Market insight

What is carbon insetting, and should you be doing it?

by
Sylvera
November 23, 2022
Carbon insetting explained
Carbon insetting explained

If you purchase a carbon credit today, you are helping a project deliver on its intended climate benefit. Maybe it’s an agroforestry project in Nicaragua, or fuel-efficient cookstoves in Kenya, or a mangrove farm in Bangladesh.

And despite being so far away, the carbon emissions avoided or removed in the project you’ve funded help to — mathematically — negate the emissions you’ve produced through your activities or operations. But while carbon offsetting is an important tool in the net zero toolbox, it's one of many. As such, companies are integrating other emissions mitigation activities into their net zero goals, with one of these strategies being carbon insetting.

If you’ve never heard of insetting before, don’t be alarmed. Although it’s gaining popularity quickly, offsets tend to dominate the conversation in mainstream media. In this article, we spoke to Nadine Stueber, Nestlé’s Global Insetting & Offsetting Manager, about what insetting is, how it compares to offsetting, and how companies should be thinking about getting started.

What is insetting, and how does it differ from offsetting?

While there is no official global definition, a carbon inset is essentially a carbon project that happens within a company’s supply chain or in local communities where they or their suppliers operate.

Carbon insetting was first introduced by Plan Vivo, an Offset Project Standard for forestry, agricultural, and other land-use projects) and PUR Projet, a global leader in nature-based solutions and the ‘original’ insetting organization. Whereas offsetting allows a company to purchase carbon credits from a project they don’t own or operate, insetting involves funding your own carbon avoidance or removal projects, without transacting on a carbon market.

While there is no official global definition, a carbon inset is essentially a carbon project that happens within a company’s supply chain or in local communities where they or their suppliers operate. To build a high-quality inset project, you should hold your project to the same verification standards as carbon offsets; this will help your organization to reduce emissions and establish greener operations for the future. Think of it this way: instead of, for example, funding a patch of forest in a foreign country (offsetting), you grow the forest (insetting).

“At Nestlé, we define insetting as carbon removals connected to our value chain,” says Nadine. “So essentially interventions that absorb carbon dioxide from the atmosphere and durably store it, such as in trees or soil, within our value chain.”

What are the pros and cons of insetting and offsetting?

Offsetting has been a popular choice to help many companies achieve their climate goals, for a number of reasons. Unlike insetting, it’s immediate and requires relatively little legwork - aside from proper due diligence to ensure you’re investing in high-quality projects. Rather than establishing their own projects, which can take years, companies can purchase carbon offsets virtually instantly through the voluntary carbon markets. Offsetting is also highly flexible. Companies can purchase offsets down to the individual ton, which offers significant opportunities for scaling up or down when required. And finally, offsetting gives companies the opportunity to diversify their climate investments and become involved with an entire portfolio of projects they care about.

Where insetting is impractical or irrelevant — for example, it might not make sense for a software company to start an agroforestry project — offsets are an effective way to contribute to global climate action.

But as the private sector becomes more ambitious about making meaningful progress towards climate goals, the benefits of insetting are clear. Firstly, insetting gives companies total ownership over the type and location of their projects. Secondly, it avoids the common criticism of carbon offsetting, which is often characterized as a ‘licence to pollute’. And finally, by keeping projects relevant and close to home, insetting creates a more relevant and meaningful impact for employees, and stakeholders. Rather than investing in ‘someone else’s project’, insetting can strengthen a company’s commitments to their own climate goals and make supply chains more resilient and future-proof.

Nadine explains: “As a company within the food and agricultural sector, we are uniquely suited to implement natural climate solutions (NCS) within our value chain. We already produce, source, or invest in these landscapes and have a vested interest in their long-term resilience and productivity. Through insetting projects, we can address carbon impacts in these landscapes while promoting social and environmental safeguards, sustainable livelihoods, economic development, and biodiversity.”

The other benefit of insetting lies in long-term cost forecasts. Although companies looking at short-term emissions mitigation strategies might see offsetting as the faster and more cost-effective solution, the companies that are taking a long-term view to climate action clearly see the future benefits of building an internal asset that generates carbon credits within their own value chains.

If history tells us anything, it’s that carbon credit prices will almost certainly rise over the long term. And while there are ways for companies to combat the impact of rising carbon prices (such as by securing multi-year contracts with offset project partners), one of the best ways to ensure continuity of supply and secure carbon credits at a stable price is to generate your own.

Can insetting be measured and verified?

Corporate resistance to insetting often comes in the form of fear of the complex legal and accounting requirements of building and verifying your own carbon credits. Insets need to be verified to carbon offset standards (through adequate GHG accounting methods) to be considered valid.

“Not all of our projects go through the same verification process,” says Nadine. “We do not apply carbon credit certification to all our projects, as we believe that this would lead to excluding community-based or smaller projects due to prohibitive costs and processes.

“However, all our insetting projects are required to comply with the following best practice principles:

  • Additionality
  • Permanence
  • Legal and carbon rights
  • Eligibility
  • Real and measurable
  • No double counting
  • Stakeholder consultation and consent
  • No harm and generates additional co-benefits

“Besides this, monitoring and verification are critical to ensure the long-term success of NCS projects so that carbon and co-benefits are achieved over the lifetime of the projects and beyond. We follow clear guidance on short- and long-term monitoring frequency as well as on what verification level is required.” 

Monitoring and verification requirements depend on where in the supply chain projects are implemented (for example, whether they are directly on farm land or at a landscape level).

Should companies be insetting as well as offsetting?

Financial considerations aside, companies don’t need to choose between offsetting or insetting. The two work hand in hand and can make unique and complementary contributions toward your company’s climate goals.

At Sylvera, we recommend that companies pursue both offsets and insets as part of their climate action strategies. In fact, the Science-Based Targets Initiative (SBTi) encourages companies to think beyond value chain mitigation (BVCM), which refers to contributing to mitigating carbon emissions beyond your own value chain. (Supply chains aside, where else can your company leave a lasting and positive environmental impact?)

Carbon credits play a crucial role in the private sector’s ability to accelerate the global transition to net zero, but only as part of a strategic mitigation hierarchy. According to the SBTi, “purchasing high-quality carbon credits in addition to reducing emissions along a science-based trajectory can play a critical role in accelerating the transition to net-zero emissions at the global level.”

Can companies start insetting today?

Before a company can begin to think about insetting, it must have extensive knowledge of its supply chain (scope 3) impact. “At the core of insetting is a supply chain which is assessed, traced — from farm to fork for its key commodities — and which impact such as carbon is evaluated,” says PUR Projet. “The approach integrates progressively other dimensions such as soils, water, biodiversity, resources and energy, socio-economical development as well as internal stakes specific to the company and society.” If you’re not yet calculating your scope 3 emissions, or haven’t mapped your supply chain in detail to uncover climate risks and opportunities, there is still work to be done before insetting can begin. In the meantime, consider high-quality offsets! 

A final word on insetting

While offsets and their closer-to-home counterparts, insets, are essential tools in the global journey to net zero, the rise in popularity of insetting investments demonstrates a move towards more meaningful climate action in the private sector. Voluntary carbon offsets receive their fair share of criticism for being the ‘easy way out’, which is why, at Sylvera, we strongly recommend performing careful due diligence to assess the quality of your offsets. But the rising popularity of insetting reflects a shift in mindset. 

As many companies dig deeper into the environmental impacts, risks, and opportunities within their supply chains, we are likely to see more dramatic and meaningful climate action across scope 3 emissions. Insetting may not be the only action needed to move the world closer to net zero, but it’s certainly a step in the right direction.

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