Can we offset our way to net-zero?

If we view them in the context of the “mitigation hierarchy”, offsets are the last port of call for reaching net-zero ​[1]​. Any business striving for net-zero must first prioritize comprehensive and data-driven carbon accounting and reduction strategies. However, for residual emissions which can be hard to abate, offsets can supplement a reduction strategy.  

Afforestation or conservation projects are considered a nature-based offsetting strategy. They work on the principle that trees sequester carbon. Such projects have a critical role in reaching net-zero emissions globally, as ratified by the Paris agreement. However, we cannot view these types of offsets as a failsafe method of offsetting corporate greenhouse gas emissions.  When one tonne of CO2e is released by burning fossil fuels, that carbon is being shifted from a permanent, stable state (underground, geological store) to a more vulnerable state in the terrestrial surface (forests) which is susceptible to being re-released into the atmosphere through many processes including both human and natural factors, so an offset of one tonne is not always equivalent​ [2]​  (see Broekhoff 2022 for an in-depth discussion).  

Therefore, opting for forestry offsets, and especially poor-quality offsets introduces several reputational, regulatory, and financial risks. That is why it is important to understand and assess the challenges forestry projects face.  

Permanence

Permanence is the idea that since releasing carbon dioxide into the atmosphere is permanent, offsets need to permanently sequester the equivalent amount of carbon to be considered ‘net-zero’ emissions.  

Tree planting as an offsetting method is vulnerable to the re-release of the carbon stored by the trees. This carbon re-release could be caused by many factors such as deforestation, failure in tree growth or natural events such as wildfires. Prioritising correct species selection, ongoing care and proactive forest management can maximise the chances of maintaining the stored carbon throughout the tree’s life cycle.  

Even with management and safeguarding, climate–related risks to forests may continue to increase as the frequency of extreme events such as wildfires and droughts rises, including forests generating offsets purchased by large corporations such as BP and Microsoft, which have been affected by wildfires ​[3]​ .  

Buffer mechanisms can to some extent protect carbon offset holders from events like wildfires. For example, offset project developers may hold aside carbon credits to act as “insurance”. These carbon credits can be retired if something were to happen to the forest. However, these buffer pools may not sufficiently capitalise against the risks involved with forestry projects.

One publication last year analysed California’s forest carbon offset program. It reported that wildfires had depleted “one-fifth of the total buffer pool in less than a decade, equivalent to at least 90 percent of the program-wide contribution intended to manage fire risks for 100 years” ​[4, p. 1]​ implying the buffer pool of carbon credits will be insufficient. The outcome of this study raises questions to whether buffer mechanisms may be inadequate to insure against carbon re-release. With no standard or regulatory body to monitor these buffer pools of carbon credits, this may leave carbon offset holders vulnerable.  

Leakage Risks

Another challenge that forestry projects face is known as leakage. Leakage refers to the phenomenon wherein an offsetting project may extend beyond its designated carbon accounting boundaries ​[5]​. For example, conserving or protecting one area of forest may displace deforestation to an area outside the bounds of project. The result of this project would therefore have no real reduction in atmospheric carbon dioxide.  

A high-quality project will consider the effects of leakage and include measures to monitor and mitigate it. Calculating the amount of ‘leaked’ carbon is not an easy task and estimates of leakage should err on the side of caution ​[5]​. Concurrently, a high-quality project by design may monitor and mitigate leakage through close monitoring of activity in zones around the project or including community engagement efforts.  

Additional to the local effects of an offsetting project, there can also be national and international effects. Afforestation and conservation can impact market dynamics causing leakage to occur across national borders. 

Why Does All This Matter?

Companies are under increasing scrutiny regarding claims being considered ‘green washing’ from both regulatory bodies and consumers. The UK advertising Standards Authority is cracking down on sustainability claims such as being ‘net-zero’ or ‘carbon neutral’ where insufficient evidence can be provided ​[6]​ and drawing up the rules governing the use of such terms.   

To insulate against these reputational, and possibly regulatory risks, understanding forestry offsets can help companies make informed decisions. This generates confidence within the company, and by extension to shareholders that reductions strategies are resulting in meaningful emissions reduction.  

Citations

Additional Reading & Sources:

• Additionality, leakage and permanence – Cambridge Centre for Carbon Credits (4C)
• Agroforestry and REDD+ in Peru’s Amazon – Initiative 20×20
• Shades of REDD+ … We Have to Talk About Leakage – Ecosystem Marketplace
• “Wildfires Destroy Almost All Forest Carbon Offsets in 100-year Reserve, Study Says” – Financial Times
• California’s Forest Carbon Offsets Buffer Pool Is Severely Undercapitalized – Frontier In Forest & Global Change
• “UK Watchdog Bans Shell, Repsol and Petronas Greenwashing Ads” – Financial Times