Fall08The Oxford Principles for Net Zero AlignedCarbon OffsettingSeptember 2020

The Oxford Principles for Net Zero Aligned CarbonOffsettingExecutive SummaryAs part of their climate strategies, many companies, organisations, cities, regions and financialinstitutions are relying on voluntary carbon offsetting—payment to receive credit for a certifiedunit of emission reduction or removal carried out by another actor. Current best practice helpsto reduce some of the well-known risks associated with existing offsets (e.g. improper carbonaccounting, re-release of stored carbon, negative unintended impacts on humans orecosystems, etc.), but is unlikely to deliver the types of offsetting needed to ultimately reachnet zero emissions. The Oxford Principles for Net Zero Aligned Carbon Offsetting (the “OxfordOffsetting Principles”) presented here outline how offsetting needs to be approached to ensureit helps achieve a net zero society.1. Cut emissions, use high quality offsets, and regularly revise offsetting strategy as bestpractice evolvesA host of carbon offsetting best practices have been developed over the past decades.Adherents to these principles must first observe these best practices, which can be grouped as: Prioritise reducing your own emissions - Minimise the need for offsets in the first place. Ensure environmental integrity - Use offsets that are verifiable and correctly accounted forand have a low risk of non-additionality, reversal, and creating negative unintendedconsequences for people and the environment. Maintain transparency - Disclose current emissions, accounting practices, targets to reachnet zero, and the type of offsets you employ.2. Shift to carbon removal offsettingMost offsets available today are emission reductions, which are necessary but not sufficient toachieve net zero in the long run. Carbon removals scrub carbon directly from the atmosphere.Users of offsets should increase the portion of their offsets that come from carbon removals,rather than from emission reductions, ultimately reaching 100% carbon removals by midcentury to ensure compatibility with the Paris Agreement goals. Creating demand for carbonremoval offsets today will send the necessary market signal to increase supply.3. Shift to long-lived storageThe transition from emission reductions to carbon removals as outlined in Principle 2 above iscritical for achieving net zero, but doesn’t address the question of how carbon is stored. Shortlived storage involves methods that have a higher risk of being reversed over decades. Longlived storage refers to methods of storing carbon that have a low risk of reversal over centuriesto millennia, such as storing CO2 in geological reservoirs or mineralising carbon into stableforms. Short-lived storage offsets help buy time to reduce emissions and invest in long-livedThe Oxford Principles for Net Zero Aligned Carbon Offsetting1

storage, but they are not a long-term solution for achieving balance between sinks and sources.It is therefore critical that investment in scaling and improving the technologies that enablelong-lived storage begins now. Creating demand for long-lived offsets today sends a signal tothe market to grow the supply of such offsets.4. Support the development of net zero aligned offsettingThe market for the high-quality offsets needed to meet Principles 2 and 3 is immature and inneed of early-adopters to support its evolution. Users of these principles can develop themarket for net zero aligned offsetting by: Using long-term agreements - give the certainty required by offset project developers tocreate net zero offsets. Forming sector-specific alliances - work collaboratively with peers to develop the marketfor net zero aligned offsets. Supporting the restoration and protection of a wide range of natural and semi-natural ecosystemsin their own right - not only will this secure the ecosystem goods and services on whichhumans depend, including resilience to the impacts of climate change, but willcontribute to carbon storage over the long term. While carbon offsetting can help to fundsome of this work, such efforts should fundamentally be supported for the benefits andvalues they create, not purely for the purpose of carbon offsetting. Adopting and publicising these Principles, and incorporate them into regulation and standardsetting for approaches to offsetting and net zero.The Oxford Principles for Net Zero Aligned Carbon Offsetting2

