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February 24, 2022updated 21 Mar 2022 4:13pm

Offsetting: carbon con or net-zero necessity?

As businesses seek to cut emissions, they’re spending more on offsets. What are the right offsets to use? And what’s the right balance with reductions?

By David Burrows

To offset or not to offset? That is the question packaged food manufacturers are grappling with as they kick-start plans to achieve net-zero carbon emissions – and gain some marketing points along the way.

Some have already ploughed cash into planting trees or providing stoves in a bid to pitch some of their brands as ‘carbon neutral’ (demand for voluntary carbon offsets is “hyperactive” according to some of the schemes). Critics – chief among them Greta Thunberg – scream “greenwash” at the prospect of what they see as corner-cutting, or worse still “a con”.

“On some level, people want to believe in carbon offsetting because it offers to rekindle capitalism’s promise that we can enjoy consumerism without being too concerned about ecological crisis, by delivering a seductive story of power and status in which somebody else cleans up the mess,” wrote Robert Watt from the University of Manchester following a paper he published in Environmental Politics entitled The fantasy of carbon offsetting. “It sounds far-fetched and it is.”

No surprise, then, that a number of companies have eschewed the idea (or at least the term), tightened up their internal policies and say they are focused on schemes to reduce rather than offset their emissions. “To achieve net-zero emissions, we need to reduce emissions as far as possible,” says Benjamin Ware, global head of climate delivery and sustainable sourcing at Nestlé.

The likes of Mars (total emissions 33MtCO2e), Danone (26MtCO2e), Nestlé (113MtCO2e) and Unilever (32MtCO2e) all insist they are prioritising carbon cuts over carbon offsets – kind of. Some are allowing individual brands to pursue carbon neutrality using offsets, which could mislead consumers, according to a new report by Germany-based non-profit NewClimate Institute and Belgium-based NGO Carbon Market Watch. Their ‘corporate climate responsibility monitor’, published earlier this month, offers corporates an early warning to prepare for intense scrutiny of their net-zero plans and, in particular, the balance they strike between reductions and offsets.

What isn’t in doubt is more money than ever is being thrown at offsets. “Carbon credit projects and retailers are struggling to keep up with demand in a hot market,” explains Patrick Maguire, from the US-based Ecosystem Marketplace, which tracks environmental finance, markets and payments for ecosystem services.

Figures Maguire and colleagues compiled in November showed voluntary carbon markets (VCM) were due to hit a record US$1bn in 2021 based on almost 300MtCO2e of carbon credit trades. Gold Standard, one of the leading project accreditation bodies for offsets, says demand increased 28% between 2019 and 2020, and then 43% from 2020 to 2021. Natural Capital Partners, which works with corporations on carbon reductions and offsetting, has witnessed a “doubling or tripling” of demand for carbon credits.

This surge has made campaign groups worried. Choosing the schemes to support, not to mention how to report any savings against net-zero commitments, is also a nightmare that companies are just waking up to.

Dangerous distraction

Nestlé and Unilever were both fighting fires in the week NewClimate Institute and Carbon Market Watch published their new monitor, which encompasses the climate commitments made by 25 major companies (businesses that together represent roughly 5% of global greenhouse gas emissions). The two FMCG giants were in the bottom five, with ‘very low integrity’ commitments to net-zero.

In response, Nestlé told Just Food: “Nestlé’s net-zero climate roadmap has been validated by the Science Based Targets initiative (SBTi). The work that went into it is rigorous and extensive. We have engaged with the NewClimate Institute to explain the data and methodology behind our strategy.

“We welcome scrutiny of our actions and commitments on climate change. However, the NewClimate Institute’s corporate climate responsibility monitor report lacks understanding of our approach and contains significant inaccuracies. Our roadmap is a starting point, and we remain focused on delivering against our public ambitions now and into the future.”

Unilever said: “While we share different perspectives on some elements of this report, we welcome external analysis of our progress and have begun a productive dialogue with the NewClimate Institute to see how we can meaningfully evolve our approach. Unilever has a number of ambitious targets – including two approved by the Science Based Targets Initiative – and we remain on track to achieve them.”

