At COP26, it’s time for corporate climate action to move beyond offsets

Coming out of COP26, some of the strongest momentum for climate action continues to come from non-state actors – businesses, investors, public institutions, and local governments. Well over 4,000 have joined the Race to Zero, pledging to reach net zero emissions by mid-century or sooner.

As the Science-Based Targets initiative (SBTi) and others have warned, a top priority for net-zero pledges is that they not rely heavily on offsets, as most corporate pledges now do. We simply cannot offset our way out of climate change. Carbon dioxide removal options are inherently limited, so if we are to go from record-high global emissions in 2020 to net zero by mid-century, we do not have the luxury of forgoing any viable emission reductions.

At the same time, developing countries urgently need finance, both to help them shift away from fossil fuel dependency and onto low-carbon development pathways, and to protect tropical forests and other crucial carbon sinks. Through voluntary carbon offset markets, corporations are playing a key role in mobilizing this finance, and with net-zero pledges, demand is booming.

But what if “offsetting” doesn’t make sense anymore?

As the heated debates over Article 6 of the Paris Agreement – the provisions on market mechanisms – have shown, accounting for offsets in a world where all countries have emission reduction pledges is very tricky. For an offset credit to be valid, it must represent a truly additional reduction to net global greenhouse gas emissions. Carbon credits thus need to meet stringent criteria to show the emission reductions they represent would not have occurred anyway, and that they are not claimed by more than one entity toward an emission target or pledge.

The voluntary carbon market has been slow to recognize how difficult it will be to meet those criteria on a large scale. Calls for voluntary actors to avoid double-claiming through “corresponding adjustments” – the Paris Agreement’s term for formally accounting for transfers of mitigation between countries – have been resisted. The resistance is understandable, given the costs and delays such accounting could impose. However, that leaves important questions of environmental integrity unanswered.

The real goal: financing climate change mitigation

If offsets are not a viable option, how else could we leverage companies’ willingness to invest in mitigation beyond their own value chains? Instead of offsets, think of contributions.

Like offset credits, “contribution credits” would show an actor has invested in verified emission reductions or removals. The only difference is that countries could still count these towards their Paris pledges. Buyers would relinquish any offsetting claim.

Why would corporate actors buy credits that they can’t apply towards their own emission goals? Because they would still convey a unique value: that they have enabled additional, quantified and verified mitigation that helps countries achieve their climate and sustainable development goals. Buyers in the voluntary market already favour credits from projects with social and environmental co-benefits, and those would accrue with contribution credits as well: local pollution reduction, green jobs, ecosystem preservation, technology transfer and more.

What about achieving net zero?

Some organizations are already embracing this paradigm. The World Wildlife Fund (WWF), for example, proposes a blueprint for corporate climate action focused on reducing value-chain emissions and funding external mitigation, including through the purchase of “high value” carbon credits. The New Climate Institute also notes the challenges of offsetting in a Paris-aligned world, and urges actors to support “contributions” in line with net zero climate action.

The startup Milkywire has created a “climate transformation portfolio” that funds efforts as diverse as biochar projects in Cambodia, rights-based forest protection in Indonesia, and clean energy in Tanzania. Crucially, though many of the projects are funded through carbon credits, they are not sold as offsets, but rather as contributions – the focus is on “impact, not claims.”

Perhaps the biggest obstacle to this new model is the idea that voluntary actors must individually “achieve” net zero emissions. This implies the need to offset. But there is nothing magical about achieving net zero individually. The goal – as one forward-thinking initiative has put it – should be to contribute to global net zero.

Changing the narrative is no small task, but three steps could move things in the right direction:

• Climate negotiators at COP26 can insist on high-integrity rules for international carbon markets under Article 6 of the Paris Agreement – rules that strictly avoid double counting – and clarify how those rules could apply to voluntary actors, including by welcoming the role of contribution credits as an alternative to offsets.
• Net zero standards and initiatives can explicitly endorse the idea of net zero-aligned climate action, rather than individual targets. The SBTi’s new net zero standard conspicuously avoids terms like “carbon neutrality”; the next step is to encourage companies to see investment in external mitigation not as “offsetting,” but as contributing their “fair share” to global mitigation.
• Voluntary actors can show leadership by moving beyond “carbon neutrality” and similar net-zero claims. A few companies seem to be moving in the right direction. The Swedish online shopping firm Klarna, for example, has adopted WWF’s blueprint for climate action and supports Milkywire’s portfolio as part of its efforts toward a 2040 net-zero target.

To be clear, the goal here is not to abandon carbon markets or discourage voluntary climate action. It is to reset the narrative. Rather than “offsetting” their emissions, corporations should strive to be able to say: “We are doing all we can to help the world reach net zero.”