Why Carbon Equity doesn't report on avoided GHG emissions
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At Carbon Equity, we’ve always taken a different approach to impact, and today, we’re explaining why we don’t report on avoided greenhouse gas (GHG) emissions. It might sound counterintuitive, but hear us out.
For more on this, read our latest blog.
Quantifying avoided GHG emissions remains a fundamental challenge. The “impact numbers” commonly seen are often based on estimates, speculative forecasts and assumptions rather than hard measurements. There’s no standardized methodology for calculating avoided emissions, which makes reporting these figures as benchmarkable results problematic.
The fundamental flaws of estimating avoided GHG emissions
Today, the GHG Protocol is the global standard for estimating a company’s GHG footprint, dividing emissions into three scopes: direct emissions from company activities, indirect emissions from purchased energy, and indirect emissions from the broader supply chain and product life cycle.
However, in our case, reporting realized GHG impacts has limited value. Instead, avoided emissions—achieving positive climate impact by displacing higher-emission alternatives—offer a fuller picture, but come with their own challenges.
- Estimating real effects in a complex world: As exciting as the concept is, avoided emissions are based on a counterfactual, or baseline. That’s something we can estimate but hardly ever really prove. This makes it hard to accurately assess real-world impact. For example, a solar company might claim they’ve avoided X amount of CO2 by replacing coal power with solar energy. But that claim rests on a counterfactual: what if the coal plant was actually replaced by something else two years later, like natural gas or nuclear power? Or take the case of comparing plant-based Beyond Burgers with traditional beef burgers. Based on carbon footprint data, we can claim a Beyond Burger has a 90% lower footprint than beef, but we can’t say every Beyond Burger purchased directly avoids that 90%. Consumer behavior and market dynamics complicate these claims, as does horizontal attribution: Should an electric car component maker claim the impact of the whole car? Rebound effects are another issue: When energy-efficient products become cheaper, people often consume more of them - diluting the intended benefits.
- Speculative Forecasting: When avoided emissions claims are combined with future sales forecasts, the results are even more speculative. A company may project that if 20% of the market adopts its solution, it could avoid a certain number of gigatonnes of CO2. This type of forecast might sound impressive to investors, but it’s based on hypothetical market adoption and assumes that certain scenarios will play out. Furthermore, adding up these speculative numbers across a portfolio is problematic, as some solutions may compete for the same avoided emissions.
- Lack of Standardization: The lack of a standardized framework makes it incredibly difficult to accurately audit or compare avoided emissions claims across companies and funds. For example, Lazard Asset Management found significant discrepancies in CDP disclosures, such as an industrial company claiming nearly 50 gigatons of avoided CO2 emissions over their product's lifetime, almost equivalent to current global annual emissions.
We see this as a significant risk, especially as more investors use these inflated numbers to guide their decisions. This lack of standardization risks disadvantaging conscientious funds that report less showy figures. It’s a dangerous game, and we believe the race to show the highest avoided CO2 numbers often benefits those who prioritize flashy figures over real, measurable impact.
What Should We Focus on Instead?
At Carbon Equity, we don’t use avoided emissions claims for reporting or fund benchmarking. Instead, we believe in waiting for a standardized, auditable methodology before relying on these figures. But if we’re not reporting on potential avoided GHG emissions, what are we focusing on?
The core question we aim to answer is simple: Is the investment delivering on its promise? Our main goal is to provide data that shows whether we’re achieving the impact we set out to create. Avoided GHG emissions numbers can help assess a company’s direction, but they don’t tell the whole story. That’s why we’ve developed our own approach to tracking impact.
We designed a methodology to evaluate each investment based on its contribution to a net zero future, focusing on high-impact sectors that can significantly reduce emissions. For example, we evaluate whether a technology is part of a decarbonization pathway as identified by IPPC, IEA, EU Taxonomy, or Project Drawdown, is solving a major emissions challenge, or is aligned with net-zero targets.
The Risks of Overestimating Impact
Overestimating impact can mislead us into thinking we’re on track to achieve net zero when we’re not. That’s why we prefer to be cautious and transparent, rather than making claims that don’t hold up to scrutiny.
