A Q&A with Compensate: enabling a low carbon future

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Could you tell us about your company and your mission?

Compensate is a Finnish impact driven carbon market actor that has existed since 2019. A pioneer in integrity-driven carbon offsetting, the company has been a driving force in making the international carbon market more transparent, more reliable and, most importantly, better for the climate.

Our vision is to set a new standard for carbon removal, ensuring true climate impact. To make that happen, we’ve made it our mission to revolutionize the way people and companies take responsibility for the climate. As we often say, for offsetting to have an impact, it must be done right. Otherwise, we’ll be saving the climate on paper only.

Some believe the climate tech start-up ecosystem can help solve net zero challenges. What are your thoughts on this?

Climate tech start-ups play an important role in enabling a low-carbon ecosystem. In order for the 2050 widespread net-zero targets to be met, both private and public sectors need to have access to the solutions that will enable the shift to a low-carbon economy. These disruptive innovations vary for different industries and are still emerging. In the first half of 2022, climate tech startups raised $27.9 billion from VCs and private equity investors, which is a 47% increase from the first half of 2021.

Despite the economic downturn, carbon and climate start-ups have attracted record investments, which is crucial for moving from the lab to a pilot phase and later commercializing innovations that can solve global challenges. Examples include solutions driving the energy transition, tools to help companies monitor and reduce their carbon footprint, low-emission products, such as plant-based alternatives, negative emission technologies, like Direct Air Capture (DAC), and climate change mitigation projects including both avoidance and removals of CO2 emissions.

However, there’s no silver bullet which can solve the climate crisis alone – we need the whole spectrum of tools to enable industries to cut fossil fuel emissions and deploy negative emission technologies. There is also a need for sustainable alternatives and awareness raising when it comes to individuals’ choices and lifestyles. According to the Intergovernmental Panel on Climate Change (IPCC), nowadays one of the biggest obstacles to ending the climate crisis is the fossil fuel advertisements – “a multi-billion dollar campaign to mislead and confuse the public, downplay the urgency of the climate crisis, and overstate the work oil and gas companies have done to find a solution”. Thus, to enable a net-zero emission future, we need a joint effort across industries, where climate-tech start-ups provide the solutions to transform other sectors.

What is the role of offsetting in achieving net-zero and how to avoid greenwashing?

Carbon neutrality, climate neutrality, and net zero are very useful terms in understanding the ambition level of corporate climate action, although there is often little transparency in how these terms are defined. There are several questions that companies should answer when starting to plan their pathway to net zero and using carbon offsets aside with emission reductions.

First, companies need to establish a base year to track emissions performance. Second, companies should provide accurate and verifiable Scope 1, 2, and 3 emissions data and include not only just CO2 emissions, but all six greenhouse gasses covered by the Kyoto Protocol. Third, aligning emission reductions with climate science and the 1.5degree goal set in the Paris Agreement is the most important step in reaching net zero emissions.

When that point is achieved, companies need to reach net zero by “neutralizing” the remaining unavoidable emissions through carbon removal. Even though compensating does not play a key role in reaching net zero it doesn’t mean that companies shouldn’t use the voluntary carbon market to support further climate action. For instance, companies can and should take responsibility for their current emissions. In most cases, this means offsetting those emissions that cannot be avoided.

The SBTi Net-Zero Standard states that remaining emissions must be “neutralized by removing carbon from the atmosphere into permanent storage.” Even though SBTi uses the term “permanent”, at the moment it approves many nature-based removal methods, like afforestation or planting mangroves, that are not considered as permanent as many engineered approaches to carbon removals.

Finally, to avoid greenwashing and make a robust net-zero claim, residual emissions should be neutralized with high quality removal carbon credits that have a true climate impact.

How important is the quality of carbon credits used to achieve net-zero and what is your approach in ensuring they are high quality?

Using low quality carbon credits with questionable climate impacts is harmful for the climate. This happens when non-additional credits that don’t go beyond business as usual are used as offsets. The result is net positive emissions as the compensated emissions are not actually counterbalanced by additional removals. In addition, some carbon projects can also have negative effects on biodiversity, local communities, and the environment.

In early 2020 Compensate, together with its independent Scientific Advisory Panel, created a sustainability criteria to screen and evaluate forest-based carbon projects. The criteria helps Compensate choose projects that have a positive impact on the climate, but also on biodiversity, human rights, and for local communities. With the help of the criteria, Compensate also scores projects in order to estimate the true climate impact of one carbon credit. The result is that one credit sold as equivalent to one tonne CO₂, actually correspond to less: e.g. 0.6 tonnes of CO₂ removed from the atmosphere.

Over the past two years, Compensate has screened and evaluated over 170 carbon projects. We have seen that over 90% of projects fail basic sustainability checks. Almost all evaluated projects are verified under international carbon standards like Verra, Gold Standard or Plan Vivo. The vast majority of evaluated projects have been nature-based, mostly either forest protection or afforestation/reforestation projects. The reasons why projects fail vary but are all equally alarming. Some projects cannot be considered additional, others have serious permanence risks.

From 2021 onwards, there is a risk that the carbon removed from the land-use sector, via restoration, reforestation, and afforestation, is counted and claimed by the host country of the project. This happens because most countries utilize their land-use sector in order to reach the targets set in their Nationally Determined Contributions (NDCs) under the Paris Agreement. To avoid double claiming, the government should apply a corresponding adjustment, which in practice means that the carbon removed from a project and sold as carbon credits for reaching corporate net-zero targets will not be counted by the government for reaching its own targets. When a compensation claim is made, that statement should be grounded in truth. It is simply not acceptable to make a compensation claim using emission reductions or removals that have already been counted and claimed by the host country of the project.

If a company claims to be net-zero through carbon credits that are also counted into the project’s host country goals, as far as climate ambition is concerned, the company hasn’t actually done anything extra. On the other hand, double claiming can also disincentivize countries from implementing much needed climate action. Offsetting should always be additional to national climate targets for an increase in overall climate ambitions.