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all articles 29. June 2020

Climate compensation: What possibilities do companies have for offsetting CO2 emissions?

Climate neutral business operations play an important role for an increasing number of companies. It may be because it is regarded as a competitive factor or - as in our case - out of pure conviction and the desire to stop climate change and make the world a little bit better.

When it comes to concrete measures for becoming carbon neutral, one possibility is to offset the emissions of greenhouse gases.

In this blog post we take a look at the idea behind compensating for CO2 emissions, how it works and what it can actually do for the climate.

What is the idea behind CO2 compensation?

Every person, just like every company, leaves a CO2 footprint. This is actually quite normal and cannot be avoided. The problem today is that the footprints left by our resource-wasting lifestyle are far too large to be offset by the environment.

There are three ways that we can neutralize our carbon footprints. By:

1) avoiding,

2) reducing,

3) or compensating for greenhouse gases.

And in precisely that order.

The German Federal Environment Agency, for example, also emphasises that compensation is only a last resort. For a company, it is above all a matter of avoiding or reducing a CO2 emissions by thoroughly examining its own behaviour or processes and adjusting them accordingly.

Typical examples of a change in behaviour in the corporate or private sector would be to use other means of transport rather than by air, or to refrain from consuming meat and dairy products. Air travel and factory farming are both responsible for a large proportion of CO2 emissions.

It is not always easy to determine how large your own CO2 footprint actually is and what causes it. Useful tools for this purpose are CO2 calculators from the National Energy Foundation, the WWF or the CO2 Bierdeckel from Grubengold.

Only when your own CO2 emissions can no longer be avoided or reduced should you start thinking about ways of offsetting the remaining greenhouse gases.

For the climate, it is not important where in the world greenhouse gases are emitted or reduced. If, for example, I produce greenhouse gases in Germany, I can offset them through a climate protection project in Rwanda that helps to avoid future CO2 emissions.

How exactly does CO2 compensation work?

Implementing such climate projects naturally involves costs. The principle of CO2 compensation is based on the fact that emissions can be expressed financially in euros, and that it is possible to measure how much a company has to pay to remain climate-neutral. So far there is no universal formula, but some standards have been established.

It is crucial that the calculations are understandable and transparent.

These standards have been established:

1) Gold Standard

The Gold Standard was initiated by the WWF together with other environmental associations and is considered the strictest standard. In addition to the actual emissions, it includes other additional benefits such as job creation or health aspects in the evaluation of projects.

2) Clean Development Mechanism (CDM) 

The CDM is the official standard for emission certificates. It was adopted under the Kyoto Protocol. To comply with it, climate projects must undergo a very complex recognition process by the UN Climate Secretariat.

3) Verified Carbon Standard (VCS) 

The VCS is the most widely used voluntary standard worldwide for offsetting CO2 emissions.

The compensation of CO2 emissions is controlled by the sale of so-called certificates. Once you have decided on a climate project, you purchase the corresponding certificates, which stand for certain amounts of CO2 that will be saved by the project.

An important requirement is that the particular project could not be implemented without the proceeds from the certificates.

What are the options for compensating for CO2 emissions?

There are different types of projects initiated by providers of emission allowances. In its brochure, the German federal environment agency distinguishes between the following project types:

  • Energy projects: use of renewable energy and energy efficiency
  • Projects for the reduction or integration of CO2 in the areas of agriculture, forests and moors
  • Projects to reduce emissions from deforestation and forest degradation by avoiding deforestation
  • Further projects in areas such as emissions from waste and landfill, heaving industry or transport

Which providers are there?

These are the most important German providers from which companies or private individuals can purchase certificates to compensate their own CO2 emissions.

With the proceeds from the sale of the certificates, the suppliers partly finance their own climate projects, especially in developing countries. Examples of such projects are the creation of efficient cookers and cooking stoves in India, Kenya or Rwanda, renewable energies with biogas in India, solar home systems in Lesotho, etc.

Just trading in indulgences? When does climate compensation make sense?

CO2 compensation is also under criticism, not least because of what climate activist Greta Thunberg calls a "climate compensation bluff", with the term "indulgence trading" being frequently used.

The lack of clear regulations between nations makes the situation even more difficult.

The criticism is particularly true when climate compensation is used as the only means of minimising carbon footprint.

If avoidance and reduction are the top priority and only those emissions that really cannot be avoided are offset by purchasing emission certificates, then climate compensation can certainly be a sensible method, even if it still has a niche existence.

It is a fact that the climate projects financed by the above-mentioned providers would not exist at all without the proceeds from emission certificates. And many of these projects not only result in lower CO2 emissions, but also create jobs and better health for people in developing countries. 

And that's a good thing.

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