Many organizations today use a climate strategy known as “offsetting,” meaning that they buy the right to claim the emissions benefits of a project that’s unrelated to their value chain—for example, a maritime shipping company might pay to plant new forests in Indonesia. Buying these “carbon offsets” can channel money to important emissions reduction and removal projects, and give companies flexibility in meeting their climate goals. 

However, some organizations prefer to focus on reducing emissions within their own value chain. This practice is known as insetting, and can be done in addition to, or in lieu of, offsetting.

How does insetting work?

Insetting projects are about reducing your Scope 3 emissions (such as from purchased goods and services) by working with your existing supply chain partners to implement low or zero-emissions practices in their own operations. For example, a beverage company may provide agronomic support or favorable financing for its coffee growers to implement regenerative agriculture practices. Insetting projects are generally developed by organizations with significant supply chain emissions, where there aren’t good options for switching to lower-emitting suppliers.

While any company with a supply chain can practice insetting, to date most corporate insetting projects are centered on promoting regenerative agricultural practices. In this context, companies can strengthen their food, fiber, and/or fuel supply chains against climate-related risks and make progress toward climate goals.

Examples of Insetting

Building capacity and providing technical support for agricultural producers

Many smallholder coffee farmers grow their coffee trees in direct sunlight. A more sustainable approach is to grow coffee under shade trees—a practice called agroforestry—which can sequester extra carbon on the landscape and improve climate resiliency. Shade trees can also buffer against pests and reduce the need for fertilizer. Despite these benefits, smallholder farmers may be unaware of this practice or struggle to implement it well. 

A coffee producer who buys coffee beans from these farmers can practice insetting by providing education and outreach, developing nurseries for shade trees, distributing shade trees to participating farmers, and giving agronomic support for ensuring that shade trees are planted appropriately on the landscape.

Paying a price premium for sustainable land management

There are several land management practices that can improve the sustainability of apple orchards, including precision fertilizer application and water conservation. 

An apple processing and distribution company can practice insetting by developing a list of sustainable sourcing requirements for the orchards that it buys fruit from, and agree to pay a price premium for apples that are grown using these practices. It may also provide some agronomic support. Apple growers benefit from price premiums and improved ecosystem services such as healthier pollinator communities (according to research published by The Royal Society, wild pollinator communities contribute as much as $1.06 billion USD annually to apple yields in the US).

Left: Carbon Direct scientists Dr. Sarah Federman (left) and Logan Sander (right), recently visited coffee producers in Colombia to evaluate the carbon impacts of an agroforestry program. Right: A coffee farm engaged in agroforestry. The farms are so steep that this one uses an electric pulley system to transport coffee beans and equipment.

Quality considerations for insetting

Like offsetting, insetting projects should be built and evaluated using rigorous standards for quality. Both insets and offsets must: 

• Use a scientifically valid baseline for determining net carbon impacts. 

• Consider environmental justice and community impacts.

• Provide rigorous carbon accounting (including leakage) of practice changes.

Where quality assessments of inset and offset projects differ is financial additionality. Offsets must meet a high financial additionality bar because they are being used to balance ongoing real emissions from a company’s operations with climate benefits that are outside of that company’s direct or indirect control. For this to be a valid approach, the carbon payments for the project must be at least part of the reason that a climate-friendly practice or change was implemented. 

This idea doesn’t apply to insetting, because the emissions reductions are directly within a company’s value chain, and there isn’t always an explicit “carbon payment” that the buyer is making to the supplier.

Getting started on insetting

Organizations seeking to use insetting as part of their overall decarbonization strategy need to start with the right foundation:

1. Perform a corporate carbon footprint to understand sources and amounts of greenhouse gas (GHG) emissions across the full spectrum of company activities. This should follow the GHG Protocol Corporate Carbon Accounting guidelines.

2. Establish an overall emissions reduction strategy including targets for emissions reductions with associated timelines.

3. Based on Scope 3 emissions, identify suppliers / areas for optimization, set targets, and define metrics.

4. Create an insetting roadmap and begin actioning the plan. Iterate on targets and metrics.

5. Survey your supply chains and identify new, alternative suppliers who offer similar or identical products with lower lifecycle emissions. 

6. Identify existing suppliers with whom to work on reducing the emissions intensity of their products. 

Business considerations for insetting

When working suppliers to help them reduce the emissions intensity of their products, consider the following:

• Supplier relationships. The success of insetting requires suppliers to adopt low-emitting techniques, and depending on your relationships with suppliers, you may have limited leverage to require change. You also need to consider your ability to support and assist them in making significant changes to their operations. 

• Oversight: Insetting requires the buyer organization to monitor and verify the activity of their suppliers in addition to relying on third-party certifiers and buyers. 

• Competition. Most suppliers provide goods and services to more than one buyer, which means that supporting a supplier could benefit competitors who also source from that supplier. 

• Costs and constraints. Insetting tends to be much more constrained than offsetting in terms of the types of emissions reductions that are possible. This may result in higher costs associated with insetting.  

• Public perception: Working within your own supply chain demonstrates a commitment to decarbonizing your own operations and using your resources to help suppliers do the same, which can have reputation benefits.

• Coherence of claims: Insetting avoids the incoherence in global accounting that can result from offsetting. While the buyer of a carbon credit can claim net emissions reductions, the seller might also report similar claims, which would be double counting. Insetting avoids this because all emissions reductions are within the same supply chains.

At scale, insetting represents a compelling real economy solution to decarbonization. Anyone with a supply chain can inset, although this may not obviate the need to address residual emissions to reach net-zero targets. When considering whether insetting is right for your organization, think about the size and nature of your supply chain, and the advantages and disadvantages spelled out above. It might turn out that insetting could be an important part of your overall climate strategy, either now or in the future.

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