On Voluntary Compensation

Mitigation outcomes cover both greenhouse gas emission reductions and removals of carbon dioxide from the atmosphere. Carbon credits refer to tradable units that are issued into carbon registries by crediting standards, based on mitigation outcomes that meet relevant criteria.

Voluntary compensation allows actors to take responsibility for their remaining emissions by supporting additional mitigation outcomes achieved elsewhere, for example by activities that promote renewable energy, reforestation or waste management. Voluntary compensation is not a substitute for own mitigation action – reducing own mitigation should always be prioritised.

Offsetting is the purchase and ownership of mitigation outcomes that are used to counterbalance an actor’s carbon footprint. Non-offsetting uses of mitigation outcomes are when an actor pays for mitigation outside of their value chain but does not use this to counterbalance their carbon footprint.

The Dialogue aims to develop a common understanding of the meaning of voluntary compensation among Nordic stakeholders. This is important for having a fruitful dialogue. In the context of the Dialogue, voluntary compensation includes both offsetting and non-offsetting use of mitigation outcomes.

There is wide agreement that mitigation outcomes based on emission reductions or removals from a broad range of activities can be legitimately used for voluntary compensation, provided that they meet relevant quality criteria. Widely accepted quality criteria include demonstration of additionality, application of robust baselines and monitoring methodologies, ex-ante third-party validation of the activity design and ex-post third-party verification of mitigation outcomes by independent third parties, addressing the risks of non-permanence and leakage, doing no harm and avoiding double counting.

Various crediting standards have emerged to issue carbon credits for mitigation outcomes that are deemed to meet relevant criteria. The largest crediting standards currently catering for voluntary compensation are the Verified Carbon Standard (VCS), Gold Standard for the Global Goals (GS4GG) and the Clean Development Mechanism (CDM). There are also several other standards that cater for voluntary compensation. Some of these standards are also approved for generating carbon credits for compliance use. CDM was originally designed for compliance under the Kyoto Protocol.

In the context of the Science-Based Targets initiative’s (SBTi) corporate net-zero standard, , mitigation outcomes based on emission reductions and/or removals can be used to compensate for emissions remaining on the way to net zero. At the net-zero target year, a very small amount of emissions may remain and must be counterbalanced with mitigation outcomes based on removals.

In the global context, carbon neutrality is the same as net-zero carbon dioxide emissions, which are achieved when anthropogenic emissions are balanced globally by anthropogenic removals over a specified period. Carbon neutrality commonly also includes other greenhouse gases. At the sub-global level, actors had traditionally claimed to achieve carbon neutrality by offsetting their carbon footprint with mitigation outcomes representing at least an equivalent amount of mitigation outcomes.

However, the legitimacy of carbon neutrality claims that rely solely on offsetting has been questioned, and claims are increasingly under scrutiny by consumer authorities. There is wide agreement that achieving the global goal of limiting warming to 1.5 degrees requires prioritising own mitigation action consistent with the 1.5-degree pathway. In this context, voluntary compensation should be used to complement – not substitute – own action. A credible carbon neutrality claim would thus be accompanied by immediate own action in line with 1.5 degrees, and based on high-quality mitigation outcomes that are not double counted.

In practice, the assessment of whether own action is aligned with the 1.5-degree pathway inevitably entails subjective judgement and important equity issues. Transparent and detailed reporting is crucial to facilitate the assessment of own action, the role of voluntary offsetting in the broader efforts, and the credibility of related claims.

The Science-Based Targets initiative (SBTi) has developed a net-zero standard for aligning corporate net-zero claims with the 1.5-degree target, taking into account the company’s sector and size. Other types of non-state actors still lack tailored guidance on aligning their action with the 1.5 degree pathway and making credible carbon neutrality claims.

There is wide agreement that voluntary compensation should be based on mitigation outcomes that are additional to what the host country has committed to achieving with its own resources under its Nationally Determined Contribution (NDC).

In general, mitigation outcomes achieved within the host country will count towards the host country’s target except for mitigation outcomes that the host country authorises for use towards other NDCs or other international mitigation purposes. The authorisation constitutes a commitment by the host country to not count these mitigation outcomes towards its target by applying a so-called “corresponding adjustment” to its emissions balance.

In case of non-offsetting use of mitigation outcomes, support is provided for mitigation outcomes that are counted towards the host country and used to help it achieve and even over-achieve its NDC. In case of offsetting use, support is provided for mitigation outcomes that are counted for the buyer and used to counterbalance the buyer’s emissions, and so do not country towards the host country’s goals.

