Answers to frequently asked questions.

We are happy to discuss any further questions with you. We also give expert commentaries.

Climate change

The greenhouse effect is a natural phenomenon without which there would be no life on our planet. In the greenhouse effect, atmospheric gases capture part of the heat energy that escapes from the earth. The energy radiates back into the lower atmosphere and to the surface of the earth. Without the natural greenhouse effect, the average global temperature would be 20-30°C colder, according to various estimates.

The intensity of the greenhouse effect is decisively influenced by the concentrations of greenhouse gases in the atmosphere. The primary greenhouse gases are carbon dioxide (CO₂), methane (CH4), nitrous oxide (N2O) halogenated hydrocarbons (e.g. CFC, HFC, PFC) and sulphur hexafluoride (SF6).

As the greenhouse effect has intensified beyond its natural level, we have started to talk about climate change. The international scientific community broadly agrees that the impacts of climate change are harmful, and they threaten the living conditions of the planet. The increase in greenhouse gases in the atmosphere is mainly human-made. The consequences of climate change include, for example, an increase in average global temperatures, rising sea levels, adverse changes in ecosystems, droughts and an increase in other natural disasters (tropical storms, floods).

Scientific information on climate change and its impacts are provided by the Intergovernmental Panel on Climate Change (IPCC). The IPCC has been publishing scientific reports for almost twenty years. The most recent climate change impact assessment reports are available for download on their website. The latest Climate Panel report appeared in October 2018, according to which limiting global warming to 1.5°C requires rapid changes in energy, transport, land use and industry. According to the IPCC, emissions reduction under the Paris Agreement on climate change (2015) is not enough if global warming is to be maintained at 1.5°C or even at 2°C.

In Finland, e.g. the Finnish Meteorological Institute compiles extensive scientific data on climate change and the impact of increased greenhouse gas emissions on global warming. Finland’s greenhouse gas emissions data can be found, for example, on Statistics Finland’s website.

The United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992 and entered into force in 1994. The establishment of the UNFCCC led to the conclusion of the Kyoto Agreement in 1997. The Kyoto Agreement set quantitative targets for industrialised countries to reduce greenhouse gas emissions. In 2015, the Paris Agreement on climate change which is based on countries’ own set emission reduction commitments and, which also includes voluntary set targets for developing countries, was signed. The Paris Agreement on climate change entered into force in 2016, and its implementation began on 1 January 2021.

The Paris Agreement on climate change aims to maintain the increase in global average temperature well below 2°C in relation to pre-industrial levels and to seek measures to limit warming to below 1.5°C.

Currently, the world’s largest emissions trading scheme is the EU Emissions Trading Scheme (EU ETS), which covers all EU member states. EU emissions trading accounts for more than 40% of greenhouse gas emissions across the EU (the majority of EU energy production plants and energy-intensive industries, as well as intra-EU transport). EU emissions trading is currently going through a fourth trading period, which runs from the beginning of 2021 until the end of 2030. More information on EU emissions trading can be found on the website of the Ministry of Economic Affairs and Employment.

The long-term objectives of the Paris agreement are:

  • Limit warming to 1.5 degrees
  • Direct cash flows to low-emission and climate-resilient development
  • Strengthen adaptation efforts and climate resilience

According to the goals of the Paris Agreement, global emissions should fall drastically starting from 2020, and the balance between emissions and emissions removal should be achieved around 2050.

The emissions reduction measures agreed upon in the Paris Agreement cover only a fifth of what is needed to limit global warming to 1.5°C. So the promises of the states are not enough. In order to fill the emissions reduction gap, the private sector is needed. Otherwise, global warming cannot be maintained at the 1.5°C level. Concrete climate action by the private sector is critical.

Gri (Global Reporting Initiative) and the Carbon Disclosure Project (CDP) are voluntary initiatives for companies to manage, understand, report and communicate the climate impact of their own operations, among other things. International donors use these reports when analysing the value of companies.

Carbon footprint calculation

The calculation of the carbon footprint is based on international standards and guidelines, as well as the latest recommendations from industries. The most commonly used standards are the ones set by the GHG Protocol. When applicable, other calculation standards and guidelines can be used for carbon footprint calculation (e.g. ISO 14040, 14044, 14067, 14069 and PAS2050) to investigate the lifecycle climate impacts of a product.

