Carbon Offsets, oh the tangled web they Weave
When Carbon Offsets are featured on Last Week Tonight, by John Oliver - can you see the potential reputational risk and the need for a carefully thought out strategy
Last week, John Oliver discussed some of the potential issues with Carbon Offsets. If you haven’t seen it, it is worth a watch - although fair warning, it may not be office appropriate.
The point is, there are ALOT of organizations claiming to be on the path to carbon neutrality. There may be a place for carbon offsets on that path, but this is a part of a larger overall strategy that includes first optimization of operational energy consumption and sourcing energy from renewable sources.
The issue is, as pointed out by Oliver in his segment, 66% percent of the companies assessed by the Columbia Center on Sustainable Development rely on carbon offsets to achieve net-zero goals. Many of these organizations are making this claim nearly entirely through offsets, which can be a mistake.
From a reputational standpoint, you must consider how others view your sincerity in reaching carbon neutrality. Unfortunately, the term Carbon Offsets often conjures up a company simply writing a check instead of actually reducing their emissions.
Before we pass judgment, let’s take a look at what exactly a Carbon Offset is. Broadly speaking, the term refers to a reduction in carbon emissions or an increase in carbon storage. Under this umbrella, we have two terms:
Avoidance Offset: These offsets are activities that prevent carbon from being released and may include stopping the conversion of grasslands to croplands or preventing the removal of trees, or Improved Forest Management (IFM).
Removal Offset: These offsets are generated by activities that actually remove carbon from the atmosphere and are often associated with tree planting.
It should be noted that many people confuse offsets with Renewable Energy Credits (RECs), which is a very different instrument. RECs are measured in Megawatt-hours and convey the use of renewable electricity generation. An organization can demonstrate through the purchase of a REC that while they may have used a megawatt of carbon based energy, they also introduced a megawatt of renewable energy onto the grid and thus neutralized the impact of the megawatt of carbon-based energy consumed. The idea behind the REC was to encourage the increased use of renewable energy by supporting renewable energy development. When a REC is purchased, it provides an economic incentive to the entity that produced the megawatt of renewable energy.
Part of the confusion here is we sometimes say that we “offset our energy by purchasing a REC.” While true, the energy was offset; it was not done so through an offset which is a different instrument. Similarly, however, the quality of the REC can help with the acceptance of the legitimacy of the effort. All RECs are not created equal; third-party verification or certification, such as Green-E certification, can help demonstrate that the REC is tied to actual electrical generation and that the credit is of high quality and adheres to a strict set of standards. This position can be made stronger by tieing the REC purchase to the same grid that the consumption occurred on.
Offsets also run the gamut on quality, and it can also be said that all offsets are not created equal. There are certifications and standards for offsets as well and ensuring the projects you invest in are registered with a third-party internationally recognized verification standard, such as the Gold Standard, Verra’s Verified Carbon Standard (VCS), Social Carbon and Climate, Community and Biodiversity Standards (CCBS), or standards verified by the UNFCCC.
Another similarity between RECs and Offsets is both are traded instruments, and the value of the instrument changes based on the market conditions. The buyers of these instruments are either in a mandatory (compliance) market or a voluntary market. In Real Estate, generally, we tend to be in a voluntary market. This means we are buying and selling offsets because we want to, not because we are required to. The mandatory market tends to mean a government or legal system has required the purchase of the instrument, which is generally tied to maintaining some level of emissions. A good example of a mandatory market would be utility companies who, through their generation of energy, must meet a regulatory prescribed mix of renewable sourced energy generation in their production. When they are unable to meet that threshold, under some circumstances, they may be able to use offsets to comply.
The importance of understanding there are two markets is the mandatory market is generally well regulated due to its association with a jurisdiction requiring carbon reduction, while voluntary markets are less regulated. That lack of regulation can introduce quality issues such as outdated credits and complicated claims such as those associated with emissions avoidance.
That said, offsets can be a viable strategy when appropriately used and sourced from high-quality and verified sources. The first and most obvious step is to reduce emissions to the extent possible through efficiency and conservation. Not only does this reduce waste, but by not buying energy you do not need, it improves NOI. This means tracking your utility consumption and benchmarking it to understand its efficiency, then taking action to reduce consumption at the individual property level.
The second step is evaluating the energy source used by the properties in the portfolio. Strategic procurement in deregulated markets is the easiest and quickest path to reducing the carbon intensity of the property. Simply buying more smartly where your energy comes from can make a nearly immediate impact and potentially reduce costs as well. This is also the step where we evaluate on-site renewable energy generation, community solar, as well as electrification of the property.
Once we are positive, we are operating as efficiently as possible, and we have sourced our energy from renewable sources to the extent possible; this is when offsets or RECs might be considered. This is the final step in the strategy, not the first.
If you plan to explore offsets, there are some terms you need to familiarize yourself with beyond the basics I outlined above. The first of these is “Additionality.” Additionality means the project or activity that resulted in reducing the GHGs would not have occurred or happened without the offset buyer or collective buyers in the market, according to the Center for Resource Solutions. This means that the offset would not have occurred had your organization not participated. In the Oliver piece, he points out the already protected forest for which one company was selling offsets, claiming they were preventing the trees from being cut down. That is a textbook example of the offset lacking additionality, the trees were already protected, and the actions of the company selling or buying an offset to protect them did not factor into the tree’s status.
The second term to be familiar with is “Permanence” or “Durability.” This term refers to the longevity of the impact. If you are merely paying a farmer not to cut down trees for one year, but the next year he can - well, that offset really lacks permanence. This can be a tricky area as the future is unknown - what happens if the forest you helped protect is burnt down or the land is sold, and the new owners decide to log it anyway?
The next term is “Buffer Pool.” The buffer pool is the practice of purchasing additional credits to act as insurance against a possible event, such as a wildfire or flood, that might destroy the protected asset. Basically, you are buying extra in case some of the credits go bad.
Finally, you should also be aware of the term “Leakage.” Leakage refers to a shifting of the impact of the credit. The classic example is logging activity that increases in another area because an offset was put in place at a different location. The impact didn’t actually decrease overall; it simply shifted from point a to point b.
If you plan to lean into offsets, you need to be educated about what they are and what they are not. You need to engage with an organization that is transparent and deals with high-quality credits backed by data and certifications.
The increased interest in reducing emissions has brought a lot of attention to emissions, some of that is good, but some of it can attract bad actors. As demand for high-quality standards increases the cost for those credits, less-stringent verifications continue to crop up, which can expose the buyers to reputational risk. In fact, buying low-quality credits can actually add carbon into the atmosphere, the exact opposite of the goal they are trying to address.
The bottom line, unlike the impression left by John Oliver, offsets are not always bad, not always greenwashing. They can be a viable tool in a larger overall strategy.
You can help reduce the impact of the built environment by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness, and we succeed with teamwork.
Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry minimize energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience, we ignite solutions with real impacts and track performance to ensure the trendline stays laser-focused on the goal. At Conservice, we have developed a true bill-to-boardroom solution to help truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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