The Government's target of Net Zero greenhouse gas emissions by 2050 requires significant changes across all sectors. Achieving Net Zero means reducing emissions as far as possible, and removing or offsetting any residual emissions to achieve a balance.
A carbon offset (or carbon credit) is the reduction or removal of carbon dioxide or other greenhouse gas emissions used to balance or compensate for emissions made elsewhere. When properly certified (either by Government bodies or independent certification bodies), the resulting carbon offsets or credits (measured in carbon dioxide equivalent – CO2e) can be bought and sold – allowing organisations to invest in generated carbon offsets or credits to offset their residual emissions.
While investing in carbon offsets or credits may appear to offer a faster route for organisations wanting to achieve 'carbon neutrality', they should only be considered as part of an organisation's wider climate change strategy. Carbon offsetting needs be approached carefully to avoid accusations of greenwashing and associated reputational risks.
As part of the Net Zero journey, residual emissions that cannot be removed need to be offset using recognised domestic or international standards. Carbon offsetting allows an organisation to contribute to achieving global carbon neutrality.
The concept of 'climate contributions' goes beyond environmental benefits, carbon absorption or avoidance, and allows organisations to support wider corporate goals (eg investing in carbon offsets or credits which also generate local environmental or social benefit, or support the achievement of the United Nations Sustainable Development Goals).
Some sectors (such as energy generation, energy intensive industries and aviation) are obliged to take part in the mandatory UK-wide emissions trading scheme (EU-ETS). For other organisations the decision on whether to invest in carbon offsets or credits is currently a voluntary.
The carbon offsets and credit market is rapidly developing. Investment through the voluntary unregulated market is not without risk, and there are many different models available – from projects that help reduce emissions, to projects that seek to remove carbon dioxide from the atmosphere. The cost (and quality) of carbon offsets vary, and organisations should carry out technical and legal due diligence to ensure they meet their requirements.
This includes ensuring projects demonstrate the necessary additionality (ie the emission reduction would not have existed but for that investment), are permanent and do not create potential reputational risks. Projects should also be verified to a suitable third party standard (eg the Verified Carbon Standard).
Organisations need to take care when selecting suitable carbon offsets or credits. Offshore projects may offer lower-cost offsets, but may come with associated ethical concerns.
Investment in carbon offsets or credits to make claims of carbon neutrality without addressing underlying carbon emissions creates a significant reputational risk of 'greenwashing'. The recent ASA/CAP guidance on misleading environmental claims demonstrates why clients need to take care in marketing materials. Wider legislation is proposed in the EU and the US to legislate against misleading environmental representations.
Greenwashing creates significant reputational, legal and shareholder risks, which needs to be factored into a wider climate change strategies and internal policies.
Regulation is coming for the voluntary carbon offsets market. In October 2022, the Climate Change Committee reported to the Government on the Voluntary Carbon Markets and offsetting, and made a number of recommendations (including putting in place stronger guidance, regulations and standards to ensure that carbon offsetting did not become a substitute for direct emissions). More recently the Government published its Net Zero Review which recommended formally adopting regulated standards for VCMs and appointing a regulator for carbon offsets and credits by 2024.
In the absence of a regulated voluntary market, organisations need technical and legal support when considering investing in carbon offsetting and credits.
We help clients establish their carbon footprint, align objectives across their value chain and work with technical advisers to deliver energy efficiency and decarbonisation projects. We also advise clients how carbon offsets or credits can fit within their wider climate change strategy. That includes early advice on risk management and regulatory issues, advice on procurement and associated contracts.
We understand the importance of clear and reliable advice in this fast changing market. As we move towards the 2050 target, offsetting strategies and carbon credits are likely to become even more critical. It has never been more important to understand the legal and regulatory environment that underpins their delivery.
Carbon offsets and credits
We bring together lawyers from across the business to provide seamless advice on Net Zero and ESG issues, the delivery of emission reduction projects and how carbon offsets and credits fit within a wider climate change strategy. Working with technical and commercial consultants, we help clients map their carbon footprint, align objectives across their value chain and deliver against their targets.
We advise a range of clients including landlords, local authorities, commercial businesses and industry. This includes providing strategic and regulatory advice, from identification of requirements and procurement through to contract negotiations and delivery.
What it will help you to achieve
It is important to get clear advice on risk and avoid reputational risks and greenwashing. Early advice from experienced lawyers will help you develop your offsetting strategy and ensure this reflects best practice. In a rapidly changing market, we can help you navigate the risks.