Different standardised calculation scopes (Scope 1, 2 and 3) can be introduced for different items. For physical infrastructure, the consumption and origin of purchased electricity and heat, fuel consumption, waste management and recycling, the share of self-generated electricity and heat, as well as freight logistics, travel and subcontracted operations are typically taken into account.

For the carbon footprint of products or services, the calculation is limited to company’s own actions and to the emissions that occur during the product’s lifecycle before and after it is sold (i.e. upstream and downstream activities).

When it comes to events, the calculation usually includes consumed electricity and heating, travel and accommodation of organisers and participants, logistics for organising the event, the amount and origin of catering or other significant consumer products, recycling and waste management.

 

What is usually involved in reducing the carbon footprint?

Once the factors affecting the carbon footprint are known and reliably assessed/calculated by the required standards, a company can start efforts to effectively reduce emissions. A carbon footprint calculation can identify the climate impact of one’s operations, products or services. This way, the company can target emissions reduction measures correctly, for example, by optimising its logistics or reducing electricity, heat and material consumption at physical locations.

CO₂ equivalent (CO₂ eq) is a unit proportional to one tonne of carbon dioxide (tCO₂). The term CO₂ equivalent is used to facilitate the comparison of the impact of different greenhouse gases. For example, a tonne of methane (CH4) has an effect of 21 tonnes of CO₂ and a tonne of nitrous oxide (N2O) is equivalent to 310 tonnes of CO₂. If the emissions reduction is caused by a greenhouse gas other than carbon dioxide, it is calculated as proportional to the CO₂ equivalent. For example, a tonne of methane CH4, which is a common greenhouse gas released from agriculture and landfills, corresponds to 21 tonnes of carbon dioxide. The impact of methane on the greenhouse gas effect is, therefore 21 times higher than that of carbon dioxide.

A carbon handprint calculation measures one’s positive climate impact alongside the carbon footprint. The carbon handprint describes the positive actions and solutions of a company or organisation aimed at mitigating climate change.

A carbon handprint can be generated through a product or service sold by a company. For example, by reducing the carbon footprint of its customers, a company can enhance its carbon handprint. The company’s own actions to reduce its own carbon footprint are not counted as a carbon handprint.

Emission offsets

Emissions offsetting, i.e. obtaining carbon credits, is based on the principles of sustainable development set out in the 1997 Kyoto Agreement on Climate Change under the auspices of the UN. Emissions offsetting means that a company, entity or an individual buys carbon credits equivalent to the amount of greenhouse gas emissions that it cannot avoid in its operations. The profit from carbon credits is used in projects that reduce CO₂ emissions, increase permanent carbon sinks or remove CO₂ permanently from the atmosphere.

Offsetting thus enables companies to counterbalance the emissions they produce by investing in projects that reduce a similar amount of emissions or alternatively increase carbon sinks. The offsetting is done through the voluntary carbon market, where the emissions are offset ‘tonne per tonne’.

Offsetting projects can certify emissions reduction that is in accordance with internationally established high-quality standards (Verified Emission Reduction, VER). The price of these certified emission reductions, carbon sink increases and permanent removal of carbon dioxide is established on the free market. The unit is called a carbon credit.

Only real, additional, measurable and verifiable emissions reductions and removals should be used for emission offsetting. The number of emissions reduced, or the added carbon sink generated, can only be used once and for the benefit of one entity offsetting its emissions. After that, the credits are permanently retired from the used standard’s registry.

Both emissions reduction and permanent removal of CO₂ from the atmosphere are needed. Reducing the effects of climate change by limiting global warming to 1.5°C requires:

  • More and faster emissions reduction in order to bring emissions closer to zero. Additionally, it requires:
  • A significant amount of CO₂ removal in order to reduce emissions to net neutral and net negative.

Offsetting is, therefore, an established and cost-effective tool for managing emissions.

 

What is a climate action?

Climate action is a global greenhouse gas reduction or carbon sink-increasing action. It is calculated into the emissions budget of the funding entity and the country where the action was done. Climate action differs from offsetting by the fact that the entity who finances and receives the benefit can be a different entity (e.g. a private company as a financier of climate action and a state as a recipient of the benefit).

Emissions offsetting differs from climate action as the financier and the recipient of the benefit is always the same entity (e.g. a private company). The amount of emissions to be reduced or the carbon sinks to be increased are always additional, measurable, verifiable and used for the benefit of a single operator.

