Carbon offsetting: The answer to sustainable travel?

Can travel be sustainable?

For businesses, travel enables some great opportunities for connection and growth. However, they also have lofty environmental goals to fulfill. For private travelers, travel offers almost limitless experiences, but comes at a cost – and not just the cost of the ticket. Rather, an environmental cost.

But these days, it’s easier than ever to compensate this. We’re of course referring to carbon offsetting.

 

Understanding greenhouse gases

Before we get into the definition of carbon offsetting and carbon credits, we need to understand a bit about greenhouse gases as a whole. Here's a very quick overview:

Greenhouse gases (GHGs) refer to gases – perhaps better described as pollutants – that produce the greenhouse effect. This is the phenomenon where gases trapped in the atmosphere influence the energy balance of the planet.

More specifically, they absorb and emit infrared energy that slowly heats the Earth.

According to data from our friends at myclimate, the most common GHGs are Methane (CH4), Nitrous Oxide (N2O) and, you guessed it, Carbon Dioxide (CO2) [1]. These gases are naturally occurring in the atmosphere (in small amounts). However, human activity is upsetting the balance.

Carbon dioxide gets most of the attention as it's the primary GHG emitted from human activity, thus making it the focus of the process looking to actively tackle the issue: carbon offsetting.

Carbon credits explained

Carbon offsetting refers to a type of credit a business (or individual) can purchase, where each credit represents an investment in a green project or technology that either reduces, prevents or outright removes carbon from the atmosphere.

Each credit is given a value – a certain quantity of carbon that it stops from being emitted. Specifically, each credit is worth one metric ton of carbon dioxide or carbon dioxide equivalent (denoted as tCO2e) which the buyer can purchase to mitigate the same amount they release themselves.

carbon-offset-process

This is a common tactic used by businesses in particular to achieve carbon neutrality. Basically, businesses can use this as a way to offset their carbon emissions – usually those which cannot be avoided.

That last point is important as this ‘technique’ shouldn’t be seen as a means to completely write off any and all carbon emissions from a business.

Instead, the general idea is that it is just one tool to be used alongside other decarbonization efforts. Besides, other measures are likely cheaper to implement than outright purchasing credits.

Naturally, there are standards, certifications and groups that audit these projects and verify that they indeed either reduce, prevent or remove the carbon emissions and in the quantities they are claiming.

One more thing to note is that both mandatory and voluntary carbon markets exist. As their names suggest, mandatory schemes are a requirement under certain carbon reduction regimes, while voluntary carbon markets are just that – a choice made the individual or company. We’ll be focusing on the latter today.

Carbon credit pricing

Unfortunately, there is no universal price for a carbon credit. There are many factors that go into determining the cost to purchase credits, including the type of project, where you and/or the project being supported is located, the standards being used and so on.

What we can say is that data from Worldbank showed that the global average carbon credit price grew from USD 2.49/tCO2e in 2020 to USD 3.82/tCO2e in 2021. [2]

Let’s take a look at what form carbon offset projects can take.

Examples of carbon offset projects

Carbon offset projects come in many different forms. Here are a few key categories they can be divided into:

Carbon capture and storage

Projects where technologies capture carbon from the atmosphere or from sources like power plants and stores it elsewhere

Fuel switch

The switching of fuels from ‘dirty’ to ‘clean/renewable’ – for example, changing from coal to biomass to power kilns and the like.

Energy efficiency

Energy efficiency projects take inefficient things (anything from houses to stoves) and improve upon them to make them more efficient (adding insulation or switching to a more efficient design)

Renewable energy

This refers to the investment into renewable energy, whether that be development of new solutions or production of the necessary components.

Nature-based solutions

This is likely what many people picture: tree planting and forest protection, as well as the creation, restoration and sustainable management of ecosystems. The efforts of REDD+ fall under this.

There are of course many more types. Which brings into question:

How many projects and credits are there?

A lot – and it’s only increasing. According to Trove Intelligence data, there were a total 61 million carbon credits available in the first quarter of 2010. By the end of Q2 2021, that number had skyrocketed to 473 million. [4]

Since many of the projects are more long term in outlook, there isn’t too much data available to show the difference made by carbon offsetting. However, if implemented correctly, the impact could be huge.

