Offsetting options

Is carbon offsetting still a viable option for businesses to achieve net zero? Sally Phillips, Director of Corporate and Strategic at npower Business Solutions explores the options

In its recent ‘Progress Report to Government’, the Climate Change Committee (CCC) stated that the UK was on track to miss many of its key targets, concluding that policy is not matching ambition. This comes at a time of high uncertainty.

In our latest Business Energy Tracker report, energy was named as the top risk businesses are facing for the second year in a row, and it is now a board-level issue for more than 90 per cent of the large organisations surveyed.

One of the tactics to hit their sustainability goals that many companies are turning to is carbon offset purchasing. However, there are concerns about the actual value provided by carbon offsets and the legitimacy of claims made by companies when using them, with many offset schemes facing criticism for “greenwashing” due to poor management or inflated claims.

COSTS AND TRANSPARENCY OF OFFSETTING

Each carbon credit equates to one metric ton of carbon that’s either been avoided or removed from the atmosphere via initiatives like tree planting or funding renewable energy projects in developing nations. These efforts are then used to offset activities that companies can’t yet decarbonise, such as heating processes requiring natural gas.

According to PwC, companies within the FTSE 350 spent £38 million on voluntary carbon offsets in 2022. That said, based on current pricing models, Bloomberg predicts that the same volume of offsets will cost £135 million by 2030 – an increase of 256 per cent. This trend is due to supply not keeping pace with increasing demand and a shift to more robust programmes that cost more to operate.

CALLS FOR POLICY REFORM

Growing concerns about the impact environmental obligations and reporting have on businesses led to recommendations for the government to review policy incentives in decarbonisation, including via the tax system and capital allowances or through loans and grants to back businesses and their net zero contribution.

For carbon offsetting, doubts surrounding carbon offset authenticity have also prompted calls for guidance, regulation, and standards to increase transparency and credibility in the market. Indeed, one of the CCC’s priority recommendations is for the government to publish guidance for business on what activities can be ‘offset’ and when, requiring businesses to disclose why carbon credits are used rather than direct emissions reduction measures.

To address concerns and provide more clarity and integrity in the market, the Integrity Council for the Voluntary Carbon Market has published the Core Carbon Principals and Assessment Framework. This framework sets out requirements for extensive and accessible disclosure by market participants to ensure credit integrity, thereby stamping out unscrupulous practices and boosting customer trust and certainty.

HAVING AN INFORMED APPROACH TO NET ZERO

The purchase of carbon offsets should be seen as a final step rather than a primary action, with the focus on reducing emissions through cost-effective measures that also reduce energy consumption.

So, what steps should FMs take to ensure that any sustainability measures implemented achieve the best results and maximum return on investment?

• Get to know your energy data

Understanding exactly where and how you are using energy is crucial to reducing both costs and carbon. For example, a sophisticated energy management system will help you monitor power and gas consumption throughout your organisation, and the related emissions. Depending on the nature of your business, sub-metering can also help to provide more granular detail about specific energy uses, such as machinery, lighting, or temperature control.

• Plan your carbon reduction strategy

When you have a greater understanding on how and where your energy is used, and the primary sources for your carbon emissions, you can make an informed decision about your energy management and carbon reduction strategy.

There are tools that can help your business test the potential impact certain measures can have. For example, our Net Zero Calculator is free for any business to analyse their current emissions and how they can reduce carbon, save money and reach net zero goals by adding in sustainability solutions.

• Invest in the most effective sustainability measures

There are several ways that facilities managers can reduce energy consumption and carbon emissions before turning to carbon offsets, for example:

• Energy efficiency – The less energy you use, the less you will pay. And, the capital that this ultimately saves in reduced energy costs can be used to finance investment in further energy-saving or low-carbon technologies.
• Sustainable on-site generation – Investing in sustainable on-site generation, such as solar photovoltaic (PV), wind or combined heat and power (CHP) can pay dividends. As well as making an organisation less exposed to the fluctuations of the wholesale energy market, it also helps you to reduce carbon emissions, lower energy costs and provide an increased stability of supply.

TOWARDS A NET ZERO FUTURE

While there is a place for carbon offsetting, businesses need more guidance on when it is the most appropriate tactic to use. Implementing measures that not only reduce emissions, but also have a direct impact on the bottom line in terms of lowering energy costs should always be the first steps to take.