Credit Quality > Carbon Neutrality
Sustainability is a complicated topic, but we have committed to continuously examining and improving our practices. In 2020 and 2021, our team spent significant time and resources learning how to measure our carbon footprint and implementing a carbon labeling system on every product box. While measurement is an ongoing practice (which will only get better with our focus on increased data integrity), our next commitment was to learn about the best ways to reduce and offset emissions.
At first glance, offsetting all of our emissions seems like an easy task, especially when you’ve already done the hard work of measuring your corporate and operational carbon emissions. This is where we’ve heard the term “carbon neutrality” everywhere, recently.
Carbon neutrality theoretically means that a company removes as much carbon from the atmosphere as it emits through funding certain climate action projects. For example, if a company emits 1,000 tons of carbon, they fund projects that offset 1,000 tons of carbon. The formula becomes: 1,000 tons x the cost of carbon credits per ton = what a company pays to become “carbon neutral.” Seems simple right? But as we researched carbon removal projects, we realized that it wasn’t so straightforward.
What makes purchasing carbon credits so complicated is that today’s pricing (i.e the cost per carbon tonne removed) is determined only by supply. It does not take into account factors like project type (avoidance of new emissions or removal of existing emissions) or duration of carbon capture (long vs short-term). Many of the longer-term impact projects are in earlier stages and are much more expensive.
Imagine a company has two project proposals: (A) costs $10 / carbon ton, (B) costs $100 / carbon ton. The key difference is that (B) is a newer technology that is earlier in development and has the potential to sequester carbon for a longer period of time (over 100+ years!), but requires a lot of funding to be able to scale, resulting in a higher credit cost. Using the same question as above, the company is faced with two options:
- Pay 1,000 x $10 = $10,000, or
- Pay 1,000 x $100 = $100,000 for the more expensive project
Of course, many companies (and especially smaller ones) are understandably going to choose (A) because it is significantly cheaper to achieve the same “carbon neutrality” stamp. You can see how there is potentially a misalignment of priorities as companies are incentivized to choose the cheapest projects to most economically offset their entire carbon footprint. This practice, however, could actually hinder the progress on reversing climate change by diverting funds from the new technologies that could provide the greatest long-term impact.
This also demonstrates how there is no universal standard of carbon neutrality company to company.
As a smaller company, we need to be able to rely on larger companies' research to strategically plan our sustainability commitments. We looked to companies like Shopify and Microsoft to help us form our viewpoint, and we strongly encourage other companies to do so too. When supplementing your own in-depth company and supply chain knowledge with existing research, we believe we can make the most informed, high-impact decisions. In this post we wanted to summarize the learnings that have led to our new goal of prioritizing credit quality > carbon neutrality.
First, let’s break down a few types of carbon credit projects, because there are many!
- Avoidance Projects - Projects that prevent CO2 that would have been released into the atmosphere (e.g. building a wind farm to replace fossil fuels). These solutions are typically the cheapest, as low as $3 per tonne.
- Biosphere Removal Projects - Evergreen solutions that capture and store CO2 in plants and soils (e.g. planting trees). These removal projects are more readily available and thus less expensive averaging $16 per tonne, but are considered shorter term (trap carbon for less than 100 years) and are more susceptible to near term reversal and re-release of carbon from environmental incidents (fires, for instance).
- Geosphere Removal Projects - Frontier technologies that remove CO2 and then store it in rocks and minerals. Few companies deploy this type of technology so costs can range vastly from $20 to $10,000 per tonne, but are considered longer-term as this technology has the potential to trap carbon for at least 100 years.
There are pros and cons to each type. Avoidance projects are important to prevent an increase in emissions, but don’t address the existing carbon in the atmosphere. Biosphere removal projects are effective and readily available, but they alone are not the full solution for removal as there is a higher risk of near-term reversal. For example, trees can die, be cut, burned, or destroyed by animals, releasing carbon back into the atmosphere. Geosphere projects offer a longer-term solution, but are relatively scarce and expensive right now.
In 2018 the Intergovernmental Panel on Climate Change warned that it is necessary to prevent global warming from exceeding 1.5°C to avoid catastrophic consequences. To achieve this, emissions must drop to net-zero by 2050. Without a drastic increase in supply for long-term carbon removal projects, there will not be enough of these higher-quality projects to remove all the carbon necessary to meet this goal. This is why companies need to not only focus on immediate removal and reduction of carbon, but also ensure that we are funding long-term solutions.
Our new stance on carbon neutrality
As a result, rather than set a goal of carbon neutrality, we are adopting a methodology similar to Shopify and Microsoft. Each year, in addition to finding ways we can reduce our own carbon emissions, we will create a sustainability fund that is allocated across a range of projects, with a very specific breakdown of funds based on each category. We will allocate our funds by targeting:
- 10% avoidance projects,
- 30% biosphere removal projects, and
- 60% geosphere removal (potentially longer-term sequestration) projects
This means that we are prioritizing the longer-term projects with the majority (60%) of our funds, but also recognize the importance of funding the immediate solutions to help hold us over and identify methods to reduce our emissions annually.
We’re a small company, so while this new strategy of allocating funds to more expensive projects means that we won’t offset our entire footprint, we believe that prioritizing long term impact climate projects is more important than choosing the cheapest projects just to claim carbon neutrality.
Our process for vetting and funding specific projects
There is a lack of standards and clear definitions around carbon removal projects. To combat this, both Shopify and Microsoft have hired a team of experts to conduct a significant vetting process for proposals. As a small company, we do not have the same access to these resources, so we must lean on other companies that are subject matter experts.
We have decided to partner with Patch to create a portfolio of projects to fund. Patch reviews data from a number of sources to ensure every project in their partner network meets their rigorous quality requirements. This includes verification standards such as American Carbon Registry, Gold Standard, and Climate Action Reserve, as well as registry systems, proof of fulfillment, work logs, and third-party reports and assessments. Working with Patch, we can be confident that our dollars are going to quality projects.
This has been a significant learning opportunity for us and we wanted to share our thought process to help consumers and other companies make informed decisions around their own sustainability and offset goals. Importantly, we are also still learning and researching. The landscape is constantly changing, so we commit to reassessing our strategy each year and we look forward to being able to share updates along the way. We always maintain a humble approach to sustainability because in so many ways, we don’t know what we don’t know yet.
For a greener future,
-Team cocokind
Sources:
https://media.nature.com/original/magazine-assets/d41586-021-02606-3/d41586-021-02606-3.pdf
