Explainer: Carbon insetting vs offsetting

The world is on track for a global temperature rise of 2.7°C by the end of the century. With less than a decade to halve our emissions, the pressure on the public and private sector to lower their greenhouse gas (GHG) emissions is mounting by the day.

Owing to initiatives like the SBTi, which galvanize private sector companies to set science-based emission reduction targets, there has been a significant surge in corporate climate commitments.

Formalization of unifying measures such as the Article 6 of the Paris Agreement, carbon markets present a promising avenue, especially for the hard-to-abate sectors.

Private sector companies are increasingly relying on voluntary offsetting by means of carbon credits to get to carbon-neutral status. For example – company A could offset its unavoidable emissions by purchasing carbon credits from company B that is in the business of, or uses, renewable energy. Company B in exchange would set up a new solar plant or a new wind farm. In this case, B benefits from clean energy and A from its reduced carbon footprint.

Alternatively, company A could pay company C for carrying out reforestation initiatives. In this case, company A has once again offset its emissions in the environment, and in exchange, company C has helped protect biodiversity and create jobs for the indigenous communities that will look after the forests.

However, despite the simple nature of this exchange, some crucial factors such as double-counting and additionality have the potential to reverse the impact of carbon markets from positive to negative. Example: company A pays company B for the offset project (renewable power) and both entities count the emissions reduced in their respective books – this is known as double counting. Similarly, company A pays company C for reforestation initiatives that were slated to happen anyway – this would be considered additionality.

There is, therefore, an urgent need for companies and countries alike to identify high integrity projects that adhere to robust climate methodologies.

While the world grapples with the impending challenge of getting to net-zero by 2050, companies and countries will inevitably incorporate the use of carbon offsets. The battle with soaring temperatures will, however, not be won until organizations start decarbonising their own value chains to include more nature-positive solutions and operations. Put in simple words, carbon ‘insetting’ focuses on doing more good rather than doing less bad within one’s value chain.

As explained by the International Platform for Insetting, with the aim of slashing GHG emissions from one’s own supply chain, insetting is the implementation of nature-based solutions such as reforestation, agroforestry, renewable energy and regenerative agriculture. Some insetting activities also improve the livelihoods of indigenous communities as a result.

For example, a company on its insetting journey would first evaluate its own supply chain to identify where the major chunks of their GHG emissions are embedded. Conventionally, the first and foremost hotspot is often their source of energy – investing in renewable energy technologies such as solar or wind would be an effective solution, therefore.

Ganni, a Denmark-based fashion retail brand, has committed to not work with stage 1-3 suppliers that use coal-generated heat or energy by 2025. It has incorporated circular processes such as recycling fabrics and reducing waste as a result. The company has also adopted virtual software and applications to help with sales and marketing operations, reducing air travel by their sales teams and minimizing their travel emissions footprint.

Moving on to where and how the raw materials are sourced, the place and process are also a locus for optimizing insetting. Nespresso, an operating unit of the Néstle group, has implemented regenerative agriculture as part of their insetting journey. Coffee plantations flourish when grown in shade, so the company has invested in tree planting within the coffee farms and surrounding landscape. Apart from regulating the ecosystem, by storing water, conserving the soil and absorbing carbon, the initiative offers fresh income opportunities to the farmers through the sale of fruits and timber.

Accor, a food and beverage operator, has planted over 7 million trees on 400 farmed land parcels as part of its regenerative agriculture practices. There have been over 10,000 direct beneficiaries of this, including farmers.

To view the need of the hour with an objective lens, there need not be a trade-off between the two – offsetting and insetting. While an important tool, offsetting cannot be considered as a substitute for direct emissions reductions by corporates (for which insetting is instrumental). Inferring from the companies making tangible progress with their insetting activities, the world would be better poised to achieve the climate goal of 1.5°C if companies adopted both routes.