The Oxford Principles for Net Zero Aligned Carbon Offsetting

Introduction

Many companies want to use offsets to meet their carbon reduction targets. Unfettered use of offsets can present some reputational challenges. Companies may be accused of greenwashing if they are not making significant efforts to decarbonize their own operations prior to using offsets. The accusation of greenwashing comes up because traditional carbon offsetting has known integrity issues, like whether or not the emission reduction would have occurred anyway (a concept known as additionality) and accounting for market-driven carbon leakage. The Oxford Principles for Net Zero Aligned Carbon Offsetting looks to address carbon offsetting's checkered history and ensure that the market-based mechanism can be used in a constructive way to help the world reach net-zero. In this article, we examine the four key pillars of the Oxford Principles.

1. Cut emissions, use high quality offsets, and regularly revise offsetting strategy as best practice evolves.

This recommendation is in three parts. Let’s break it down. The first point is to prioritize the internal emission reductions, thereby minimizing the need for offsets in the first place. While some assert this is as almost a moral argument, we see it as an economic one. Cutting your own emissions, for the most part, will be cheaper than sourcing high-quality carbon offsets. The key word is “high-quality.” Sure, you can buy some low-quality carbon offsets for less than $5/tonne. These offsets do not represent an incremental tonne of carbon removal and do nothing to mitigate climate change. High-quality credits could cost about $200/tonne in comparison. So surely you have a lot of carbon reduction opportunities in your company to reduce emissions that are cheaper than $200/tonne. So, should you prioritize internal emission reductions? Yes. Are some internal emission reductions so expensive that high-quality offsets are needed? Yes. You could also sum this point up more simply: make a rational economic decision.

The second point refers to offset quality and ensuring that credits are verifiable and correctly accounted for. The offsets should also have a low risk of non-additionality, reversal, and negative unintended consequences. The second point is related to the first. If your offset credits are not high-quality, they should be your absolute last resort. If you offset credits a very high-quality, they will be your absolute last resort due to their high cost. The Oxford Principles do a good job of summing up common offset pitfalls (i.e., features that make offset credits low-quality). I take issue, however, with one statement: “Forward-selling, and any time gap between the purchase of the offset and the successful execution of the emission reducing or carbon removing activity, must be minimized”. The Oxford Principles seem to be misinterpreting the concept of forward-selling. If I sell you a forward credit that is delivered 5 years from now, you have a contract to receive a credit. You do not have a credit. If you have no credit, you cannot make an environmental claim. Forward-selling helps market liquidity and allows for project financing of very expensive carbon removal technology. Allowing expensive carbon removal technology to be built is a good thing for the integrity of carbon markets. The Oxford Principles is confusing the idea of claiming an environmental benefit prior to the credit being issued with a forward sale. The two things do not need to be grouped together. A forward sale is simply a financing mechanism for projects. Of course, and as the Oxford Principles rightly points out, the environmental benefits should not be claimed until the credit is actually created.

The third point states that companies should disclose current emissions, greenhouse gas accounting practices, and targets to reach net zero. The company must also be ready to revise their offsetting strategy as best practices evolve. Our understanding of climate science and carbon removal permanence continues to advance. We must be prepared to adapt as the science changes. Having said that, we know that permanent carbon removal will always be considered the highest quality of carbon offset. Ensuring permanence then becomes the key issue of concern.

2. Shift to carbon removal offsetting.

Companies need to gradually shift away from carbon avoidance-based credits (which are the primary type of credit in the market today) and toward carbon removals. Carbon avoidance includes emission reductions without storage (e.g., renewable energy, methane abatement), emission reductions with short-lived storage (e.g., avoided deforestation, soil conservation), and emission reductions with long-lived storage (e.g., industrial carbon capture). Carbon avoidance activities are good things to do, but they should not enable another company to emit. In a net-zero world, these emission reduction activities need to be our business-as-usual case or baseline condition. No carbon offset should be awarded for doing what is already required. Only removal-based offsetting neutralizes a tonne of carbon released. As such, carbon removals is where the future of offsetting is inevitably heading.

3. Shift to long-lived storage.

Like carbon avoidance, carbon removals include those projects with short-lived and long-lived storage. Short-lived storage carbon removal includes afforestation, reforestation, soil carbon enhancement, and ecosystem restoration. These carbon removals can be quickly undone, and the stored carbon can be released back into the atmosphere. Long-lived carbon removal includes direct air capture with carbon storage (DACCS), bioenergy with carbon capture and storage (BECCS), mineralization, and enhanced weathering. These activities store carbon permanently over a geological timescale. Stored carbon is not easily released back into the atmosphere. By 2050, we need to move exclusively toward carbon removal with long-lived storage (see Figure 1).

4. Support the development of net zero aligned offsetting.

The fourth principle is predicated on the reality that long-lived carbon removal supply must rise, and costs must decline in order to make the Oxford Principles feasible. This includes a number of explicit actions that buyers and sellers can take. The first action needed is to create demand for long-lived storage to support the deployment of supply. The second action is to aggregate demand and supply by entering into long-term purchase agreements. The third action is to form sector-specific alliances given the unique considerations around hard-to-abate emissions. The fourth action is to support the restoration and preservation of natural ecosystems in the near-term. The final action is to incorporate the Oxford Principles into regulation and standards given that offsetting and net-zero claims are currently the wild west, with little governance and oversight.

Carbon offsetting can be a credible means of achieving net zero, but not in its current form. We need to remove carbon from the atmosphere and store it permanently. This is exactly why we facilitate the development of a marketplace exclusively for permanent carbon removals, helping to source credits that are aligned with the Oxford Principles. Don’t greenwash your ESG strategy. Don’t buy low-quality offset credits. A rigorous net-zero commitment necessitates high-quality carbon markets. Our mission is to facilitate the acceleration of the carbon removal technology that will create that market.

Acknowledgments

We would like to thank Steven Andersen for providing insights and expertise that greatly assisted this research.

Steven Andersen is a Senior Vice President in J.S. Held’s Environmental, Health, and Safety (EHS) practice. Steven has spent over 17 years in the EHS industry, with specific experience in air emissions management systems, information management systems, and data integration. He commonly fills the role of sponsor on large scale implementation projects, consults on Environmental, Social, and Governance (ESG) strategy and data management, and has performed the role of solution architect on many air emissions system implementations. As the founder and chief executive officer (CEO) of Frostbyte Consulting, Steven was responsible for strategy, partnerships, and business development. Under Steven’s leadership, Frostbyte grew into a company that delivers ESG and EHS advisory and information systems globally across all industry sectors.

Steven can be reached at [email protected] or +1 368 209 1012.