Lately I’ve begun to wonder something: when did “offset” turn into a swear word? Should I be spelling it as off***?
The extent to which offsets have become vilified in much of the discourse around decarbonisation not only concerns me – it simply baffles me.
Offsets form part and parcel of any sensible net-zero strategy. Without offsets, there cannot feasibly be a net reduction to zero emissions.
But it seems to be increasingly suggested that offsets should be reserved exclusively for when all other decarbonisation possibilities have been exhausted and only residual emissions remain. Apparently, then and only then is it acceptable to use them.
Why anti-offsets logic is flawed
There is a massive flaw in this approach. Perhaps the term “buying offsets” is distracting people from what is actually being done – that is, using offsets to direct capital towards climate-positive projects and initiatives.
If we are to ensure that global warming doesn’t exceed 1.5C by 2050, we desperately need to both decarbonise as fast as possible, and invest in long-term climate solutions, now.
It’s not one or the other – it’s both, and they should be done in parallel, not in turn.
Buying offsets is essentially a way to invest in climate solutions that are otherwise not commercially viable (or you’d just invest regularly alongside your assets to receive investment returns).
And more often than not, many of the most hard-to-monetise opportunities are nature-based solutions such as soil and peatland preservation, forest restoration, ocean conservation and so on. If we’re not encouraging investment into this vital work, natural habitats around the world will pay the price.
A win-win (before it’s too late)
During last year’s seminal COP15 summit on biodiversity, countries around the world committed to protect and restore 30 percent of the world’s land and 30 percent of the world’s ocean by 2030.
Surely the financial services sector should be doing all we can to fulfil those targets?
Or is the plan to decarbonise by 2050, decide we’re finally ready to offset and protect the forests, and realise there’s no more forest left to protect?
Cutting off our nose to spite our face
It is of course true that, in its current state, the offsetting market is far from perfect. We all know about this, and journalists are becoming increasingly effective at calling bad practices out.
But what really worries me is the approach that a number of reputable organisations and high-profile individuals have adopted when talking about this or issuing investor guidance on offsets.
It’s a taboo, a no-go zone. If a company is offsetting, the common perception appears to be that it must be evil – trying to preserve the status quo and to ensure they can continue business-as-usual emissions with no regard for the planet.
In some cases, these critiques may hold truth. But with offsets being widely used for benevolent business practices too, we must avoid this becoming the dominant narrative. Offsets, when used properly, can really be a force for good.
We are currently facing a $700 billion annual gap for nature financing and a pressing need to finance climate solutions to the tune of several trillion dollars a year. A lot of this can and should come via offsets – any blanket anti-offset narrative is actively undermining efforts to finance these vital areas.
Rather than issuing ever more guidance and shouting at market participants about how bad offsetting is, it would be far more beneficial to encourage the development of high-quality, trustworthy offsetting standards so that we can rely on their integrity and additionality.
My theory of change
The voluntary carbon markets (and budding nature markets) need to be scaled up, and fast.
Currently VCMs only operate at an approximate volume of $2 billion – a mere drop in the ocean compared to the needs of the planet. Meanwhile, Bloomberg has estimated that, given adequate support, VCMs could grow up to $1 trillion by 2037.
In order to ensure this potential is reached, I propose that we start stimulating demand for “Climate+” offsets – that is to say, those that include nature co-benefits. This would be supported by mandating adoption of disclosures based on the TNFD framework, which would work in tandem with the increasing adoption of TCFD throughout the economy, including by private companies.
At the same time, we clearly need to change the language around guidance for offsets. This should actively encourage early purchase and retirement of credits by corporates who are on a net-zero journey.
However, it should not be a free-for-all. We need clear parameters on how reduction of emissions is disclosed vs the effect of offsets, with the two naturally meeting at a net-zero position at an appropriate future point.
Meanwhile, the Transition Plan Taskforce should set requirements on reporting of progress on both these elements, which should be separate and transparent.
Once enough demand has been created, we need to make sure that the money isn’t channelled into the Wild West of the current state of play in VCMs. We need to clean up the market and bolster its capacity to support our economy by regulating the sale of offsets.
Et voilà! Corporates will be lining up to purchase good-quality offsets, reporting transparently on them, and met with a matching supply of high-integrity credits thanks to a trustworthy, regulated market.
The ask of you
My hope is that the financial sector will coalesce around a call to the UK government to endorse a set of standards for offsets. Policymakers should act now to enable the UK to become the first global leader to introduce regulation for the sale of carbon and nature credits.
With the support of Baroness Worthington, Brunel Pension Partnership, Railpen and the Church of England Pensions Board, Scottish Widows attempted to bring about an amendment to the Financial Services and Markets Bill earlier this year. As a result, the UK government has agreed to consult on the matter of regulating VCMs later this year.
My ask of you is to engage with this government consultation.
If you agree with any elements of the plan I’ve outlined above, and the urgent need to unblock the flow of financing towards nature and climate solutions, please support these efforts. This will give the market the confidence to move billions of pounds into much needed areas, supporting not only decarbonisation itself, but also associated biodiversity and social benefits.
Ultimately, offsets are a force for good. It’s about time we stopped treating them like a swear word, and turned them into a badge of honour.
