The transition to a low-carbon economy is increasingly taking root in the public debate and even in the daily life of economic agents (States, businesses and individuals) and the subject of carbon offsetting is regularly raised. We invite you to come back to the definition of this concept, its usefulness, its limits and the best practices to follow.

The legacy of the Kyoto protocol

In December 1997, the Conference of the Parties (COP), under the aegis of the UN, adopted a major text that imposes obligations to reduce greenhouse gas (GHG) emissions.

It is mainly developed countries — Annex I countries — that commit to reducing their emissions by setting binding targets (national budgets). In addition to efforts to reduce their GHG emissions, developed countries can participate financially in projects to reduce the emissions of organizations located in other countries (MOC, CDM).

Voluntary carbon offsetting

Voluntary carbon offsetting follows this last logic, since it “thus consists in financing a project to reduce or sequester GHG emissions for which one is not directly responsible”.

For each project, the project leader and the certification body determine the quantity of greenhouse gases that will be avoided or sequestered, thus fixing the number of carbon credits that issued for the project in question, a carbon credit representing one ton of CO2-equivalent avoided or sequestered.

It is necessary to clearly distinguish between the “regulatory” (mandatory) carbon market and the so-called “voluntary” carbon market, which interests us here:

• The regulatory market generally covers the sectors of activity that emit the most GHGs (energy, steel, cement, etc.) and imposes numerical objectives to be respected (“emission quotas”) on the companies concerned — in the European Union, this is the Emissions Trading System (EU ETS in English), which covers more than 40% of total EU emissions.
• The voluntary carbon compensation market, which is open to all economic agents but is aimed in particular at stakeholders who are not subject to a legal or regulatory constraint limiting their GHG emissions (businesses, individuals, etc.).

The quality principles of a compensation project

To be valid and relevant, a compensation project must respect several cardinal principles:

• Additionality: the project must generate emissions reductions that would not have occurred without the certification and without the carbon financing found thanks to it. As a result, only emission reductions resulting from actions that go beyond a reference scenario established by the methodology used are recorded.
• Measurability: the project must be measurable, that is, the greenhouse gas emissions captured or reduced can be quantified.
• Permanence: the project must be long-term.
• Verifiability: the progress of the project and its evolution over time must be easily and regularly checked.

A lever for action to reach global carbon neutrality more quickly

Compensation is part of the avoid-reduce-compensate sequence, after measuring the carbon impact of an organization. Thus, by going beyond emissions reductions, voluntary carbon offsetting is a way to reach the goal of global carbon neutrality more quickly.

The main players in the carbon offset market

We can distinguish 4 main players on the market:

• Certification bodies, which verify that a project meets the defined objectives and validate the reduction of GHG emissions, and therefore the number of associated carbon credits.
• Project leaders (or developers), who concretely implement the project.
• Intermediaries, who connect sellers and buyers of carbon credits — some entities can act as both project developers and intermediaries.
• Final buyers, who acquire carbon credits as part of their low-carbon transition process (mainly businesses and individuals).

Understand the role of compensation in order to value it

Some actors involved in carbon offsetting are sometimes singled out for the communication made around this approach, and we explain why:

• The term “compensation” may falsely suggest that buying carbon credits is equivalent to cancelling an organization's emissions, creating a risk that it will neglect efforts to reduce its greenhouse gas (GHG) emissions.
• Some organizations highlight their compensation approach to claim to be “0-carbon”, but carbon accounting methodologies are formal: you cannot subtract emissions offset elsewhere from your own GHG emissions.

To promote a carbon offset approach, it is therefore necessary to include it in a global carbon transition approach (measuring, avoiding-reducing, offsetting) and to be transparent about the various actions undertaken (reductions, financing of compensation projects) and not to focus only on a “purely arithmetic” vision of carbon neutrality, as recalled by ADEME in an opinion delivered in early 2022.

To conclude, the advantages of carbon offsetting are obvious: offsetting makes it possible to direct funds towards low-carbon development, as Carbone4 notes, it is therefore a relevant lever for achieving global carbon neutrality more quickly. However, it is a question of integrating compensation into a global low-carbon transition approach and of communicating transparently on the various actions undertaken by an organization, while avoiding focusing only on compensation.