as wind farms or forest regeneration to reduce, remove, or avoid greenhouse gas emissions in the atmosphere.
Carbon credits are generated through these projects. They signify one tonne of CO2e that has been reduced, avoided, or removed.
This entire process is overseen through government and international programs using approved quantification methodologies. In Australia, the Australian Carbon Credit Unit Scheme (ACCU) (formerly known as the Emissions Reduction Fund) primarily manages the generation and exchange of carbon credits.
Conveniently, carbon credits aren’t only obtainable by running a project. You can also sell and purchase credits from other parties identifiable in the Carbon Market Institute’s Carbon Marketplace or the ACCU’s project register. To claim the benefits of a carbon credit, an organisation must obtain and then retire it. When a carbon credit is obtained and retired, it offsets one tonne of CO2e emissions (carbon liabilities) from the organisation.
Therefore, by obtaining and retiring a sufficient number of carbon credits that equates to the organisation's carbon liabilities for a certain period of time, the organisation is claiming reductions from the offset project(s). While it is hard to eliminate an organisation's carbon liabilities completely, carbon offsetting helps reduce its overall impact.
6.2 Exploring Carbon Credits
As mentioned, carbon credits are tradable certificates that represent the reduction, removal, or avoidance of one tonne of carbon dioxide equivalent (CO2e) emissions. They serve as a valuable tool in the fight against climate change by incentivising and financing projects that reduce greenhouse gas emissions.
In practice, carbon credits are generated through environmentally beneficial projects that result in verified emissions reductions. These projects can span various sectors, including renewable energy, forestry and land use, waste management, agriculture, and energy efficiency.
For example, a renewable energy project such as a wind farm generates carbon credits by displacing electricity generated from fossil fuels, thereby reducing emissions. Similarly, afforestation projects that plant trees to sequester carbon from the atmosphere can generate carbon credits based on the amount of carbon dioxide absorbed by the trees.
Carbon credits are quantified and verified using standardised methodologies to ensure the integrity and credibility of the emissions reductions. Independent third-party auditors verify the emissions reductions achieved by each project, providing assurance to buyers and stakeholders.
Key Features of Carbon Credits in Australia:
Australia operates under the Australian Carbon Credit Unit Scheme (ACCU), which is administered by the Clean Energy Regulator. The ACCU scheme provides a framework for generating, trading, and retiring carbon credits in Australia.
Eligible Projects: Under the ACCU scheme, a wide range of projects are eligible for generating carbon credits, including renewable energy generation, reforestation, methane capture from landfills, agricultural emissions reduction, and more.
Carbon Market: The Carbon Market Institute's Carbon Marketplace and the ACCU's project register facilitate the trading of carbon credits in Australia. Organisations can participate in the carbon market to buy and sell carbon credits to offset their carbon emissions.
What is the Difference between Retiring and Cancelling?
It’s essential also to understand the difference between retiring and cancelling a carbon credit. To retire a carbon credit means to apply its offsetting impact against your carbon emissions before rendering the credit no longer tradeable. When you cancel a credit, you similarly dispose of it, but it does not offset any of your emissions. It’s like putting food in the bin without eating it - such a waste!
6.3 Evaluating Offsetting Projects
Key Considerations in Evaluating Offsetting Projects:
Additionality:
Additionality refers to the extent to which a project's emissions reductions are additional to what would have occurred without the project. Emissions reductions are deemed additional when they are a direct result of the existence of a market for offset credits. If these reductions would have taken place regardless, without any opportunity for project owners to trade carbon offset credits, they are considered non-additional. Ensuring additionality is crucial for maintaining the integrity of carbon offset credits. Without additional emissions reductions, relying on purchasing offset credits instead of implementing measures to reduce one's own emissions could exacerbate climate change..
Verification and Certification:
Verify that offsetting projects adhere to recognised standards and methodologies for quantifying and verifying emissions reductions. Certification by reputable third-party organisations provides assurance that the emissions reductions claimed by the project are credible and accurately measured.
Co-benefits:
Consider the co-benefits associated with offsetting projects, such as biodiversity conservation, community development, and socioeconomic improvements. Projects that deliver additional environmental and social benefits alongside emissions reductions can create shared value and contribute to sustainable development goals.
Permanence and Leakage:
Assess the long-term permanence of emissions reductions achieved by offsetting projects to ensure that they result in lasting environmental benefits. Consider the potential for leakage, which occurs when emissions are displaced from one location to another, undermining the effectiveness of the project.
Leakages occur when the impacts of an offset project extend beyond the project's designated carbon accounting boundary. For instance, actions leading to emissions reductions in one location may inadvertently trigger emissions increases elsewhere.
6.4 Standards for Carbon Offsets
Before delving into the specific standards for carbon offsets, it's essential to understand the concept of offset standards themselves. Offset standards are frameworks and guidelines established to ensure the credibility, transparency, and effectiveness of carbon offset projects. These standards provide criteria for assessing and certifying projects that aim to reduce greenhouse gas emissions or remove carbon dioxide from the atmosphere. By adhering to recognised offset standards, projects can demonstrate their environmental integrity and contribute to global efforts to combat climate change. Now, let's explore two prominent offset standards: the Gold Standard and the Verified Carbon Standard (VCS).
The Gold Standard:
The Gold Standard is a leading certification standard for carbon offset projects that prioritise sustainable development and social co-benefits. Projects certified under the Gold Standard undergo rigorous assessment to ensure additionality, environmental integrity, and stakeholder engagement. Examples include renewable energy projects in developing countries that provide access to clean energy, improve livelihoods, and reduce emissions.
Verified Carbon Standard (VCS):
The Verified Carbon Standard is a globally recognised standard for carbon offset projects that adhere to rigorous criteria for quantifying and verifying emissions reductions. Projects certified under VCS include afforestation and reforestation initiatives, energy efficiency projects, and methane capture projects. VCS-certified projects contribute to climate mitigation while delivering co-benefits such as biodiversity conservation and community development.
6.4 Standards for Carbon Offsets
Before delving into the specific standards for carbon offsets, it's essential to understand the concept of offset standards themselves. Offset standards are frameworks and guidelines established to ensure the credibility, transparency, and effectiveness of carbon offset projects. These standards provide criteria for assessing and certifying projects that aim to reduce greenhouse gas emissions or remove carbon dioxide from the atmosphere. By adhering to recognised offset standards, projects can demonstrate their environmental integrity and contribute to global efforts to combat climate change. Now, let's explore two prominent offset standards: the Gold Standard and the Verified Carbon Standard (VCS).
The Gold Standard:
The Gold Standard is a leading certification standard for carbon offset projects that prioritise sustainable development and social co-benefits. Projects certified under the Gold Standard undergo rigorous assessment to ensure additionality, environmental integrity, and stakeholder engagement. Examples include renewable energy projects in developing countries that provide access to clean energy, improve livelihoods, and reduce emissions.
Verified Carbon Standard (VCS):
The Verified Carbon Standard is a globally recognised standard for carbon offset projects that adhere to rigorous criteria for quantifying and verifying emissions reductions. Projects certified under VCS include afforestation and reforestation initiatives, energy efficiency projects, and methane capture projects. VCS-certified projects contribute to climate mitigation while delivering co-benefits such as biodiversity conservation and community development.
