The transition to a low carbon economy is on every CEO's agenda nowadays. The impacts of climate change and responses to it will transform every business sector in the coming decades. Although Climate change will affect a majority of companies, all will be expected to contribute to its solution.
Nevertheless, it is challenging for most companies to devise and implement a credible decarbonisation strategy. The transition requires new ways of doing business, including new ways of displaying capabilities and resources and new ways of thinking. But despite the challenges, companies around the world are scaling up their decarbonisation commitments.
We can see this trend with the number of companies committing to reducing emissions. More than 2000 companies have confirmed emissions reduction targets under the Science Based Target initiative (SBTi). Additionally, more than 370 have committed to The Climate Pledge, pledging to achieve net zero emissions by mid-century or sooner.
For most companies and investors, carbon credits play a crucial role in their Net-Zero strategy. They allow companies to make earlier and more ambitious commitments. Credits allow companies to reduce their current emissions through offsets, while taking cost-effective steps to reduce future emissions through asset rotation and business model development. In the long term, credits can play an essential role in offsetting difficult-to-avoid emissions from products for which no low- or zero-emission options exist.
The growing interest in recent years is also reflected in the Voluntary Carbon Market (VCM), which organises the pledging and trading of carbon credits. In 2022, the demand for carbon credits is at its peak. Prices have increased by more than 140% since 2021 and forecasts assume that demand for credits will increase 15-fold by 2030, to $50 billion per year.
But the voluntary carbon market has a problem. It cannot cope with demand. Access, which plays a crucial role in the global effort to combat climate change, is often limited to large organisations and is characterised by opaque pricing and market inefficiencies. Furthermore, due to a lack of transparency and credibility, it has faced a number of problems in recent years.
This report examines the key role for on-chain carbon credits as part of net zero strategies and the VCM. It was prepared by senken to help business decision makers identify and understand the best use of credits for their business.
What are the Oxford Principles?
The Oxford Principles for Net Zero Aligned Carbon Offsetting provide a framework designed to ensure the integrity and effectiveness of carbon offsetting efforts as part of wider strategies to achieve Net Zero emissions. These principles were developed to guide organisations in using carbon offsetting responsibly and effectively, emphasising the role of offsetting in the broader context of emissions reduction.
The principles are as follows:
- Cut emissions, use high-quality offsets as part of a net zero strategy: Offsetting should not be used as a substitute for reducing one’s own emissions. Organisations should prioritise reducing their own emissions and use offsets as a complementary measure within a broader net zero strategy.
- Shift to carbon removal offsetting: Organisations should gradually shift towards offsetting strategies that focus on removing carbon from the atmosphere, rather than relying solely on emissions reduction projects.
- Use best practice for offsetting: Offsets should meet high standards of quality, ensuring they are additional (meaning the carbon savings would not have occurred without the offset), based on a sound methodology, and subject to independent verification. They should also be subject to robust legal contracts that ensure the environmental integrity of the offsets.
- Support the development of Net Zero aligned offsetting: As the market evolves, organisations should support the development of new offsetting methods and projects that align with a trajectory towards global net zero emissions, ensuring that offsetting reflects the latest scientific and technological advancements.
How do these principles relate to achieving Net Zero?
The Oxford Principles are directly linked to achieving net zero emissions by providing a clear and structured approach to offsetting that complements direct emissions reduction efforts.
By emphasising the importance of carbon removal and the gradual shift away from emission reduction projects, the principles guide organisations in contributing more effectively to the global goal of Net Zero. This approach ensures that offsetting efforts are not only credible and verifiable but also aligned with the latest climate science and the urgent need for action.
What is the difference between the Oxford Principles and other climate frameworks?
The primary distinctions between the Oxford Principles and other frameworks like the IPCC and the SBTi lie in their specific focus, application, and guidance on offsetting:
- The Oxford Principles specifically address the integrity and strategic use of carbon offsetting within net zero strategies, while the IPCC offers broad scientific assessments on climate change, and the SBTi provides methodologies for setting science-based emissions reduction targets.
- The Oxford Principles offer detailed and practical guidance on selecting and implementing carbon offset projects, focusing on quality, additionality, and the shift towards carbon removal. Meanwhile, the SBTi and IPCC state that only carbon removal credits can be used for Net Zero and neutrality claims.
It is important to note that The Oxford Principles are not a substitute for the IPCC or SBTi. Instead, organisations should evaluate all of the frameworks and guidelines in a holistic manner.
How can businesses integrate the Oxford Principles into their sustainability strategy?
To incorporate the Oxford Principles effectively, businesses should:
- Align business strategies with the goal of reducing direct emissions first, complementing these efforts with high-quality, verifiable offsets that adhere to the principles.
- Shift towards investing in carbon removal projects, in line with the principles’ guidance, to support long-term climate goals.
- Ensure offset projects are additional, verifiable, and contribute to sustainable development, following the principles’ recommendations for best practices.
- Engage with and invest in the development of new, net zero-aligned offsetting solutions, reflecting the principles’ call for supporting the evolution of the offset market.