If building a strong net-zero strategy was as simple as balancing your minus and plus columns, reducing emissions and mitigating the effects of the climate crisis would be a lot easier. Realistically however, the viability of your company’s plan may depend as much on offset market dynamics as any other commodity your organisation relies upon.
Very soon, many more companies will be required to report on the progress of their net-zero pledges, and this increased need to comply with mandatory regulation is likely to drive changes in carbon offset prices and the structure of the market. If you don’t plan adequately now, you may literally pay for it later.
In January 2022, research company BloombergNEF released its inaugural Long-Term Carbon Offset Outlook, sketching out three potential scenarios that could play out in the offsets market. If we follow a – from our point of view likely – path where the market of high quality, permanent drawdown solutions is undersupplied as we approach the end of this decade, increased demand could see offset prices hit or exceed $200 per ton by 2030.
In this case, any company that relies on neutralising their unabated emissions rather than opting for more proactive reductions will quickly hit a prohibitive financial wall.
The planet and its people will thank companies that invest in actual reductions to get to net-zero – as will your business’ bottom line, when you get ahead of potentially costly market eventualities. Of course, to do this in a meaningful, effective way, you have to first fully understand your organisation’s climate footprint.
The best, and really only, means of doing this is by weaving smart climate intelligence into every level and decision point across your operations and supply chain. Embedding carbon metrics into the fundamental function of your organisation means you’ll have clearer insight about where you can reduce emissions quickly, and how you can invest in offsets to help heal the impact of currently unavoidable residual emissions.
The SBTi definition of net-zero backs this combination of reductions and removals, making it clear that net-zero certification will not be granted without emissions being significantly reduced and permanently drawn down from the atmosphere. Therefore, going back to market dynamics, the idea of carbon offsets can no longer include “avoided emissions”. Solutions must only come in the form of nature-based and engineered removals, lasting somewhere between 40 to 80 years and over 1,000 years, respectively.
If you are investing in offsets, it’s important to focus on additionality,—meaning the impact of an intervention when compared to what would have happened without it—quality, recency, and long-term durability of the solution. Growing your understanding of your organisation’s environmental impact as well as the ins, outs and eventualities of the offsets market are essential to good decision-making that enables organisations to make good on carbon neutral (i.e. Scope 1 & 2 emissions) or net-zero (i.e Scope 1, 2 & 3 emissions) strategies.
However, we know that offsets are not an adequate substitute for meaningful reductions. As Hoesung Lee, Chair of the IPCC, puts it “Half measures are no longer an option.” Tracking emissions when and where they happen will enable your company to move beyond the balance sheet toward genuinely climate-positive decision-making. Market-proofing your impact means starting with smart reductions.