As organizations ramp up their decarbonization efforts, many are considering how to handle the residual GHG emissions that they cannot currently reduce further.
First things first — it’s key that companies comprehensively calculate their carbon footprint, analyze the results and key contributors, and then take ambitious measures to reduce emissions accordingly in line with science.
Switching to renewable energy and prioritizing projects that reduce emissions are pivotal to implementing a climate strategy aligned a 1.5°C pathway, the higher ambition goal set by the Paris agreement.
However, some limited emissions may remain unavoidable. Those should be addressed via carbon compensation programs, ranging from purchasing voluntary carbon credits to investing in early-stage carbon offsetting projects.
Carbon Purchase Agreements: a new tool to mobilize private capital into quality offsetting projects.
Many carbon offsetting projects need private investments to be delivered. Companies can unlock the full potential of these projects by co-financing them; thus guaranteeing their bankability, through carbon purchase agreements (CPAs).
Like Power Purchase Agreements (PPAs), the idea behind a CPA is to hedge against price risks. For CPAs, the parties negotiate a flat price on the carbon credits issued by the project over a 10 year-period.
This type of agreement not only reduces risks from price fluctuations, but also allows organizations to invest in projects aligned with their mission. In this way, companies can act on their residual impact in a way that fits with their values, as part of their efforts to compensate emissions as they transition to a fully decarbonized state.
CPAs are a crucial tool in directing private financing towards climate-action projects that otherwise may not have started due to a lack of initial capital.
How can the quality of carbon compensation projects be ensured?
By design, carbon compensation projects should deliver real environmental benefits, in terms of concrete CO2-equivalent removal and sequestration. They should also create co- benefits for the local communities and biodiversity.
Companies should also strive to find projects whose impacts align with the United Nations Sustainable Development Goals (SDGs). The SDGs guide the company’s choice of carbon projects that both compensate for unavoidable emissions, and that most resonate with its mission in terms of SDGs that affect and/ or are affected by their business operations.
Many of these projects address socio-economic challenges, in addition to climate change. Many projects have contributed to protecting biodiversity; addressing gender inequality by improving the livelihood for women in the community; improving air quality and access to water; and providing education through training opportunities, among several co-benefits created.
The Net-Zero Standard currently being developed by the Science Based Targets initiative will also give clear guidance to incentivize compensation whilst ensuring that robust action on reducing value chain emissions is prioritized.
GO2-Markets assists organizations in their sustainability journeys: from the calculation of GHGs emissions, the identification of reduction measures along value chains, to the offsetting of current residual emissions.
GO2 Markets is committed in helping organizations navigate the voluntary carbon market and select the most impactful offsetting projects.
At GO2-Markets, we recommend starting to offset while reducing emissions. Offsetting should remain a supplementary action to compensate for residual emissions. More importantly, companies should always prioritize avoiding emissions such as those from fossil fuels and land degradation.
GO2-Markets is a CDP Accredited Solutions Provider - read more about its solutions and options here.