Blog Post
Navigating Corporate Climate Solutions: Carbon Insetting vs Offsetting
Many companies face challenges in developing effective climate mitigation strategies, particularly in balancing insetting versus offsetting emissions, especially for Scope 3. Over 5,400 companies have validated science-based targets according to the Science Based Targets initiative (SBTi). To meet these targets across all emission scopes, a mix of strategies must be applied across their greenhouse gas inventory.
The debate continues on whether and how to use offsetting strategies. Some argue they are essential for immediate climate action and addressing residual emissions. To meet stakeholder expectations and Scope 3 targets under the SBTi, companies are increasingly focusing on reducing or removing emissions within their own value chain, often referred to as insetting.
Understanding the difference between insetting and offsetting, and how to apply these strategies with integrity, is crucial for a company's climate journey. Here’s a deeper look at both.
Comparing Carbon Insetting and Offsetting
What is Insetting?
Insetting involves reducing Scope 3 emissions within the company’s own value chain. According to the International Platform for Insetting (IPI), insetting projects generate GHG emissions reductions and carbon storage while benefiting communities, landscapes, and ecosystems. Other terms for these initiatives include “in-value chain interventions” and “value chain interventions.”
For example, a food retailer might invest in regenerative agriculture practices among its suppliers to reduce emissions. Insetting requires proof of sourcing from suppliers and evidence of causality, ensuring the company's investment directly causes the emissions reduction.
Value chain interventions require long-term planning and strategic decisions about investments. With dynamic value chains, companies might not source from the same suppliers annually, so strategic agreements and approaches like the Supply Shed can mitigate risks and ensure ongoing benefits from past investments.
What is Offsetting?
Offsetting involves buying carbon credits to compensate for a company’s emissions. This strategy helps address ongoing, hard-to-abate, or residual emissions that remain after efforts to reduce or remove as many emissions as possible. According to the SBTi mitigation hierarchy, companies should first tackle emissions within their value chain and then consider offsetting.
For example, a food retailer might buy carbon credits to compensate for the emissions from transporting goods. These investments typically go towards projects like reforestation or renewable energy, often outside the company’s value chain and in different locations. By using insetting, companies would reduce emissions directly in transportation by e. g. financing the use of biofuels instead of fossil fuels for vehicles in their direct or an indirect supply chain.
Offsetting has faced criticism for potentially misleading claims, as it can be hard to equate external emission reductions with ongoing emissions. This has led many experts to prefer "contribution claims," where companies acknowledge their support for climate action through investments without claiming they have fully offset their emissions. The World Wildlife Fund (WWF) supports this model, recommending companies set a price on unabated emissions based on the social cost of carbon.
The SBTi’s Beyond Value Chain Mitigation (BVCM) report offers guidance on how companies can responsibly use offsetting. BVCM includes climate actions outside a company’s value chain, such as buying carbon credits or investing in local nature restoration projects. While these investments are not counted in Scope 1, 2, or 3 inventories, the SBTi is evaluating whether carbon credits can address Scope 3 emissions under science-based targets by May 2024.
Conclusion
The real question for companies is not choosing between insetting and offsetting but how to implement both effectively. When properly planned, these strategies complement each other.
Insetting focuses on reducing emissions within the value chain, essential for meeting science-based targets and regulatory requirements. Offsetting, framed as contribution claims, helps address residual emissions. Using frameworks like the SBTi BVCM can guide companies in integrating these approaches credibly.
Urgent corporate action is essential for a sustainable future, utilizing every strategy available. Companies must prepare for and start reporting on Scope 3 emissions, aligning with global standards and contributing to a comprehensive climate strategy.
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