Carbon accounting, carbon credits and offsets

Last updated: 7 November 2023 at 18:47

Carbon credits and offsets are one of the more contentious means to transition to net zero. For example, a September 2023 Guardian article stated that “a total of 39 of the top 50 emission offset projects, or 78% of them, were categorised as likely junk or worthless due to one or more fundamental failing that undermines its promised emission cuts”. So where do carbon credits fit in the sustainability journey for Createchs?

The phrases "carbon credits" and "carbon offsets" describe “carbon accounting” approaches that attempt to compensate for the production of greenhouse gases (GHGs) emissions. While most companies focus on controlling their own processes, some choose to offset emissions throughout their value chain for social responsibility reasons.

The two phrases refer to different but related accounting mechanisms so are often used interchangeably. Both work by allowing companies to buy and trade certificates or fund projects that counterbalance CO2 and other GHG emissions by carbon removal (sequestration), emission reduction and avoidance. To effectively support your net zero or net positive journey, it is crucial to understand their distinct purposes and the advantages and disadvantages of using them before making a purchase of credits or offsets:

Carbon offsets remove greenhouse gases (GHGs) from the air, typically by tree planting and habitat restoration schemes (to sequester CO2). Offsets can also include renewable energy and recycling projects. With offsets, companies voluntarily purchase sufficient offsets to balance out emissions from their own activities.
Carbon credits help reduce GHG emissions by creating economic disincentives for emitting them into the air. Carbon credits are traded on two types of specialist carbon markets. Compliance markets are government backed (such as the European Union’s Emissions Trading System) and regulated to enforce allowances and emission caps for specific industries. In compliance markets, a company that emits less their allowance, they can trade their credits with someone else. There are only a handful of compliance markets worldwide. The other type of market is voluntary and based on the development of environmental projects. These markets are created and run by a wide variety of companies, non-profit organisations, and governments. In these markets, there is no cap or allowance involved, and there is a wide variety of projects available. Also, there are no centralised voluntary markets, so there are many sellers, brokers and exchanges to choose between.

Currently, offsets are the most relevant mechanism for Createchs. However, although offsets can have potential value for Createchs, the priority should be reducing a company's emissions and those within their value chain. Offsets are a supplement to, not a replacement for, emission reductions and need to be tracked as part of a robust carbon accounting approach.

The discipline of carbon accounting is a key tool to reduce GHG emissions. At its core, carbon accounting involves quantifying the amount of CO2 and other GHG emissions for which an organisation is responsible and tracking how emissions change. The most important benefit to track is the tonnes of direct emissions (i.e. those identified in the Greenhouse Gas Protocol as Scope 1) removed and permanently sequestered using offsets. Future emission avoidance measures should not be counted until they actually occur.

However, in recent years, there is evidence that many offset schemes do not deliver the benefits they claim and may actually cause harm (see Guardian or this 2021 article from Friends of the Earth). Common issues with these schemes include planting trees that are unsuitable or die, schemes where activities such as logging are displaced elsewhere, and habitat restoration that is not viable in the longer term. Given the debate about the usefulness of many schemes, it is therefore important to understand the pros and cons:

Pros	Cons
Carbon Accounting
Allows for the measurement and management of carbon emissions.	Can be complex and resource-intensive to implement.
Enables benchmarking and monitoring of progress in emissions reduction.	May not capture all sources of emissions, particularly indirect ones.
Carbon Credits and Offsets
Provide a mechanism for companies to compensate for emissions they can't eliminate from their own operations and the parts of their value chains they control. For example, a Createch using generative AI might need to offset their data centre emissions until they can switch to a greener supplier. Or transitioning to low-carbon or carbon-neutral processes may require significant investments.	The effectiveness of offsets can be hard to measure and verify.
Can support environmental and social projects that may not otherwise be feasible.	Risk of "greenwashing," or appearing more eco-friendly than is actually the case.
Drive investment in renewable energy, reforestation, and other climate-friendly projects.	May inadvertently incentivise companies to maintain their current levels of emissions.

If a Createch is unable to reduce emissions further and must resort to offset offsets, here is a checklist to making wise choices:

Research and Validation: Companies should prioritise purchasing offsets from projects that are validated by reputable third-party organisations (for example, the Gold Standard established by the World Wildlife Fund to certify energy efficiency, renewable energy, and waste management projects). This ensures that the projects are more likely to achieve the promised emissions reductions and broader sustainable development goals.
Choose High-Quality Projects: Not all offsets are created equal. Companies should invest in high-quality projects with clear and measurable benefits, such as reforestation projects that also enhance biodiversity or renewable energy projects that provide local employment.
Avoid Double Counting: Ensure that another entity has not claimed the carbon offsets purchased. Double counting diminishes the overall impact and undermines the credibility of the offset system.
Transparency: Be open about the quantity and type of offsets purchased, and how they fit into the overall carbon reduction strategy. This can be achieved by releasing regular sustainability reports and being open to audits.
Local Impact: When possible, choose offset projects that not only reduce carbon but also have positive local impacts, such as community development, job creation, or conservation efforts.
Regularly Review and Update: The world of carbon offsets is evolving rapidly. Companies should periodically review and update their offset strategy to ensure they are making the most impactful and responsible choices.
Engage Stakeholders: Engage with stakeholders, including employees, customers, and investors, to gather feedback and ensure that the offset strategy aligns with broader sustainability goals.

We don’t make recommendations of who to approach for offsets, but from our research, Ecologi is one example of a business with customers in the Creative Industries that offers offsets based on planting trees that includes Albert and Ubisoft among their UK customers. Ecologi also offer certified carbon avoidance and social impact projects that companies can subscribe to.

Finally, remember, while offsets are potentially useful tools in combating climate change, the best strategy is commitment to reducing one's overall carbon footprint through reducing both direct and indirect GHG emissions.

This information is brought to you by the Centre for Sustainable Design (CfSD) at the University for the Creative Arts in the UK. CfSD was established in 1995 in Farnham, Surrey, UK and is based within the Business School for the Creative Industries (BSCI). The Centre has led and participated in a range of high-quality research projects and has organised hundreds of conferences, workshops and training courses in Europe. CfSD works with partners in Europe, Asia, and North America to deliver high quality results.

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