Consider this thought experiment: You are the Chief Sustainability Officer of Acme, Inc., an electricity producer in California. Your main responsibility is to lower Acme’s emissions below the limits assigned to Acme under rules set by the California Air Resources Board (CARB). Last year Acme performed an audit of all of its greenhouse gas emissions. When performing this audit you learned a lot about where Acme’s emissions are coming from. As expected, they are dominated by Acme’s various production plants. So what will you do?
The simplest approach would be to use insetting first to reduce emissions when costs and investment for internal changes are reasonable, then offsetting for the rest. Let’s look at a couple of simple examples.
Insetting
Insetting means making changes in the company’s value chain that reduce its own greenhouse gas emissions. An example might be closing a coal-fired power plant that emits more CO2 per megawatt-hour than any other plant in Acme’s portfolio. Or if this plant still has a lot of usable life left in it, converting it to use natural gas, which emits much less CO2 per megawatt-hour than coal.
Offsetting
Offsetting means paying others to reduce their emissions, then discounting your emissions by the same amount. Let’s say you have done all the insetting that your schedule and budget will allow this year, but Acme is still above its CARB-mandated emissions cap. You have learned of a relatively inexpensive opportunity to pay for a project that promotes the use of regenerative agriculture practices. The project was created specifically to provide these “carbon credits” for companies like Acme, and it is administered through a CARB-certified registry (Verra, Climate Action Reserve, or American Carbon Registry) that ensures the project and its greenhouse gas reductions are genuine. You buy enough of these credits from the project proponent and then “retire” them to offset Acme’s emissions below the cap set by CARB.
Which option would you choose?
Learn more by reading The Definitive Guide To Carbon and Climate Commitments.
