Carbon offsetting and green gas: Chasing fairy tale of climate-neutral future or key tools in net zero’s arsenal?

As time goes by, the zest for a carbon-free world has sparked a seismic shift toward the sphere of environmental sustainability. However, many thorns remain on the path to such a low-emission world, including differing perceptions about the tools to achieve this goal. This is hammered home by the pursuit of so-called green gas and how the business case for carbon units is shunned by some and welcomed by others.

While many attempts have been made to unravel all the nuances of carbon units, the debate on this topic still tends to be polarized. Those in favor are adamant that carbon units will play a pivotal role in the decarbonization game, as they see it as a crucial tool in global environmental action, which spotlights the importance of carbon offsetting in going beyond the currently carbon-intensive landscape to achieve net zero aspirations.

In line with this, Wood Mackenzie’s recent research points out that the removal and durable storage of carbon dioxide (CO2) that has already been emitted is emerging as a viable investment opportunity, however, the data and analytics company does not see the current carbon removal pace as sufficient to get the world to net zero shores.

For the world to reach a zero-emission state of play, carbon removals need to be monetized, national carbon removal targets need to be set in place by governments alongside incentives to stimulate demand. The findings underline the importance of delivering projects at cost levels that paint removals in an attractive light considering the expected future carbon prices. 

The report further notes that nature-based solutions (NBS), such as afforestation and soil carbon, have the greatest potential for scale at a lower cost per tonne than engineered solutions with many deployment opportunities under $100/tonne of CO2, compared to engineered solutions that range between $100 and $1,000/tonne.

On the other hand, the opponents of current carbon offsetting practices perceive CO2 certificates as a widespread greenwashing strategy that offers polluting companies an opportunity to buy themselves out of their responsibility for climate protection, instead of curbing their emissions footprint. Those naysayers, who are firmly against the ever-growing use of carbon units, also do not buy into what they deem the green gas myth.

With climate change battering the world mercilessly, the need to slash emissions has risen over the past few years. However, the journey towards the end goal of entering into a sustainability mode still begins with the same step of quantifying emissions, which entails measuring the carbon footprint of one’s operations.

Such a move covers not only the total amount of carbon emissions produced directly but also those generated indirectly by an individual or an organization to shed some light on the environmental impact and serves as the baseline from which businesses can come up with strategies to reduce and compensate for this impact.

Once a company has gained more insight into its carbon footprint, the next step in the sustainability journey encompasses the process of pinpointing ways to compensate for and reduce these emissions, in a bid to renew nature and invigorate environmental health.

Proponents of carbon offsetting or carbon compensation see it as a way to balance the carbon footprint by offsetting emissions with carbon credits or units, thanks to carbon projects such as nature-based solutions. As a result, carbon units are often portrayed as vital tools at the disposal of those interested in weaving carbon neutrality and sustainability into business strategies.

With this at the forefront, the carbon offsetting trend and the use of carbon units, representing the removal or reduction of 1 ton of CO2 from the atmosphere, have gained prominence to such an extent that this now plays a key role in numerous environmental initiatives to bridge the gap between existing emissions and the road to a much-anticipated sustainable future.

Denoting a ton of CO₂ that has been sequestered from the atmosphere through activities like tree planting or prevented from being emitted through energy efficiency projects, a carbon unit is said to quantify an environmental benefit, as a crucial component in the broader context of environmental and climate action, providing a measurable option to gauge the effect of various sustainability initiatives, according to DGB Group, a Dutch carbon project developer and ecosystem restoration company.

The Netherlands-based firm underlines that nature-based solutions’ mission is to restore, preserve, or enhance natural ecosystems as a way to counterbalance the environmental impact of human activities while sequestering carbon emissions. Many energy companies have taken measures to secure a carbon-neutral status. One of these is Deltic Energy, which was certified as a carbon-neutral business in January 2024 by Carbon Neutral Britain.

“Carbon offsetting serves as a linchpin in comprehensive net-zero strategies, offering a practical and indispensable approach to counterbalancing the unavoidable emissions produced by businesses and industries,” underscored DGB Group.

“In essence, it acts as a mechanism to mitigate the environmental impact of carbon emissions by investing in projects that contribute to reducing or removing an equivalent amount of carbon emissions from the atmosphere. This proactive measure aligns with the broader goal of achieving carbon neutrality or net zero.”

