Home Insights Making the case for Local Carbon Offset Funds

Making the case for Local Carbon Offset Funds

This is a joint post by PRD together with our friends and regular collaborators at REDO, which originally appeared on LinkedIn.

Global voluntary carbon offsetting schemes aren’t working – councils should step in and make the case for ‘Local’ Carbon Offset Funds

If you’ve ever wondered how large corporations make the claim they are ‘Net Zero’, then by your own research, you may already know about carbon offsetting. Organisations with huge carbon footprints are able to offset the carbon they emit by buying carbon credits that support projects that typically support the preservation of rainforests.

There are two different markets that support this: the ‘Compliance’ and ‘Voluntary’ markets. The Compliance Offset Market is government regulated and covers mandatory payments required by sectors like aviation and heavy industry. This is by far the bigger of the two and was worth $850 billion globally in 2022. The growing Voluntary Offset Market is, however, where I think there is an opportunity for a radical new approach to fast-track localised Climate Action in the UK.

Voluntary carbon markets are markets where carbon credits are purchased, usually by organisations, for voluntary use rather than to comply with legally binding emissions reduction obligations. Voluntary carbon markets are growing, driven in part by demand from businesses looking to ‘offset’ their emissions.


Earlier in the year, there was an extensive investigation into the Voluntary Carbon Markets by The Guardian, Die Zeit and SourceMaterial. It showed more than 90% of rainforest carbon offsets certified by Verra, the biggest global certifier for voluntary carbon credits, were worthless and could in fact result in further damage to the environment. Local Government should be making a play for this funding to meet their own Climate Action Plans, delivering retrofit, renewables, sustainable transport and environmental stewardship.

Managing and administering carbon offsets wouldn’t be new ground for local government. When Net Zero is required as part of a major development and developers are unable to deliver it on-site, they have to use carbon offsets. The best way to reduce carbon emissions is undoubtedly to build less and build sustainably, but it’s very difficult to deliver a net zero scheme in a built up urban area without using them.

When the use of carbon offsets was introduced into the London Plan, it required local authorities to set up Carbon Offset Funds to collect and distribute carbon offset payments made by developers as part of their Section 106 agreements. The principle is that when developers emit a quantifiable amount of carbon to achieve their scheme, they should fund carbon reduction projects in London, where many of the emissions are released. As we are able to put a monetary value to a tonne of carbon (£95 per tonne per annum – GLA), we are able to calculate how much they should pay into the pot.

Why do government, corporations and institutions spend millions on carbon offsets in overseas schemes, when the money could be collected and spent locally on environmental improvements where they are based? Councils are already setting up the apparatus to do some of this with Carbon Offset Funds and they should seize the opportunity to go further.

The two best things about this approach are that 1.) the infrastructure to do this already exists, as councils have set up Carbon Offset Funds to redistribute development contributions, and 2.) corporations and institutions already have this allocated as a line item within their budgets. They would just need to have the confidence to transfer from a broken system mired in bad press to an alternative that could see them support the communities in which they do their business, enabling a new, collaborative and localised response to the climate crisis. If local government can make the case for investment for funds currently flowing through the voluntary carbon offset market it would put a rocket under councils’ ability to deliver their own Net Zero commitments with the government, businesses and residents all pulling in the same direction. The 2030 target date many councils have set themselves to achieve Net Zero is fast approaching.

How would this supercharged approach differ from what a Local Carbon Offset Fund (LCOF) is currently able to do?

In July 2022 the GLA issued guidance for London’s Local Planning Authorities on establishing carbon offset funds. It sets out that the main priority should be to reduce energy demand in existing buildings, including through energy efficiency measures, and improve monitoring and operation. The case studies in the guidance include insulating social housing stock in Islington and a schools energy retrofit programme in Tower Hamlets.

It is quite right that retrofit is the main priority, especially against the backdrop of incoming MEES regulations that require commercial stock to hold an EPC rating of E as of April 2023, C by 2027 and B in 2030. Without intervention, MEES regulations are set to see much of the commercial stock in the UK become obsolete. This would include ‘affordable workspace’, which is traditionally housed in buildings with poor thermal quality. Investment from LCOFs could help safeguard the types of activity that drives innovation, creativity and supports a healthy civil sector.

A recent report written by Grosvenor with support from The Crown Estate, Historic England and The National Trust sets out not only the environmental benefits of a national retrofit strategy but also the economic advantages, which could see an additional £35 billion of output annually including the creation of 290,00 jobs. Whilst councils could choose to make retrofit the sole focus of LCOFs, there is an opportunity and precedent to make this a wider and more interactive programme that could fund a more stratified range of projects and impacts – the type of things that councils have already included in their Climate Action Plans. The City of Westminster, through its Climate Offset Fund (which was established before the GLA’s guidance was issued), has a broad set of projects it can support as long as they deliver tangible, quantifiable and transparent carbon savings and help to support Westminster’s Climate Emergency targets. Whilst this does of course include the retrofit of council, commercial and residential buildings, it also focuses on low carbon energy, sustainable travel and transport, and knowledge and learning that champions green innovation, sustainable energy, and environmental stewardship.

