This is the make-or-break decade for climate action, and companies are leading the charge. But while there’s now wide consensus on the initial steps—measuring footprints, sourcing clean power, and decarbonizing supply chains—there’s still a lot of confusion about what comes after.
For companies with carbon neutral or net zero goals, emissions cuts aren’t enough: remaining output must be neutralized in some way. Trickily though, carbon credits fall along a confusing spectrum of impact and availability: some are empty greenwashing, and others are critical to the climate solution.
This guide is about the real-world impact of each credit type, and how to source them in a way that meets corporate goals while making a meaningful difference in the climate fight.
Carbon offsets vs. carbon removal
Once a company cuts emissions as heavily as they can, what do they do about the remainder?
- Some companies pay others to avoid/reduce equal amounts of their own emissions. These are carbon offsets, which are typically associated with carbon neutral goals.
- Some companies pay for the extraction (and storage!) of carbon from the atmosphere. These are carbon removal credits, which are a core part of net zero goals.
The difference may seem semantic, but it matters. To build a net zero carbon world, we need to remove billions of tonnes of CO2e by the middle of the century. That’ll only happen if companies and governments fund carbon removal solutions today so that they can be deployed cost-effectively at scale tomorrow. We can’t offset our way to a true zero carbon world.
This doesn’t mean that offsets can’t be part of the solution though, especially within a portfolio of carbon credits balanced between impact and cost.
Good offsets vs. bad offsets
Take an example low-impact offset program: a sourcer identifies a forest either unappealing to loggers or already being preserved for other reasons, then offers the owners additional income to continue with their plan to not log. These credits are then sold for bargain prices (a few dollars per tonne) to companies willing to trade impact for cost savings. Critically, no additional deforestation or carbon release are prevented by the sale of these credits.
By contrast, high-impact offset programs have mechanisms to ensure:
- Additionality. Buyers shouldn’t pay for something that would have likely happened anyway. High-additionality offsets drive outcomes only made possible by the revenues from the purchase of those credits.
- Permanence. It’s no use paying for avoided emissions if the carbon is going to leak back into the atmosphere later anyway. The best programs have the long-term in mind.
While the most widely-known credits involve forests, some of the highest-impact programs involve other greenhouse gases. Startups like Tradewater are working to safely eliminate refrigerants that have up to 11,000x the warming capacity of CO2. This is highly additional work that no one otherwise has an incentive to do, that’s done via permanent destruction where buyers don’t need to worry about project abandonment or long-term containment.
Carbon removal 101
Removal is about taking already-emitted carbon from the air and sequestering it. These projects come in two basic flavors:
- Natural solutions that improve nature’s ability to do what it already does (e.g., planting more trees; getting soil to store extra carbon)
- Frontier carbon removal solutions that suck CO2 from the atmosphere directly through engineered means
Natural solutions are critical: we need to restore the earth’s carbon sinks to balance, and they offer immediate, low-cost impact. But natural solutions won’t get us all the way: there’s only so much arable land, and if we’re going to limit global warming to 1.5C or less, we need engineered solutions that can scale up to annual removals of at least 10% of current global emissions.
Some of the most promising projects include:
- Direct air capture: Startups like Carbon Engineering and Climeworks are working to isolate and trap CO2 from the air directly for either re-use or permanent storage.
- Bio-oil: Charm is putting oil back in the ground, using plants to soak up CO2 that’s then converted into biomass and pumped deep into the earth.
- Kelp sequestration: Running Tide is creating small islands of CO2-gobbling kelp, which ultimately sink to the bottom of the ocean where they remain for thousands of years.
- Enhanced weathering: Heirloom heats materials like limestone to cause CO2 release (100% of which is captured), then exposes the decarbonated product to the outside air where natural reactions pull in fresh CO2.
While these technologies have already been validated, the challenge is bending the cost curve. Most are now priced between $500-$1,000+/tn, and only produce small quantities of credits. We need to drive prices down to $100/tn this decade while increasing scale hundreds of times over.
The good news is that we’ve done this before: the costs of solar power have dropped 2,000x since the late 60s. And we’ve seen similar cost curves with the price of computing and getting satellites into orbit. We just have to go much faster this time.
The key strategy that will get us there: more companies opting to join Stripe and Shopify in pre-purchasing future removal credits today. This is what solves the chicken and egg problem and speeds up the R&D and iteration we need for global scaling. And every company can help!
Putting it all together
In a nutshell:
- Bad carbon offsets = “greenwashing” with little-to-no impact
- Good carbon offsets = a key part of a balanced carbon credit portfolio
- Natural carbon removal = a cost-effective way to drive near-term impact
- Frontier carbon removal = the gold standard; critical to a net zero world
When planning these purchases, there are a few things to consider:
How much can you reduce your carbon footprint through operational changes like procuring clean power in order to limit the number of carbon credits you’ll need?
- What are the goals of your carbon credit purchase: maximizing impact, minimizing costs, or supporting a particular project type or location that’s aligned with your business?
- What’s your target budget or price per tonne of carbon?
- Do you have the bandwidth to source carbon credits yourself, including diligence and contracting, or do you prefer to work with a partner (like Watershed!)?
- Do you need the credits now (e.g. to be carbon neutral in a given year), or later, (e.g. for a longer-term net zero program or science-based target)?
Hopefully these guidelines help you choose the right mix of carbon offsets and removal credits for your particular plan and budget. If Watershed can help with any of this, from defining a plan to sourcing vetted, high-impact carbon credits, please get in touch!