By Dave Newman, Senior Strategist, Sustainable Systems Group
In September 2011, the London 2012 Olympic Games made news by dropping plans to offset the event’s carbon emissions. The Games organizers said offset projects would have taken place away from Britain, and they prefer to maximize their environmental efforts locally.
Development for the London Olympics in 2012, photo via energydigital.com
This dramatic change made me wonder what caused the London Olympic organizers to renounce their offset plans, besides the estimated $4 million price tag. Climate neutrality was considered a leadership position back in the mid 2000s. But in recent years the value of climate neutrality has diminished, mostly because carbon offsets have fallen out of favor.
What changed the landscape for carbon offsets? Could it be trendy sustainability measures are losing currency as companies find and adopt strategies whose business benefits better align with their needs?
What is a Carbon Offset?
A carbon offset is a “promise” to avoid creating a ton of carbon emissions somewhere else in the world, typically in a developing country.
An example of a carbon offset project is a factory in Indonesia replacing an oil-fired boiler with a natural gas boiler. The sale of these carbon offsets would provide the necessary return on investment to pay for the cost of the new gas boiler. The owner paying for the gas boiler can sell carbon offsets equal to the amount of CO2 they will avoid emitting by upgrading their equipment.
It was an elegant idea, but eventually problems surfaced:
- Many projects did not produce the carbon offsets they promised or their measurements could not be independently verified.
- Investigations revealed many of projects would have occurred regardless of whether carbon financing was included – thus the purchase of a carbon offset produced no added benefit.
- Many U.S.-based companies want local carbon offsets so they can be seen as helping their own communities, but offset projects are typically located in the developing world.
Unclear ROI: A Recipe for Disaster
The cost of carbon offsets ballooned in the late 2000s, selling anywhere from $8 to $20 a ton. Renewable Energy Credits (RECs) became a very popular substitute for carbon offsets and were much cheaper, priced from $.50 to $3 a ton. The use of RECs came under heavy criticism as they were used by some companies like offsets to reduce a firm’s overall carbon footprint. Whether businesses purchased carbon offsets or RECs, they incurred costly annual expenses from offsetting their CO2 emissions.
Most companies featured these programs in corporate responsibility reports or related marketing efforts, but they began to ask: Should a U.S.-based company invest in carbon offsets to achieve climate neutrality goals when a large percentage of the U.S. population does not believe climate change is real? Do U.S. or global customers care if a company has either achieved or established a climate neutrality goal?
As these questions became harder to answer, many companies re-examined climate neutrality as a corporate goal: If consumers don’t believe in or care about climate charge, why make the investment?
The deepest liability of carbon offsets, and the reason their ROI is so hard to quantify, is they are frequently just a band-aid on business-as-usual practices. Environmentalists frequently saw them as a way for companies to pay their way out of their carbon “sins.” This made them unsatisfying for the audience companies wanted to win over with their environmental initiatives.
Environmentalists were frequently right. Many companies were not making offsets part of a broader effort to take sustainability deeper into their organizations, find recurring cost savings and spark innovation (Click here to read some success stories of companies that did). As a result, these companies were not capturing any real value or public relations value from their offsets.
Every Business Case for Sustainability is Different
Every business will find its own unique mix of business benefits from sustainability (learn more about the Business Case for Sustainability). Buying carbon offsets alone seemed to be of less value than many companies hoped when this trend took hold. But there are still exceptions. About one month after the London Olympics announcement, British Petroleum (BP) and their not-for-profit carbon management arm, BP Target Neutral, announced they would purchase carbon offsets to cover the emissions from spectator travel to the London Olympic Games at no cost to the ticket-holder.
BP Target Neutral is hoping to sign up enough spectators to set a new world record for the largest offset as measured by number of participants. Participants can sign up using BP Target Neutral’s London 2012 web page or its Facebook page.
Making the offsets an interactive event with customers is probably an effort to build goodwill and customer engagement. BP and its subsidiary perceived a business value from purchasing carbon offsets that just wasn’t there for the Olympics organizers.
That’s the business case philosophy in action – sustainability makes sense for everyone differently. The trends of the moment won’t last if they can’t create real value for businesses. As companies think more deeply about how to create and capture the sustainability benefits they need most, we can expect carbon offset programs to continue falling away.