The headline pledges cannot be taken at face value, the authors of the NewClimate Institute / Carbon Market Watch report warned. Companies were accused of “exaggerating their actions” and succumbing to “accounting tricks”. Levels of reductions were nowhere near up to scratch with companies leaning too heavily on offsets.

“We need to focus on approaches that immediately incentivise companies to make deep reductions to their emissions,” co-author Sybrig Smit from the NewClimate Institute tells Just Food. “There is a risk offsetting can distract from this key objective, relieving the pressure on companies to act.”

Businesses argue they are taking action to account for emissions they can’t yet reduce. “The world cannot wait until 2039 to begin the work of investing in nature and protecting tropical forests that, once gone, will be lost forever,” notes Unilever in its Climate Transition Action Plan. Unilever has already launched a EUR1bn “climate and nature fund” that will invest in projects that protect and regenerate forests.

Smit and her co-authors are happy with what they call “climate contributions” but businesses shouldn’t be claiming ownership of the emission reduction outcomes or subtracting associated reductions from their own greenhouse gas inventory or net-zero target. Unilever says where carbon credits are generated from projects supported by the fund they are not counted towards the company’s emission reduction targets. However, individual brands can use the credits to support customer-facing claims of carbon neutrality. Its plan talks of how this helps with “driving preference for our brands”.

Nestlé’s brands can also pursue carbon neutrality to “accelerate action” on climate change. KitKat has targeted 2025 while Nespresso claims it will be carbon neutral by the end of this year, for example. This provides consumers with what Ware calls “climate-smart choices on-shelf in the short to medium term”.

Nestlé has “internal rules” for what percentage of emissions its brands must reduce and then compensate in order to claim carbon-neutral status but doesn’t divulge what these are. This doesn’t wash with the likes of Smit, who suggests “crucial information” on the type of offsets is not being provided by some companies. “We think it is misleading to claim that these brands are carbon neutral,” she adds.

Milk brand in hot water

Using offsets to claim carbon neutrality or ‘climate positivity’ (the term preferred by Unilever) has already landed some brands in hot water. The consumer ombudsman in Sweden is taking dairy giant Arla Foods (total emissions 19MtCO2e) to court over claims its milk is carbon neutral, arguing the assertions give “consumers the wrong picture of a product’s impact.”

Greenpeace is delighted. “Climate compensation is based on the belief we can continue business as usual as long as we, often in the richer part of the world, pay someone else, often in the poorer part of the world, to create ways to reduce emissions, often through conservation or planting of forest,” wrote the NGO’s Sandra Lamborn recently.

Climate claims made by UK brands are now being scrutinised by the country’s Competition and Markets Authority, which has published a new green claims code. The European Green Deal meanwhile states “companies making green claims should substantiate these against a standard methodology to assess their impact on the environment”. In other words: tread very carefully.

Some are. Tom Popple from Natural Capital Partners says pre-2021 only around one five organisations really probed for detailed information on carbon offsets or credits. Many more do so these days. “Twenty years ago when we were founded and we co-founded Icroa [the body that represents carbon reduction and offset providers] it was all about that process to ensure there was that chain of custody, the transparency for credible claims,” he explains.

Brands defend their current approaches. They talk of investment in transparent, high-quality projects that consumers can trust. At the COP26 climate talks in Glasgow, the rules for a new global carbon market were agreed. The new framework, known as Article 6 of the Paris Agreement, offers a centralised system open to the public and private sectors, as well as another that allows countries to trade credits. The agreement wasn’t without controversy but will undoubtedly help further fuel the carbon offsetting market.

Carbon offsets come cheap

Much is also expected of the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), which plans to create more certainty over the value of the credits as well as improve transparency and liquidity in the voluntary carbon market. “We want to see widely adopted international standards that ensure transparency and quality for the projects behind carbon credits, as our priority is to purchase only high-quality carbon credits,” says Ware at Nestlé.

The price of offsets can reportedly be anywhere between $0.02 and $2,000. The average price per tonne for credits from forestry and land-use projects to reduce emissions or remove carbon increased from $4.33 per credit in 2019 to $4.73 last year, according to Ecosystem Marketplace. Prices for credits attached to the supply of clean-burning cookstoves or waste management projects jumped 16% and 42% respectively between 2020 and 2021.

