Beyond offsetting (part 1): Why we need carbon philanthropy, not carbon offsets, to solve the climate crisis
Based on the new IPCC report, “Mitigation of Climate Change” (WG3), it is clear that two things must happen if we are to have a chance of limiting global temperature rise to 1.5°C and avoiding catastrophic climate impacts.
First, we must rapidly switch from fossil fuels to renewable energy sources, cutting total carbon dioxide (CO2) emissions in half within a decade. Second, we must rapidly scale land restoration efforts in order to remove existing CO2 from the atmosphere.
This is not an either-or situation. It’s life-or-death.
Both of these efforts will require large amounts of capital. As detailed in my piece on the One Earth Climate Model, “$1.5 trillion for 1.5°C”, we need to triple current investments in renewable energy and deploy an estimated $70 billion per year over the decade for ecosystem restoration to achieve the goals of the Paris Climate Agreement. The problem is, of course, we are nowhere near those levels of funding.
This is why many are looking to the private sector to step in where governments have so far failed. And the private sector has responded with thousands of companies now pledging “net zero” emissions by 2050 (in line with a 50% chance of limiting temperatures to 1.5°C). Hundreds more companies have pledged net zero by 2040 (the Climate Pledge is in line with a good 67% chance of 1.5°C), and a handful have pledged net zero by 2030.
The problem is that many of these pledges are full of hot air. According to the Carbon Disclosure Project, of the more than 13,000 companies that report on their carbon emissions, only 1% provide information on all 24 science-based indicators. The NewClimate Institute (NCI) recently released its 2022 Corporate Climate Responsibility report card (PDF), which surveyed 25 of the world’s largest companies to assess the integrity of net zero pledges. It didn’t paint a good picture.
The report found that pledges from these companies, many of which are considered climate champions, would amount to about a 40% reduction in emissions an average, not the 100% reduction implied by a true net zero commitment. Effectively these companies, even though they may have good intentions, are greenwashing. None of the companies were found to have a “high-integrity” pledge, and only four had a moderate level of integrity. The rest had low or very low integrity:
At the heart of the net zero problem is the carbon offset. As I detailed in my piece “Showdown at the Nature Zone”, the social license for carbon offsets has been challenged by civil society organizations and academics alike.
One recent analysis exposed a huge inventory of legacy carbon credits on voluntary markets, 85% of which were deemed “junk” credits that provide no additional mitigation but can be purchased cheaply by companies to claim carbon neutrality. Some of these credits are worse than junk, even supporting expanded fossil fuel extraction. Another report examined California’s verified forest carbon offsets program, widely considered to be the most rigorous in the world, finding a huge over-crediting problem with $410 million spent on non-additional credits. Even if some of the credits are valid, they are still so incredibly cheap (many only $2 per tonne) that they create a perverse incentive for companies to delay direct mitigation within their own value chains. This is why Greenpeace and other NGOs are calling carbon offsetting a “global scam” that ultimately does more harm than good.
Carbon Philanthropy: an alternative to traditional offsetting
For companies seeking to get on a Paris-aligned pathway, NewClimate and a growing number of NGOs recommend “climate contributions” as an alternative to traditional offsetting. A climate contribution is a financial commitment to fund on-the-ground projects that have a tangible climate benefit but cannot be purchased as proof of a permanent neutralization of the company’s carbon emissions. NCI defined four main attributes of a corporate climate contribution. It must..
- Provide support to projects for climate change mitigation (beyond investments within the company’s value chain);
- Derive the quantity of funding using a company-wide internal price on carbon in line with the Paris Agreement goal of a 1.5°C limit on global temperature rise;
- Disclose details on the amount of funding provided, recipients of funding for the project, and anticipated impact;
- Claim only to make a climate contribution without claiming ownership of offsets that could be used to make a carbon neutralization claim.
In essence, this is a new form of corporate giving linked to a carbon KPI (key performance indicator). Let’s call it “carbon philanthropy”. Instead of buying cheap credits as a way to reduce its greenhouse gas emissions on paper, the company utilizes a charitable commitment as a means to push the company to adopt an internal price on carbon. This approach incentivizes direct emissions reductions within the company’s value chain, while simultaneously providing urgently needed capital for important projects that would struggle to procure funds through standard offsetting schemes. The approach allows companies to authentically communicate about their commitment to solving the climate crisis, while avoiding the pitfalls associated with carbon offsets.
Carbon philanthropy is advantageous to companies for an array of reasons. For starters, it inoculates the company against accusations of greenwashing. As we know, many carbon credits validated through third-party certification programs are still rife with problems — double counting, uncertain additionality, unclear benefit-sharing, junk credits, lack of transparency, questionable permanence, etc. And scrutiny on these programs will only increase, especially as investment banks and other actors focusing on quick financial gain rush to secure land and carbon concessions, which many human rights groups warn could lead to the displacement of Indigenous peoples and local communities.
Secondly, it means the company can enjoy far greater flexibility in the types of activities it supports, spanning a broad range of grassroots efforts, such as reforestation, agroforestry, ecosystem regeneration, species rewilding, and urban parks. The process of developing traditional forest credits is enormously expensive and time-consuming, which means only the “big boys” with large amounts of capital and huge tracks of land get prioritized. This leaves thousands of terrific smaller projects, often led by local NGOs or Indigenous communities on the frontlines of the climate crisis, starving for resources. (One Earth has a Project Marketplace to document some of these great initiatives).
The carbon philanthropy approach also positions the company on the leading edge of climate action by going above and beyond what’s currently expected based on the ESG status quo. There’s no reason a company shouldn’t strive to do much better than net zero and in fact some companies, like Microsoft, are now deciding to pay off their “carbon debt” by compensating for past emissions. NewClimate encourages companies to compete with each other for climate outcomes:
“The contribution claim model is aligned with the concept of ratcheting ambition through a ‘race to the top’ concept that underpins the Paris Agreement. If companies are free to self-determine their own ambition… this may result in a race to demonstrate the highest ambition, without limits. This would mark a significant shift from the offsetting approach in which many companies ‘race to the bottom’ and exploit loopholes to deliver a fixed target at the lowest cost.”
With clear and transparent communications, a company can project its ambition to meet or exceed the Paris Agreement goals, while showcasing the positive social and environmental impact made possible through its charitable grants program. Carbon philanthropy allows a company to get much more specific about what it’s doing both within its own value chain and for the greater good of humanity, and by doing so it becomes a beacon of hope, helping to tell the story of the great transformation that’s underway to build a truly sustainable future.
How to get going on a carbon philanthropy program? In the next part I’ll define what “Paris aligned” actually means (and some other foundational concepts), and then I’ll run through a scenario of what it might look like for a company seeking to achieve net zero emissions by 2040 through an internal price on carbon and climate compensations.
