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Carbon footprint offsetting, the right way.

What exactly is carbon offsetting?
How to calculate CO2 emissions?  

Welcome to the Urbanista blog where we discuss water management challenges of Nordic cities. From safe drinking water distribution and stormwater collection, to building sustainable urban living environments. The Urbanista blog is based on the Urbanista podcast episodes. This post is based on the interview with Nicklas Kaskeala, Co-Founder & Chief Impact Officer at Compensate. Compensate combats climate change by offering everyone easy access to the highest quality carbon projects.

Listen to the full interview

What is carbon offsetting? 

In this episode we talk with Nicklas Kaskeala, Co-Founder & Chief Impact Officer at Compensate. Compensate combats climate change by offering everyone easy access to the highest quality carbon projects. They provide tools to calculate and offset emissions both for businesses and individuals.

Our conversation starts by explaining carbon offsetting, how it works and how it is regulated. Then we look at some of the projects used, from reforestation to kelp and biochar; and finally, talk about who is using offsetting and who should be using it.  

Watch the full interview!

Who are you and what do you do?

- Hi, my name is Niklas Kaskeala, and I’m the Chief Impact Officer at compensate, which is a Finnish carbon offset service provider. We work in the voluntary carbon market where companies can take responsibility for those emissions that they cannot completely avoid.

What exactly is carbon offsetting?

- It’s a way to take responsibility for those emissions you can’t completely avoid or minimise. Obviously the number one solution to the climate crisis is to radically decarbonise and reach almost zero emissions as soon as possible. But every day, you and I and companies around the world are still causing greenhouse emissions, so carbon offsetting is a way to try to take responsibility for, and counterbalance those emissions by supporting projects that either sequester or remove carbon from the atmosphere, or maybe support emission reductions in some other way. These are activities that happen outside the value chain of companies: a service you can purchase from different actors, like a cleaning service. This is a way to try to counterbalance that negative impact caused by emitting greenhouse gases that contribute to the climate crisis in a negative way.
It’s still a very small market, but it’s growing fast because companies that are setting emissions targets have realised they will not meet these targets just with emission reductions. Basically, at this point in the climate crisis we have reached the point where emission reduction alone is not enough.

So, despite a company’s efforts to reduce its carbon emissions (electric vehicles, green electricity, etc) there is still a footprint from that company? And that’s where carbon offsetting comes into play?

- Yes, but I would emphasise that it is not an alternative to emission reductions, it’s something you should do on top of those reductions. All companies should try to align their emissions to climate science and the 1.5 degree goal of the Paris Agreement. The offsetting is a way of going beyond that. Furthermore, carbon neutrality will not be enough. We will need to be carbon negative, so we need to remove a lot of excess carbon from the atmosphere.
If you imagine the earth’s atmosphere as a bath tub, and the greenhouses gases in the atmosphere are the water running into the bathtub. Well, we have had the tap on and the water has been running for centuries, resulting in a situation where the water level is already dangerously high, in fact it is overflowing. The same thing is happening with the atmosphere. We surpassed the safe levels of CO2 concentration in the atmosphere back in 1987, and still today we are still adding, every single day, more CO2 and more greenhouse gases into the atmosphere.
Emission reduction is us turning off the tap a little bit. We should turn it off completely, but that’s impossible in today’s society. We also need to drain out excess water by taking the plug out of the bath, and that is what carbon offsetting can do, remove the excess carbon dioxide from the atmosphere.

So how does carbon offsetting work? How can we drain this ‘water’ from the bath?