“Whether higher prices will entice new supply to enter the market quickly enough to meet rising demand is still an open question,” says Maguire at Ecosystem Marketplace. “Most carbon projects typically take years to develop.”

Technologies to suck carbon out of the air are some way off. Currently, food manufacturers are honing in on nature-based solutions, like forests and soils, for the removal and storage of carbon dioxide. Smit is again sceptical given storage of the carbon removed cannot be guaranteed and “is unlikely to be permanent” (think of the impact of a fire on a forest or a flood on soils). “We think that some companies are aware of [these] risks and issues,” she explains.

Upset by insetting

Expect there to be much debate in the coming months around ‘insetting’ – the idea of offsetting within a company’s own value chain. Nestlé is keen on the idea and, at a company level, has committed to inset rather than offset any residual emissions that it can’t reduce. However, it wants to see standards that legitimise insetting as a valid carbon compensation approach.

Many big manufacturers have started talking about ‘regenerative farming’ and the benefits this has for soil health and, critically, carbon sequestration (removing carbon dioxide out of the air by storing it as organic carbon in soils). Given that 90%-plus of most food companies’ emissions are Scope 3 and a large chunk of those linked to their ingredients, it’s easy to see why this has become the so-called ‘darling’ of many food businesses’ approaches to net-zero.

Nestlé’s Ware says offsets will “eventually become less necessary as we start delivering low- or even no-emissions ingredients, grown through regenerative methods”.

Danone is another of those investing heavily in – and relying on – such production systems. “We have placed regenerative agriculture at the centre of our net-zero strategy,” says a spokesperson. “By adopting these practices, partner producers reduce their greenhouse gas emissions and improve soil quality while increasing carbon sequestration. It is already showing concrete impact,” the spokesperson adds, with 50% of its emissions reductions in 2020 linked to regenerative agriculture.

Residual emissions remain

How far food manufacturers can shrink their footprints before their reduction options run out is currently impossible to say. Longer-term, the reliance on offsets should diminish as emissions are driven out of the supply chain, particularly at the production level.

But as Arla notes on its website: “[…] we will never be able to reach zero emissions from our milk production. That’s because a large share of milk’s carbon footprint is methane from the cows and nitrous oxide from, primarily, the soil.” Mars had an emissions reduction target of 67% by 2050 but now has a net-zero target for the same date. A new reduction target has yet to be set but any residual emissions will be “neutralised with real, durable, and socially beneficial carbon credits based on removing carbon from the atmosphere”, says a spokesperson.

Under the new Science-Based Targets initiative (SBTi) net-zero standard, emissions from agriculture must be reduced by 80%. Businesses with agriculture at their heart have a “more moderate” mitigation pathway taking into account continuing methane and nitrous oxide emissions that are “difficult to reduce”, says an SBTI spokesperson.

On page 11 of Unilever’s climate tranisition action plan, the Knorr maker says: “We will not seek to meet our emissions reduction targets through the practice of purchasing and retiring carbon credits, known as offsetting.” However, it then adds: “By 2039, and from then onwards, we will ensure that any residual emissions are balanced with carbon removals to achieve and maintain our net zero emissions target.”

Popple at Natural Capital Partners says offsetting is not used in place of actual reductions: climate leaders use offsetting to go beyond reductions today, to address the climate crisis immediately by financing action whilst they reduce over time, he explains. “Net-zero is future, carbon-neutral is today,” he adds.

Fantasy or fantastic?

Indeed, carbon offsets can vacillate between a quick fix (the carbon-neutral claims now) and a last resort (those ‘unavoidable emissions’), according to Watt at the University of Manchester. He interviewed 65 people involved in carbon offset markets for his research and found “many of those involved recognise, at different levels, the gap between the spectacular portrayals of carbon offsetting and its deficiencies in practice”.

As one of his interviewees said: “We always encourage our clients to reduce [emissions] as much as they can, but there comes a point where you can’t reduce any more unless you turn the lights off and turn everything off and go and sit in the darkened corner and shiver, but that’s not realistic.”

McKinsey has estimated the annual global demand for carbon credits could reach 2.0GtCO2e by 2030 and as much as 13GtCO2e by 2050. Voluntary carbon markets could be worth anything between $5bn and $50bn by 2030. That’s a lot of money to splash on fantasy so it will pay to get this right.

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