Offsetting Climate Change
As Europe tightens its emission-reduction targets and major emitters from the U.S. to Japan set deadlines for net zero, carbon offsets are being looked at as one of the ways the world can tackle its pollution problem.
Following years of stagnation—the market for voluntary carbon offsets took a decade to grow 50%, in 2018 just 56 million metric tons of offsets were sold—but by 2019 the market reached 73 million tons, and last year saw a record 95 million tons sold.
By 2030, the market for offsets could be worth $100 billion—but are companies ready to embrace carbon trading to help them reach their net-zero goals, and can they trust offsets to deliver?
Bloomberg Green Partners from the transportation (General Motors), real estate (JLL), finance (Standard Chartered), and consultancy (McKinsey & Company, Vivid Economics) sectors convened for a cross-industry conversation about the challenges of carbon offsets in the race to net zero.
Bloomberg Green Partners
Experts from the worlds of finance, transportation and real estate discussed the biggest challenges ahead for battery technology.
Executive Director, Commodity Origination, Standard Chartered
Chris Leeds
Sustainability Director, JLL
Sonal Jain
Global Chief Sustainability Officer, JLL
Richard Batten
Senior Manager, Environmental Strategies and Sustainability, General Motors
Geraldine Barnuevo
Partner, McKinsey & Company
Christopher Blaufelder
Chief Sustainability Officer and Vice President, Sustainable Workplaces, General Motors
Kristin Siemen
A Task Force for Carbon Markets
To increase the credibility and scale of carbon offsets, the Task Force on Scaling Voluntary Carbon Markets (TSVCM) was set up by former Bank of England Governor Mark Carney and Standard Chartered CEO Bill Winters. Their plan is to increase transparency by establishing criteria to verify carbon is reduced or avoided, increase the supply of high-quality credits and create a futures market.
“I think one of the biggest issues that we face is that because of historical malfunctioning of these markets, people think that these offsets are about getting rid of the primary obligation to decarbonize. And actually, we've been consistently saying that indeed the first and foremost primary need of any corporation and bank, and anyone else, is to decarbonize their own value chain.”
Christopher Blaufelder
Chris Leeds
“What we're trying to do with the task force is to take the complexity away so that ordinary people, ordinary companies can participate in the market knowing that there is integrity and that the carbon credits that they're buying are of high quality. It’s about enabling organizations to know that there is this threshold of quality. It’s like food standards that enable suppliers to supply food at the right quality that everybody understands.”
With more than 630 million metric tons of carbon offsets listed across the four industry registries, there is the potential to abate more CO2 than Saudi Arabia generates every year. But while the value of offsets is acknowledged, they‘re viewed as a secondary option for companies looking to decarbonize.
Partner Perspectives on Offsets
The offset capacity of the 4,100 carbon offset projects listed on the four major registries in 2020.
632
Kristin Siemen
“We are investing heavily into our mission and our vision of transitioning to an all-electric future and focusing on using renewable energy. Offsetting would be a secondary strategy. As we get closer to our goal and timeline, we'll evaluate if there's a need at that point in time, and hopefully there'll be a much better understanding of the offsets and the value of them.”
Geraldine Barnuevo
“Vehicle emissions currently represent 75% of the emissions we aim to reduce. Investing in technologies that have zero tailpipe emissions, like battery electric and hydrogen, is the best path toward a net zero future. Last year we announced our plans to invest $27 billion in our electric and autonomous vehicle portfolios, and we just announced an increase in that investment to $35 billion, so we are confident that we are on the path to decarbonizing.”
For companies making net zero commitments, transparency is key. The TSCVM has launched a consultation inviting input from a range of industries and organizations to help establish credibility and a quality threshold for carbon offsets.
