Another development in the responsible use debate is the question of whether – and under what circumstances – it is appropriate to claim that carbon credits have “offset” or “compensated” for an actor’s allocated inventory emissions. As noted above, carbon credits were originally designed for precisely this purpose. That is, an actor facing an obligation to reduce its emissions could instead purchase and retire carbon credits and count them as an “offset.” The actor’s allocated emissions could remain above targeted levels, but this would be compensated for by avoiding emissions (or enhancing removals) at other sources or sinks, such that the global balance in emissions would be the same. Indeed, quality criteria for carbon credits are defined the way they are (see High Quality Credits) exactly because it is assumed that carbon credits will be used for compensation.
In a voluntary context, however, the idea of “compensation” is sometimes viewed as problematic. The problems relate to the same issues concerning responsible use identified above, i.e., potentially misleading claims and the obligation to follow a mitigation hierarchy.
For example, misleading claims concerns have been raised about how claims like “carbon neutrality” are perceived by consumers. If consumers view a “carbon neutral” flight (i.e., one whose emissions have been offset with carbon credits) as equivalent to flying “emissions free,” they may feel free to take more flights than they would have otherwise.[1] This could have the perverse effect of undermining global climate goals. Perhaps a better approach would be to portray carbon credits as a voluntary contribution to climate change mitigation efforts, without any implication that those credits have turned a GHG-emitting flight into a flight with zero emissions.
The obligation to follow a mitigation hierarchy also raises questions about whether compensation is an appropriate concept. If companies are obliged to meet emission targets exclusively by achieving reductions in their allocated inventory emissions, for example, then carbon credits cannot be used to “compensate” (in the original sense of substituting) for those inventory reductions. As with the potential for misleading claims, in this context it may be more appropriate to refer to carbon credits as voluntary contributions to climate change mitigation that are accomplished in addition to achieving targeted inventory reductions. This redefinition has at least been suggested – if not explicitly called for – by initiatives like the SBTi and Voluntary Carbon Markets Integrity Initiative (VCMI).[2]
A potential advantage of recognizing corporate “contributions” is that there is no limit to how much a company can be recognized for. Such a claim is akin to making a philanthropic donation, albeit one with a quantified impact in terms of avoided emissions or enhanced removals. However, it is feared by many that if companies cannot make compensatory claims, and so cannot then make claims that they have met their responsibility to address climate change (i.e., that they are net zero or carbon neutral) then demand for carbon credits will diminish and voluntary carbon market mechanisms will fail to achieve their potential. For carbon credit “contribution” claims to become widely embraced, a major shift would be required in what companies (and other actors) are expected to do: from reducing and then compensating for their allocated inventory emissions, to reducing their allocated emissions as well as contributing to additional mitigation in sources and sinks beyond their GHG inventory. The distinction may seem largely semantic, even if it is important to defining responsible use. However, there is another dimension to the compensation vs. contribution debate that relates more directly to carbon credit quality – i.e., whether the avoided emissions or enhanced removals associated with carbon credits are also being counted towards national mitigation commitments under the Paris Agreement.
[1] At least one study suggests such perverse outcomes are not merely hypothetical: Günther, S. A., Staake, T., Schöb, S. and Tiefenbeck, V. (2020). The behavioral response to a corporate carbon offset program: A field experiment on adverse effects and mitigation strategies. Global Environmental Change, 64. 102123. DOI:10.1016/j.gloenvcha.2020.102123.
[2] An initial version of the VCMI’s Claims Code of Practice expressly called for treating carbon credits as contributions to climate change mitigation, rather than compensation. Subsequent versions, however, dropped this guidance.