30 Jun 2020

Why carbon offsets are different to gin and tonics

Gin and tonic

Put the horse before the cart. The gin before the tonic. Dinner before dessert. These are all common logics in our day to day. But what about the theory that carbon offsets are the last resort for a company looking to deliver on their climate commitments? Does this argument really stack up?

The short answer is No. The reason? Well, there’s a few.

Let’s start with an example. Take an industry like aviation. A whole suite of airlines have recently jostled for positioning around net zero emissions targets (including Qantas who we work with extensively) to get their commitment over the line in November. Part of their strategy includes all important solutions to cleaner fuels or ‘sustainable aviation fuels’ which convert plant waste into a like-for-like aviation fuel. Clever, right?

Clever indeed. The reality is however that it will be some time before we take off with 100% sustainable fuels in the tank, or commercial electric planes too. For example, to fuel the domestic fleet of Qantas alone, it would take something in the order of every Australian farm to be converted into fuel crops. This will change as technology becomes more efficient, but for now, and well into the future this is where offsets become critical.

Offsets address those emissions now by balancing them out through highly regulated and reputable projects that either prevent or sequester carbon (think renewable energy, forest protection, clean cookstoves). And the reality is, if each and every one of us chose the simple option offered by airlines to offset your flight, we could cut the world’s greenhouse gases by about 3%. Boom. Just like that!

Carbon offsets also play a fundamental role in risk management.

This is something that is firmly on the radar of all major companies largely thanks to the Taskforce on Climate-related Financial Disclosure (‘TCFD’). By having a sophisticated, long-term carbon offset strategy, companies with large carbon exposure achieve a couple of things.

First, they are building in a real, known carbon price into the way they do business today often through the help of a company’s voluntary climate commitments like going carbon neutral. This is critical for future preparedness for compliance obligations both internationally, and also at home in Australia. Those that prepare better now, will lessen their risk exposure down the track.

These companies are also building internal competency about the carbon market. This can’t be underestimated. Some argue that large companies are used to long-term hedging strategies for other financial products, so carbon is no different. Our experience in working in the carbon market for a combined 70+ years at TEM suggests that comparing trading carbon offsets to other commodities is like comparing driving on the highway with clearly defined limits and guard rails either side, with the highway between Hanoi and Ho Chi Minh City with its pot holes, motorbikes and occasional meandering dogs, chickens and buffalo. In the latter case, you want to be driven by someone who has travelled down that highway many times before.

A final reason is that carbon offsets are an effective vehicle of much needed climate finance.

By embedding carbon offsetting firmly into the company’s strategy, they are not only driving more investment into much needed projects to cut carbon emissions, but you are delivering critical finance into projects which deliver real benefits right across the spectrum of Sustainable Development Goals (see my article here, and Andrew’s journey to India here).

All this leads to a critical point – carbon offsetting should sit in the front of a company’s climate strategy, firmly alongside efficiency measures, renewable energy agreements, behaviour change and other critical steps in the decarbonisation pathway.

And if all this seems like too much to take in, get in touch with us. And, remember. It’s gin before the tonic. Cheers!

Adrian Enright is General Manager Corporate, passionate about surfing, family and the unrelenting quest for a healthier future planet.