The Oxford Principles for Net Zero Aligned CarbonOffsetting*Myles Allen1,2, Kaya Axelsson1,3, Ben Caldecott2,3, Thomas Hale2,4, Cameron Hepburn2,3, ConorHickey3, Eli Mitchell-Larson*1,5, Yadvinder Malhi1, Friederike Otto1, Nathalie Seddon6, & SteveSmith2,3Environmental Change Institute, University of OxfordOxford Martin School, University of Oxford3 Smith School of Enterprise and the Environment, University of Oxford4 Blavatnik School of Government, University of Oxford5 Saïd Business School, University of Oxford6 Nature-based Solutions Initiative, Department of Zoology, University of Oxford* Corresponding author: [email protected] meet the Paris Agreement’s objective of “holding the increase in the global averagetemperature to well below 2 C above preindustrial levels and pursuing efforts to limit thetemperature increase to 1.5 C above pre-industrial levels” we must rapidly move toward netzero carbon dioxide (CO2) emissions by mid-century. This means substantially reducingemissions (“sources”) and balancing any residual emissions with removals (“sinks”) on anongoing basis.1Many countries and “non-state actors”, such as cities, regions, companies, organisations andfinancial institutions, are pledging to achieve net zero emissions. While some actors can feasiblyeliminate all of their emissions to reach “absolute zero”, some actors will have residualemissions. For example, emissions from biological processes in agriculture, some industrialprocesses, and fossil fuel combustion for aviation will likely be difficult to eliminate fully by2050. A number of actors therefore include “carbon offsets” within their climate strategy. Theseare purchased credits representing a certified unit of emission reduction or carbon removalcarried out by another actor.A number of critically important questions emerge for the users of offsets. How can offsettingbe made a credible means of achieving net zero? What types of offsets should be used andwhen? How can actors purchasing offsets, and stakeholders holding them accountable, avoidthe risk of greenwashing? How can users catalyse the cost-effective supply of the right kind ofoffsets at scale?The Oxford Principles for Net Zero Aligned Carbon Offsetting are designed to help clarifythese questions, particularly for non-state actors who want to design and deliver rigorousvoluntary net zero commitments and develop high quality carbon markets.*The Oxford Principles for Net Zero Aligned Carbon Offsetting were devised through collaboration with expertsacross the University of Oxford. The Principles incorporate expertise from the Blavatnik School of Government,Environmental Change Institute, Nature-based Solutions Initiative, Oxford Martin School, Oxford SustainableFinance Programme, Saïd Business School, School of Geography and the Environment, and the Smith School ofEnterprise and the Environment.The Oxford Principles for Net Zero Aligned Carbon Offsetting3

We urge offset buyers to adopt and integrate the Oxford Offsetting Principles into theiractivities. We also encourage regulators and standard setters to reflect them in the design ofoffsetting systems and net zero standards. Observing these Principles will help ensure thatusers avoid buying low-quality offsets and that their decarbonisation plans are compatible withachieving net zero.The Oxford Offsetting Principles are intended to be used by a variety of stakeholders: Corporations and organisations designing and delivering credible plans for achievingnet zero. Financial institutions for the same purpose, as well as to assess the plans of investeesand borrowers. This can inform risk and impact analysis, as well as engagement andstewardship activities. Civil society to gauge which organisations are aligning with the Paris Agreement,revealing leaders and laggards. Initiatives and networks that promote net zero target setting and disclosure by non-stateactors, who can align their requirements with the Oxford Offsetting Principles. Regulatory and standard setting bodies to create voluntary or mandatory rules or otherpolicy interventions that drive the economy toward net zero, including enablinginvestments that can support the realisation of the Oxford Offsetting Principles on aglobal basis. Researchers and academic institutions to address their own emissions, or to guideresearch to fill time-sensitive knowledge gaps in the carbon offsetting space.The Oxford Principles for Net Zero Aligned Carbon Offsetting4

