Climate spending models versus compensation 2023

Since perhaps the inception of the voluntary carbon market, the answer has been inextricably tied to the measurement of your carbon footprint.

How many carbon credits must you purchase?

Working backwards from the desired outcome — a habitable planet within 1.5 degrees Celsius — a company can calculate its greenhouse gas emissions in terms of carbon dioxide equivalent (CO2e) tonnes, reduce them as much as possible, and then purchase credits equal to the number of tonnes remaining — in other words, by “compensating” for the remaining carbon footprint.

Obviously, this is an extreme simplification, but it is precise because of this simplification that the practicality of the compensation model for many corporations is compromised.

In the simplest form of the equation, carbon footprint minus reduction plus credits equal zero; therefore, any credit will suffice. It treats credits essentially as commodities. It is true that carbon credits share some characteristics with commodities, such as the fact that a tonne of CO2 emitted is chemically identical to a tonne removed. However, a sufficient number of critical differences make the equation considerably more complicated.

Differences between carbon and conventional commodities

A commodity is a fundamental good that is interchangeable with any other of its kind in economics. They are not reducible, meaning they cannot be separated into component components, and they serve as inputs for a variety of other products. Gold, corn, and legumes are examples of commodities.

Assuming similar quality and freshness, a bushel of No. 2 yellow corn is identical to any other bushel of No. 2 yellow corn from anywhere in the globe. When the price of some maize increases, the price of most corn also increases.

However, carbon credits are not interchangeable. Each category of the project has a price that is highly variable based on factors such as:

  • How much does it cost to develop, scale, and implement the strategy?
  • How long will carbon be permanently sequestered?
  • Where is the project located, and will purchasers pay more due to its location?
  • Co-benefits: Are there additional benefits beyond the impact on the climate, such as protecting biodiversity or assisting vulnerable populations?
  • Risk: Does the endeavor enjoy broad public and expert support?
  • When does the climate impact take place? It could be in the past, the present, or the future.

Also, this is not all. Other scientific or regulatory factors may influence price changes. Demand will fluctuate based on awareness and interest in a particular project or strategy, which can be influenced by media cycles and marketing campaigns.

The final outcome is a voluntary carbon market with drastically different prices for various carbon credits. Novel technologies, including direct air capture, bio-oil, and concrete mineralization, can cost hundreds to thousands of dollars per tonne. Projects involving forest credits or sustainable cookstoves could cost as little as $10 per ton.

With a limited budget and the goal of offsetting 100 percent of their carbon footprint, many businesses can only afford the least costly carbon credits.

Contribution models provide greater adaptability

This is why more sustainability leaders are contemplating contribution models in lieu of or in addition to commitments based on total footprint compensation. Contribution entails investing your climate budget where you’ve determined it will have the greatest impact by funding climate-related initiatives.

(Read more about these assertions in our guide titled “5 climate commitments and how to identify yours.”)

Imagine you had an annual climate budget of $20,000 and a CO2 footprint of 1,000 tonnes for your business. The average cost per tonne to offset these emissions will be $20. This precludes your contribution of funds to more innovative initiatives, such as direct air capture, which are in dire need of investment to reach commercial scale by the year 2030.

What if you were not required to compensate for one thousand tonnes in full? You could instead allocate your budget to maximize your impact on the environment. You’d have access to every undertaking.

And just as new technologies are in dire need of advance funding, our species is in dire need of these technologies to scale more quickly. The most recent IPCC report affirms we’ll need massive carbon removal by 2050 to have a chance of limiting warming to 1.5 degrees Celsius relative to pre-industrial levels by 2100.

However, there are advantages and disadvantages to the contribution method.


  • Allows you to contribute to credits based on impact as opposed to claim.
  • Permits you to base your climate action narrative on innovative methods.
  • Allows access to innovative carbon credits.


  • Could discourage businesses from making well-known climate claims, such as “carbon neutral” and “net zero.”
  • In general, cutting-edge credits are significantly more expensive than other options, resulting in fewer credits being purchased overall.
  • Regarding contribution best practices, there is a lack of guidance and standards.

Contribution and remuneration

The obvious method to enjoy all of the “pros” without any of the “cons” would be to incorporate both compensation and contribution approaches into your climate spending. In other words, you fulfill the requirements of your compensation-based commitment and then contribute additional funds to approaches that will help you maximize your impact and communicate your climate action narrative.

Naturally, the cost will be higher, but all approaches will play a role in preventing the worst effects of climate change, and they all require significantly more funding now and in the future. Companies that can contribute more should absolutely do so.

Moreover, combining compensation and contribution permits the creation of a well-diversified portfolio, a crucial element of a low-risk, high-impact climate strategy.

Moreover, the reduction aspect of a company’s climate action strategy is not overlooked. Without measuring and reducing your footprint, a contribution-only approach misses the most essential aspect: not emitting CO2 in the first place.

Our mission at Patch is to make a sustainable future inevitable. Our approach to climate action provides the greatest variety of carbon credit options, and our vast network of partners can assist you in implementing either your compensation strategy or your contribution strategy — or, best yet, both.

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