Opinion: carbon offsetting will become increasingly important for companies to meet their environmental commitments

The world is changing rapidly, both environmentally and socially. As global temperatures increase, and extreme whether events become more frequent, individuals are demanding action. This is impacting businesses in two ways. First consumers are increasingly choosing products that are more environmentally friendly. This is reflected in marketing campaigns making tenuous claims about their environmental impact as well as purchasing trends.

Secondly, it is impacting businesses through policy. Governments around the world are now legally forcing companies to reduce their carbon emissions. Carbon offsetting, sometimes referred to as carbon credits, can both satisfy marketing needs and legal requirements, but this approach is complicated and varies by industry.

Firstly what is a carbon offset? In the simplest terms, if you are making a product or providing a service that negatively impacts the environment, you can pay for someone else to balance that negative impact with a positive one. Maybe you are feeling guilty about flying to New York so you can buy som peace of mind by paying someone to plant a tree. Companies can engage in a similar system but, where your purchase was voluntary, theirs is usually enforced. This has become big business with some estimates suggesting it will be worth $100 billion by 2030.

This sounds perfect, use well established market based systems and spend millions so that a company can claim to be carbon neutral*. That asterisk is important though. It essentially allows you to make a claim and then bury the finer details in tiny print at the bottom of the page.

Here we see an example from VW's ID3. By front loading 'Net Carbon Neutral’ and ‘CO2 emissions: 0g/km’ the company is making substantial claims. Claims that they can defend, with a carefully placed *. To be clear, EVs are still substantially better for the environment than traditional combustion cars, and they will be better for your pocket, but that does not mean that consumers should trust the marketing material. Especially from a company that has made some shaky claims about environmental impacts in the past.

It appears from VW's promotional documents that the company’s primary method for carbon offsetting is through protection and restoration of forests. Similar, and arguably less credible, systems have been used by fossil fuel providers, although details on the amount and nature of this approach are scarce. A recently released Greenpeace report claims that the benefits of this offsetting have been greatly exaggerated and that the effectiveness of these projects is difficult to calculate based on lack of data.

These two claims, one from a major car manufacturer and one from an environmental activist group, likely represent some of the most polarised views within the public sphere. The truth is likely somewhere in the middle, and likely somewhat complex. But that doesn’t make a compelling marketing campaign or a good social media post.

The European Union is currently developing systems to increase the credibility of carbon offsetting. These efforts are designed to place environmental impact at the centre of our economy and society. This will see companies, and countries, penalised for breaching environmental targets. But it could also see considerable additional income for those that contribute positively to the environment.

The challenge for governments is ensuring that carbon offsetting proceeds lead to environmental benefits, while preventing cynical greenwashing by corporations

Tesla is one example of how this system can result in considerable financial advantages. In 2020, Tesla generated over 7%, or $428 million, of its revenue from carbon credits. The company expects this to increase in the short term as automakers struggle to transfer their products to lower emission propulsion systems.

This money mainly came from the Fiat-Chrysler group which has been one of the slowest of the major automakers to adapt to the new regulations. At a total cost of $1.1 billion, Fiat-Chrysler will remain compliant until the end of 2023. This within-industry trading is an example of one of the more easily quantified and regulated mechanisms of carbon offsetting. The ultimate outcome is an acceleration in the manufacture and development of electric vehicles, which will have considerable long-term benefit.

Ultimately, it looks as if carbon offsetting will become an increasingly important mechanism for companies to meet their environmental commitments for the foreseeable future. This will lead to many billions of euro with enormous potential. The challenge for governments around the world is in ensuring that the proceeds lead to long term tangible environmental benefits, while simultaneously preventing cynical greenwashing by corporations*.

*This topic is complex. Over simplistic conclusions are usually the most appealing, but also usually incorrect. Always beware of the asterisk.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