- There are thousands of projects around the world which produce carbon credits that can be bought by companies that want to offset their carbon emissions or by individuals, like in the case of airline carbon offsetting. However, most airline offsetting services are purely greenwashing because they don’t calculate the majority of the emissions caused by flying, and/or the offsets that they use are flawed.
Anyway, these projects sequester or remove carbon from the atmosphere by forestation or reforestation, protecting mangroves, or even ‘blue’ carbon projects that are growing kelp to sequester carbon. Either way, there are nature-based solutions. There are also some engineered solutions, like direct air capture machines and storing carbon. So, these projects create carbon credits which can be sold to companies, and the company that has bought them claims that they have counterbalanced their emissions with these credits.
These carbon credits come from projects where the positive impact of that project has already been proved and it has been audited and verified by independent third parties.

How are the credits calculated?

- A simple example is the reforestation of degraded lands, where a project plants trees that sequester and store carbon and after the trees have grown a certain amount, we can calculate how much carbon has been stored. Then an independent third party comes to the project and verifies that there are a certain number of trees, and with certain carbon-curve factors we can determine the climate impact and create carbon credits. This is a simplified example, but in reality it is much more complex.
The main quality characteristic of a good offset project is that it is additional. This means that it would have taken place anyway: it didn’t come about due to policies that are in place in that country, or because it was already economically viable, or it’s a good business case. One example is that there are projects around the world that create carbon credits from renewable energy, but that is already extremely competitive, in fact it’s often more competitive than fossil energy, so creating carbon credits from these projects is not additional, because these projects would have happened anyway. In these cases, carbon credits just make the projects even more profitable than they already were.
So, as a buyer of these carbon credits, you need to be very vigilant to understand that a lot of the credits available are not creating any additional or real climate impact.

How do you, as a company that offers carbon offsetting, deal with the claims that it is just greenwashing?

- Actually, I agree sometimes, because it can often be the case. When it comes to projects, Compensate has created its own criteria to evaluate those that create carbon credits. We’ve done this together with the scientific community and with the help of top climate and forest scientists. There are also some voluntary standards that certify these projects, but we don’t think they do a good enough job so that’s why we wanted to work with the scientific community.
Over the past two and a half years we have evaluated over 170 of the top-tier projects around the world and less than 10% of them pass our due diligence or evaluation process, so that says a lot about the quality on the market.
At the same time, there are good projects and the recent media attention and advocacy we are doing is helping the situation move forward. So, I don’t suggest we abandon this mechanism, but rather take the criticism seriously and work towards improving the market. There is no way we will reach our climate targets without offsetting. We need the offsetting market. It’s just that currently it has some severe flaws and we need a way to navigate which are the good and which are the bad projects.

So how should non-experts evaluate if the offsetting project is a good one?

- If you don’t have the expertise in your company, you need to find a trusted partner. Find a partner that has the expertise and someone who can communicate openly the risks involved and doesn’t hide behind existing standards which don’t offer a guarantee of quality. The problem is that we cannot say this is a bullet-proof solution, there are many flaws, but if you do things right you can still reduce the climate impact. There’s no point in doing offsetting wrong. For some companies, offsetting might be a tick-the-box exercise, in order to say, “Hey, we’ve bought these credits and we’re now fine”, but in reality, there’ll be no climate impact.

You mentioned some voluntary standards. Should these be made mandatory?

- At the moment it is still a very non-regulated market. Because there is little regulation, these voluntary standards have tried to be some sort of assurance of quality. Gold Standard and Verra are two of the biggest on the market and there are probably ten or so others. What they do is audit the projects and make sure that in their opinion, the methodologies are solid and so forth. They are a good starting point and they provide a lot of documentation that we can review when we evaluate them. But, in terms of an assurance of quality; well, we have seen that less than 10% of these projects are good enough for us.
There is regulation coming. Just this week the EU is introducing carbon removal certificates as well as a Green Claims Certificate helping make companies more transparent regarding the carbon claims that they make. There are various international initiatives creating guidelines for best practices, for example a Nordic standard, and another called the Integrity Council for the Voluntary Carbon Market which is trying to create over-arching ‘core carbon principles’ for good quality carbon credits. There are a lot of things going on which hopefully will become real laws in the EU and around the world.
I would say there is an acknowledgement that this is a market that needs to be regulated, because of problems with greenwashing, but the regulators and politicians haven’t yet realised how big this market might grow and how quickly we need to move ahead with the necessary regulation.

