In this article:
- What is a carbon offset?
- Examples of carbon offset technology
- Social and economic implications of carbon offset projects
- The future of carbon offsetting
- Enhance your understanding of climate change
Greenhouse gases contribute to global warming by trapping heat in the atmosphere, driving climate change at an alarming rate. The largest source of greenhouse gas emissions in the United States is burning fossil fuels for heat, electricity, and transportation.
Companies in developed economies are increasingly incorporating carbon offsetting as part of their overall corporate sustainability and climate action strategies. In this article, we’ll provide an overview of the ins and outs of carbon offset projects and technologies, explore climate change impacts and funding inequities, and delve into the economic and social implications of carbon offsetting for emerging and developing countries.
What is a carbon offset?
A carbon offset is an internationally recognized credit representing an emission reduction of one metric ton of carbon dioxide in the atmosphere. A carbon footprint is the total amount of greenhouse gases a person or organization generates through direct or indirect emissions.
Carbon offsetting allows companies to reduce their carbon footprint by purchasing credits that fund environmentally friendly projects that help reduce emissions in other areas of the world.
Examples of the types of projects that carbon credits may finance include:
- Nature-based solutions that restore forests, grasslands, and wetlands
- Improvements to household technology for local communities, such as providing clean water filtration systems
- Renewal energy infrastructure to reduce or eliminate reliance on fossil fuels
The role of carbon offsetting in mitigating climate change
To meet the climate change goals outlined in The Paris Agreement, such as limiting global warming to 1.5 degrees by the end of the century, the world must decrease greenhouse gas emissions by 43 percent by 2030.
In recent years, numerous Fortune Global 500 companies have made Net Zero commitments, which involve carbon offsetting and other initiatives to help them reduce their emissions to zero.
Carbon reduction or avoidance projects are designed to prevent greenhouse gases from entering the atmosphere, while removal projects extract carbon dioxide from the air. For example, some carbon is sequestered (or stored) in soil, so a land stabilization project that reduces flooding and erosion would be considered a carbon reduction initiative.
Companies mustn’t rely solely on purchasing carbon credits to reduce their climate footprint. It’s also critical to employ internal strategies to reduce emissions and ensure that their associated manufacturing and supply chain vendors operate sustainably.
It is also essential to verify that carbon offset projects are certified by a third party to ensure they meet specific criteria for net positive emissions removal and permanent emissions reduction and that they don’t result in the production of greenhouse gases elsewhere.
Examples of carbon offset technology
Various methods can be employed to help offset the carbon footprint of organizations, communities, cities, and countries.
Carbon capture and storage (CCS)
Carbon capture and storage, or CCS, refers to trapping and storing carbon dioxide emissions from coal and natural gas power plants and steel and cement factories. The carbon is then compressed and transported by pipeline or shipped to a site designated for permanent storage.
Carbon emissions can be injected into underground rock formations such as abandoned oil and gas reservoirs or saline aquifers like the Citronelle Project site in Alabama. One controversial aspect of CCS is that it fails to provide co-benefits to surrounding communities or regions.
Afforestation and reforestation
Afforestation and reforestation promote sustainable land use, contribute to carbon sequestration by preventing the release of carbon dioxide in the atmosphere, and support biodiversity by providing habitats for plants and animals.
Afforestation involves planting new forests in barren or degraded lands such as grasslands, farmlands, or dry regions that have not previously had forest cover. Reforestation refers to replanting trees in regions that have experienced deforestation or forest degradation due to natural disasters, logging, or other human actions.
Green building
Green building comprises sustainable strategies to considerably reduce the carbon footprint of buildings and the people who live in them. Considerations for green building include location, materials, design, construction, operation, maintenance, and eventual recycling and deconstruction while prioritizing energy, water efficiency, and indoor air quality.
High-performing green buildings and communities help reduce waste, pollution, and ecological degradation and support occupant health. LEED (Leadership in Energy and Environmental Design) certification provides guidelines for creating green buildings with social, environmental, and health benefits.
Sustainable agriculture and carbon farming
Sustainable agriculture integrates environmentally friendly farming practices, economic viability, and social and economic equity to create green food systems. Farmers use methods to minimize water use, pollution, and greenhouse gas emissions. Consumers interested in sustainability can choose foods grown using eco-friendly methods that promote worker well-being and bolster local economies.
