Executive Tutorial, Part 1: What’s CO2 compensation

Executive Tutorial, Part 1: What’s CO2 compensation

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For a CEO to decide to voluntarily offset CO2 emissions, she must understand what this means and what the implications are for the company – in financial, operational and communicational terms. Up next, we present you the first part of our Executive Tutorial for CEOs, with the goal to turn you into an expert in CO2 compensation.

What does CO2 offsetting mean?
Any human activity generates CO2. If all of the CO2 emissions were absorbed and naturally processed by the biosphere, the Carbon cycle would be in equilibrium; unfortunately, we are far from an even scenario. So what can companies and people do? Avoid and reduce their carbon emissions and/or pay those who are dedicated to removing and avoiding other CO2 emissions (=compensate).

How is CO2 measured?
CO2 is measured in tons. Like any gas, Carbon Dioxide has a mass, the mass has a weight and it occupies space. One ton of CO2 visually looks like a cube measuring approximately 8 meters on each side.

How to compensate?
A company may either finance its own projects to reduce or remove CO2 from the atmosphere or buy compensation certificates from external projects.

Who sells Compensation Certificates?
There are several organizations specialized in developing CO2 projects like planting trees, creating electrical energy from renewable sources or from waste in landfills or, improving cookstoves in rural communities. In order to market their CO2 certificates, these projects receive the endorsement of independent certifying entities. The objective of the certification is to verify and measure with scientific criteria, how many tons of CO2 they avoided or removed in a certain period of time. The certification gives a some sort of right to the project developer to receive money in exchange for its atmosphere cleaning services. It is common for the certificates to be traded by intermediary agencies or wholesalers.

How is the price of a ton of CO2 set?
Overall, the price is determined by supply and demand. However, when comparing projects, there are several factors that must be considered. Labor-intensive CO2-projects are more expensive than technical CO2-projects. The price also increases when CO2-projects bring additional benefits to the community like fighting poverty, improving education and health conditions, employment opportunities, gender equality, etc. Similarly, the price depends as well on the size of the project and the sponsoring institution; smaller projects run by smaller organizations have higher costs per ton due to economies of scale. Finally, the price depends on the intermediary and the volume of purchase. Often large intermediaries ensure large orders to the CO2-projects and, thus, receive greater discounts.

Is the location of Carbon projects relevant?
CO2 emissions travel across the globe following the wind currents. It does not matter if a country emits a lot or very little CO2, the effects are shared by all humanity. Consequently, in strict terms of CO2 reduction, it doesn’t matter where a project is located.

Is offsetting CO2 a fad or a credible solution?
Doing something, even small, for the environment should never be seen as a negative action. If a company voluntarily decides to compensate, it is infinitely better than not doing anything; and from then on the challenge is to deepen their commitment. It’s like exercising and eating healthy; there is always room for improvement, but the big step is to get started and create habits.

To keep learning take a look to our: Tutorial for CEOs: Voluntary CO2 compensation – Part 2, you will learn: The difference and benefits of each certification standard, what types of CO2 projects exist, how to communicate CO2 actions for not being perceived as green-washing, who are the players in the CO2 offsetting market and what are the available business solutions to compensate CO2.