The voluntary carbon market is aimed at businesses, entities and private individuals to take better care of the climate, as required by law and regulations. The emissions reduction measures agreed upon in the Paris Agreement cover only a fifth of what is needed to limit global warming to 1.5°C. Offsetting through voluntary emissions trading enables private companies and organisations to tighten climate change mitigation (offsetting for the amount of greenhouse gas emissions that the company is not yet able to eliminate from its own operations under current means).

Voluntary emissions trading, i.e. voluntary private offsetting for greenhouse gas emissions, developed alongside legally required emissions trading (compliance market). It is based on the desire of companies and consumers to reduce the climate impact of their own consumption, operations or product manufacturing/service implementation.

Voluntary emissions trading is an investment in projects that either reduce global climate emissions, increase carbon sinks that capture emissions or permanently remove CO₂ from the atmosphere. The basic principle of the projects is that they would not take place without funding from emissions trading. The sale of carbon credits is accounted for in investment plans for emissions reduction projects. Without the sale of carbon credits, the implementation of these projects would most likely not happen.

Carbon credits are sold by the tonne of CO₂, e.g. to businesses and consumers. In the voluntary carbon market, the purchasers of carbon credits are mainly non-EU emissions trading companies, entities and individuals. The price of a carbon credit is decided by the commercial market according to supply, demand and project quality certificate. Voluntary emissions trading has been identified as a viable market mechanism for financing, among other things, renewable energy projects and increasing global carbon sinks. In order for the development to be sustainable, it is good for the buyer of carbon credits to commit themselves to reduce the size of their carbon footprint in accordance with the “minimise, then offset” principle.

 

Who benefits from offsetting?

First and foremost our common environment benefits from emissions offsetting. The emissions reduction methods developed and used in voluntary emissions trading are additional greenhouse gas emission reductions, increases in carbon sinks or permanent removals of CO₂ from the atmosphere, which would not primarily be achieved without emissions trading funding.

The seller and buyer of the emissions offsets benefit as well. The seller receives an additional revenue stream for its environmentally enhancing operations and is, therefore, able to expand its operations on a commercial basis. The buyer benefits from his reputation as a responsible operator when financing projects that reduce emissions or that increase carbon sinks. All this is significant in tackling the effects of climate change.

Where a company or entity has taken all possible measures to reduce its own greenhouse gas emissions, the remaining emissions are called residual emissions. These cannot be reduced or eliminated by commercially available technology yet.

Carbon neutrality means that in addition to company’s measures to reduce emissions, the rest of the greenhouse gas emissions from its operations or product/service production have been offset by certified (e.g. Gold Standard and Verified Carbon Standard) voluntary emissions trading projects.

At its best, the pursuit of carbon neutrality is not only responsible business. It also builds a strategic competitive advantage for the future. The rules of the game for managing one’s carbon footprint are quite clear.

When communicating carbon neutrality is important to be transparent. The company must be specific regarding which part of the emissions have been offset.

In contrast to carbon neutrality, reaching carbon negativity requires that the residual emissions have been offset beyond the calculated quantity. Hence, a carbon-negative company offsets more greenhouse gas emissions than what is the estimated release from its operations or production of a product/service. The calculation of carbon negativity must be based on reliable information.

When communicating carbon negativity, it is important to be transparent. A company must be specific regarding which part of the emissions have been offset.

The Paris Agreement on climate change, the Intergovernmental Panel on Climate Change (IPCC) and the Science Based Targets initiative aim to achieve a balance between the amount of global greenhouse gases that are released and the amount of removals by 2050.

A company or entity can aim for a net-zero balance in its emissions by taking all possible measures to reduce its own greenhouse gas emissions and offsetting the remaining emissions through voluntary emissions trading projects that remove CO₂ permanently from the atmosphere. Achieving a net-zero balance does not, therefore, allow offsetting through emissions reduction projects. Offsetting must be achieved through projects that remove CO₂ permanently from the atmosphere.

When a company or entity wishes to seek net negativity, it needs to offset more than the remaining emissions. Similarly to net-zero, offsetting must be achieved through projects that remove CO₂ permanently from the atmosphere.

The calculation of zero negativity has to be based on reliable information.

VER (verified emission reduction) is the unit for voluntary emissions reduction. One VER corresponds to a reduction or permanent removal of one tonne of CO₂ from the atmosphere. If the greenhouse gas emissions reduction is caused by a greenhouse gas other than carbon dioxide, the carbon dioxide equivalent (tCO₂ eq) is used to measure it. The emissions reduction resulting from other greenhouse gases are calculated based on how much they correspond to one tonne of CO₂.

