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Part 1: Why the Current Compensation Model is Failing Us

2023. 06. 21.


Picture of Claire Ellicott

Claire Ellicott

Photo of person walking in forest

Cranking up the Heat

In 2023, wildfires have burned almost 500 thousand hectares of land in Europe and it was estimated to have emitted at least 20 million tonnes of CO2 into the atmosphere. As the global temperatures rise and climate change intensifies droughts, reduces mountain top snow, increases lightning, the longer and angrier these wildfires become. A direct cause of our warming climate is from the greenhouse gases trapped in our atmosphere.

The Paris Agreement states how we can slow global warming to 1.5 degrees and remove the amount of man-made greenhouse gases. However, the lack of monitoring, accounting, and reporting of these greenhouse gases leads to an unclear path of action. When we take responsibility for these emissions the right way (not just being carbon neutral) we can make a real contribution to protecting our planet, but the first step is learning why "Carbon Neutral” is not making the climate impact needed.

Why Compensation Only Is Not Moving Us Forwards

In 1997, the Kyoto Protocol was introduced to cut greenhouse gas emissions and this is where the idea of offsetting through compensation began. The Kyoto Protocol raised concern of how much emissions were being released into our atmosphere, but it implemented a ''Ton for Ton'' mindset for companies, which isn't aligning with the sustainability goals of the Paris Agreement. If we are able to shift from this current thinking of compensating to supporting climate projects that have real impact then we can reach the full potential of climate action.

The Track to “Carbon Neutral” Isn't Enough

The problem with Carbon Neutrality is that this very “neutrality” is hard to define, measure, and prove. This causes delays in climate action and emissions to a truthful “Carbon Neutral” through compensation.

Greenwashing Claims

In the race to “Net Zero” it was more important to claim being Carbon Neutral – turning compensation costs into a PR win. Companies that already describe themselves or their products and services as climate-neutral are increasingly being accused of greenwashing. Greenwashing is the act of companies claiming positive environmental impact on products and/or services, but oftentimes these are empty claims without any credible proof of environmental responsibility. This tactic creates a false impression of sustainability without any substantial commitment to eco-friendly practices. Actions like this are misleading to the companies consumers and are turning back on companies and organisations as they face accusations of “greenwashing” causing customer distrust (eg. FIFA in 2022). The EU Green Claims Directive is outlawing generic climate-related claims based solely on Offset-Credits. Rigorous scientific evidence will now be required to make such claims.

The objective of this regulation is to protect customers from greenwashing, and to incentivise companies to make real reductions combined with investments into high quality carbon projects.

Viewing Carbon Credits as Commodities

A result of the Kyoto Agreement is that instead of making real reductions it was argued that it didn't matter where in the world these emissions were being reduced since everyone emits into the same atmosphere. When companies “outsource” their climate action and don’t take responsibility, but just buy the cheapest credits available - and suppliers also create vast amounts of credits (so they can provide these low prices) - credits can be viewed as commodities (“Race to the bottom”).

What these companies should ask themselves before offsetting emissions: How long will the carbon be sequestered for in this particular project? Does this project enhance biodiversity? Are credits issued for actions that already happened, or is the sequestration happening in the future? Is the project conservative in estimating the counterfactual, so as not to issue too many credits? So, these credits all come with fluctuating prices and levels of quality and climate action. Yet, almost all credits can be accounted for as eligible even if the credit's environmental integrity isn't clear. Standards and regulations are catching up to these issues. Initiatives like the EU CRCF, ICVCM, VCMI, SBTi, GRI among others are demanding more transparent reporting and are regulating the use and particularly the issuance of credits.

Carbon Counting is Unclear

Being “Carbon Neutral” is a claim that many companies like to use. Increased labels claiming neutrality on the tags of the clothes we buy or the labels of our food at the supermarket. How do these companies know if their products really are carbon neutral and how do they determine this number to compensate for?

Calculating a carbon footprint is a highly intricate and often challenging task, especially when it comes to evaluating the environmental impact of various products. Factors such as production methods, transportation, and geographical origin all play a role in determining the overall carbon emissions associated with a product. However, it's important to recognize that these services typically focus on Scopes 1 and 2 of the Greenhouse Gas Protocol, which primarily consider emissions generated within the company's premises. Other crucial elements like cultivation, fertilisation, land use change, transportation, and upstream/downstream emissions (Scope 3) may not be accounted for in these calculations. Failing to account for total greenhouse gases across all scopes can result in compensating less emissions than a company is actually releasing into our atmosphere.

What Now? Summary and Outlook

  • Making false claims about “Carbon Neutrality” often leads to customer distrust

  • Companies need to research where their credits are coming from and not just invest in the cheapest credits available - these credits can make insufficient environmental impact. Emerging quality labels such as EU CRCF and ICVCM are designed to help companies to choose appropriate projects.

  • Carbon counting is unclear and is leading to offsetting the incorrect amount of gases a company is really emitting

In our next blog post we discuss the new approach of a contribution model. Contributing to climate action is focusing on the future, ensuring our planet will thrive and making up for what has already been lost. The contribution model is concerned with advancing climate action with high-quality projects whereas compensation is focused on claiming climate impact like “carbon neutral”.

Go to part two here