March 26, 2024 | By Catalina & Anteo

By design, carbon offset projects should deliver real and quantifiable emission reductions/removals while delivering co-benefits to the communities and biodiversity.

With tightening greenwashing regulations in the EU and high reputation risks associated with low-quality projects, investing in quality carbon offset credits is critical. The negative press on the carbon market has increased reputational risks and challenged current offsetting practices.

Yet, carbon offsetting can be a credible means for corporations and investors to achieve net-zero objectives. For example, carbon removal offsets can be justified towards science-based targets (SBTs) for the residual emissions.

Note: Carbon removal is not carbon avoidance.

• Carbon removal projects sequester or store carbon already present in the atmosphere, achieved through natural or engineered processes. ARR (Afforestation, Reforestation & Revegetation) exemplifies nature-based activities, while DAC (Direct air capture) and CCS (carbon capture storage) are technology-based CDR (Carbon dioxide removal).

• Carbon avoidance projects prevent activities that release greenhouse gases into the atmosphere but do not capture emissions. Preventing deforestation and replacing fossil-based fuels with renewable energy are examples of avoidance projects.

Several aspects qualify the impact of a carbon removal project and legitimize the buyer’s contribution. Numerous initiatives are working to design and shape a Voluntary Carbon Market with adequate scale and integrity (e.g., Voluntary Carbon Markets Integrity Initiative, VCMI; Integrity Council for the Voluntary Carbon Market, ICVCM; Carbon Credit Quality Initiative, CCQI; International Carbon Reduction and Offset Alliance, ICROA). These considerations include:

1. Demonstrate unique, measurable, verifiable emission reductions: The environmental integrity of a carbon credit is paramount. High-quality carbon credits undergo rigorous measurement, reporting, and verification (MRV) processes to ensure the accuracy of claimed emission reductions. Credits should be independently assessed by a Validation and Verification Body (VVB) and verified under internationally recognized standards such as Gold Standard, Plan Vivo, and Verra, which (1) ensures the project’s measurement of its impact is robust, (2) governs the project’s crediting process, and (3) minimizes the risk of double counting.

2. Ensure additionality: The additionality criteria asks whether the emissions reductions or removals would only have happened with the project. Such project benefits are additional to what would have occurred in a business-as-usual (of baseline) scenario. A project must prove that the mitigation activity is only possible with the revenue of the carbon credits.

3. Ensure permanence: The non-permanence risk refers to the probability that carbon stored or avoided by a project is released back into the atmosphere through natural processes or human activities. The permanence criteria ensure long-term carbon sequestration from the atmosphere to prevent it from being released. The project must put measures in place to mitigate reversal risks. By addressing permanence, investors can ensure a lasting impact on reducing GHG emissions. Recommendation 3 of the UN High-Level Expert Group on Net Zero emphasizes additionality and permanence as minimum criteria for high-quality carbon credit.

4. Contribute to Sustainable Development Goals (SDGs): Beyond carbon removal, carbon projects must address systemic challenges to create social and ecological benefits. Today, many carbon projects report creating jobs (SDG 8), improving gender equality (SDG5), access to education (SDG4), better healthcare outcomes (SDG 3), access to clean energy (SDG 7), and restoring ecosystems (SDG 14 & 15).A project design should promote social equity, economic development, and environmental stewardship. The SDGs with a more robust social impact are a focal point in community-based (e.g., distributing cookstoves) projects. Likewise, including the local community in the design, governance, and benefit-sharing discussions is critical. In contrast, AFOLU (Agriculture, Forest, and Other Land Uses) projects might emphasize the ecological aspects of the SDGs.

Companies integrate sustainable development into their strategy by contributing to highly intersecting SDGs with their operations. One way is to invest in offset projects that align with the organization’s values, as represented in the SDG framework. Informed decisions during project development, reputable carbon standards, and compliance with host country regulations create high-quality carbon credits.

Offsetting done correctly avoids perverse incentives.

The purchase of carbon credits should complement, rather than replace, efforts to transition to low-carbon operations. Companies must prioritize avoiding emissions from fossil fuels and land degradation.

Making informed choices: collaborate with experts.

The GO2 Origination team helps our partners create more impact in their procurement by taking an investment approach through long-term agreements. Our team works closely with project developers and owners in project design, feasibility study, project screening, verification, due diligence, and portfolio management. All the way, we ensure you make informed and impactful investments in carbon markets.