Corporate Offset Purchase Programs: A Primer, Part 2

Sheldon Zakreski, The Climate Trust
As published by TriplePundit – August 25, 2016

Part 2: Considerations for Offset Buyers

This article expands upon the Corporate Offset Programs Primer that first appeared in TriplePundit in June. This follow up piece explores why buyers develop and implement offset programs. Additionally, readers can gain an understanding of the nuts and bolts of different offset project types available in today’s marketplace in a TriplePundit piece from March.

There are several different motivations as to why your company might want to purchase offsets. Identifying the lead driver, or drivers, behind your company’s interest in offsets will help to guide how you design your program and what type of offsets to pursue.

Retail Connection

The desire of businesses to connect and align with their retail customers’ values is one of the most common factors behind corporate offset purchases. The challenge here is developing a deeper understanding of what exactly are your customers’ values.

For specialized businesses that provide a distinct product, tying the offset to the core business is a winning strategy for connecting with customers. For example, NW Natural, a gas company based in Portland, Oregon, offers its end-use customers carbon offsets from projects that increase the production of biogas as an energy source. This offset type directly links to mitigating the climate impact of NW Natural’s core product—supplying natural gas as an energy source. Their chosen offset type therefore resonates more strongly with their customers than other offset types such as forest conservation projects.

For larger companies that sell a multitude of products, it can be more difficult to make a direct connection with environmentally conscious customers. This is where focus group research can help to identify what project type or types will be most positively perceived by a company’s customers. Additionally, companies can design programs that consider offsets from a broad number of project types. Companies that rely on diverse project types may find that a certification program such as Green-e Climate is useful. While the Green-e program isn’t a technical project standard, it is a “truth in advertising” standard that verifies offsets from a company’s portfolio rely on credible technical offset project standards such as the American Carbon Registry and the Climate Action Reserve.

Commercial Connection

The desire to connect and align with customer values also extends to wholesalers; however, the considerations are somewhat different when your customers are other companies. Wholesalers often work on smaller margins than retailers, so the cost of offsets, whether it’s from the margin or charged as a premium, can be a major factor in program design. Hess, a company that markets petroleum, natural gas, and electricity to commercial customers has a long-running carbon offset program.

Mitigate Risk

There is a growing body of research that indicates a variety of corporations face substantial economic risks from climate change. Given the very real threat that climate change poses to the bottom line, a driver for implementing and ratcheting up a carbon reduction commitment is to mitigate long-term financial risks to your business.

The financial sector is an industry that inherently needs to track and manage financial risks. Perhaps not coincidentally, they are a leading sector when it comes to mitigating their carbon footprint and buying offsets as part of their overall carbon mitigation efforts. A recent Ecosystem Marketplace report on corporate voluntary carbon reduction efforts found that the financial sector has more than three times as many companies that buy offsets than the next leading sector. The finance sector is headmost in the leader’s pack, as this report also notes that companies that purchase offsets outpace companies that do not buy offsets when it comes to direct reduction measures.

Prepare for Compliance

The voluntary market serves a vital role as a useful testing ground to prepare for a future compliance market. This was the rationale behind the launch of the Chicago Climate Exchange in the 2000’s. Additionally, the California Air Resources Board’s initial adoption of offset protocols for their compliance market relied on tested offset protocol sectors such as forestry, livestock methane destruction, and destruction of ozone depleting substances. The experience of evaluating, contracting, and managing contracts for offsets will serve companies well should they face a carbon compliance mandate down the line. Delta Air Lines was the second leading offset buyer in 2014 according to the aforementioned Ecosystem Marketplace report. Delta’s motivation for jumping into the voluntary market was to prepare for a compliance market that will launch in 2021 to regulate international aviation emissions.

While the desire to connect with customers is the common perception on why companies choose to offset, it is only one of several motivations. There can be diverse motivations behind launching an offset program. Understanding the leading driver or drivers—whether it’s to create a positive perception among consumers, risk management, or for building expertise—is key to deciding what types of offsets are the best fit for a corporate offset program.

Image credit: Flickr/Chesapeake Bay Program