Carbon farming is prevalent in organic and sustainable agriculture, focusing specifically on food production practices that help sequester carbon and improve soil health. Examples include replacing the heavy use of chemical fertilizers with integrated nutrient management and precision farming, planting cover crops during off-seasons rather than leaving the land bare and replacing monocultures with high-diversity crop rotations.
Waste-to-energy conversion
Waste-to-energy conversion involves taking municipal solid waste (MSW), or garbage, and using it to produce energy. Burning this waste also reduces the amount of material that would otherwise be buried in landfills. MSW may include:
- Biomass or biogenic materials, such as paper, food waste, wood, grass, or plant and animal products
- Non-biomass combustibles, such as plastics and other synthetics
- Non-combustibles, like metals and glass
Waste-to-energy plants typically burn MSW and use the heat from the fire to create steam for electricity or to heat buildings. In 2021, 64 power plants in the US generated approximately 13.6 billion kilowatt-hours of electricity. Large landfills can also produce electricity using the methane gas emitted by decomposing biomass.
Social and economic implications of carbon offset projects
Social and economic inequities undoubtedly worsen the impacts of climate change. A Stanford University study found that global warming and rising greenhouse gas emissions have boosted economic inequality since the 1960s, enriching cool countries such as Sweden and Norway while slowing economic growth in warm countries like India and Nigeria.
According to the US Global Leadership Commission (USGLC), climate change is driving instability in emerging countries and markets, including:
- Conflict, fragility, and displacement: In Northwest Africa, environmental degradation and extreme weather are displacing people from their homes and providing recruitment opportunities for terrorist groups like Al Qaeda.
- Health: Rising temperatures could increase exposure to deadly infectious diseases spread by mosquitoes, ticks, and fleas, such as chikungunya, dengue, and Zika.
- Food and water scarcity: Severe food insecurity threatens more than half of the people in developing countries who live in rural areas dependent on agriculture and highly susceptible to rising temperatures and decreased biodiversity.
- Economic development: Extreme weather and other effects of climate change could push millions of people below the poverty line. Major commercial ports in developing countries, including Guangzhou, Mumbai, and Rio de Janeiro, face being overtaken by rising sea levels.
Funding inequities in emerging markets and developing economies
According to the International Monetary Fund (IMF), emerging markets and developing economies, which currently account for approximately two-thirds of greenhouse gas emissions, will require trillions in investments to meet net-zero emissions by 2050. The IMF predicts that the private sector must supply about 80 percent of this investment (or 90 percent if China is included).
Although China and larger emerging economies have sufficient domestic financial resources, other countries lack private finance opportunities and the investment-grade credit ratings required by international investors from developed countries.
Additionally, many emerging and developing countries are still highly dependent on coal power, the single largest source of greenhouse emissions, and phasing it out and replacing it with renewable energy sources is a logistical and financial challenge.
Public-private funding partnerships in the developed world
Fortunately, stakeholders, including the private sector, multilateral institutions, foundations, and international non-government organizations (NGOs), are collaborating to provide fund initiatives to help reduce carbon footprints in developing countries.
Along with institutions like the World Bank and the United Nations, investors are partnering with local, regional, and national governments to develop more climate-resilient communities and support sustainable economic growth. Examples of these collaborations include:
- The Green Climate Fund: A partnership of over 190 countries focused on helping developing nations mitigate and combat climate change. The fund has helped build resistance for an estimated 350 million people worldwide.
- The Bill and Melinda Gates Foundation: A nonprofit providing grants to support climate initiatives such as enhancing agricultural productivity, crop diversity and sustainability in areas experiencing flooding and extreme droughts.
- CARE: One of many NGOs focused on addressing the disproportionate impact of climate change on vulnerable populations. It has highlighted the implications for smallholder farmers (almost 50 percent of which are women) and worked to change laws that limit women from owning land and property, which impede them from feeding their families in the face of escalating droughts.
- The Rockefeller Foundation: This climate and resilience initiative focuses on market-changing opportunities that boost climate and resilience capital flows for projects and solutions that improve the lives of vulnerable groups.
