Sustainability is not a new phenomenon, ESG and impact investing are well integrated into our economy. ESG investing is looking at the level of sustainability risk that corporations might have, and therefore the primary goal of ESG is to create wealth by reducing sustainability risks for the organisation. Impact investing looks for investments that primarily have a social, environmental impact and create well-being. Whilst secondary looking for return on their investments. Although they are mutually exclusive, we believe that with the right usage of offset and credits systems these two sustainability perspectives can work very well together.
In the previous article of these series we touched upon plastic credit and biodiversity credits . In this article, we are going to dive into the variety of offset types and their benefits in the generation of wealth and wellbeing.
Inevitably there are concerns around sustainability credits and carbon credits being used as just another way to greenwash, and this is a very real risk. However, it is not a risk without a clear solution, as part of the sustainability credit opportunity series we will discuss the potential solutions in mitigating greenwashing to allow the business sector to integrate sustainability credits as part of their business resilience strategy. We believe that with the right tools and measurement, genuine greenness will be able to live up to the promise of sustainability.
Before we dive into the different types of credits, it is important to clarify the difference between credits and offsets as they have two slightly different outcomes.
Carbon credits result from regulatory space where corporations have a certain permission range for the amount of Co2 to emit yearly, this is usually under the cap-and-trade market and the amount of emissions that are allowed usually decreases yearly which is linked to the emissions targets.
Carbon offsets are slightly different. They focus on reducing the amount of carbon emissions, projects that are considered to generate carbon credits must be additional. For example, by planting more trees or investing in green forms of energy can enable a developer to issue carbon offsets that are then purchased in the voluntary carbon market.
Not all carbon offsets are created equal, these offsets and credits can usually be placed within 4 pillars of Forestry and conservation: renewable energy, community project development, and waste to energy, and the benefits usually extend beyond the initial reduction in carbon.
Forestry and conservation
Forestry and conservation offsets help to build the business model for conservation and give nature a place in our economic paradigm. Within forestry, there are different types of projects that can result in carbon offsets. These projects include, afforestation and reforestation projects, usually projects that restore forested land and increase the tree cover. These projects run up in cost quickly because they require planting and maintaining the trees. Avoided Conversion, this is the mitigation of the conversion of forested land to non-forested land — project developers must prove the additionality of the project that the forested land is under a prove-able threat for such projects to be supported and validated. And, improved forest management, improving the management of the land activities to increase the carbon stocking or at a baseline maintain the minimum level.
Each carbon offset project needs to meet the requirements of additionality, permanence and non-leakage. Additionality requires the project to improve the carbon sequestration, and the project must prove that this improvement would not have happened without the development of the project. Permanence requires that the carbon removal is maintained for up to 100 years, and finally leakage is the prevention of GHG reduction in one area resulting in increased emissions in another area.
Renewable energy
Renewable energy credits or RECS are often confused or used interchangeably with carbon credits. However, you can think of carbon offsets and Renewable energy credits as two different instruments on your sustainability journey, they are not interchangeable but can both help companies in lowering their emission footprint.
RECs can help offset the use of energy from non-renewable sources, instead of offsetting carbon each renewable energy credit represents a megawatt-hour (MWh)
RECs can be considered a property deed, which equal a part of a renewable energy source. The renewable energy sources you can think of are wind farms, solar panels, biomass, low-impact hydropower, and geothermal. This provides investors with the opportunity to purchase RECs and profit from the sale of energy produced by the source for the duration of the time they are useful.
The main difference between RECS and carbon offsets center around:
- Motivation: Carbon Credits/offsets address GHG emissions and RECs promote and consider the use, growth, and maintenance of different renewable energy sources.
- Measurement units: RECs are measured in Megawatt-hours and Kilowatt-hours and Carbon offsets in Metric tons of Co2
- Additionality: There is no such thing as additionality within RECs, as opposed to carbon offsets which require a rigorous additionality test that prove that the mitigation actions are beyond what normally would have happened without intervention.
- Consumer claims: Customers can manage and regulate their energy usage from a grid with RECs. With carbon offsets, consumers can provide customers to claim their reduction or avoided GHG emissions.
In the next article of this series, we will provide a summary of the community project development and waste to energy offsets and credit systems. Furthermore, we will provide an overview on the solution landscape to scale these efforts and allow corporates, investors, and project developers to develop a more resilient market. We believe that with the right tools in hand the sustainability offset market can provide ample opportunity for businesses, investors and project developers alike.
If you have any questions, or if you are interested in learning more about how SmartB enables these offset schemes to improve their traceability, value, and decrease cost contact us at Contact@smartb.city.