Harnessing the power of nature to address a wide range of ecological challenges enables many NBS initiatives to have a key role in offsetting carbon emissions, which in DGB Group’s view throws into the limelight carbon sequestration, ecosystem restoration, biodiversity preservation, and habitat creation.

The Dutch player emphasized: “Carbon offsetting is not a mere transaction; it represents a conscientious effort by organisations to take responsibility for their carbon footprint. By engaging in this process, companies acknowledge the environmental impact of their operations and actively contribute to global efforts to conserve nature.

“The relationship between carbon offsetting and net zero emissions is intricate and symbiotic. Carbon offsetting acts as a bridge, allowing businesses to navigate the path towards net zero by offsetting emissions that cannot be entirely eliminated.”

Despite the significant inroads carbon offsetting has made over the years, some still feel that more needs to be done to demystify carbon units and showcase their significance in everyday contexts while climate activists often dismiss this decarbonization tool as another greenwashing attempt rather than a valid solution to the greenhouse gas (GHG) emission problem and the climate crisis that threatens to get out of control.

Tullow has decided to formalize its partnership with the Ghana Forestry Commission to implement what is said to be a high-integrity, jurisdictional-based reduced emissions from deforestation and degradation (REDD+) program, which it sees as “an important milestone” on the pathway to reach its 2030 net zero targets for scope 1 and 2 GHG emissions.

Julia Ross, Tullow’s Director of People and Sustainability, noted: “This agreement is a clear demonstration that effective, long-term public- private collaboration can help deliver innovative climate finance that supports long-term sustainable forest management activities, and the communities involved. We are eager to see the full impact of this project as the conservation and restoration activities that we are supporting are put into place.

 “This programme is testament to the shared mission of both teams to support Ghana to meet its nationally determined contributions whilst mitigating the hard-to-abate emissions of our operations. The project also delivers Tullow’s net zero ambitions, together with the work we are doing to decarbonise our operated assets by eliminating routine flaring.”

The company underlines that the primary focus of its net zero strategy is the decarbonization of its operated production facilities in Ghana to eliminate routine flaring by the end of 2025. Tullow emphasizes that the emissions reduction purchase agreement (ERPA) will deliver up to 1 million tonnes per annum of certified carbon offsets under the architecture for REDD+ transactions standard, with the first offsets expected to be delivered within three years.

Samuel A. Jinapor, Ghana’s Minister for Lands and Natural Resources, praised the partnership during the signing ceremony in Accra, stating: “Undoubtedly, the ERPA we have signed with Tullow, represents a key voluntary carbon market transaction, which is very unique, as it promotes direct government and private sector engagement, to accelerate the speed of delivery of ambition and climate finance.”

The company claims that residual, hard-to-abate emissions, will be mitigated by its investment in nature-based solutions in the form of a REDD+ program through a partnership with the Forestry Commission of Ghana, with the project focusing on around 2 million hectares of land across 14 priority districts in the Bono and Bono East regions, which are among the areas that are said to be most affected by deforestation due to economic activities such as cash crop clearance and overgrazing.

John Allotey, Chief Executive of Ghana’s Forestry Commission,who saw the project as a model in Ghana’s quest to lead the way in sustainable climate efforts, underscored: “We are poised to work together with Tullow to promote inclusivity, transparency, and innovation, in actions that will achieve each party’s objectives and the common global goal of the Paris agreement.

“I am confident that the carbon payments from Tullow will strengthen our efforts in forest protection and effectively improve the livelihoods of the local communities through the implementation of a transparent and widely consulted Benefit Sharing Plan.”

Following the start of the Russia-Ukraine crisis in 2022, energy security became the driving force behind most government policies to diversify the energy mix and strike a balancing act between the burning of more fossil fuels and the shift toward low-carbon and green sources of supply in response to the global energy crisis and inflation.

This spurred the rewriting of the global oil map and the forging of new energy bonds between countries worldwide, with Europe being at the heart of attempts to chart new energy roadmaps and establish new ties with energy-producing nations while distancing itself from Russian oil and gas.

While fossil fuels managed to entrench their position in the energy mix due to events that unfolded in the aftermath of the Ukraine crisis, the pivot to green energy also continued to gain ground as countries sought to employ all sources of supply, including the revival of nuclear power-momentum, to counteract the perils of a potential gas crunch and the worsening of the climate and energy woes.

