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Unlocking the hidden value of carbon offsetting

In 2014, ICROA and Imperial College conducted a research study into the socio-economic impacts of the voluntary carbon market. The study had two objectives:

  • To identify the motivations of businesses participating in voluntary carbon offsetting and to categorise the benefits they receive. 
  • To quantify the social, economic and environmental benefits delivered by voluntary carbon offset projects that are in addition to the carbon reductions they achieve (“co-benefits”).

To help address the first objective, Imperial College surveyed 72 businesses to gather insights on motivations and barriers encountered to participating in offset programmes, as well as collecting tangible benefits the businesses had experienced.

Beyond the obvious aim of mitigating GHG emissions, the results showed that reputation/brand image, employee engagement and market differentiation were ranked as the three primary motivations for offsetting by buyers. 67% of respondents reported positive and tangible business benefits from their voluntary offset programme, ranging from reductions in energy consumption and costs, to market differentiation, winning new business and client retention, to employee engagement.

When buyers were asked what factors drive their preferences for certain offset types, relevance to business and co-benefits were the two most cited factors. These drivers were particularly of value to buyers who are looking to build reputation and brand image and to differentiate themselves in their markets. Significantly, buyers also indicated a willingness to pay up to 33% more per tonne of CO2 for projects with verified social, economic and environmental co-benefits, drawing upon the value co-benefits from carbon offset programmes can deliver for the business.

To help address the second objective, another survey was conducted amongst project developers of voluntary retailed projects. In total, their portfolio generates around 32 million tonnes of CO2 (MtCO2) emission reductions per year and around 836 MtCO2 reduction over the projects lifetimes.

Assessing this large sample of offset projects, and using a number of methods for valuing co-benefits, we determined that offsetting 1 tonne of CO2 delivers benefits totalling $664 – spread across a range of environmental, social and environmental co-benefits. 

Download the full infographic here and access the full study here.

Valuing the additional benefits from carbon offsetting

In 2016, ICROA and Imperial College conducted a second research study that highlighted further how private investment into voluntary carbon projects generates benefits to local communities in addition to mitigating climate change.

The voluntary carbon market (VCM) supports a range of carbon offset projects that also deliver various socio-economic and environmental co-benefits. This study demonstrated the use of the Benefit Transfer (BT) method to evaluate these co-benefits in the absence of project specific data. The BT approach uses values estimated from existing studies that are published in academic or grey literature as an approximation for valuing environmental services and social welfare of carbon offset projects. Therefore, it offers a cost effective way of evaluating the co-benefits of voluntary carbon projects. In this study, the BT method is applied to three case studies, all of which are carbon offset projects developed by ICROA members.

Examples of co-benefits distribution:

Download the full infographic here. 

Key findings

  • Private investments into voluntary carbon projects generate benefits to local communities in addition to mitigating climate change. In 2014, the average price buyers paid per offset was US$4.9 (Hamrick & Goldstein, 2015) whilst the values estimated in this study indicate the greater benefits generated from such investments to the local project stakeholders and populations. Therefore, these case studies show that buyers’ investments into offsetting projects generate positive externalities that are not fully captured in the current market price of carbon offsets.
  • In these case studies, most of the co-benefits are related to health and ecosystem services conservation. Quantification of these services is often absent in carbon offset projects due to the complexity associated with their measurements, and the lack of appropriate methods or standards for co-benefit quantification.
  • The co-benefit types and values vary significantly across the case studies, confirming it is more appropriate to evaluate the co-benefits at the project level. A review of existing literature shows that even within the same project category, the co-benefit values vary significantly depending on the project design, the technology employed and the socio-demographic conditions at the project location. Therefore, the results generated in this study should not be generalised to the rest of the market.
  • The case studies reflect the limitations of economic valuation as not all co-benefits can be easily monetised, such as female empowerment, improved food security and enhancing the local environment. To avoid these co-benefits being undermined, other non-monetary metrics or qualitative indicators should be explored to monitor and verify these co-benefits.

This study demonstrates that by using the BT approach, voluntary projects’ co-benefits can be valued even in the absence of project specific quantitative data. This method can be replicated by project developers for their projects, although further academic guidance is required to ensure the robustness the results produced. Whilst the BT method is cost effective and has been widely used in academic studies and to inform policies, the method is associated with various limitations which affect the validity and reliability of the results produced. 

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