The role of carbon offsetting and carbon insetting
About a third of all human-caused greenhouse gas (GHG) emissions are linked to food – from growing it, to transporting it, to disposing of it – according to the United Nations. The UN also says reducing emissions from the food sector requires changes at all stages, from producers to consumers.
There are a variety of strategies available to your food and beverage business, but the fundamentals of decarbonization are ‘reduce’, ‘replace’, ‘remove’. Reduction includes cutting wastage in production, or seeking carbon efficiencies in existing operations. The ‘replacing’ element might involve assessing those capital investments most likely to deliver efficient reductions in your emissions, such as replacing carbon-intensive key ingredients and recipes with more plant-based elements. The final ‘remove’ element concerns carbon capture and carbon offsetting.
In this insight, we examine:
Many food and beverage organizations may struggle to fully eliminate their emissions or reduce them as quickly as they would like and could turn to carbon offsetting to compensate for their emissions.
In carbon offsetting, a ‘carbon credit’ represents one metric ton of CO2 or equivalent GHG reduced, removed or avoided from the atmosphere from a certified emission reduction project, with some companies purchasing carbon credits from the voluntary carbon market.
Some of the world’s biggest food and beverage companies are using carbon credits. However, recent evidence indicates there could be significant issues with some carbon offset schemes.
A 2023 investigation by the Guardian and researchers from Corporate Accountability analyzed the 50 emission offset projects that have sold the most carbon credits in the global market. This research suggests many offsetting schemes may be exaggerating their climate benefits and underestimating potential harms.
The Science Based Targets initiative (SBTi) provides companies with clearly defined paths to reduce emissions in-line with the Paris Agreement goals. To be aligned to the SBTi, you can only offset up to 10% of your emissions to meet your reduction targets. This means you should view these and any other ‘removal’ elements of your decarbonization strategy as only playing a supporting role and/or being a measure of last resort.
You should also consider the potential risks around offsetting, in particular the credibility of projects and the lifetime of these strategies. For example, how might it impact your overall target if the trees you used for offset purposes were destroyed in a forest fire (see below on the role of non-payment insurance for pre-paid carbon credits)?
The World Economic Forum (WEF) says there is an urgent need for companies and countries alike to identify high-integrity carbon offset projects that adhere to robust climate methodologies. In executing due diligence before engaging with carbon offset projects, you could turn to accreditation schemes to ensure your chosen carbon offset scheme is delivering against carbon-cutting expectations. The Integrity Council for the Voluntary Carbon Market, for example, published its global benchmark for ‘high-integrity carbon credits’ this year, completing the framework it will use to assess whether carbon credits meet its Core Carbon Principles (CCPs).
As explained above, buying carbon credits is not without risks and recent investigations point to some of the issues at play in what is an emerging, voluntary market. However, it is possible to mitigate the risk of forward-purchased credits from verified emission reduction projects not being delivered.
Let’s say you identify a reforestation project and forward-purchase credits from it. You could then buy insurance to replace non-delivered carbon credits with credits from a pool of suppliers. Should a forest fire destroy a section of the forest and cause a carbon-credit shortfall, your cover could replace these lost credits or provide financial indemnity and reimburse the pre-payment amount.
Put simply, carbon ‘insetting’ focuses on doing ‘greater good,’ rather than doing ‘less bad’ within your value chain, according to WEF. This is about making interventions across your value chain designed to generate GHG emissions reductions or carbon removals, while also delivering positive impacts for communities, landscapes and ecosystems.
Insetting can have a significant impact on your decarbonization objectives due to the size and emissions generated in your supply chain. The International Platform for Insetting highlights an example of insetting in the food and beverage sector of Nespresso, which used agroforestry for carbon insetting. To boost the resilience of local communities in the regions where the organization sources coffee, it planted native trees on coffee farms and the surrounding landscapes to deliver enhanced water provision, biodiversity conservation and soil health while also protecting the quality of coffee, for which farmers receive a premium. The trees act as ‘natural carbon sinks,’ compensating, it’s reported, for residual GHG emissions that cannot be reduced, with this “compensation mechanism” financing the transition of coffee farms into agroforestry models.
Together, both offsetting and insetting have a role to play in your decarbonization and wider climate and ESG strategies, with the possibility of mitigating the risks of carbon offsetting by due diligence on the integrity of schemes and insuring against carbon credit shortfall. However, neither can nor should replace your efforts to reduce your direct emissions.
For smarter ways to manage decarbonization risks and opportunities, get in touch.
