Too often, offsetting sells cars without engines

Monday, November 23, 2020

By Niklas Kaskeala

Read this blog in Finnish here

Would you buy a car without an engine? Maybe. If you only need a car to boast about to your neighbors, a shiny shell is enough. If you actually need to use the car to get somewhere, it’s better to have an engine too.

Unfortunately, the voluntary offsetting market reminds me of a car dealer selling cars that can’t drive off the lot.

The dealer won’t let customers peep under the hood, and in many cases, they haven’t checked under there themselves.

Just like a car is mainly used to move from point A to point B, voluntary offsetting is mainly used to build a positive climate impact. Why on Earth is it then ok to sell cars without engines, offsetting without an impact?

It’s not. But it happens, because it takes specific expertise to review offsetting projects.

It’s not reasonable to presume every voluntary compensator has such expertise. It would be reasonable to think responsible dealers wouldn’t sell empty promises. The dealer should do better, not the buyer.

I joined Compensate as Head of Sustainability in August 2019. Back then, I had serious doubts about the reliability of offsetting initiatives. 

I knew the market was full of greenwashing, I’d seen it already. But nothing could’ve prepared me for how bad the situation actually is. The past year has made this reality painfully obvious.

It’s always been clear to me that offsetting projects come with vast risks and uncertainties. At Compensate, we strive to be open about this. At the same time, we’re building new innovative ways to manage and mitigate those risks. Uncertainties will always still be there, and that’s why we include built-in overcompensation.

We constantly come across projects that have serious problems hiding under a shiny hood. Sadly, even the best, internationally renowned standards and certifications do not guarantee quality.

We want to make sure that all projects from which Compensate buys carbon credits have a positive impact on the climate, as well as on biodiversity, human rights, and for local communities. Compensate’s own criteria helps us identify these projects, because it goes beyond international standards. The criteria was created in collaboration with Compensate’s Scientific Advisory Panel in the spring of 2020. You can view it here.

The Scientific Advisory Panel assists Compensate in identifying the most cost effective, reliable and sustainable means, methods and projects. The panel monitors research and practical applications in the field, advises on project evaluations, and assists Compensate in project mapping and carbon capture issues. You can read more about the panel here.

After February 2020, Compensate has applied this criteria to over 100 projects that have been certified by the most widely recognized standards – VCS and the Gold Standard. Of these projects, 8 have scored high enough on our criteria to be added to Compensate’s portfolio.

So even when we’re only checking the “best projects”, over 90 percent of them don’t meet the sustainability criteria we think they should. This speaks volumes.

Therefore, we can’t take it at face value that one carbon credit is actually worth one tonne of CO2 removed, as the standards claim. When we evaluate projects, our scoring system generates the estimated true CO2 value that each credit holds. This becomes the overcompensation factor we then use to buy credits from said project. In short, we always buy more credits than would technically be necessary to call what we’re doing compensation.

The overcompensation factor for our portfolio has thus far been approximately 4.

This means we have bought four times more credits than would widely be accepted as necessary. The other way of looking at it is that the market has been overpromising on impact four-fold.

Our goal at Compensate is of course to make this overcompensation factor as low as possible by finding better and better projects. But with the current state of affairs, overcompensation remains absolutely necessary to achieve any true climate impact. With even better projects added to our portfolio this autumn, we have recently been able to squeeze the overcompensation factor down to about two.

At Compensate, we don’t want to sell cars without engines. That kind of ruins the point.

Because we’re aware of these shortcomings, we can’t hide behind international standards and wash our hands clean. It wouldn’t be honest and it wouldn’t be sustainable.

Evaluating and selecting offsetting projects requires expertise and critical thinking. There’s no perfect project, but we’re constantly learning and getting better at evaluating what makes a good project. We’re not asking for anything unreasonable, just that a project is sustainable, cost effective, and creates true climate impact.

Compensate’s not the only one in this space either. The flaws of the current voluntary market are the very reason behind the recently launched Voluntary Carbon Markets Taskforce . The initiative was established under the Institute of International Finance (IIF) and its 40 participants represent the financial sector, market infrastructure providers and buyers and suppliers of carbon offsets. The taskforce’s goal is to develop standards for the voluntary market, making it effective and efficient. In its first stages, the Taskforce is already demanding more integrity, credibility and transparency from the market. At Compensate, we welcome all such initiatives! 

While this work is in progress, it’s still our job today to check under the hood, to make sure the car has an engine, and that that engine can take our customers somewhere.

And it’s our job to tell our customers that this doesn’t make the car perfect, that the risks are still there. But a car that can drive is still so much better than a shiny, empty shell.

By Niklas Kaskeala

Read this blog in Finnish here

We don’t want to sell cars without engines. That kind of ruins the point.

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