CCC: Businesses’ bullish approach to offsetting undermining net-zero transition

The CCC argues that much purchasing of offsets has been "premature"

The Committee, which advises the Government on how best to deliver against its climate targets, has today (13 October) published a new review of evidence on the impact of voluntary carbon markets.

It begins by setting out how, since 2019, global carbon markets have more than tripled in size – both in terms of the value of the market and the volume of carbon covered. 2019 was notably when the UK enshrined its 2050 net-zero target in law, paving the way for other nations to follow suit. By early 2022, net-zero commitments at the national or regional level covered some 90% of GDP, according to Net Zero Tracker.

The CCC’s conclusion is that much of this market growth has been “premature”, with low-quality offsets flooding the market due to a lack of strong governance. Businesses, in turn, are buying up these offsets – often before taking appropriate action to reduce their emissions in-house. The CCC notes a worrying trend of businesses in sectors which are not hard-to-abate purchasing offsets then failing to outline credible plans (in some cases, any plans) to reduce their own emissions.

It bears noting that global efforts to improve the governance of the voluntary carbon market as it grows are underway. The Voluntary Carbon Markets Integrity Initiative (VCMI) has published a provisional code of practice for organisations purchasing offsets, and is continuing to develop integrity guidance for providers. The Taskforce on Scaling Voluntary Carbon Markets is also continuing its work.

In the meantime, the CCC is urging businesses to be cautious about their approach to offsetting. The report argues that a short-term net-zero deadline which relies heavily on offsetting is less credible for businesses than a target that is further out, and supported with science-based plans to reduce emissions in operations and the value chain, with offsetting as a final option.

CCC chief Chris Stark said: “Businesses want to do the right thing and it’s heartening to see so many firms aiming for early net-zero dates. But poor-quality offsets are crowding out high-integrity ones. Businesses face confusion over the right approach to take.”

UK Government intervention

The CCC report notes that “the lack of regulation or required disclosure on how they are used in business net-zero claims, and lack of clear guidance on what activities should and should not be ‘offset’” Is increasing the risk of disincentivising businesses from directly reducing their own emissions.

As such, it recommends that policymakers provide more support for methods of directly reducing emissions, and that increased reporting requirements are imposed on businesses making net-zero claims.

The report calls on the Government to develop a clear definition of a ‘net-zero’ business, and plans to penalise businesses for misusing the term. The definition should include the reduction, as far as possible, of emissions directly, followed by the use of credible carbon removal. The CCC recommends that other businesses could use a different term, and proposes ‘offset zero’.

Also recommended is further clarity on the forthcoming ‘Net Zero Transition Plan Standard’. At COP26 in Glasgow last November, then-Chancellor Rishi Sunak confirmed that large businesses in high-emission sectors would be mandated to publish net-zero transition plans. Such plans would detail how businesses intended to invest and change their business models and processes to cut emissions; how they would use offsets; and how they would support people throughout their transition.

The first of the mandates will be introduced in 2023 and the Government is currently developing a new ‘Standard’, designed to ensure relative uniformity of disclosures and to assess whether plans are sufficient.

Chris Stark added: “There is a clear need for Government to make standards stronger and point businesses towards an approach that prioritises real emissions reduction ahead of offsetting. Those businesses that choose to support the economy-wide transition to net-zero should get the credit they deserve.”

Liz Truss’s Government has not yet provided any updates on mandatory net-zero transition plans.

Net Zero Tracker’s most recent global stocktake of the credibility of corporate net-zero plans found that just 35% meet the minimum requirements of the UN-backed Race to Zero Initiative. These requirements are set to be tightened, meaning that this proportion is likely to decrease.