CER (Certified Emission Reduction) is a unit of the Clean Development Mechanism (CDM) used by states under the Kyoto Protocol and by the EU Emissions Trading sector companies. It corresponds to a reduction or permanent removal of a tonne of greenhouse gas emissions from the atmosphere (tCO₂ eq).

The Emission Unit Allowance (EUA) unit used in the EU’s Emissions Trading scheme and corresponds to a tonne of greenhouse gas emissions (tCO₂ eq).

There are numerous different standards in use for offsetting through voluntary emissions trading. The most common international standards in use are VCS (Verified Carbon Standard) and GS (Gold Standard). A trustworthy project is certified by an existing internationally recognised standard. Standards and best practices for domestic projects are by large still under development.

Nordic Offset mainly retails Gold Standard certified voluntary emissions trading reductions to its customers. Gold Standard is a voluntary emissions trading verification standard created at WWF’s and other environmental institutions’ initiative and managed by the Gold Standard Foundation. Gold Standard is a non-profit organisation whose mission is to monitor, develop and verify voluntary emissions trading projects. Gold Standard, which operates according to the strictest industry criteria, ensures that the emissions reduction generated by the projects has been produced in accordance with the Gold Standard certification. This validates that the process has been properly monitored and experts have certified the project’s emissions reduction/carbon sink calculations.

In order to obtain a Gold Standard emissions trading certificate, the project must also meet the additionality condition. Otherwise, the project cannot be approved, and its verified emissions reductions cannot be registered in the Gold Standard register. The main rule in the implementation of additionality is that the project would not most likely have been implemented without emissions trading funding.

The Gold Standard certified project also takes into account other UN Sustainable Development Goals (SDGs). These include, for example, the social impact of projects in the local environment (such as health benefits, jobs, training and improvements to basic infrastructure). This distinguishes the Gold Standard from other international standards in use.

Avoiding double counting means that the carbon credit that is used to offset emissions has been calculated for the benefit of only one actor. For example, the emissions of a company or organisation’s own operations, product or service should not be offset by carbon credits that have already been calculated in the state’s emissions budget.

Double claiming and its prevention mean that the carbon credit used to offset the emissions of a company or organisation has been created and used only once. After use, the credit is permanently retired from the applied certificate’s (e.g. Gold Standard and Verified Carbon Standard) registry.

Additionality in voluntary emissions trading projects means that these offsetting projects would most likely not be carried out without the funding they receive through voluntary emissions trading. International standards such as Gold Standard and VCS ensure that the additionality condition is met in certified projects. Additionality is one of the key criteria for high-quality offsetting of greenhouse gas emissions.

The UN’s Sustainable Development Goals (SDGs) were agreed in 2015 and came to force at the beginning of 2016. There are 17 Sustainable Development Goals, and they have 169 sub-targets in total. The aim is that global development safeguards people’s well-being and human rights, economic prosperity and the stability of societies in an environmentally sustainable way. In addition, extreme poverty in all its forms will be eradicated.

Different types of offsetting projects not only mitigate the effects of climate change but also enhance other sustainable developments. For example, the Gold Standard certificate requires projects to monitor and report other impacts on sustainable development in addition to climate change (SDG 13).

When choosing an offsetting project, it may make sense to take into account these other effects and select a project that is in line with other goals and the strategy of the company or entity. Ask the experts for further help with the selection.

The international requirements for reducing climate emissions have not in history affected developing countries in the same way as western industrialised countries. In this way, finding sites and projects of high climate quality has been more cost-effective in developing countries.

In EU countries, almost all sectors of the economy are under EU or national law, which require large scale reductions in greenhouse gas emissions. Therefore, it is more difficult to find projects that would meet the additionality condition of a voluntary emissions trading project, i.e. projects that would not be realised without emissions trading funding.

The implementation of the 2015 Paris Agreement on climate change began on 1 January 2021. It will change obligations and targets regarding greenhouse gas emissions in developing countries as well. These fundamental changes in baselines (“Paris alignment” /”corresponding adjustments”) will also be taken into account in future offsetting projects in developing countries.

From the point of view of combating climate change, the location of the project is irrelevant because our atmosphere is shared.

 

Is voluntary emissions trading considered development aid or part of commercial activity?

