Carbon insetting vs carbon offsetting: decarbonisation strategies for supply chains

Carbon insetting vs carbon offsetting: decarbonisation strategies for supply chains

Forest Carbon has been integral to the growth of the UK voluntary carbon market for nearly two decades. Historically, nature-based solutions like woodland creation or peatland restoration were supported by organisations to compensate against the carbon emissions associated with their operations and activities, by reducing emissions elsewhere (offsetting). More recently, ‘insetting’ has gained traction as a decarbonisation strategy for organisations in, or with supply chains that involve, the forestry, land, and agriculture (FLAG) sectors. 

Last March, our Project Manager Daniela Smith attended an Insetting Practitioner Course delivered by the International Platform for Insetting (IPI). The course is designed to provide valuable insights into insetting.

This article explores the key insights Daniela gained during the course, alongside what we at Forest Carbon already know about science-based carbon offsetting—a similar yet contrasting approach to tackling environmental impacts.

What is insetting and how does it differ from carbon offsetting?

According to the IPI's definition, insetting involves interventions along a company's value chain that are designed to generate Greenhouse Gas (GHG) emissions reductions and carbon storage, and at the same time create positive impacts for communities, landscapes and ecosystems (1). For example, nature-based solutions, such as agroforestry, reforestation, or regenerative agriculture can reduce agricultural supply chain emissions. Insetting may also include energy or community activities.

Insetting takes a different approach from offsetting by focusing on reducing emissions within a company’s own supply chain, rather than compensating for them through external projects. It’s a concept that can sometimes feel a bit murky since there isn’t a universally agreed-upon definition. While many lean on the IPI’s interpretation, some organisations choose to define it differently, adding to the confusion.

Benefits beyond emissions

Both insetting and offsetting can deliver multiple benefits beyond reducing emissions. 

Companies pursuing insetting strategies often experience increased supply chain resilience, reduced climate risks, and enhanced stakeholder engagement (2). For example, insetting can address supply chain vulnerabilities like water shortages and poor agricultural practices while simultaneously mitigating environmental risks. 

Nature-based insetting and offsetting projects also offer several environmental and social co-benefits beyond carbon savings. These may include flood mitigation, enhanced biodiversity protection, habitat linkage, income diversification for project hosts, and access to green space for the local community (3). Visit our project pages to explore specific examples of co-benefits provided by our woodland and peatland projects.

Both insetting and offsetting present viable pathways for companies aiming to mitigate their environmental impact. However, each approach comes with distinct challenges that require careful navigation to ensure credibility and effectiveness in contributing to sustainability goals.

Challenges of insetting

Possible higher costs

Insetting projects can have higher upfront costs and greater operational complexity compared to supporting external projects, due to factors such as infrastructure and higher managerial oversight requirements (4). Costs can be highly varied for insetting projects; IPI notes that insetting projects typically have a higher cost per tonne of CO2 compared to offsetting projects (5). However, offsetting projects don’t come without their own complexities. For example, taking a project through an accreditation standard such as the Woodland Carbon Code, which is fairly technical and comes with its own costs and requirements. Insetting on the other hand has the flexibility to choose a full carbon credit certification or to develop a standard internally. 

The IPI course highlighted the importance of assessing environmental impacts financially to build a strong business case for inserting (6). Some companies evaluate their supply chain's environmental footprint and the cost of the initiative and try to estimate the cost of future environmental risks. This approach – to convert environmental considerations into monetary metrics – can make the benefits of sustainability action clearer to company decision-makers.

Despite costly initial investment, insetting can deliver long-term stability and sustainability gains that can outweigh initial costs. IPI also highlights the 'cost of inaction', urging companies to consider their initial investment in insetting in relation to the long-term risks and uncertain costs of climate inaction(7).

Supply chain volatility

Another challenge is supply chain volatility, particularly with traceability and claiming environmental benefits, especially when multiple buyers share the same supplier. Emerging developments in data and technology are improving traceability and efficiency in supply chain emissions management.

Insetting accounting

Insetting, by design, has direct links to a company's activities and impact and works to actively reduce emissions directly within the supply chain. However, there is uncertainty in how to properly account for insetting activities which presents another challenge for companies wishing to use this approach. There is developing guidance to address this, with new Greenhouse Gas Protocol guidance to be published in Q1 of 2025 (8).

