The problem of carbon credits and going carbon neutral

Increasing demand for carbon offsetting has led to rising costs – but it’s a symptom of success, argues Adam Williamson.

For most companies, the simple act of doing business means that, with the best will in the world, some greenhouse gas emissions are inevitable even after concerted efforts to make significant reductions.

In order to achieve carbon neutral / net zero, there is therefore a pragmatic need to offset through purchasing of carbon credits related to projects which either capture carbon, reduce carbon or develop renewables.

This was the experience of AAT (Association of Accounting Technicians), as it sought to achieve carbon neutral status. Working with specialists in the field, AAT identified a cost-effective project connected to renewable energy in India and proceeded to achieve certified carbon-neutral status.

However, as our experience grew, we learned that not all carbon credits are created equal – some have more potential to do good than others. For instance, are your carbon credits supporting ‘simple’ carbon reduction such as renewable energy which reduces reliance on fossil fuels, but ultimately is investing your carbon credits in private companies? Or is it investing in a social enterprise which reduces carbon but has other social benefits alongside? AAT wanted to ensure that the offsetting was having a wider social impact and started to explore the subject.

The price of carbon credits has become very volatile as more companies have begun to buy them. For example, in the year to January 2022, nature-based schemes like planting trees tripled in price.

Increased competition has also reduced availability. This situation favours large organisations with significant buying power, which seem able to take their pick. But for smaller organisations, budgeting becomes incredibly difficult. These difficulties could derail their ambitions, or drive a market in lower-cost but lower-quality carbon schemes.

Some firms are turning to creating their own carbon reduction schemes. For example, some airlines have recently announced that they will cease carbon offsetting and instead invest that money in areas like research and development.

Other types of organisation are investing in supply chain partners to produce more renewable energy. Or in ‘start up’ carbon reduction schemes whereby they can achieve the credits they need at a set price over a set number of years as the carbon credit scheme matures. This course of action is not likely to be open to smaller organisations, which lack the capital to make these kinds of investments.

AAT works with external consultants and brokers to help with this issue, and other organisations may wish to consider doing the same.

On the bright side, increased competition is a problem born of success. It is a clear indication of just how many businesses are seeing the value of offsetting as part of a wider strategy, and that there are great opportunities for new projects to find funding.

Adam Williamson is AAT's Head of Professional Standards.