The shipping industry is a vital component of global trade, but it is also one of the largest contributors to carbon emissions. With the growing concern over climate change, there has been a push towards reducing carbon emissions from the shipping industry. However, small shipping companies face unique challenges in implementing carbon reduction measures due to limited resources and the lack of paying customers.
While many have heard of carbon offsetting, the concept of carbon insetting can provide an opportunity for small shipping companies to not only support carbon reduction projects but also monetise their carbon emissions.
What Is Carbon Insetting?
Carbon insetting has gained popularity in recent years to address carbon emissions in industries that are difficult to decarbonise. Shipping is one such industry, with emissions from shipping vessels being notoriously challenging to reduce. Carbon insetting provides an opportunity for shipping companies to invest in carbon reduction projects that can help mitigate the impact of their emissions.
In general, carbon insetting allows companies to invest in carbon reduction projects within their own supply chain and reduce their freight related carbon emissions. This approach is different from carbon offsetting, which involves purchasing cheap carbon credits from third-party carbon reduction projects (external) to offset emissions. With carbon insetting, the investment is made directly in the carbon reduction project, which allows the company to have greater control over the project’s development and implementation.
For example, a ship owner may originally spend money on carbon credits to offset the original carbon emissions from their vessels. However, if they were to apply the concept of carbon insetting, this money is used to actually reduce freight emissions, eg. through the introduction of low carbon vessels or low carbon fuels. While this might require a bigger amount up front, it is more beneficial in the long run as they are firstly able to reduce and report lower emissions. Secondly, smaller shipping companies are also able to monetise the now-reduced carbon emissions as a result from the new technology – here’s how:
Taking the above diagram as an example, small Shipping Company ABC decided to invest in new green-fuel technology for its vessel, resulting in a reduction of carbon emissions by 20%. As it is now able to run on and report lower emissions, Shipping Company ABC can monetise its environmental benefit (ie. the 20% carbon emissions reduction) to Retailer XYZ (buyer of carbon insets) by taking on its cargo that was traditionally transported via Vessel 456 that was running on fossil fuel.
In the long run, Shipping Company ABC can use the revenue generated from the sale of carbon credits to offset the (initial) cost of the carbon reduction projects, resulting in an overall net gain. Additionally, as Shipping Company ABC offers this solution, it will also benefit from:
- Improved sustainability & reputation: Investing in carbon reduction projects allows Shipping Company ABC to lower its direct (scope 1) emissions without losing its competitive position.
- Compliance with regulations: Carbon insetting can help small shipping companies comply with regulations related to carbon emissions, which can avoid penalties and improve the company’s standing in the industry.
- New market: Insetting provides Shipping Company ABC with a new market of customers who are willing to invest in its low carbon fleet, without delivering the transport activity.
To shed more light on this concept, we spoke to Jeroen van Heiningen, Managing Director of 123carbon, who said: “Insetting is still very much early stage, especially from the demand side. Traditionally, cargo owners are used to have a customer-centric approach towards decarbonisation. However, since this is a voluntary market and cargo owners are not forced to decarbonise, it makes no sense for vessel operators to accommodate individual needs. Insetting allows the operator to take an infrastructure-centric approach and decarbonise where he can do this the best and at the lowest costs, which will in the end also benefit the cargo owner.”
123Carbon is the first, independent one-stop shop for carbon insetting in multimodal transportation. It uses a powerful, climate-neutral public blockchain, which can be integrated into businesses for automated tokenisation or integrated into web portals as white label solutions. Through the platform, 123Carbon aims to empower organisations to own, manage, allocate or buy verified CO2 reductions within their supply chain.
Sharing on how the carbon insetting might shape the future, he added: “Insetting will change the competitive landscape since the physical logistics partner is no longer (by default) also the decarbonisation partner. Fuel providers will also move into the insetting market, offering the carbon reductions from their products directly to cargo owners, over the head of the vessel operators.”
“More work is needed on insetting, particularly on the liability side (as we are the only ones recognising and dealing with this problem currently) and on the reporting side, where cargo owners still need final confirmation that insets can be truly reported as a reduction and not a compensation. They are willing to recognise this; but more robust, global methodologies are required to avoid a cowboy market. Smart Freight Centre is delivering such a framework and is expected to launch its methodology in June.”
To get a head start on your carbon insetting journey, please visit 123Carbon to know more about their solutions.
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