Offsets and Insets
While aviation is a relatively small carbon emitter, it’s a visible one. In climate change parlance, aviation is “hard to abate”— meaning few (really no) current technological or operational carbon mitigation options. Yet 107 countries including the USA are committed to net-zero air travel by 2050 as part the UN’s International Civil Aviation Organization (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Currently in a pilot phase, the program takes full effect in 2027. Since jet emissions can’t yet be reduced through technological or operational improvements, and sustainable aviation fuels aren’t yet available in any quantity, airlines must purchase emissions offset units in the carbon market.
Offsets have issues. For one, they don’t actually reduce emissions–traditional offsets are essentially a permit to emit one ton of carbon. Hence in the words of United Airlines CEO Kirby: “what I hate about traditional carbon offset programs is so many companies are using them, and they are a fig leaf for a CEO to write a check, check a box, pretend that they’ve done the right thing for sustainability when they haven’t made one wit of difference in the real world.”
Another is quality. Offsets aren’t created equal. INSERT SOME THING
Notice that Scott Kirby said “traditional offsets” — those designed for regulated emitters like electric power plants, large industrial plants, and fuel distributors like the ~500 +/- businesses regulated under California’s cap and trade program. They’re tradeable financial instruments based on avoiding, capturing or sequestering a ton of carbon, with stringent rules designed around regulatory compliance including being considered additional. In offset parlance, in additional projects, the monetary value of carbon offsets must be decisive (“make or break”). If the reductions would have happened anyway, the project isn’t additional. Put differently: no (economic) pain, no (carbon offset) gain–a new solar farm that delivers better ROI than a coal-fired generator won’t qualify.
This works with regulated entities because it offsets help avoid the greater pain of non-compliance. For everyone else, pain is a tough sell.
Pain aside, offset additionality rules are problematic for carbon avoidance using renewables because – unlike a decade ago — wind and solar are now cost-competitive with fossil fuels. Capture and sequestration will face the same issue as technology reduces costs.
Happily, unregulated businesses have more flexibility. Enter insetting: a partnership or investment in a GHG emissions-reducing activity within a company’s ‘sphere of influence” with consideration not only to carbon footprint but company focus and goals. Unlike carbon offset purchases, inset funds and benefits remain within the company’s value creation cycle and/or ecosystem. Companies have the flexibility to direct benefits based on geography, commodity, production relationships, causes, or partnerships, and projects can be profitable as long as carbon benefits are valued appropriately.
Insetting provides an alternative to offsets, but offset can also be inset. A phased strategy, for example, uses offsets for immediate impact while longer lead-time inset initiatives such as solar-based carbon reduction are being implemented. Offsets which are already certified, and therefore quantified, monitored, and reported, can be enhanced with a secondary verification for insetting.
By linking carbon reducers and emitters at the asset level, companies also simplify ESG reporting. For example, a JetNetZero certified private jet not only has net-negative emissions, but the aircraft can be excluded from Scope 1 and Scope 3 carbon reporting.
Insetting is especially important in 2023 because it allows high-ROI projects that leverage IRA incentives. With tax credits of up to 60%, IRA-qualified GHG-reducing insetting projects deliver 40% or better ROI on top of ecosystem benefits. Insets also:
- Strengthens stakeholder relationships;
- Can identify and fund value chain improvement opportunities;
- Enables a holistic branding and communications strategy around high-impact and stakeholder-relevant climate protection initiatives.
- Provides a framework for phased initiatives to meet long-term climate pledges and corporate ESG goals.
Find out if insetting makes sense for your company.