Ultimately, it shouldn’t really matter the form in which the project operates.

What really matters, as outlined by offsetguide, [5] is that the projects meet their carbon reduction targets and are associated with reductions or removals that are:

  • Additional

  • Not overestimated

  • Permanent

  • Not claimed by another entity

  • Not associated with significant social or environmental harms

Thankfully, it is getting easier to make a difference, with carbon offsetting now going mainstream. This can best be seen in the airline industry.

Where airlines fit in

According to data from 2018, 2.4% of all CO2 emissions can be tied to global commercial aviation operations. [6] In order to reduce that, many airlines are starting to take action.

The International Air Transport Association (IATA) is helping lead this change with its very own carbon offset program. This program is standardizing the process and implementing the best practices for the more than 30 member airlines who have integrated into their web-sales engines or to a third party offset provider. [7]

It’s also worth noting that the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) was introduced in 2021, a mandatory carbon offsetting scheme for airlines that fly internationally. [8]

airline-carbon-offsetting

Ever wondered what those white trails are which appear behind planes? These 'contrails' are actually condensation caused by water vapor – a by product of jet fuel combustion.

In recent times, airlines have come to the forefront of consumer-level carbon offset offerings, making it easier for travelers to get involved themselves. This started with making an option available during the booking process. Enthusiasm has been a bit mixed, however.

Is it popular?

One poll asking whether individuals in America would pay additionally for a carbon offset fee for their air travel found that 38% said yes, with 8% of that group having already done so. In contrast, 35% said they definitely would not do so. [9]

There is still a lot to be done in terms of education and transparency, it seems. Another potential issue is the lack of seamless integration into the booking process.

That’s one of the many reasons why the all-inclusive green fare has come about.

What is a green fare?

Green fares are essentially a separate fare category where full compensation for carbon emissions are priced into the ticket.

In the case of Lufthansa, that ‘extra cost’ on top of the basic fare includes investment in carbon offsetting projects as well as a contribution towards the use of sustainable aviation fuel (SAF). [10]

Did you know?

According to IATA, SAF is estimated to reduce emissions by up to 80% throughout its lifecycle, making it a key element for the aviation industry to achieve its climate goals. [11]

The knock-on effect of the Lufthansa Green Fare is that it helps subsidize the cost of the SAF. This is important as it enables the SAF market to ramp up and scale production and infrastructure, eventually making it even cheaper in the long run. This will increase its adoption and ultimately help reduce the environmental burden of air travel.

Looking at the concept of green fares more broadly, the main driver behind their introduction is the ease of use. Rather than paying separately for the carbon offset credit after booking, the credit is included in the price when booked.

That’s a win for the user experience as it reduces the friction and steps involved with purchasing carbon offset credits, which should hopefully lead to a higher uptake.

Naturally, businesses will also welcome green fares and ease of access to carbon offset opportunities.

Why carbon offsetting is relevant for business travelers

Based on our recent survey on German business travelers, we know a few things about their current mindset: Most notably, they’re taking longer trips and fewer domestic flights. [12]

This is a great first step in adjusting to sustainability goals, as is the growth of bleisure travel. But thanks to the rise of the carbon offset market, they can now do more. In fact, carbon offset credits could be just what businesses need to achieve carbon neutrality.

Regulations are getting stricter, and so more action will need to be taken by businesses on this front. As we’ve discussed before, the Paris Agreement and the Glasgow Climate Pact have set a stringent timeline for meeting certain milestones.

This already puts a lot of pressure on businesses to be more sustainable, while also leading to increased costs for travelers.

carbon-offset-travel-data

ESG is another important factor to consider. The implementation of ESG scores will mean that businesses will not only need to have a better overview of carbon footprint but also how to quantify it to outside parties. You can learn more about ESG finance and its role in sustainability here.

One last point to make - it's working. Businesses are now helping create a more sustainable aviation industry through bulk purchases of SAFs as part of their carbon offset strategy. This is great news, especially considering how SAF purchasing comes at a premium (three to five times the cost) compared to purchasing standard emission offsets. [13]

How businesses can take part

As mentioned earlier, carbon offsetting follows three steps: measuring, reducing, and offsetting emissions. Let’s take a look at each of these a bit closer in the context of businesses.