In light of the growing push toward net zero, the climate talks in Dubai not only resulted in the launch of a global decarbonization charter, penned by 50 oil and gas companies last year to step up climate action but also led green hydrogen producers to vow to produce 11 million tons of the low-emissions fuel for use in the shipping sector by 2030 as part of a joint commitment to enable the use of renewable hydrogen-derived shipping fuel by 2030 to meet the maritime industry’s ambitious decarbonization targets.

Mhairidh Evans, Wood Mackenzie’s Global Head of CCUS Research, noted: “With a carbon price, governments and companies would be able to put a monetary value on having less CO2 in the atmosphere. Companies need to be willing to pay for this in the voluntary market, while governments could create a regulated mandatory market, where companies can trade removal credits. We see an increasing role for removals in compliance markets.

“The promise of carbon removals is clear. What’s less clear is their pathway to becoming a major lever to help meet the Paris goals and help companies to achieve their net zero targets. Nevertheless, there are no-regrets actions that can – and should – happen now.”

While setting the stage to triple renewable energy capacity and double the rate of energy efficiency improvements by 2030, COP28 spotlighted the urgent need to tackle methane and other non-CO2 emissions while prompting countries to roll up their sleeves and embark on a quest to meet the goals of the Paris Agreement, as time is running out. COP29 aimed to follow in its footsteps to secure more ambitious targets, funding, and pledges.

While biomethane, bio-propane, and hydrogen and its derivates have been part of the energy scene for a while, the combined pressure to ensure energy security and slash GHG emissions has strengthened the business case for these fuels – dubbed green gases. As a result, these renewable and low-carbon fuels are seen as a promising substitute for fossil fuels, spearheading a reduction in carbon emissions in the heat, power, and transport sectors.

Among those that are raising their voices against the use of green gasses and carbon offsets is Environmental Action Germany (Deutsche Umwelthilfe – DUH), a non-governmental environmental and consumer protection organization, which recently urged Germany to put an end to its liquefied natural gas (LNG) expansion. Since the German NGO sees green gas as a fairy tale, it is taking action against the so-called climate-neutral natural gas.

DUH elaborated: “Fossil natural gas is anything but climate-friendly. Nevertheless, numerous gas suppliers in Germany have discovered the lucrative business with supposed ‘green gas’ and are offering environmentally conscious customers ‘CO2-neutral’ or even ‘climate-neutral’ gas tariffs. The emissions caused by the gas should be easily offset by purchasing CO2 credits from compensation projects on the other side of the world. But it’s not that easy.”

Given its opinion on green gasses, the NGO pooled resources with Correctiv to look into projects featuring such fuels, disclosing that these compensation projects offset much less CO2 than the gas suppliers claim, with around ten million tons of CO2 under-compensated between 2011 and 2024.

In DUH’s view, the main reason for the imbalance at the expense of the climate stems from the inability of such compensation projects to store as many emissions as the gas causes. The NGO justifies its view by pointing out that CO2 and methane remain in the Earth’s atmosphere for hundreds of thousands of years while most forest protection and reforestation projects only last a maximum of 60 years.

“No matter how you twist it, true climate neutrality cannot be guaranteed this way,” outlined DUH while confirming that it already asked 15 gas suppliers to stop their allegedly “misleading” advertising of carbon neutrality as a cover-up to burn more fossil fuels.

According to the NGO, these companies buy so-called CO2 certificates for “a mostly absurdly low price” while certificate dealers claim that the CO2 is saved somewhere else in the world, mostly through forest protection projects in the global south, which the environmental group deems to be “often more than doubtful.”

DUH noted: “This indulgence trade is significantly cheaper for companies than actually reducing the emissions of their products. And as if that wasn’t bad enough, only a fraction of the money reaches the projects on site: it is primarily the dealers of the certificates and the certifiers who give credit to the supposed CO2 saving projects that make money from the lucrative business with climate neutrality seals give blessing.

“However, studies show that many of these projects cannot keep their promises to save CO2. This is possible because certificate trading is completely unregulated. There are no legal minimum standards or independent controls – a paradise for greenwashing!”

A few months ago, a coalition of seven NGOs also sent a letter, encouraging the European Commission to set fossil fuel phase-out dates within the roadmap for Europe’s 2040 target. The other side of the coin seems to hold firm to the notion that fossil fuels, especially LNG, are not going anywhere soon.

