Carbon ‘insetting’ refers to the practice of reducing greenhouse gas (GHG) emissions within an organisation’s own value chain.
The term differs from carbon ‘offsetting,’ which refers to purchasing and retiring emissions reductions that take place outside of an organisation’s boundary.
Certainly, carbon offsetting has garnered much of the attention in the context of how companies set and achieve their net zero targets, while carbon insetting is still relatively little known. That said, insetting could be about to have its turn in the limelight.
A key advantage with carbon insetting is that a company or other organisation can have greater control over the reductions achieved, while offsetting generally takes place as a result of a project that is managed by a third party and often located in another country.
Both approaches have their place, and both are considered valid methods of reducing or compensating for an organisation’s GHG emissions. And there are trade-offs when considering each approach. Offsetting, for example, may confer the advantage of lower costs per ton of emissions reduced, avoided or removed, compared with insetting.
New revenue streams
Carbon insetting is relevant for a wide spectrum of companies across the economy, but in particular for land owners such as farms and agriculture companies. This is because land owners can successfully reduce carbon emissions or increase carbon storage in soils or biomass by making changes to land use practices.
These new land practices can provide companies with a new source of revenue, helping to finance further sustainable activities.
For example, let’s take a global coffee retailing company. It pays for the plantation owners in its supply chain to plant trees on their land as well as the coffee crops, helping to absorb atmospheric carbon during their growth. Side benefits from this approach can include protecting the coffee crop from extreme weather events, improving nutrient circulation, improving canopy shade, improving soil water retention, creating additional revenues from the sale of timber or fruits, and improving biodiversity at the local level.
Another example could be an online retail company that wants to reduce emissions within its value chain, instead of financing emissions reduction projects in developing countries. The company could invest in its logistics partners in the parcel delivery sector, for example in measures that optimise delivery routes using an artificial intelligence system to cut fuel consumption, or fund a switch in their fleet of vehicles from petrol or diesel engines to hybrid or fully electric vehicles.
Transparency, visibility, ownership
One potential motive for choosing carbon insetting over offsetting could be that a company wants to demonstrate emissions reductions that are closer to home, and can achieve greater visibility and resonance with employees, supply chain partners and lenders, compared with funding a project in a distant country.
Insetting can therefore provide a company with more control and ownership over a carbon reduction project. This approach could also help avoid some of the risks associated with carbon offsetting – for example that the environmental integrity of a project in a remote location in a distant country can be called into question.
Overall, insetting can help a company communicate a narrative to its employees and partners in a way that may be more understandable to them and with benefits that are easier to see, rather than making reductions in a country far away that may be harder to connect with.
Carbon credits
A key difference between carbon offsetting and insetting is that offsetting generally involves the use of carbon credits generated by a carbon reduction project elsewhere. Carbon insetting doesn’t need to generate carbon credits, because the practice simply involves reducing emissions at various points within an organisation’s own value chain. The reductions are demonstrated in the organisation’s own carbon footprint calculation.
Carbon insetting has generally come to mean the reduction of a company’s Scope 3 emissions – those that come from its value chain, either upstream or downstream, but not from its direct emissions (Scope 1) or those from the production of energy it consumes (Scope 2). (For more on the different emissions scopes, visit: Scope 1, 2 & 3 Emissions – Carbonwise).
The benefits of insetting suggest the practice may become more widespread, particularly as organisations come under increasing pressure to set and make progress toward net zero emissions targets.
