The market for voluntarily offsetting carbon emissions doubled between 2007 and 2008 to reach $700m. With forecasts suggesting that the market could double again to 2012 this new sector is now attracting the attention of more serious investors and traders, as well as more companies looking to offset their emissions. But despite all the excitement around these projections there has been no systematic analysis of where the demand in this new market will actually come from, if indeed at all. Nobody has stopped to ask the simple questions “why do organizations voluntarily offset their emissions?” “how much value do they get out of it”, and “when does carbon setting work and when doesn’t it work?“
The Carbon Market analyst team at New Energy Finance Ltd. decided to address those issues in the new report – The Business Case for Carbon Offsetting – An Independent Analysis. The research is based on an analysis of over 2,000 offsetting companies, a complete review of previous research in this field and in-depth interviews with over 40 end-buyers of carbon offsets.
The Largest Markets for Carbon Offsetting are The US and Europe
They found that up to 3,000 organizations worldwide have offset some or all of their emissions. Offsetting organizations are also extremely diverse covering virtually all sectors of the economy from high carbon sectors such as mining and quarrying to low carbon intensity sectors such as media, finance and retail.
By far the largest markets for carbon offsetting are the US and Europe which together account for 95% of demand. Within Europe, the UK has the strongest market representing two thirds of the European market. Companies offsetting their carbon emissions are not limited to consumer facing businesses. There are as many examples of businesses operating in business-to-business markets as there those operating in business-to-consumer markets. This is contrary to received wisdom that suggests that it is only businesses with high public profiles that can benefit from carbon offsetting.
Voluntary Carbon Markets Reduce Emissions Beyond The Cap
Voluntary carbon markets should not be undermined by legislation capping emissions – providing that the offsets come from outside the cap and trade scheme. This conclusion also runs counter to popular opinion that often believes that if legislation mandates emissions should be capped, then there is no place for voluntary activity. All that happens is that voluntary activity reduces emissions beyond the cap by using emission reductions from outside the scheme.
The Main Business Benefits of Carbon Offsetting are Reputational and Sometimes Sales
The analysis revealed that the main business benefits of carbon offsetting are reputational. Although reputation is difficult to value, companies clearly value a good reputation. However, the benefits differ significantly by sector. Inside the report we show where reputational benefits are strongest and when carbon offsetting can be used to enhance reputation.
They found that in some cases carbon offsetting can have a positive impact on sales. Where carbon offsetting is associated with products or services, it has been shown to directly improve sales. But this is certainly not always the case. The report shows where it is most likely to succeed.
The team saw that the oft-cited benefits for staff morale and recruitment seem to be misplaced. Our research found little evidence of carbon offsetting having benefits in terms of staffing. In fact, the findings suggest that engaging employees in carbon offsetting programs had been
very difficult. This is something the carbon offsetting industry clearly needs to address.
The sheer scale and diversity of offset users suggest that the sector should continue to grow – once the current recession is over. Carbon offsetting as a concept appears to have broad appeal and is not confined to a quirky business niche. This should fuel continued growth in the sector once the recession is over and spending patterns return to a more normal state.
Guy Turner, Director of Carbon Markets at New Energy Finance said, “For too long voluntary offset providers have simply assumed that customers will see value in buying carbon offsets. They have done relatively little in assessing precisely when and where value is created for
customers. This report provides an extremely useful basis for judging when, where and how it makes sense for companies to voluntarily offset their emissions”.
