The potential and pitfalls of carbon offsets in ecommerce

Photo by Dan Meyers on Unsplash

As the consequences of intensifying climate change become increasingly apparent, the ecommerce industry is joining global efforts to decarbonize. One popular strategy is through carbon offsets, which purport to balance out emissions through avoiding or removing an equivalent amount of atmospheric carbon. However, while offsets can help spur benefits for the natural world and communities in the Global South, they run the risk of disincentivizing effective climate action and acting as a license for companies to continue releasing emissions at unsustainable levels.

The offset opportunity for ecommerce brands

Ecommerce brands are increasingly offering their customers the option to offset the emissions stemming from the delivery of their purchase or the product itself, with participating businesses including sustainable snowsports company Weston, shoe brand Thousand Fell, and coffee company Tripod Coffee. These reductions are achieved through technological or nature-based carbon removal solutions that either cut emissions at source, or remove existing atmospheric carbon.

Some common examples of offset projects include reforestation, funding renewable power plants, or distributing cleaner cookstoves. Many projects also claim to generate co-benefits for local communities – often in lower income countries – such as promoting gender equality or increasing access to education.

Offsets enable commerce brands and retailers to position themselves as environmentally friendly, helping them target a growing sustainably-minded consumer base for whom the prospect of easily balancing out emissions with one click at checkout is highly appealing. Ecommerce offset providers such as Ecocart, CarbonCheckout, CarbonClick, and Cloverly tout the benefits of improved customer retention and trust. According to CarbonClick, the service improves repurchase rates by 7-13%, while EcoCart claims repurchasing increases by 15% and cart conversion by 14% on average.

On paper, the integration of offsets into the checkout experience appears to be a win-win. However, while offsets promise a path to sustainability that requires minimum effort on the part of the buyer – and minimal cost to the merchant – their actual impact is under much debate. Ecommerce brands should be aware of the risks as regulations and consumer awareness catch up to offsetting’s flaws.

Offsets’ reputational risk

The voluntary carbon market has faced mounting scrutiny in recent months amid revelations of ‘phantom credits’ which had little to no impact on carbon reduction, yet were verified by a leading certifier. If companies rely on offsetting to boost their environmental credentials, particularly if they’re used as a substitute for cleaning up their own act, the fraudulence and ineffectualness inherent to much of the carbon market means they are likely to lose their credibility and face accusations of greenwashing.

Of course, some offset projects do exist that can provide meaningful carbon reductions as well as social and economic benefits for local communities. One way of ensuring offsets are viable is to follow the Measurement, Reporting, and Verification (MRV) process – wherein the amount of greenhouse gas reduced is measured, the data is compiled and reported to an accredited third party, and this body then verifies the report.

However, while the market is still pervaded with low-quality offsets, purchasing them is fraught with risk even for those businesses that attempt to undertake due diligence. While they may be an easy route to appearing sustainable and attracting customers in the short term, in the long term, offsets put brands’ integrity at stake.

Offsets’ regulatory risk

As environmental claims become more closely monitored by regulators around the world, businesses are also in danger from a range of legal risks. Because the impact of carbon offset projects is often not easily measured – or is found to fall far behind projections – using them as a basis for sustainability strategies or carbon neutral claims means companies can be found to be in breach of consumer law.

For example, in the Netherlands, Shell was reprimanded for advertising ‘carbon neutral’ car fuel, with the countries’ advertising watchdog concluding that the claim was misleading. Similar claims have been brought against eight companies in Germany, while a law in France requires companies to clarify how they are working towards emissions reductions in their own operations before offsetting. 

The list goes on – and in other countries, including the US, growing momentum around tackling climate change could mean similar policies will be implemented in the near future. When ecommerce brands give their customers the impression that balancing out the environmental impact of their purchases is possible, and the claim cannot actually be substantiated, they could potentially be opening themselves up to a regulatory minefield. 

Other approaches to decarbonizing the ecommerce industry

Organisations might feel they face the choice of either investing in carbon credits and risk damaging their reputation and backpedalling on their sustainability efforts, or steering clear and missing out on the opportunity to pursue an environmentally engaged consumer base. But beyond offsets, there are other paths companies can take towards decarbonization, which might require more resources but be far more effective. 

For one, companies can pledge direct investments towards carbon removal projects, whether natural or technological. The Frontier Fund, set up by companies including Stripe and Shopify, is aiming to invest $925 million in carbon removal credits the years leading up to 2030. Its portfolio includes companies like Arca, which sequesters CO2 and stores it as rock, and Living Carbon, which hopes to bioengineer algae for carbon capture. The credits differ from offsets because rather than outsourcing emissions reductions by purchasing what is already in demand, it is accelerating the development of new carbon removal opportunities. The fund harnesses an innovative finance structure that has previously been used to create new vaccines. 

Meanwhile, on the flipside of offsetting, businesses can engage in insetting, where the focus is on cutting emissions within their own supply chains, or in communities where their suppliers operate. Insetting has the same advantages as offsetting in terms of sequestering carbon and generating other co-benefits for communities, but doesn’t involve dealing in the murky, controversial carbon market. Companies that inset, such as Nestlé and PepsiCo, undertake the work of driving down emissions – for example, through reforestation – themselves. This gives brands real ownership over their emissions reductions and the ability to be more transparent with their customers about their sustainability.

Eliminate first, then offset

For a decarbonization strategy more immune to accusations of greenwashing, brands should first drive down their own emissions as much as possible, then offset or otherwise balance out emissions that are currently unavoidable. 

While high-quality offsets may exist, they must not be viewed as a ‘get out of jail free’ card (despite their affordability and consumer appeal), but as one tool in an ecommerce company’s arsenal.  

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