What is the Nordic certificate you mentioned?

- Interestingly, just yesterday the Nordic Council of Ministers released a final report on the Nordic guidelines for best practices on the use of voluntary carbon offsetting, and it defines a lot of key elements that work like a check list for companies so they can make sure that credits they buy comply with these best practices. It also gives guidance on how to communicate things transparently and properly and how to get claims like carbon-neutrality and net-zero right, because it’s not just words. Semantics are important. The claims we make need to be truthful. It’s a very good and welcome initiative for the Nordics and I hope it will also impact the wider market.

How much do we want the politicians to be involved in this?

- The Paris agreement and the whole COP mechanism, the UNFCCC (United Nations Framework Convention on Climate Change), only have jurisdiction of what we call ‘compliance’ carbon markets, i.e., carbon trading between countries or through a mechanism where countries can buy carbon credits in order to offset their own carbon emissions. Under the Paris Agreement we have a thing called Article 6, which establishes the rules for this compliance carbon trading or compliance carbon market. But the companies operate in a different carbon market because they have no compliance needs to offset their emissions, they do it purely on a voluntary basis to reach their climate targets. But that’s separate from what has been agreed at COP26 and COP 27. A lot was agreed at these two, but also things were pushed to COP28.
So, the compliance market and the voluntary market have different situations, but if the rules regarding the compliance market are robust and strong, this will impact the voluntary market. That’s why organisations like Compensate try to be at these conferences, to try and influence the decision makers so that we get good rules for the compliance market which we can then try to apply to the voluntary market. That’s why it’s important to be there and try and impact the negotiations.

Can you give some examples of projects that are good to invest in?

- We focus on what are called nature-based solutions. Using the power of nature, photosynthesis, and biomass to sequester carbon from the atmosphere. There are other more engineered approaches, like direct air capture, but these are still in the early stages and are not scalable yet. With the urgency of the climate crisis we need to make use of the mechanisms that we can scale today. So, we focus a lot on nature-based approaches like forestation, afforestation or restoring mangroves and also some more innovative solutions like growing kelp, which sequesters a lot of carbon and then sinks to the bottom of the ocean where it is stored for a long time.
Another solution that we are very fond of and have been using for a long time, is biochar, which is in the middle of these engineered solutions and nature-based solutions. This is where we use reduced biomass from waste streams of different production and turn that into biochar, which is a product that stores carbon for a long, long time, potentially even hundreds of years. This product can also be used in many ways which are beneficial to the environment – for enriching soils, for example.
These are our focus areas because we believe that the solutions that nature offers us are the ones that should, and can, be scaled. Additionally, these projects very often help us tackle the other crisis that we are facing today, the loss of biodiversity. In a sense, we are letting nature be nature.

So where in the world are these projects located? Are we thinking forests or jungles or something else?

- In terms of the atmosphere, it doesn’t matter where the projects are located, since we only have one atmosphere. In terms of climate impact, you want to create the climate impact where it is most cost-effective. So, quite often these projects are in the global south where it might be more cost-effective to take some of these measures. However, there is a certain element of ‘carbon colonialism’ there because these projects and credits are often bought by companies that are in the global north, i.e., the wealthy people of the world. At the same time, good carbon projects need to help protect local communities, give them livelihoods that are more sustainable, and help many of these countries in the global south protect the biodiversity that is very valuable for them. With good projects we can tackle this ‘carbon colonialism’ criticism.
In terms of geography, the projects can be all over the world. We have projects in Latin America; in Africa, in Zambia, Tanzania and Kenya, for example; In Asia, in Myanmar, Indonesia, etc. Some of the more engineered projects are in Europe, the biochar for example. Essentially, they can be anywhere in the world, but it makes most sense to do them where you get most cost-effect per invested euro. I would hope that more and more projects are created in the global north, but there are some legislative issues that prevent this happening on a large scale at the moment.
We need to be careful we don’t create a system where we keep polluting and then just buy these credits in order to clean up after ourselves. It's essential that the objective is to reduce emissions, offsetting is never the number one solution. It’s just one tool in the toolbox.

