When offsetting is used to compensate for a company’s emissions, it leads to prioritising cheap offsets with little climate impact.

That's the harsh truth.

For companies that want to make a real difference, the focus should be on funding the highest impact solutions regardless of their own carbon footprint. So for example, supporting early-stage carbon removal solutions that have potential to permanently store huge amounts of carbon.

Here’s why – and how to approach that shift in strategy.

Whilst purchasing carbon credits to compensate for company emissions through carbon offsetting isn’t bad in itself, it can often lead to a less impactful outcome than intended. This is because, in most cases, the focus on balancing out a company’s emissions incentivises buying the cheapest credits possible, which are never going to have the highest impact. 

For example, compare renewables projects (emissions reduction; no storage) costing $5 per tonne of CO2 to Direct Air Capture (carbon removal; long-lived storage) at $500 per tonne of CO2.

If a company knows that they emitted 50,000 tonnes of carbon emissions in the previous year and want to neutralise those emissions by purchasing carbon offset credits, the difference in cost to purchase offset credits in a renewables project compared to a Direct Air Capture one could be $250,000 to $25 million.

That’s a fairly extreme example, but it’s obvious which the company’s going to go for in the vast majority of cases.

The reason that carbon credits for technological carbon removal projects, like Direct Air Capture, are so much more expensive is that most of them are still in the early stages of being developed. They need significant financial investment to develop and to scale-up. And we all need them to scale-up successfully, because as the IPCC's sixth assessment report (released April 2022) makes crystal clear, these carbon removal projects are absolutely necessary to mitigate climate change.

Businesses have the ability to fund these high-impact carbon removal projects, enabling them to scale production and accelerate their vital work.

But if the majority of companies only buy cheap offsets to offset their own emissions, that won’t happen. 

That’s why if a company is looking to make real, positive climate impact, we’d recommend switching from making offset claims against your own emissions to a commitment to finance carbon removal projects – buying carbon credits for their own sake, rather than using them to offset your emissions, has real value.

But how do you go about that?

How to approach contributing to carbon removal projects: from compensation to contribution and tCO2 to $$$

We’d suggest shifting your thinking away from how many tonnes of carbon emissions you want to compensate for, and towards how much money you can contribute to high impact carbon removal projects – without worrying about how many tonnes of carbon that money will buy you.

By doing this, you’ll make the shift from perceived impact to actual impact, focusing on how your business can produce the best possible climate outcome.

So for instance, instead of that company from earlier on buying 50,000 tonnes of carbon offsets at $5 per tonne, they might opt to contribute $250,000 of their annual revenue to funding high-quality carbon removal projects that keep carbon emissions out of the atmosphere for good, regardless of the price per tonne. This might end up looking like a purchase of 1,000 tonnes of carbon at an average price of $200 per tonne. 

Or, it might be that your company wants a more varied portfolio, purchasing 15,000 tonnes of carbon at $10 per tonne and then using $100,000 to fund high-quality carbon removal projects. We find this kind of portfolio can be appealing to businesses, balancing having immediate impact today by supporting more traditional existing offsetting projects, whilst also supporting innovative carbon removal approaches into the future.

Some businesses are already taking this impact-first approach.

Payment processing company Stripe, for instance, has hit the headlines several times in the past year for their Stripe Climate scheme, which enables companies using Stripe to contribute a portion of their revenue towards a portfolio of early stage carbon removal projects.

This explanation is from their FAQs, and sums it up nicely:

We’d expect to see this kind of climate initiative more and more from the most ambitious businesses, supporting the scaling up of high-potential climate solutions.

The research suggests so too.

A University of Oxford report ‘Net zero business or business for net zero’ released earlier this year highlighted what they call “emerging leadership practice in business” as being “a shift to an outcomes-based approach to the purchase of credits” – suggesting that climate leaders in business are already moving to this kind of approach.

So, what are you waiting for?