Forget offsets … What if companies had carbon swear jars?

The life of a company’s chief sustainability officer is not easy. She needs to not just convince the various departments in the business to take actions that will reduce emissions, but also convince the Treasury to fund those activities.

For the emissions that she hasn’t been able to cut, such as air travel, she has to find carbon offsets to help meet the company’s climate goals. Finally, she helps the marketing team with materials to burnish the firm’s credentials. Only after all that can she rest easy knowing that her organisation is doing its part for the climate and enjoying the reputational gains that may come.

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Read: Greenwashing is no longer an option as new regulations emerge

But now, the only shortcut in that process has been taken away. The purchase of cheap offsets is becoming a liability following a series of investigations in recent years, admonitions from standard-setting bodies, and a crackdown from regulators on greenwashing claims.

In comes the carbon swear jar …

Hard as she may try, the company is likely to have some emissions that just cannot be reduced. So what are the credible options she’s left with? There are carbon-removal credits – that fund technology to draw down existing CO2 from the air – but they are too expensive to get a sign-off from the finance department of most companies.

Alas, the top standard-setting body, the Science-Based Targets initiative (SBTi), has an idea – laid out in a new report, Above and Beyond – that provides credibility at a more affordable price. SBTi sets a new strategy to help the world get on track to meet climate goals.

Read: With Africa’s carbon sinks up for grabs, offset debate heats up

Step one for a company is to set out a net-zero plan and get it verified by SBTi. More than 4 000 firms have already done that. Step two is to apply a carbon fee to the company’s current emissions. Think of it like a carbon swear jar. Collect that money from different units within the business and then use that money to do climate good.

Why would a company do that? Well, for exactly the same reason that a company used to buy offsets. “Businesses are generally motivated to take action because it makes them money or it enhances their brand,” Alexia Kelly at the High Tide Foundation told Bloomberg Green.

“We need to make it simple and compelling for companies to take action.”

The sustainability officer’s goal isn’t just to reduce a company’s impact on the planet but also to show to the wider world that the company is doing the right thing and helping improve the company’s reputation. But that will only come from backing options that make a positive difference.

Not a new concept

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Using an internal carbon price isn’t a new concept. Nearly half of the thousands of companies that report emissions to nonprofit CDP already factor in the cost. Often that is to help them make investment decisions, such as whether a project would still be profitable if governments applied a certain price on the pollution generated.

There is at least one company that takes it all the way to the carbon swear jar idea. Since 2012, Microsoft has charged itself a carbon fee for its emissions. The process works by calculating the carbon dioxide that was generated by a business unit in one year, then multiplying that with a carbon price. Microsoft has said for something like business travel this could be as high as $100 a metric ton.

The money collected from different business units is then applied to buy carbon removal or invest in sustainable aviation fuel, among other things.

After a few years of experience, Microsoft started using emissions forecasts as a factor in business decisions, said Shiv Rai, group finance manager for impact investments at Microsoft. Rai works with the business unit to estimate how much, say, a new gaming device will cause in emissions that year and thus provide an estimate of the carbon fee the gaming unit will have to pay.

“That’s helped people realise it’s always cheaper to reduce emissions rather than use the carbon fee to fund removals,” said Rai. This back and forth with different business units creates a deeper understanding of the carbon impact of their activities and thus they can dedicate more efforts to reducing those emissions, rather than having to pay a fee.

Microsoft’s way is just one example. Some companies may prefer to fund the development of climate technologies, while others may spend money on clean energy in poor countries.

Keeping offsets aside, there are many credible climate solutions that desperately need funding.

In other words, an effective internal carbon fee can accelerate the company’s decarbonisation, and until all the emissions that can be eliminated are eliminated, the fees generated can be used to fund credible climate activity. The company may not be able to use a “carbon neutral” tag, but it could perhaps call itself “carbon responsible.”

© 2024 Bloomberg

Roy Walsh

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