Carbon offsetting projects with social and economic co-benefits
In its 2030 Agenda for Sustainable Development, the United Nations outlined 17 Sustainable Development Goals, focused on ending poverty, reducing inequality, improving health and education, and driving economic growth while fighting climate change and working to preserve the environment.
Organizations like Climate Impact Partners work with companies on carbon offsetting projects to deliver health and livelihood solutions offering economic, health and social co-benefits, in addition to reducing emissions, supporting renewable energy, and implementing nature-based solutions.
Examples of initiatives that align with UN Sustainable Development Goals and benefit communities in emerging and developing countries include:
- Providing affordable clean water filters to families and schools in Kenya to eliminate the need to boil water, while educating people on the health implications of consistently washing hands and produce
- Supplying efficient cookstoves and water filters in households in Guatemala to reduce fuel consumption and emissions by over 50 percent and improve indoor air quality by lessening smoke generated when cooking
- Bringing reliable solar power and water heating systems to India to replace kerosene or electricity, reducing bills by 50 percent, and providing light after the sun sets to allow children to study and businesses to operate
Potential negative impacts for local and indigenous communities
Although the benefits of carbon offset projects are clear, it’s essential to understand the negative impacts that can arise when large corporations invest carbon credits in developing countries.
According to a report by Carbon Brief, the top global corporate users of carbon credits are Shell, Chevron, and The Volkswagen Group. After analyzing the world’s top 50 companies with net-zero targets, Carbon Brief found that only 8 percent of their carbon offsets were implemented in projects that removed carbon dioxide from the atmosphere.
Forty-one of the companies analyzed are based in developed countries, with nearly all the rest found in China. But 35.2m of the 37.8m credits were used for projects in developing countries—including Indonesia, China, and Colombia in particular.
Examples of harm to local communities from these projects include claims of community displacement and exaggerated emissions cuts in Peru. Additionally, Carbon Brief found allegations that Indigenous ways of life have been harmed in Kenya, and the state isn’t benefiting from soil offset projects in Zimbabwe.
Another Carbon Brief analysis of reported abuse in carbon-offset projects found:
- 72 percent of reports examined included evidence of harm to Indigenous people and local communities
- 43 percent of the reports included evidence of overstating the ability of carbon offset projects to reduce emissions
- Indigenous people have been forcibly removed from their land due to carbon offsetting in Kenya, the Republic of Congo, DRC, Brazil, Columbia, Peru, Malaysia, and Indonesia
- Locations that described the most damaging impacts of carbon offsets were Latin America, Africa, Asia, Australia, and New Zealand
As such, when companies invest in global carbon offset projects, it's critical to ensure that there is significant oversight in place to ensure that the environmental benefits don’t come at the expense of the rights of local and Indigenous people.
The future of carbon offsetting
According to predictions from Deloitte Insights, carbon offsets will become increasingly relevant in daily consumer purchase decisions and could reach nearly $100 billion in developed economies by 2030.
This carbon-trading market could tap into a demand for highly customized and localized actions (and products) that embrace sustainability and help mitigate climate change, as consumers embrace the ability to choose carbon offset projects that are meaningful to them.
Deloitte predicts that the transportation, food and entertainment sectors could easily incorporate carbon offsets into their offerings. Carbon credits are already becoming more common in the travel and tourism industry, with over 50 global airlines offering an offsetting opportunity to customers.
With the development of application programming interface (API) software that can link carbon credits to web and mobile platforms, businesses can embed a widget that allows consumers to calculate the emissions of an order and offset it. Accordingly, if the $23 trillion global retail industry incorporates offsetting into its payment platforms, it could significantly impact climate change mitigation around the globe.
Enhance your understanding of climate change
In the 4-course Certificate in Climate Change at Penn LPS Online, you’ll learn essential atmospheric and ocean dynamics to understand the natural and human drivers of climate change.
As you reconstruct the history of climate changes and analyze long-term natural climate variability on a global and regional level, you’ll understand how to use natural variance as a benchmark against which to assess human impacts and future environmental change.
Ready to get started?
If you haven’t already, apply to Penn LPS Online today and register for the Certificate in Climate Change, or view our course guide to learn more about what’s available
