Can Corporations Use Carbon Offsets to Meet Emission Reduction Obligations?

Abstract

The responsibility of corporations to reduce, and ultimately eliminate their greenhouse gas (GHG) emissions is widely acknowledged, and is also increasingly understood to have a legal dimension. Corporations increasingly adopt net zero strategies, which heavily rely on carbon offsets rather than genuine emission reductions. However, research shows that carbon offsets cannot be considered to be effective, in the sense that they do not achieve climate benefits that are equivalent to those of emission reductions. The question therefore arises whether corporations can use offsets to meet emission reduction obligations. The article shows that a corporate obligation to reduce emissions is grounded in a duty to act with sufficient diligence in the climate crisis. Given the severity of the climate crisis, the standard of care that corporations must meet is high. From this perspective, carbon offsets, which are ineffective climate mitigation instruments, cannot be used to meet emission reduction obligations. This finding is consistent with the treatment of offsets under both disclosure and consumer law, which do not allow offsets to be considered as equivalent to emission reductions. It is also broadly consistent with the approach taken by the main soft law instruments regulating corporate emission reductions, which do not allow offsets to count towards emission reduction obligations, except in the limited case of “residual emissions.”

Keywords: climate change, corporate due diligence, carbon offsets

JEL Classification: K10, K32