Mathematics of Carbon offsetting market - warning danger ahead!!!

CO2 is the only GHG that can be captured back by natural mechanisms like trees, peat-land, mangroves etc. and through different decarbonisation methods, the technology provides. For simplicity and transparent accounting, you may agree that if an entity emits CO2, then the part of its carbon footprint due to CO2 should be offset (of course last resort) by the carbon credits originating from CO2 capturing and not for methane avoidance or other GHG avoidance. Now any CO2 avoidance can be seen as a credit but its integrity becomes questionable. How much would have been emitted but is avoided - is a subjective and vague matter. A more transparent way could be monitoring CO2 emissions at every entity level and each entity needs to aspire for an individual net zero. CO2 avoidance is not a quality carbon credit. In this article, we are not discussing carbon footprint due to methane and other GHGs as the focus is on CO2 which is the only GHS that can be captured back through natural means or through decarbonisation.

Now to understand how the carbon offsetting mechanism can impact the planet’s net-zero ambition, let us examine the equation below:

So we see that the CO2 emissions happening today are more than what is being absorbed already. These excess CO2 emissions add to the carbon content in the atmosphere. However, our ambition is to reduce net carbon emissions to zero, which is called net-zero. At the rate at which we are exhausting the carbon budget, we have less than a decade before the global temperature exceeds 1.5 degrees centigrade. There are many unknown unknowns factored into this estimate. Hence the pace to achieve net-zero is crucial for humanity’s survival. Proof of this is the frequency and intensity of extreme climate events happening today already. If these extreme weather events are unacceptable to us, the current trajectory of emissions should be unacceptable too.

In other words, if these forest fires, floods, hurricanes, heatwaves and droughts are not acceptable to us, how can we accept current levels of emissions that are inevitably going to cause more intense and more frequent such events?

One of the ways to tackle the carbon problem is to mitigate it through carbon offsetting when further reduction in emissions is not feasible.

To me, Carbon offsetting wrt CO2 means the amount of CO2 emitted is captured back through deliberate mechanisms. These could be nature-based or de-carbonisation using technological solutions.

Now there are other GHGs emitted also and to me offsetting of those gases needs to be considered separately. Carbon offsetting is of interest to organisations with significant CO2 emissions, and when any further reduction in emissions is not possible in the meantime. To achieve a zero carbon footprint for themselves, they choose to offset their remainder emissions by paying others who are engaged in projects that capture carbon. Hence they achieve a net-zero carbon footprint for themselves. This is of interest to consumers also who are using resources that have high CO2 emissions ( eg air travel). They want to use carbon offsetting to arrive at a zero carbon footprint for their use of the resources.

Now the CO2 that is offset by other projects for the organisation may be perceived to be justified and accounted towards the organisation's carbon footprint calculation. But are they really making any change in the total CO2 capturing capacity on this planet? If not, how can they be considered as offsetting any organisation's emissions? Simply by paying someone who is protecting the existing trees, peatland, or mangroves, you do not increase carbon-capturing power. Thus you cannot claim that your emissions are being really offset. Those existing natural mechanisms are anyway accounted for calculations towards the overall net-zero progress of today's entire planet. They cannot be considered for the organisation's carbon footprint calculations again.

The danger is if everyone continues this way and pays someone else who are preserving existing trees or peatland and claim to be offsetting the organisation's carbon footprint, then there is no increase in the overall carbon capturing capacity of the planet.

In the absence of any increase in the overall capacity, there is no effective offsetting happening and no progress made towards the net-zero ambition for the planet. Yet, the organisations would claim to be carbon neutral. This would be misleading and would defeat the whole purpose.

A true offset means you have paid towards increasing the CO2 capturing capacity of this planet by the same amount as you are emitting. Then it is a valid offset and adds to the progress towards net zero ambition for the planet.

As organisations, one by one, will achieve their zero carbon footprint, it will truly mean that the overall net emissions of the planet is falling and taking us closer to the net-zero state. If not done so, it is a dangerous proposition and it can lead to further damage than any benefit.

Having said so, do we still need to raise funds today to pay those preserving trees or peatland or mangroves and not increasing them i.e simply attaining a stable state? Of course, yes, and that must be the first priority when addressing and maintaining the balance in nature and not letting the existing CO2 capturing capacity fall.

Now, you may agree that the reasons behind the loss of the natural resources have been a lack of livelihoods for the people living in those areas. Paying them and boosting an economy that is based on these natural resources, in a harmonious way, is the first priority for all.

This economy will then strengthen the base of the pyramid that would be able to support the top, which is always narrow yet has access to most of the resources and is the power holder. Without a strong and thriving base, there cannot be a top. So, coming back to the carbon offsetting market that has the funds, how should it be designed so that it allows us to progress towards net-zero ambition and not act against it?

In my opinion, we need to split this carbon market into one that pays to protect and preserve the current pool of natural carbon-capturing mechanisms. Then, there needs to be another carbon offset market that accurately calculates how much carbon offset will come in the future by increasing the capacity of these resources. An agreeable formula needs to be arrived at to calculate how much CO2 can be considered offset by paying for the increase of these new resources. Any increase in the CO2 capturing capacity will truly count towards carbon offset. When done so, we will be making a constant positive gain and progress towards net-zero for the planet.

So we have to find ways to stop any loss of trees today standing on this planet or the mangroves, peatlands or other mechanisms on priority. However, we cannot account these towards any increase in carbon-capturing power. Hence cannot be considered a true offset for calculating an organisation’s carbon footprint. Yet, preservation should be the first line of action.

So payments towards preservation of these natural carbon-capturing resources should be considered CER activity (Corporate Environment Responsibility, part of ESG metrics) without any actual offset gained for their organisations.

This CER activity needs to link to carbon by simply calculating the past damages already done by the entities and the ongoing emissions they are making that are not truly offset as calculated by the first part of the carbon offset market discussed above. The bigger their footprint had been in the past and continues to be, the bigger would be their obligation today. Again, a formula needs to arrive at how big their footprint has been or continues to be and how big their obligation ought to be considered responsible businesses.

A Corporate Carbon Rating (CCR) upon audit of businesses that includes this aspect will be a good way to inform consumers about the organisation whose products they are consuming.

When done this way, we would be avoiding ambiguity and indeed increase our carbon capturing capacity constantly. This increased capacity will be used for offsetting the corporate's residual emissions. Thus Carbon offsetting will not act against the net-zero ambition but instead take us closer to it.

Now you may argue, what if organisations chose to pay towards increasing the CO2-capturing mechanisms because that would account for their net-zero carbon footprint? Then who pays for the preservation of existing CO2-capturing resources? It has to be recognised that creating new resources for carbon-capturing will take time. Until the new resources are ready, organisations need to pay for the preservation in the meantime. Once the new resources are ready, they might still need to pay as part of their CER to offset the damages done in the past and the portion of their emissions not offset yet.

Our planet needs to heal, and when equitable responsibilities are shared, this massive work is achievable.

Now to reward those who will act responsibly and put others who will not, in a position of disadvantage, a Corporate Carbon Rating (CCR) needs to be awarded to businesses upon audit. It needs to consider their participation in both - payments made as part of their Corporate Environment Responsibility (CER) and their true carbon footprint as described above. A comprehensive rating definition needs to be arrived at.

Bottom-line is to pay those preserving the natural resources fairly, and the carbon offsetting market needs to take us closer to net-zero ambition and not act against it.