Beyond Offset: ‘Carbon Insetting’ Redefining the Logistics Landscape

1. Introduction

By the end of the century, the globe is expected to have warmed by 2.7°C. The public and private sectors are under increasing pressure to reduce their greenhouse gas (GHG) emissions, as we have fewer than ten years to cut our emissions in half (UNEP, 2021).

In order to achieve specific sustainable targets, many companies opt to the Carbon Offsetting as one of the green solutions.

Carbon Offsetting can be defined as a practice that allows individuals and companies to invest in environmental projects around the world in order to balance out their own carbon footprints (World Economic Forum, 2019).

Shippers, carriers, and logistics service providers are promoting Carbon Offsetting as a way to meet freight transportation climate targets. These offsets make up for emissions that their supply chains or operations are unable to reduce.

Offsetting has some critiques, some of whom have been very outspoken. It's merely lip service to action, according to (Greenpeace, 2019), which says: “When compared to ideas like frequent fliers paying more and more heavily for trips abroad, carbon offsetting transport falls very short.”

In 2017, the European Commission has published a report about the Carbon Offsetting practices where the results were depressing to read “Overall, our results suggest that 85% of the projects covered in this analysis and 73% of the potential 2013-2020 Certified Emissions Reduction (CER) supply have a low likelihood that emission reductions are additional and are not over-estimated,” the report says (Kusnetz, 2017).

Although they do exist, logistics/transport-related carbon offset projects are not well-represented in the worldwide offset market. As per (Ecosystem Marketplace, 2019), these projects made up just 0.2% of the voluntary carbon offset market in 2018, which was valued at close to US$269 million as Figure (1) demonstrates.

Figure 1: INVESTMENTS IN OFFSETTING BY CATEGORY. Data Source: (Ecosystem Marketplace,2019)

Although money spent on forestry projects and other non-transport-related initiatives is significant, it won't contribute to the decarbonization of the global network of goods transportation. Money spent on unrelated, counterbalancing projects results in a recurring cash-out that has no connection to the company.

In order to become carbon neutral, private businesses are using voluntary carbon offsetting and purchasing carbon credits more frequently. As an example, Company A could buy credits from Company B in order to promote sustainable energy. B may set up a wind farm or solar farm and profit from sustainable energy as A lessens its carbon footprint.

Alternatively, Company C may be used by Company A to finance reforestation. While C promotes biodiversity and gives work to indigenous groups that care for the forests, A offsets emissions.

Nevertheless, problems like ‘Additionality’ and ‘Duplicate Counting’ can offset the impact of the carbon market.

In the context of carbon offsetting, (Harvard University, 2019) defines ‘Double Counting’ as the event which occurs when two or more parties claim credit for the same emission reductions.
The term ‘Additionality’ in the same context, as per (Forbes,2021), refers to the concept that emission reductions or removals from a mitigation activity are additional if the mitigation activity would not have taken place in the absence of the added incentive created by the carbon credits.

For example, it is double counting if A pays B for renewable energy and both parties claim a reduction in emissions. Paying for reforestation that has previously been scheduled is therefore regarded as lacking additionality. To prevent these risks, companies and nations need to give priority to high-integrity projects with strong climate methodologies.

Businesses and nations will unavoidably use carbon offsets, even as the globe struggles to achieve net-zero emissions by 2050. It is imperative that organisations begin decarbonising their own value chains to incorporate more environmentally friendly activities and solutions before they can effectively combat the rising temperatures.

The world thinks there is an alternative course of action. Carbon Insetting!

Figure 2: Offsetting VS. Insetting. Image: (Smart Freight Centre, 2020)

2. Understanding Carbon Insetting

As per (myclimate, n.d.), Carbon Insetting refers to ‘The financing of climate protection projects along a company’s own value chain that demonstrably reduce or sequester emissions and thereby achieve a positive impact on the communities, landscapes and ecosystems associated with the value chain.’

(World Economic Forum, 2022) went to simplify the definition by saying ‘Carbon Insetting focuses on doing more good rather than doing less bad within one’s value chain.’

As Figure (2) illustrates, the International Platform for Insetting argues that Carbon Insetting is the application of nature-based solutions like reforestation, agroforestry, renewable energy, and regenerative agriculture with the goal of reducing GHG emissions from one's own supply chain.