Interview, Fireside Chat
Carbon Offsets and the Climate Transition
- Carbon offset usage is projected to increase in the short term driven by stakeholder pressure to set emission targets and report Scope 3 emissions, with adoption expected to remain a slow-burning theme where critical market engagement may not occur for up to three years.
- Offsets are characterized as a temporary tool rather than a long-term solution for decarbonizing core operations, with companies in difficult-to-abate sectors like airlines and shipping relying on them due to a lack of low-emission business alternatives.
- Heavy industry in Asia and emerging markets, particularly steel and cement, faces risks of significantly reduced margins due to high immediate decarbonization costs and potentially rising carbon prices in the coming years.
- Companies will be required to demonstrate success in business model pivots or the decarbonization of existing operations to eventually reduce reliance on offsets, with the oil and gas sector expected to transition into renewable distribution and generation.
- Future risks include carbon offset costs escalating significantly as they approach a real carbon price, with substantial margin impacts projected for steel, cement, airlines, and mining sectors over the next five to ten years.
- Significant investment is anticipated in expensive decarbonization technologies and R&D to address tricky-to-abate emissions, while expanding shareholder and stakeholder awareness may pressure companies in hard-to-decarbonize sectors.