The growing push to allow companies and countries to take advantage of carbon credits to offset their emissions does not sit well with many as they perceive this to be part of a larger trend of bending carbon accounting rules to undermine attempts to slash emissions.

As a result, those opposed to carbon credits believe the world needs to keep its eye on the prize which in this case stands for a firm focus on climate targets and greenhouse gas emissions cuts within the boundaries where countries and companies can work toward the phasing out of fossil fuel production, transport, sale, and use, as a way to kill off the fossil fuel industry without giving it a new spin-off in the energy transition saga.

“We call on accounting bodies like the Science-Based Targets Initiative (SBTi) and the Greenhouse Gas Protocol to continue excluding offsets and stick to scientifically sound methodologies for tracking corporate climate efforts,” emphasized the NewClimate Institute.

Environmental and climate campaigners want to see a step up in financial backing from public and private players, which they believe will enable the world to cut off its cord with fossil energy. They feel that carbon credits will likely slow down global emission curbs while failing to provide the scale of funds needed in the Global South.

In addition, they fear that such a move would weaken the will to come up with large-scale mechanisms such as polluters paying fees on emission-intensive sectors. The protest against carbon offsets saw over 80 civil society organizations, including NewClimate Institute, sign on the dotted line of a joint statement to reject the use of carbon offsets to meet corporate climate targets.

“We call for scientific, ambitious, equitable, robust, credible and transparent rules around carbon accounting and corporate climate target setting. Voluntary and regulatory frameworks on climate transition planning must exclude offsetting,” the organizations wrote in the letter.

As decarbonization momentum grows by leaps and bounds, the maritime market players are among the ones that are increasingly turning to carbon offsetting as a step in the right direction to pave the way for zero-emissions shipping. Currently, LNG dominates among fuels, but shipping players are stepping up their green game. Companies, like Berge Bulk, have set out plans to have a zero-emission fleet by 2050. 

The dry bulk shipowner has outlined a voluntary commitment to offset 100% of its scope-1 CO2 emissions from fuel consumed on its vessels from 2025 onward. To this end, Berge Bulk and Emporos, a carbon-neutral freight trader, brought a carbon offset voyage to an end, transporting 29,095 tons of cargo from Darrow in Louisiana to Puerto Montt in Chile.

In September 2022, France’s CMA CGM Group set in motion an early container return incentive program, said to be designed to scale up climate change mitigation in the U.S. while lending a helping hand in the overall effort to boost the fluidity and velocity of the supply chain.

This came after a pilot case was conducted to evaluate the specific use of carbon credits in ocean shipping to compensate for carbon dioxide emissions that are difficult to get rid of using currently available technology. As part of this, a car carrier operated by Japan’s Mitsui O.S.K. Lines (MOL) wrapped up a carbon offset voyage for the ocean transportation of completed cars from Japan to Europe using voluntary carbon credits.

Regardless of the lion’s share of those who support the adoption of a carbon levy on global shipping, which has the potential to become the first universal emissions price on any international polluter, governments’ progress has been moving at a snail’s pace at the International Maritime Organization (IMO) despite lengthy negotiations.

While strong support for this mechanism came from countries in Africa, the EU, the Pacific, the Caribbean, Canada, Japan, and the Republic of Korea, the lack of progress put the IMO at risk of not finalizing a GHG levy within the agreed timeline, which is April 2025, thus, only five months are left to address critical questions on revenue distribution and architecture.

Aside from discussions on a GHG price and a fuel standard, the 82nd Marine Environment Protection Committee Meeting (MEPC82) opened the revision process of the IMO’s existing framework for improving energy efficiency carbon intensity indicators (CII), with all delegates backing the alignment of CII’s ambition with the IMO’s Revised Strategy. 

While 39 countries supported a GHG levy, 15 opposed a levy or favored a weaker mechanism, and 13 did not take a stand. However, 68 developing countries under the Climate Vulnerable Forum (CVF) expressed explicit support for the adoption of the GHG price at the IMO for an equitable transition.

Bringing the IMO’s Revised Strategy of an equitable transition to zero-emission shipping by or around 2050 is anticipated to need an ambitious and equitable levy of at least $150/tonne GHG, a strong fuel standard, and improved energy efficiency of vessels under the CII, based on analysts’ views.