CO2 Reduction vs. Compensation: A Guide for Companies

CO2 compensation or CO2 reduction for companies? An overview of the various ways in which companies can reduce their carbon footprint, whether by offsetting emissions or through direct reduction measures. We discuss the advantages and disadvantages of both approaches and why reduction should be prioritized.

Introduction to the topic of CO2 reduction for companies

At a time when climate change is becoming ever more present and calls for action to protect natural resources are growing louder, companies are facing the challenge of reducing their carbon footprint. Reducing CO2 emissions is not only fundamental, as global emissions must fall significantly by 2030 to prevent irreversible damage to ecosystems, but also has a positive impact on a company's image and ability to innovate.

The importance of CO2 compensation and CO2 reduction

There are two main ways in which companies can reduce their carbon footprint: CO2 offsetting and CO2 reduction. While offsetting aims to mathematically compensate for CO2 emissions already emitted, reduction focuses on directly reducing the emissions caused by the company.

CO2 compensation

CO2 compensation refers to the measures that companies take to offset the CO2 emissions they have already emitted. This is usually done by investing in projects to reduce greenhouse gases from the environment, such as biochar, BECCs, DAC, seagrass and many more. Reforestation projects are problematic because they are not immediately effective. A tree grows slowly, but we need to remove CO2 from the environment as quickly as possible. It is important to know that offset CO2 cannot be deducted from your own corporate carbon footprint. CO2 certificates are usually traded as carbon credits, which act as tradable certificates and correspond to the reduction or avoidance of one ton of CO2.

Methods for CO2 compensation

There are various ways in which companies can offset their CO2 emissions. The EU is developing a CO2 removal certification (see EU Carbon Removal Certification), which defines the following requirements:

- Correct quantification with additional climate benefits.
- Store CO2 long-term and prevent CO2 leaks.
- Third-party verification and certification.

Advantages and disadvantages of CO2 offsetting for companies

The main advantage of carbon offsetting is that companies can quickly and effectively offset their calculated carbon footprint without having to fundamentally change their business processes. Business as usual is not at risk. However, offsetting can also be criticized as "greenwashing" if companies merely try to convey an environmentally friendly image by investing in climate protection projects without actually reducing their own emissions. However, this is becoming increasingly difficult, not least due to the Green Claims Regulation, as "green claims" will have to be substantiated and verifiable in future.

Further difficulties with simple offsetting are

Limited supply: offsetting projects often reach their limits as either only limited quantities of offsets are available or they are subject to geographical restrictions. An exclusive dependence on offset projects could prevent own emission reductions that are necessary to achieve global climate targets. New technologies such as Ocean CDR or DAC are only available to a limited extent.

Rising costs: Prices are likely to rise significantly due to limited availability. If we are solely dependent on CO2 certificates, we will no longer be able to afford them in the foreseeable future. Or to paraphrase Warren Buffet: Only when the tide goes out do you discover who has been swimming naked.

Moral hazard: A strong emphasis on offsetting can lead to the company giving the impression that it is exempt from its own CO2 emissions simply because certificates have been purchased. Instead of structural changes to operational processes and practices, external projects are relied upon to offset the carbon footprint.

Nevertheless, offsetting represents an important inflow of funds from the affluent global North to the South, financing many worthwhile environmental projects, despite many black sheep. One successful example is the Chyulu Hills REDD+ project - a collaboration between the Kenyan government, local and indigenous organizations, Conservation International, under the supervision of Verra. The result was:

• The release of 5 million tons of CO2 prevented 🌳
• 410,000 hectares of the Tsavo-Amboseli grasslands conserved 🐘
• Meals delivered to 35,000 children in 94 schools 🥗
• 'Transformative' funding provided to the Maasai Wilderness Conservation Trust 💵

CO2 reduction & avoidance

The direct reduction of CO2 emissions in companies refers to the implementation of strategies and measures to minimize the consumption of resources and reduce emissions. This includes, for example, switching to renewable energies, improving energy efficiency or optimizing production processes. This is naturally more costly than buying compensation certificates at the click of a mouse.

Strategies for direct CO2 reduction in companies

Companies can reduce their CO2 emissions through various measures, such as the implementation of energy efficiency measures, the use of renewable energies, the optimization of logistics processes or the promotion of sustainable production methods. a first step is to measure the current emissions across the entire company in the so-called scopes. Targeted measures can then be taken in the next step. This article provides an overview: Everything you need to know about carbon accounting for companies

Another starting point for manufacturing companies is a lifecycle assessment or a product carbon footprint, which does the same at product level. Find out more in this article:Lifecycle assessment: steps, software and databases for assessing environmental impact.

Advantages and challenges of CO2 reduction compared to offsetting

The biggest advantage of direct CO2 reduction is that companies can reduce their emissions in a long-term and sustainable manner, which not only has a positive impact on the environment, but also saves costs and increases independence from fossil fuels. However, reducing CO2 emissions often requires extensive investment and changes to business processes, which can be a challenge for many companies.

Why CO2 reduction should be prioritized

The long-term effects of CO2 reduction

While carbon offsetting can be a quick solution to offset a company's carbon footprint, reducing emissions directly is the more sustainable solution in the long term. By reducing their own emissions, companies can save costs in the long term, improve their energy efficiency and make a positive contribution to climate protection.

The importance of sustainability and environmental protection for companies

More and more consumers and investors are attaching importance to sustainability and environmental protection. Companies that actively take measures to reduce their CO2 emissions can improve their image, increase customer satisfaction and position themselves as pioneers in climate protection.

In the meantime, however, the legislator is also fulfilling its duty and, with the EU taxonomy and the CSRD, is stipulating the disclosure of companies' environmental impact. The active reduction of CO2 emissions is therefore no longer optional and a marketing tool, but a competitive advantage. Due to a rising CO2 price and the expansion of the ETS (EU Emissions Trading Scheme) to include road transport, buildings and industrial and energy facilities, a new emissions trading scheme, initially separate from EU ETS 1, will be introduced from 2027 (EU ETS 2). Companies that anticipate this and other regulatory measures such as CSDDD and CBAM by adopting a future-oriented approach are smart.

Last but not least, examining one's own processes also promotes the ability to innovate. The traditional is reconsidered and perhaps turned on its head. New ideas are implemented. The costs of change are often placed in the foreground, but the positive opportunities and changes are equally greater, even if sometimes, like the ability to innovate, they are more difficult to quantify in euros.

Conclusion

Summary of the advantages and disadvantages of CO2 compensation and CO2 reduction

Both carbon offsetting and carbon reduction offer companies opportunities to reduce their carbon footprint. While offsetting is a quick mathematical solution to offset emissions, direct reduction offers long-term benefits and positive effects on a company's own ability to innovate in times of multiple crises.

Companies should prioritize the direct reduction of their CO2 emissions and consider measures to improve energy efficiency, use renewable energy and optimize production processes. At the same time, they can use offsetting as a complementary measure to further reduce their carbon footprint. For example, for emissions that cannot currently be reduced or prevented.

By combining CO2 offsetting and CO2 reduction, companies can make a significant contribution to climate protection and align themselves as an organization for the future.

If you have any questions, suggestions or further information on CO2 reduction, pleasefeel free to contact me at any time. As an expert, I am at your disposal and happy to help. Together, we can ensure that your company meets the requirements, that your image as an environmentally conscious player is strengthened and that you benefit from the advantages in the long term.