Who is using carbon offsetting. Which companies use it, and which companies should be using it?

- It’s a very, very global market right now. I don’t see some industries doing more then others because pretty much all industries are waking up to this problem that they need to reach net zero soon and they don’t have the means to do that exclusively by reducing emissions.
Lately we’ve seen a lot of interest, especially in the construction industry. Traditionally we’ve seen airlines involved but there are many issues and we have seen many faults. One of the reasons is that they don’t honestly calculate the impact of flying. Usually, only direct CO2 emissions are used and the non-CO2 impact of flying, which can be three times as big, are excluded. So, the emissions reduction you are offered on the website when you book a flight can be very dishonest. It’s essentially greenwashing.
But there are certain industries where it’s very difficult to decarbonise in the near future, so offsetting will be attractive. At the same time, there are other companies that have the financial means to do this, for example big tech companies who might not have a huge carbon footprint compared to other industries, but since they have the financial resources, we are also seeing many of them being proactive and showing that they want to be frontrunners. It's difficult to pinpoint a certain industry where this is more popular than others because I see this happening all over the place.
What has changed is the perception that offsetting is something that consumers do, and now it is seen as something that companies take responsibility for.

How can companies show that they are doing things in the right way?

- You need to start with transparency with emissions and show that they have been calculated in the right way, especially if you are not offsetting all emissions, that too should be communicated transparently. Quite often companies will claim to be carbon neutral, but actually they refer only to their direct emissions. These direct emissions are known as scope 1 and 2 emissions, and the value chain emissions, or scope 3, are excluded. In the case of most companies, scope 3 is where the large majority of their emissions lie. So, even if you are only claiming to be carbon neutral in scopes 1 and 2, that should be communicated clearly. For example, if a consumer walks into a supermarket and it says that they are carbon neutral, that consumer should understand that it doesn’t apply to the goods that are sold in that supermarket.
When it comes to the type of project that is being used, we need more transparency on that side as well. At the very least, for those consumers that want to ‘dig deeper’. Many people are happy with a symbol or stamp, but for those stakeholders that want to know more, it should be available.
I think most of the buying companies have acted in good faith when they have bought offsetting credits; however, they have not necessarily understood that they should be digging deeper. The sellers of the carbon credits, organisations like Compensate, need to be honest and sell good quality products.
Unfortunately, we can’t rely on voluntary actions to do this. We need the politicians to step in and regulate this market so that we can get rid of some of the greenwashing that’s going on. But before this, we need the actors in the market themselves to act with integrity and remember that climate impact is what we are trying to achieve here.

I notice there is a Compensate foundation. What is that?

- It is a non-profit entity which works on advocacy to improve the entire voluntary carbon market. Basically, we are trying to advocate for the necessary regulation, make sure that we put pressure on existing standards, write white papers and take part in industry-stakeholder meetings. With Compensate, we don’t just want to limit ourselves to creating an offsetting service of high integrity. We also want to push the entire market forward. I feel that we’ve been able to do that already and we have been highlighted in important media like the Financial Times, Bloomberg, Nikkei in Japan, etc. They have reported on our claims that only 10% of offsetting projects are good and that media attention puts pressure on market actors to improve. So that’s something we constantly do.

Thank you very much for this talk. One last question, who should we interview next?

- I think one of the most important actors in raising awareness for the climate movement, has been the youth climate movement. Young people are demanding that the older generations take some responsibility for the mess we have caused. I think it would be great if you give a voice to that younger generation. After all, it’s about their future and the future of their children and they have so much more at stake here. Let’s listen to them.

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