Double claiming with the host country targets refers to a situation where the same mitigation outcome is claimed both towards the host country’s target and a non-state actor’s offset-based claim (e.g. carbon neutrality claim).

Some actors argue that credible offset-based claims require avoiding double claiming by countries and voluntary market buyers. Others do not see double claiming as an issue and/or propose to address double claiming by providing information on whether the voluntary claim is based on mitigation outcomes that also count towards host country targets.

When using mitigation outcomes generated from 2021 onwards, double claiming can be avoided by using mitigation outcomes with corresponding adjustments for offset-based claims. Organizations could make non-offset-based claims by using mitigation outcomes without corresponding adjustments. Double-claiming can also be avoided by using mitigation outcomes that are generated before 2021 in host countries that did not have targets before 2021.

There is no consensus on this question. Voluntary compensation is currently regulated at various levels. Carbon credit quality is regulated by various independent, international, national and sub-national crediting standards. For environmental claims, including carbon neutrality claims, there is international, regional and national guidance but no formal regulation. There are efforts ongoing to align and harmonise guidance. The Nordic Dialogue on Voluntary Compensation aims to promote the harmonisation of good practice guidance for voluntary compensation by raising awareness of existing and emerging international and national initiatives the Nordic countries and beyond.

There are no readily available estimates for demand for non-offsetting uses of mitigation outcomes. Demand for non-offsetting uses depends on non-state actors’ preferences and targets: what types of climate action they choose to support and what types of targets to which they commit. Currently, carbon neutrality and net-zero targets are popular among non-state actors. Carbon neutrality targets and claims are traditionally achieved through offsetting use of carbon credits, while corporate net-zero targets under the Science-Based Targets initiative’s (SBTi) new net-zero standard could potentially drive demand for offsetting and/or non-offsetting use of carbon credits as a means to deliver “beyond value chain mitigation”.

Voluntary and compliance carbon markets developed in parallel, and they have influenced each other throughout their existence. All established crediting standards have some common features and core criteria, and many of them cater for both voluntary and compliance purposes. The Clean Development Mechanism (CDM) was initially designed for compliance purposes, but it is also used for voluntary purposes and has been used as a model for other crediting standards catering for the voluntary markets. Market-based cooperation under Article 6 of the Paris Agreement may also be used to support voluntary markets and, over time, it may also facilitate alignment of criteria across crediting standards. In the future, some crediting standards initially designed for voluntary use may also be used as the basis for market-based cooperation under Article 6.

On the Dialogue

The Nordic Dialogue on Voluntary Compensation includes:

  • Mapping Nordic stakeholder’s views on key issues to be addressed under the Dialogue through surveys, targeted consultations and a public consultation with key stakeholders in all Nordic countries.
  • Fostering a common knowledge base and understanding of key issues and concepts. In practice, this will be done by preparing a report on international guidance and initiatives, including a glossary of key terms and concepts relating to voluntary compensation. A common language is important for having a fruitful dialogue.
  • Co-creating a Nordic Code of Best Practice, including guidance for providers and users of voluntary compensation.
  • Co-creating an action plan for a Nordic approach to voluntary compensation, identifying key opportunities for further Nordic cooperation with both Nordic and international stakeholders

There are several reasons why Nordic cooperation on voluntary compensation may add value.

Firstly, all Nordic countries have ambitious climate targets and they have agreed to jointly promote carbon neutrality, including encouraging Nordic companies, investors, local governments, cities, organizations and consumers to step up their efforts towards carbon neutrality. The Dialogue is designed to support these efforts through Nordic cooperation.

Secondly, there are ongoing national efforts relevant to voluntary compensation in many Nordic countries. The Dialogue can help in sharing experiences and lessons across Nordic countries and identifying issues where Nordic cooperation can add value.

Thirdly, Nordic cooperation on voluntary compensation can be relevant for countries outside the Nordic region, and vice versa, international experiences in voluntary compensation can be relevant for Nordic countries. They can help in sharing experiences and lessons on voluntary compensation between Nordic stakeholders and their international peers. The Dialogue also aims to promote complementarity and alignment with relevant ongoing international initiatives relating to voluntary compensation.

A Nordic approach to voluntary compensation will be shaped by Nordic stakeholders under the Dialogue. The Nordic approach to voluntary compensation could include elements that the Nordic stakeholders consider valuable to develop or coordinate at the Nordic level. For example, Nordic stakeholder may see added value in developing joint Nordic high-level principles on what constitutes robust voluntary compensation, Nordic guidance on reporting on voluntary compensation and/or Nordic tools for estimating mitigation outcomes generated by activities in Nordic countries.