Principle 1: Cut emissions, use high quality offsets, and regularly reviseoffsetting strategy as best practice evolvesA number of best practices have been developed to set international consensus on whatconstitutes credible carbon offsetting. Adherents to these principles must first and foremostobserve these best practices for all purchased offsets, as summarised in the StockholmEnvironment Institute’s comprehensive introduction to the topic and other similar guides.2 Bestpractice generally covers the following areas:Prioritise reducing your own emissions and scaling up removals, minimising the need foroffsets to achieve net zeroCutting emissions and scaling up removals can take many forms and is often sector specific.Actors can benchmark themselves against peers to help determine if they have maximised allreduction opportunities. This can be done informally, for example an airline emulating orexceeding the fleet upgrades of its peers or a law firm comparing its emission intensity againstsimilar firms. Formal frameworks for benchmarking emissions are also available,3 as areindustry-specific associations focused on climate action.The amount of net emissions that remain and must therefore be offset will be specific to theorganisation, based on available technologies, strategic goals in terms of equity and inclusivity,and their own financial strength. Criteria should be revisited frequently, since emissions thatwere previously considered hard-to-reduce may become easier to reduce due to newtechnologies, falling costs, or new incentives. Many initiatives exist to help organisations to dothis, including: Climate Action 100 , LEED, Net Zero Asset Owners Alliance, Oxford MartinPrinciples for Climate-Conscious Investment, RE100, Science Based Targets initiative, and TheInvestor Agenda.Use offsets that are verifiable and correctly accounted for, have a low risk of nonadditionality, reversal, and creating negative unintended consequencesVerifying offsets ensures that the emission reduction or carbon removal actually takes place,and that all forms of double-counting, including double-claiming of the emission reductionbenefit, are avoided. Forward-selling, and any time gap between the purchase of the offset andthe successful execution of the emission reducing or carbon removing activity must beminimised, and mechanisms to ensure that the environmental benefits from an offset areactually delivered must be strong. Care must be taken to ensure offset providers are properlyconverting the climate impacts of non-CO2 climate pollutants into CO2 terms according to theiractual warming impact, particularly for short-lived greenhouse gases like methane.4Offsets should also be additional, meaning they represent an emission reduction or carbonremoval relative to a counterfactual baseline that would not have taken place but for theoffsetting activity.5,6 Additionality can be difficult to determine and verify, and ultimatelyinvolves some degree of subjectivity since the counterfactual world in which the offsettingactivity was not performed cannot be observed directly.The Oxford Principles for Net Zero Aligned Carbon Offsetting5

Permanence refers to how long a greenhouse gas stays out of the atmosphere, whether storedin a physical reservoir or whose emission was deferred through avoidance.7 In the case ofphysically storing carbon in a reservoir (e.g. a forest, or a geological sink), the risk of reversalof that carbon back into the atmosphere must be acknowledged and accounted for in theoffsetting plan. For example, afforestation or reforestation generates carbon removal carbonoffsets, but if forests are subsequently cut down or destroyed by pests, fire, or other naturaldisturbances the stored carbon is reversed and the carbon offset must be invalidated.Potential unintended negative consequences associated with nature-based offsetting couldinclude but are not limited to loss of livelihood to farmers or those from local communities whorely on forest products, loss of agricultural land, violations of local community land rights,decreased biodiversity in low-diversity tree plantations or from tree-planting on biodiverse andnaturally low tree cover habitats such as grasslands, savannas, and peatlands, unanticipatedchanges to hydrological or nutrient cycles and other adverse impacts on the social andecological resilience of landscapes. High quality nature-based offsets can embed additionalvalue, such as enhancements to biodiversity, local incomes, climate-change resilience andsafeguarding community rights.Disclose current emissions, accounting practices and targets to reach net zeroDisclosure includes all emissions within an organisation’s sphere of influence, oftencategorised according to the Greenhouse Gas Protocol framework for reporting emissions8: Scope 1 emissions are direct emissions from owned or controlled sources e.g. companyvehicles. Scope 2 emissions are indirect emissions from the generation of purchased energy e.g.purchased electricity. Scope 3 emissions are all