Carbon Offsetting, Explained

In conversations about the fight against climate change, language is constantly used that refers to Carbon compensation. What do these terms refer to? In a simplified way, this is the most advanced strategy for designing a market based on the environmentalist idea of “the polluter pays”. In this case, the pollution takes the form of equivalent carbon dioxide emissions, the main greenhouse gas (GHG).

Without carbon in the atmosphere, there could be no life on Earth. This gas helps to protect against the sun's ultraviolet and gamma rays and to the existence of ideal temperature conditions, which have reached equilibrium over millions of years. However, the intense industrialization that has taken place in the last 250 years, together with the large number of people spread over the continents, have meant that the rate at which carbon is emitted into the atmosphere is unprecedented. The blessing becomes a curse.

Along with other types of greenhouse gases (such as methane), high concentrations of carbon in the atmosphere allow light and solar energy to continue their journey to the planet's surface but do not allow heat to escape later. The average temperature of the planet increases year by year as gaseous carbon escapes from factories, from the transport exhausts we use, from energy plants burning fossil fuels - and is planted in the atmosphere. With this increase and greenhouse effect come increasingly catastrophic distortions to weather patterns. While this article is not about global warming, it is key to indicate that carbon is the main contributor to the greatest risk facing biodiversity: climate change.

As we hinted earlier, the objective of the carbon market is based on the idea that whoever emits carbon compensates for it. How is it done? First, knowing how much each actor emits for their operations year after year, and then knowing how much they must pay to compensate/mitigate/neutralize their carbon footprint. At Toroto, we make efforts to prepare inventories that provide this preliminary knowledge to companies and other actors. Who is paid to compensate? It pays those land owners who, in their territory, contribute to the sequestration or capture of carbon.

Carbon doesn't disappear; we simply want it to be stored, to go from a gaseous state to a solid state, away from the atmosphere. This is how vegetation (and even if it doesn't seem like it, soils and oceans too) naturally capture carbon on land and act as reservoirs. In other words, well-preserved forests and jungles use carbon as a food source, growing their biomass and releasing oxygen (which, incidentally, allows us to live). In short, when we see that a tree has grown, it means that it has been storing more carbon. We seek this process in volume to counteract the ever increasing emissions in the world. Unfortunately, the opposite is happening more and more frequently: With deforestation and more destructive forest fires, enormous proportions of carbon that were previously sequestered are released.

As we are talking about a global phenomenon, carbon compensation does not always occur in the same place where the emission occurred. This compensation process is what is known in English as offsetting. An example can contribute to the explanation: Let's think that a company located in the United States emits 10,000 tons of equivalent carbon into the atmosphere for its entire operation in 2022. It may be the case that, by law, such a company is required to offset its carbon to a certain margin because commercial transactions are part of the regulated carbon market. It may also happen that this company is not required by law to comply with a specific compensation for its emissions and that it does so voluntarily (later in the article we will talk about why there are companies that do this and what are some of the benefits that this entails).

Returning to our example, the company in the United States decides to acquire carbon credits of a forest community located in Mexico that is conserving its native vegetation cover, which is possible thanks to the annual income from this market. This forestry project has met verification criteria that ensure the quantity and quality of the carbon pools being sequestered. For reference, a carbon bond is equivalent to one ton of certified carbon dioxide and represents a unit of commercial exchange. Therefore, the company acquires 10,000 carbon credits and completely neutralizes its activity. Although the company is not in Mexico and did not “pollute” there, carbon compensation occurred remotely, rather than on-site. That is why we are talking about a case of offseting.

Next, let's look at a second example with slight modifications. Let's imagine that the company in the United States owns a large area of land in the same place where it operates. If it is able to protect an area with forest cover and develop a project to generate carbon credits, it could offset its footprint on the same site. On-site emission and capture = Insetting, another way to offset emissions.

At Toroto, we develop both offsetting and insetting carbon carbon projects.. We have found an opportunity to explore initiatives that support carbon capture in tree areas, and also in soils where agricultural activities are taking place. This second mode, the capture of carbon in soils, is quite new in the world and there are very few active projects. Demonstrating that they can be successful, a whole range of possibilities would open up for communities that have permanent forest areas and areas where they carry out agriculture and livestock work. This would provide an economic income for many, allowing for better capacities to promote conservation.

This last point helps introduce the climate benefits of carbon offsetting. First, it creates a bridge between marginalized groups and private sector corporations that have significant assets and finances. One of the major problems faced by conservation is the lack of resources to encourage land owners to promote it. Through fair payment for carbon compensation, land owners will be closer to developing plans that include biodiversity monitoring, biological corridors, protection of flora and fauna, sustainable plans and certificates for timber and non-timber forest use, among many other things.

Companies that voluntarily decide to embark on the path of carbon compensation should not simply view it from a romantic angle in favor of the environment, although of course the pure desire to conserve the environment is sufficient. There is a growing body of evidence showing that those companies that are on the so-called climate journey, or climate strategy, entail concrete actions that protect your finances. An example may be useful: Let's imagine that a Colombian company exports coffee to a large business consortium that has branches in several countries around the world. One day, this consortium announces that by the year 2030 its entire operation and supply chain must be neutral carbon. This means that all the emissions that are attributed to this consortium and that cannot be reduced will be offset by the purchase of carbon credits. If, in our example, the Colombian company has not previously moved to achieve this on its own, it will find itself in an unfortunate and disadvantageous position in which it must urgently transform (and it may already prove to be an impossible task) or its most important customer will decide to change suppliers to someone who is already more advanced in their climate strategy. This is just one example that shows the importance of companies knowing the operation and benefits of participating in the carbon market.

With a view to making this happen faster and with the right tools, Toroto will launch this month a unique digital platform, not only in Mexico but in the world, to visualize carbon dioxide projects: the Metaregistro. Backed by blockchain technology, it has the potential to make commercial transactions an immutable and fully traceable process, strengthening the carbon market so that carbon capture projects can grow and continue to benefit local communities, companies seeking to be sustainable and the planet.