An expanded Local Carbon Offset Fund could show, via an on-line dashboard, how funds are collected and spent, carbon savings and things that will resonate with local communities such as air quality readings and the progress of local initiatives. Dashboards were a successful element of the Covid-19 response, engineering feelings of a shared responsibility and coherent response. We could do with more of both of these as we tackle the climate crisis.

Local Carbon Offset Funds could be the tool for local authorities to not only secure funds but also pursue a more collaborative and bottom-up approach to delivering Net Zero.

If we are to successfully tackle the climate crisis, the response should be collaborative, and local government has a role to play in bringing residents, local businesses and anchor institutions together as part of one coherent programme.

How can we ensure these funds actually deliver Net Zero?

There is a difference between doing something that you instinctively know to be environmentally sound and doing something that you can measure and demonstrate against a framework to have delivered a carbon saving. If a local authority is asking one of its anchor institutions to make a discretionary payment on top of their business rates, then they need to be able to demonstrate the latter and they need to trust the process. This is the problem we’re looking to address in the first place with what is currently happening in the voluntary carbon markets.

LCOFs are already monitoring and reporting on this with submissions to the funds generally required to show quantifiable carbon savings, with the onus on the applicant to demonstrate the amount. The regulatory burden, whilst necessary, feels like one of the current barriers to delivering multiple projects at scale. Councils should consider employing a dedicated resource to work with housing associations, schools, SMEs and charities on developing applications. They should also consider implementing some ‘rule of thumb’ measures which could be applied to shortcut resource intensive applications where there are standardised pieces of work, for example around housing retrofit. This will help with scale, but it still doesn’t address the fact that it might be necessary to engineer carbon savings beyond the geographical constraints of urban areas. It may be necessary for example to still deliver re-forestry projects, and it’s not practical to do that in somewhere like Westminster or Newham.

This would require setting up Regional Carbon Offset Funds to do some of the heavy lifting, which could still happen in the UK and feed into the national mission to hit Net Zero by 2050. Local authorities could combine at a city or regional level to do re-foresting and environmental stewardship projects as well as contributing to larger scale projects like carbon capture which will create good quality new jobs. This might also provide additional funding opportunities and allow for economies of scale around governance, monitoring and reporting.

Key principles for Local Carbon Offset Funds

The principles that set Local Carbon Offset Funds (LCOFs) apart from Global Carbon Offsetting Programmes are:

1. Pay where you stay. The biggest carbon emitters at a borough level should take responsibility for their actions at a local level.

2. Investing in place. Contributors should be encouraged to see their contributions as an investment in where they are based. Improving the quality of the environment will make it more attractive place to work from and live in.

3. Prove the concept. The case will need to be made to secure initial voluntary contributions and councils should work with anchor institutions on pilots. There should already be examples from where development offset money has been spent to highlight potential impact to LCOF partners.

4. Spend and impact should be presented transparently. LCOFs would need to have a public profile such as an online dashboard to demonstrate what is being spent, the carbon savings engineered as a result and how this aligns with a borough’s Climate Action Plan.

5. Councils should be accountable. LCOFs should be differentiated from the existing global schemes by governance. Those paying into an LCOF should be able to hold the local authority to account if there is under-performance. There needs to be confidence from contributors that funds are ringfenced for specific environmental purposes to enable Net Zero and will not disappear into the wider council budget.

6. Give agency to contributors. Contributors should have a say in a proportion of the spend and individual projects that should be funded. A percentage should go on mandatory items such as air quality improvements, but there should be opportunities to sponsor specific projects such as public realm or transport infrastructure improvements. There may be opportunities for a crowdfunding model or partnership where individuals as well as organisations are able to pay into specific projects.

8. Celebrate local participation. This is a voluntary contribution not a tax. Civic pride and responsibility should be engineered through paying into a LCOF with corporate and institutional participants celebrated in a public forum, such as the dashboard. Whilst contributing should be its own reward, companies will be aware of the positive press or brand loyalty it could engineer.

9. Encourage innovation. The climate crisis will require radical solutions. A percentage of LCOF could be used to fund research and experimentation projects.

10. Align with Climate Action Plans. LCOF funded projects should align with the strategic goals set out in borough Climate Action Plans giving them a readymade set of funding goals.

11. Clear additional impact. Projects should be able to demonstrate additionality of impact. LCOF should not be used to justify scaling back or replace existing funding commitments.