Measure

Without the necessary data, it would be impossible to take the appropriate action. That’s why businesses need to measure their carbon footprint in a quantifiable way.

There are many solutions out there to help with this. For example, when it comes to measuring the carbon output of specific flights taken by travelers, our Green Reports (as part of the AirPlus Company Account) can be especially useful.

Reduce

With the carbon footprint measured, businesses must then start to look internally at ways to reduce their carbon output.

Looking specifically at travel, there are a couple different ways businesses can reduce their carbon footprint. A simple change to the travel policy could make a big difference. For example, at least for shorter distances, it might make sense to use the train rather than flying for getting to business meetings.

Offset

After taking all other steps to reduce their carbon footprint, businesses can now start to look at carbon offsetting.

We have already discussed the ways in which businesses can offset their remaining carbon emissions. Choosing green fares is one example when it comes to business travel.

Another area to consider is the payment process. The products and services a business uses can make a difference – but this doesn’t need to be done all internally.

The point is that there are plenty of areas where offsetting can be utilized. And based on current trends, more will be coming in the future.

What to expect in the future

The supply for carbon offset credits is there. It’s now a case of getting more people on board. Green fares are one such way and may help boost the numbers using this system. If Lufthansa’s roll out of the program continues to new markets, then we can only expect the numbers to grow further.

Looking more broadly at the public, many have previously avoided or reduced their air travel to reduce their carbon footprint. Having this means of flying in a carbon neutral manner may just cause them to consider.

On the other hand, travel is not cheap – and it is only likely to get more expensive. Needing to pay additional amounts to purchase carbon offset credits may lead to some reconsidering when and for what reasons they travel. This is a trend we are already seeing in businesses.

However, we also know the value of business travel.

In Germany, we found that despite the rise of virtual meetings, business travel remains an important resource with 84% agreeing that face-to-face meetings are essential. [14]

Can travel be sustainable?

Carbon offsetting plays an important role in the race to reduce global CO2 emissions. It offers a tool for those looking to go carbon neutral with a means to offset unavoidable emissions. While it’s not a perfect system, it is making a big difference.

When it comes to sustainable travel, many people immediately think of flights as a major hurdle and contributor of carbon emissions amongst businesses. Airlines have taken notice, making changes to their approach to sustainability while also providing ever more seamless means for customers to get involved.

After all, aviation is a critical infrastructure and driving force for the modern global economy, and travel is a necessity for many individuals to execute their job in the most effective way.

Purchasing carbon credits is enabling these people to cut down on their environmental impact while also investing in other sustainability ventures, such as the introduction of SAF.

Add in the many external pressures from regulation and overall public image companies need to maintain, and it’s clear that travel will evolve to become more sustainable.

We’re naturally very interested in how sustainable travel will develop, so make sure you sign up for our newsletter to hear more about the biggest trends like this in travel and finance.

 

Banner photo by Mantas Hesthaven on Unsplash

Photo by William Hook on Unsplash

[1] https://www.myclimate.org/information/faq/faq-detail/what-are-greenhouse-gases/

[2] https://openknowledge.worldbank.org/handle/10986/37455

[3] https://www.airplus.com/corporate/en/media-relations/press/press-releases/2022/climate-neutral-company-account.html

[4] https://trove-intelligence.com/modules/carbon-projects/

[5] https://www.offsetguide.org/high-quality-offsets/

[6] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7468346/

[7] https://www.iata.org/en/programs/environment/carbon-offset/

[8] https://www.icao.int/environmental-protection/CORSIA/Pages/default.aspx

[9] https://www.nationalgeographic.com/travel/article/should-you-buy-carbon-offsets-for-your-air-travel

[10] https://www.forbes.com/sites/davidnikel/2022/08/04/lufthansa-to-trial-green-fare-in-scandinavia/

[11] https://www.iata.org/en/programs/environment/sustainable-aviation-fuels/

[12] https://www.airplus.com/corporate/en/media-relations/press/press-releases/2022/btm-trends-2022-08-15.html

[13] https://www.reuters.com/business/aerospace-defense/corporate-travel-propels-boom-sustainable-aviation-fuel-2022-12-07/

[14] https://www.airplus.com/corporate/en/media-relations/press/press-releases/2022/cxo-kit.html


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