Challenges of carbon offsetting

While carbon offsetting has an established accounting framework, particularly through the UK Voluntary Carbon Market (VCM) with government-backed standards like the Woodland Carbon Code and Peatland Code, challenges remain:

• Offsetting as a concept often faces scrutiny and polarising media coverage (9).  Transparency, quality assurance, and well-communicated claims are important for mitigating the risk of greenwashing accusations. However, it is not always clear which standard to trust. 

• Ongoing project verifications are crucial for maintaining project integrity. However, the cost of verifications can affect the long-term financial viability of a project, which in turn impacts landowner decisions regarding the proportion of units they may sell, or whether they enter the carbon market at all. This, in turn, can influence the volume of units available for companies to purchase. Additionally, in the UK, the timeline for converting pending issuance units (units which represent a future carbon saving) into verified units can limit the number of units available for buyers seeking to meet climate targets within specific delivery timeframes. It is all a very delicate balancing act.

Ensuring that supported projects involve trusted developers and that claims are accurate requires careful consideration, similar to insetting projects. Efforts to enhance trust and buyer confidence are ongoing. For instance, the Integrity Council for the Voluntary Carbon Market is working to strengthen governance and promote adherence to good practice principles (10).

Which approach is right?

Insetting is endorsed for FLAG organisations by the Science Based Targets initiative (SBTi) (11), as is offsetting of residual emissions (up to 10%) and Beyond Value Chain Mitigation (BVCM) under the Corporate Net Zero Standard (12). However, ‘which is right’ depends on the company and its carbon footprint. Science-based decarbonisation will always prioritise cuts to direct and indirect value-chain emissions above offsets. But – considering we face twin climate and biodiversity crises – if cuts can be made by restoring or regenerating nature, as in insetting, it is certainly a win-win. 

In many cases, it won’t be an ‘either/or’ for these decarbonisation strategies but rather a blended approach of cutting where possible, insetting, and offsetting, to maximise impact.

An especially interesting takeaway from the course was the growing role of suppliers in initiating insetting practices within supply chains. As key players in agricultural supply chains, farmers can directly influence a company’s supply chain emissions through practices like carbon retention on farms. This proactive approach can contribute to broader decarbonisation efforts, especially as supermarkets and food suppliers increasingly incorporate Scope 3 emissions into their sustainability strategies. 

Similar to buyer-specific considerations that impact which decarbonisation method companies pursue, landowners also have specific considerations that influence environmental actions they wish to implement on their land and the goals they aim to achieve (13). Positioned at both the buyer and supplier sides of the market, Forest Carbon can help bridge these interests and provide guidance to align goals across supply chains.

Conclusion

It is important to take a comprehensive approach to decarbonisation, assessing the potential for both insetting and offsetting where appropriate. As the landscape continues to evolve, collaboration across supply chains, fair compensation for farmers, and strategies to prevent double-counting of carbon benefits will be essential for scaling these practices effectively. 

Navigating the voluntary carbon market can be challenging, especially when determining which types of carbon credits, or which decarbonisation approach, align best with your strategic objectives and can be trusted. 

With nearly two decades of experience in nature-based solutions, we are here to help you navigate opportunities, whether you're a buyer or a landowner. We endorse science-based best practices for abatement and encourage Beyond Value Chain Mitigation (BVCM). Get in touch to find out how we can support you.

Sources

1.  Insetting Explained - IPI, International Platform for Insetting 
2.  If we get it right, insetting could unlock a flood of finance for nature, Reuters
3.  Available Projects, Forest Carbon Ltd 
4. Lesson 9: Align payments with performance, A Practical Guide to Insetting, International Platform for Insetting. Lesson 4: Develop a system that can track and consolidate the benefits of insetting, A Practical Guide to Insetting, International Platform for Insetting.
5. The price comparison between offsetting and insetting is based on data from historical insetting projects in the Global South. For further details, refer to Lesson 9: Align Payments with Performance, A Practical Guide to Insetting
6. Lesson 2: Use supply risks, co-benefits and marketing potential to demonstrate the business case, A Practical Guide to Insetting, International Platform for Insetting
7. Land Sector and Removals Guidance, Greenhouse Gas Protocol 
8.  Solving the carbon market ‘integrity crisis’, Financial Times 
9.  The Integrity Council for the Voluntary Carbon Market
10. https://sciencebasedtargets.org/sectors/forest-land-and-agriculture 
11. https://sciencebasedtargets.org/net-zero
12. Getting paid for carbon, Farm Carbon Toolkit
13.  How supply chain Scope 3 emissions affect farming, NFU
14.  Forest, Land and Agriculture (FLAG), Science Based Targets