Carbon accounting tricks recently made the headlines and rightly so.
At a time when the voluntary carbon market is benefiting from major tailwinds, too little attention is given to claims such as net zero, carbon neutral or climate finance. Without clarity on what it means to buy offsets there is a high risk that climate action claims will be subject to growing criticism.
The growing momentum on climate action is exacerbating the issue of double counting between three major carbon accounting systems, namely the Paris Agreement, the voluntary carbon market and corporate greenhouse gas accounting. As companies and governments raise their levels of ambition it will be increasingly difficult to find offsets that are not already accounted for under the Paris Agreement or corporate scope 3 reporting. This means that the voluntary carbon market playground will shrink as fast as businesses and governments raise their ambition unless new claims are proposed for those offsets.
Voluntary offsetting vs the Paris Agreement
Let’s first look at the overlap between the Paris Agreement and the voluntary carbon market. Since January 1 2021, we have been operating under a new global governance for greenhouse gas emissions where the Paris Agreement is the reference framework. Unlike under the Kyoto Protocol era, all countries now have a climate mitigation target. This raises the question of whether the situation where an offset used by a corporate buyer towards its voluntary climate goals and by the host country towards its Paris target is problematic. This issue is often referred to as a double counting or more precisely a double claiming situation.
Double claiming in this context can be problematic if it leads to a decrease in host country ambition or if it undermines the integrity of the offsetting claim. According to a report from New Climate Institute, the net impact of offsetting on global emissions can be undermined by double claiming and could fall to anywhere between no change to an increase in emissions.
Two solutions are proposed to overcome the risk that climate action claims in this context are misrepresented. One is to use so-called ‘corresponding adjustments’ where the host country accounts for offsets by deducting them from their inventory. Whilst appealing on paper, corresponding adjustments are complex to implement and therefore offer little hope for the private sector in the short-term. Another solution is to change the claim made by the corporate buyer from an offsetting claim to a climate finance claim or a contribution claim to the national target. Several market players including the Gold Standard Foundation are making plans to implement these two approaches as a remedy.
An alternative view considers that the voluntary carbon market’s purpose is to accelerate the transition to net zero by closing the financial gap currently holding back action. Proponents of this approach – including ICROA, the International Carbon Reduction and Offset Alliance – therefore argue that double claiming does not undermine the integrity of the offsetting claim and requires no action to prevent it from happening. This alternative approach is the target of criticism from civil society and corporate leaders and is unlikely to create the broad consensus required for the market to grow.
Voluntary offsetting vs corporate scope 3
A similar debate is at play between the voluntary carbon market and corporate greenhouse gas accounting as defined under the Greenhouse Gas Protocol and the Science-Based Targets initiative. Corporate pledges such as Microsoft’s to become carbon negative by 2030 or Nestle’s net zero roadmap are illustrative of a new generation of corporate climate commitments with aggressive Scope 3 emissions reduction targets. As companies ramp-up their efforts to reduce emissions in their supply chains, more attention is being brought to the issue of double claiming between a corporate Scope 3 target and an offset.
Let’s take the example of a coffee producer switching to climate smart agriculture and issuing offsets. Can the purchaser of the low carbon coffee and the carbon offset buyer both claim the same climate impact delivered by the coffee producer?
The response is No because in this case again double claiming undermines the integrity of the offsetting claim. An offset holds the promise of a unique claim to have reduced emissions. This guarantee is clearly compromised in this situation where the same reduction would be claimed towards two different corporate voluntary targets. Voluntary market standards and carbon offset buyers are taking steps to prevent double claiming by requiring evidence on the unicity of the claim associated with the offset.
Looking ahead, consensus on what constitutes robust claims is needed
The way out is through a toolbox approach and mindset. It’s no longer a one size fits all line of action where everyone claims carbon neutrality and everyone achieves it the same way. Instead, instruments to reduce emissions need to be clearly ranked for their environmental integrity and associated with robust claims that provide an accurate representation of the impacts achieved.
Having civil society formulate a consensus on what can and can’t be done with offsets would go a long way in reassuring corporates and citizens that the market is trustworthy. When it comes to showing progress on climate commitments, claims are clearly where the rubber meets the road. We expect to see a lot more focus on claims going forward.