Making Progress
No Target
Government Stated Position
Under Discussion
In Legislative Process
Legislated
December 2020: 54% with at least a net-zero discussion
Source: BloombergNEF
Learn More
Learn More
Richard Batten
“Our Net Zero 2040 commitment covers not just our own operations around the world, but also all of the sites we manage for our clients. We’ve mapped out detailed emissions reductions pathways on a year-by-year basis through to 2040. To deliver this commitment, 95% of our 2018 baseline greenhouse gas emissions will be fully abated. If any residual offsets are required, they’ll be limited to no more than 5% of that baseline.”
Chris Leeds
“We're trying to set up a governance body that's going to be independent. It's going to have founding sponsors from a range of NGOs, academics, investor groups, who are looking for market experts to ensure the high quality. It's making sure that we see positive benefits come out of these projects over and above the reductions in carbon emissions.”
Richard Batten
“I think service industries like ourselves do not actually need to be relying too heavily on offsets, but there are hard-to-abate industries out there that absolutely need them. I think the offset industry really does need to create an integrity around it. And I think the Task Force and everything that's going on at the moment will lead to that.”
Sonal Jain
“I'm looking for more standardization in the voluntary offset market, with the true cost of eliminating carbon being reflected in offset price. The other area where I'm quite optimistic is that some real money is being committed in delivering solutions that are needed to remove carbon from the atmosphere. We've talked about carbon capture and storage for years now. Can it become a much more viable solution through this pooled money generated on the back of offsets?”
Christopher Blaufelder
“Carbon credits are not just about compensation—avoiding and reducing emissions—but also about removing CO2 from the atmosphere through measures such as reforestation, carbon capture and storage, and direct air capture. Please engage in the TSVCM’s consultation. We need all of your voices. All hands on deck. Otherwise, we won't solve this. Carbon offsets are a complement to the primary need to decarbonize value chains. And we need to increase the quality and integrity of these markets.”
The increase in the sale of carbon offsets since the Paris Climate Agreement was signed. Between 2015 and 2020, the volume of offsets sold has increased from 38 million to 95 million metric tons.
150
%
million tons of CO2
Experts from the worlds of finance, transportation and real estate discussed the biggest challenges ahead for battery technology.
The potential for offsets in net-zero strategies
Forestry
Waste
Domestic Aviation
Transport
Buildings
Industry
Power
Source: International Emissions Trading Association's GHG Market Sentiment Survey 2021
Source: TSVCM, May 21, 2021
Renewable Energy
Avoided Ecosystem Damage
Energy Efficiency
Waste Management
Land Management
Afforestation & Reforestation
The 2020 inventory for carbon offsets
Director, Vivid Economics
Thomas Kansy
Thomas Kansy
“It's about starting the decarbonization journey, and then on the back of it, investing in the future solutions to remove the residual carbon that we can't just yet tackle. The TSVCM is a great effort to get the key players together to form a consensus on what constitutes high quality for offsets, and to instill confidence in the market.”
Long-term potential
Plan to use
Do not plan to use them
The Bloomberg Green Partners offered an accurate reflection of the challenges facing carbon offsets. JLL and GM, among many others, believe they can make a lot of progress on their path to net zero by investing in renewables, adopting more efficient operating practices and investing in new technology. But the challenge remains that reaching net zero will require carbon offsets.
Skepticism about the impact and output of the carbon trading market means that the role of the TSCVM in establishing companies’ trust will be vital. Supply and demand for offsets are growing. A robust, effective carbon trading market would make it easier for companies to locate trustworthy carbon credits and gain their support in knowing that carbon trading would mean progress toward a low-carbon future. For businesses with net-zero commitments to keep, joining the Task Force’s consultation could be a vital first step.
Validity, Veracity and Value
The majority of businesses view the use of voluntary carbon offsets as vital in helping them deliver on their net-zero goals.
Use of voluntary market offsets (carbon credits):
Source: International Emissions Trading Association's GHG Market Sentiment Survey 2021
(Carbon Removal Technologies 0%)
Offsetting Climate Change
