OFFSETS

1. Context

2. Key points

• Max claims to offset 110 per cent of its carbon emission an annual total of 1, 47, 000 tons in 2020 mainly by donating a fraction of the profits to plant trees in Uganda.
• This sounds ideal. But research recently published in the Environmental Science and Policy journal has challenged this "net zero" logic.
• By buying "offsets", the chain does not need to reduce actual carbon emissions to fulfil its net-zero claim.
• Max's absolute emissions have more than tripled between 2007 and 2021 due to the opening of more restaurants and subsequent higher power usage. And the company admits it expects its carbon impact to keep on growing.

3. Working on offsets

• Buying offsets is a way to compensate for environmental damage. Companies make a financial contribution to projects that reduce the amount of carbon dioxide in the atmosphere and exchange can keep polluting themselves.
• Examples of projects include planting trees and rewetting peatlands which store huge amounts of carbon in their soil.
• By this logic, it is possible to take carbon-neutral flights with the German airline Lufthansa. 
• Even the FIFA World Cup in Qatar billed itself as climate-neutral.
• In recent years, the carbon offset industry has boomed. It is worth $2 billion annually and is expected to grow five times that size by the end of the decade.
• After the concept's invention in 1987, some international treaties such as the Kyoto Protocol one ton of carbon, to keep within emissions limits.
• That market where carbon credits are traded to meet government regulations is much bigger about $ 261 billion a year.
• However, experts have warned most of the credits on the voluntary carbon market are not effective.

4. Problems with offsetting

• A recent analysis by the British news outlet The Guardian, German newspaper Die Zeit and the investigative site SourceMaterial found more than 90 per cent of rainforest carbon offsets by  Verra, the world's biggest certifier, are likely to be "phantom credits", meaning they do not represent genuine carbon reductions.
• The corporate claims of being climate positive cannot solely rely on offsets.
• There is not enough room on the planet to absorb all the carbon emissions through trees.
• So while this might look good for one company it's not a practical strategy globally.
• The environmental, social and governance practices, one in five ESG risks are linked to carbon offsets and misleading communications rising to one in three for the food and beverage sector.
• If a company claims to be carbon neutral consumers would think the company does not harm the environment, but the reality is that changing your business model is costly and time-consuming.
• The cost of credits starting from $4.24 a ton is often much less than the projected cost of reducing corporations' emissions in the first place.
• The lack of regulation means standards in the market are still hugely erratic.

5. Offsetting in practice

• Offset projects can be broadly split into two categories: removals and avoidances.
• Removal describes actions which actively take carbon out of the air and store it permanently, such as by planting trees or direct air capture which is not the technology available at scale. 
• Currently, carbon dioxide removal represents just a small percentage of the carbon credits in circulation.
• Avoidance offsets are from projects that stop the release of greenhouse gases, such as protecting trees from being logged.
• For example, the asset management arm of the US bank  JP Morgan has bought 2, 50, 000 acres of forest for more than $500 million "for carbon capture and timber".
• As such, the bank has paid timberland owners not cut the trees down, thereby allowing them to absorb carbon from the atmosphere and in turn, profits by generating potential carbon credits for investors.
• Some critics have accused JP Morgan of greenwashing. They argue that while it is good the trees are not being cut down, it is tricky to prove if and by how much that results in a net removal of carbon from the atmosphere.
• This test is known as additionality and measures whether the funding from the carbon credit made any positive difference to the climate.
• Another measure used to certify offset projects is the permanence of the activity.
• Finally, there is the potential for leakage if one area of forest is saved from exploitation, but the overall pressure to exploit forests has not gone down. 

6. Alternative Approaches

• Observers are raising these questions out of concern that the carbon impact of avoidance emissions which can only ever be an estimate is heavily overstated by those who stand to gain financially.
• But tighter scrutiny of offsetting claims could come soon. The Integrity Council for the Voluntary Carbon Market, an independent governance organization, is defining standards that purchasers could use to sort the good from the bad and filter out low-quality carbon credits.
• Nature-based solutions could also offer answers. A study by the We Mean Business coalition, a global group of seven non-profit climate-focused organisations, showed that if the world's 1, 700 biggest emitters compensated each year for just 10 per cent of the emissions they have not yet cut, through investments in nature, would mitigate nearly 30 gigatons of emissions and mobilise up to $ 1 trillion in climate finance by 2030.