Carbon reduction vs. carbon offset – what’s the difference?

Written by

Tim Greenhalgh

Posted on

May 19, 2020

Posted in

Carbon reduction and carbon offset are two elements in the drive to Net Zero in the UK, despite a majority of people in the UK being unaware of what net zero means.

So what is the difference between carbon reduction and offset and which is more likely to deliver the 2050 target of zero carbon emissions in the UK by 2050?

In a nutshell, carbon reduction is the process where an organisation directly reduces greenhouse gas emissions through efficiencies while carbon offset is a trade-off, where companies get credit for funding external projects that reduce emissions.

The UK government decided in May last year to remove emissions from industry, transport, farming and homes completely within 30 years – net zero – with only a few areas where emissions are almost impossible to end being given the leeway to offset by planting trees or sucking CO2 from the atmosphere.

The Committee for Climate Change said at the time that if other countries followed the UK, there was a 50-50 chance of staying below the recommended 1.5C temperature rise by 2100, seen as the threshold for dangerous climate change.

Within this tough national agenda, SaveMoneyCutCarbon’s mission is to help businesses and homes cut costs and reduce carbon emissions through sustainable energy and water saving products and solutions.

There’s also the urgent need to spread the message and share knowledge and expertise, particularly as the government’s recent Public Attitudes Tracker surveying over 1,800 people, revealed that just 3% of the UK public feel they know “a lot” about the net zero movement, despite more than three-quarters being concerned about climate change.

What are carbon offsets?

Essentially, carbon offsets are traded. A business that is carbon-intensive and facing big challenges in reducing emissions can buy offsets to balance against these by funding projects around the globe that cut carbon. There is a wide range of initiatives, from forest restoration to timber conservation, power plant upgrades, energy efficiency optimisation of buildings and transportation, and more.

Part of the thinking behind offsets is that it doesn’t matter where the carbon reduction is achieved, as the greenhouse gas crisis is global. The climate-friendly projects are sited mainly in the developing world with many small consultants and brokers offering credits created by these projects.

Offsets are measured in tonnes of carbon dioxide-equivalent (CO2e). A tonne of carbon offset represents the reduction of a tonne of carbon dioxide or other greenhouse gases.

You’ll find a mix of regulatory and voluntary markets for carbon offset trading. The larger one deals with the compliance market where companies, governments, or other organisations have to buy carbon offsets to ensure they don’t exceed total amount of carbon dioxide they are allowed to emit by law.

For example, under the European Union Emission Trading Scheme, companies are required to cut their emissions or buy pollution allowances or carbon credits from the market.

In the smaller voluntary market, companies, individuals or governments can purchase carbon offsets to mitigate carbon emissions from transportation and electricity use, or events such as conferences and weddings, for example.

Carbon offset traders will often mix direct sales of carbon offsets, with other services like identifying a carbon offset project, or measuring a purchaser’s carbon footprint. Carbon offsets can balance against specific activities like road and air travel.

According to Ecosystem Marketplace, the size of the global carbon compliance offset market is anything between $40 billion and $120 billion. It says the market for voluntary offsets came close to $300 million and traded almost 100 million tonnes of carbon dioxide equivalent in 2018.

Tree planting and forest protection projects are the most popular projects, according to the Forest Trends report accounting for just over half of voluntary offsets traded last year.

The Kyoto Protocol, an international greenhouse gas agreement, defines six types of emissions:

  1. Carbon dioxide (CO2): Mainly from burning fossil fuels, waste and plant matter.
  2. Methane (CH4): Far more powerful than CO2, emitted from agricultural activities, landfills, livestock, and coal and natural gas production.
  3. Nitrous oxide (N2O): Fertilizer and agricultural soil management release most of this emission, along with sewage treatment and fossil fuel burning.
  4. Sulfur hexafluoride (SF6): Man-made compound used by the electrical power sector for insulation and current interruption.
  5. Hydrofluorocarbons (HFCs): A replacement for ozone-depleting chlorofluorocarbons (CFCs), in refrigerants, aerosol propellants, solvents and firefighting agents.
  6. Perfluorocarbons (PFCs): A solvent and component of aluminium production that is extremely hard to remove, with an atmospheric life of 10,000 to 50,000 years.

Different methodologies are used for measuring and verifying emissions reductions, depending on project type, size and location. The Clean Development Mechanism differentiates between large and small scale projects, while in the voluntary market, the Verified Carbon Standard, Plan Vivo Foundation and the Gold Standard are the main standards.

Carbon reduction action

While all activity in both offsetting and direct carbon reduction is focused on the same goal, reducing emissions, companies and organisations of all sizes, as well as homes, are continually seeking ways to shrink their carbon footprint.

This makes sense from both the ecological and the financial view. Larger companies are being fiercely scrutinised by investor groups over their emissions reduction strategies, while being given clear warnings from central banks that long-term sustainability is only possible with net zero policies in place.

Regulations are playing a larger role as well. The Streamlined Energy Carbon Reporting (SECR) scheme requires around 11,900 companies incorporated in the UK to disclose their energy and carbon emissions.

Public companies regulated by SECR also have to comply with as mandatory greenhouse gas (GHG) reporting rules, the Energy Saving Opportunity Scheme (ESOS), Climate Change Agreements (CCA) Scheme, and the EU Emissions Trading Scheme (ETS). SECR extends the reporting requirements for quoted companies and mandates new annual disclosures for large unquoted and limited liability partnerships (LLPs).

Carbon reduction strategies clearly reduce the investment threat and at the same time make a sustainable and substantial positive difference to the bottom line. Forward-thinking companies are gearing up to act on ESOS and other internal reviews to reduce their energy and water consumption, which has the dual effect of lower costs and cutting carbon emissions.

From LED lighting and lighting controls to more efficient heating and ventilation as well as low-carbon energy sources like solar panels, businesses of all sizes that can move quickest to reduce their carbon footprint are seen as the most likely to survive and thrive.

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