Offsetting emissions through voluntary emissions trading enables companies and individuals that emit carbon emissions to operate in a climate change-neutral manner by purchasing carbon credits corresponding to their carbon footprint from sustainable development projects. At the same time, it allows project developers to receive voluntary funding from the private sector.

Business activity has emerged from the development of emissions reduction projects and emissions trading due to efforts to meet supply and demand as efficiently and reliably as possible. The commercialisation of voluntary emissions trading has been better at ensuring that supply and demand are met, rather than relying on development aid. The whole system is based on a shared desire to create sustainable development projects, reduce global emissions and lower the effects of climate change.

Commercial intermediaries are needed to bring together project developers and buyers of emissions reduction products. Intermediaries also enable the volume purchases of emissions reduction directly from projects and the sale of emissions reduction in smaller batches to end customers. However, the activities have a development aid-like nature, because it is part of the principles of voluntary emissions trading’s cost-efficiency that projects have been developed primarily in developing countries. At the moment, the demand for domestic emissions offsetting targets is also increasing, and Nordic Offset is actively involved in developing projects.

The range of entities using offsetting is practically limitless; e.g. from the telecommunications sector to those manufacturing dairy products. Offsetting is even more common in other parts of Europe. For example, it is more common in Sweden in comparison to Finland. However, many Finnish operators have recently introduced offsetting as a way to achieve carbon neutrality (e.g. for some operations and products).

Nordic Offset instructs its customers to first take financial/potential measures in their own operations in order to reduce their carbon footprint and only afterwards offset for the remaining carbon footprint/climate impact with certified projects (e.g. Gold Standard, VCS).

A tonne of CO₂ equivalent is called a carbon credit. The price of a tonne of emissions reduction/carbon sink increase/carbon removal, or in general terms ‘carbon credit’, is determined by supply and demand. The developer sells the carbon credits created by the project activities in the voluntary carbon market (emissions trading market) and the revenue from the carbon credits is directed towards the project. The reductions are sold in units of one tonne of CO₂ equivalent.

Due to voluntary emissions trading, the developer of a greenhouse gas reducing project can include revenue from the sale of carbon credits in the project’s investment plan. This facilitates the environmental projects that would not otherwise be carried out because of economic constraints.

The price of carbon credits (VER) varies on the open market and is determined on a project-by-project basis. The final price of the carbon credits includes the potential broker’s and retailer’s (such as Nordic Offset Ltd) expenses and margin. We actively monitor the market to find the best projects for our customers. In recent years, the price of a carbon credit has risen due to private companies’ ambitious climate targets, including offsetting for emissions that cannot be avoided in their own activities.

A company or entity must first calculate the carbon footprint (i.e. negative impact on the climate) of its operations or products/services. Then it has to implement feasible emissions reduction measures to reduce greenhouse gas emissions and offset the rest of its emissions through certified voluntary emissions trading projects. Only after these steps are complete, can the company start communicating on its carbon neutrality. It is important for communication to be transparent. The company must be specific regarding which part of its emissions have been offset.

Voluntary emissions trading and carbon neutrality targets and communication are guided by best international practices. There is still no legislative or other regulation in relation to communication and promises made by companies or entities regarding climate action. However, the sustainability sector is evolving. It is good for the expert to keep track of developments and the best practices, including in relation to marketing communications.

Emissions reductions are purchased and sold as carbon credits. These credits represent projects that reduce emissions, increase carbon sinks or remove carbon dioxide permanently from the atmosphere. One carbon credit is equivalent to a single tonne of CO₂ emissions reduction, capturing a tonne of CO₂ by adding carbon sinks or permanent removal of one tonne of CO₂ from the atmosphere. When we purchase carbon credits from the developer or broker of an emissions reduction project, the credit transfer information will be entered into the register of the standard chosen. When emissions reduction credits are sold to final customers, they are permanently retired from customer-specific sub-account in the seller’s emissions trading register. The customer receives a certificate of the retirement of the credits from the register.

Our auditing firm confirms year by year that the carbon credits sold match the fees we receive from our customers. The number of carbon credits sold annually have been verified in accordance with the selected international standard’s (e.g. Gold Standard or Verified Carbon Standard) criteria in the projects we obtain from international markets. The international standards’ registers offer the possibility to publicly view certified projects and the retired credits. The entire emissions reduction chain is therefore controlled, and trade in emissions reduction is independently audited and reported.