For us, impact reporting is about intent. It’s about gathering insights that challenge us to critically assess whether we’re making the right decisions—not about scoring points with inflated numbers. We’re committed to being part of the solution, which means being honest about what we’re truly achieving. While this stance may go against the grain, we’re proud to take it.
💡 Carbon Equity updates
We’ve made it to the top of the Linkedin Top Startups in the Netherlands list!
Climate infrastructure investing is essential for our energy transition. Read more about the importance of an infrastructure rollout in the fight against climate change, the investment opportunity it represents and the different types of infrastructure projects.
Investors in Belgium! Join us for the Climate Tech Summit in Gent on Tuesday, October 15, from 17:30 to 21:00.
We're seeking a Growth Marketeer, Sales Development Representative and more to join our team. You can find the vacancies here—please feel free to share them with your network!
💡 News from within our funds
An exit!
🎉 Heaten, was acquired by AI Alpine and Advent International! This strategic partnership empowers Heaten to rapidly produce and scale its very-high-temperature industrial heatpump technology to decarbonize industrial processes. A significant milestone for Azolla, the acquisition represents their first portfolio company exit (less than three years after initial investment)!
Recognition and nominations
🌟 We’re delighted to see LanzaJet, Rondo Energy, Electric Hydrogen, Form Energy and Sublime Systems from our portfolio make the MIT Technology Review list of “15 climate tech companies to watch”
🔋 Form Energy has been selected for an award negotiation of up to $150M from the DOE for the installation and operation of a new manufacturing line at Form Factory 1;
🔋 Group 14 has been selected for a $200M award negotiation from the DOE to build a new silane factory in Washington
Rounds, rounds, rounds.
✈️ Air Company announced their $69M Series B round
✈️ Twelve announced $645M in funding ($400M in project equity, $200M in series C financing, and an additional $45M in credit facilities), making this one of the largest financing rounds to date in the e-fuels space;
🗿Sublime Systems has raised an undisclosed amount in Corporate Strategic funding from Holcim, giving Holcim a large share of Sublime Cement through a binding off-take reservation. The two partners have established a dedicated project team to co-develop further facilities to scale up and commercialise Sublime Systems’ technology for swift market deploymen
🌽 Nitricity raised $4M in grant funding from the US Department of Agriculture.
🪙 Kobold, which uses AI to help find critical minerals for energy transition, raises $491M
☢️ Blue Energy raises $45M Series A for underwater nuclear reactors
⚡️ Form Energy announced a $405M Series F round to accelerate and scale up manufacturing of their multi-day, iron-air batteries for the electric grid.
You can explore more companies within our funds here.
📚 Interesting reads
How close are the planet's tipping points?
The reason Carbon Equity is working as hard as we can to stop climate change is to avoid tipping points from happening- sudden, irreversible changes like Greenland’s ice melting or the Amazon shrinking. These events are hard to predict but have lasting impacts. On the bright side, some positive tipping points, like the Sahara turning green again, could also occur.
The case for using AI to refine existing materials
We've been closely following how AI can support climate tech. A key area is discovering new materials, like better batteries and carbon-capture sorbents. While there's hope AI will revolutionize materials discovery, Google DeepMind's Ekin Dogus Cubuk suggests AI is better at optimizing known materials, as it's not yet creative enough. However, it can still significantly speed up optimization. [Add link to podcast]
The Hague becomes world's first city to ban fossil fuel-related ads
The Hague is the first city to ban advertising for fossil fuel products and high-carbon services. After two years in the making, the law takes effect soon and could inspire similar campaigns in cities like Toronto and Graz. While it mainly targets transportation ads, it’s a significant step forward.
New tech can make air conditioning less harmful to the planet
Today’s air conditioning cools people but heats the planet… It already produces more CO2 emissions than aviation, and with AC units set to triple by 2050, we need sustainable solutions now. The good news? Companies like Blue Frontier are developing innovations that cut energy use by 90%, reduce grid load, and lower refrigerant impact by 85%. Engineering is key!
Is nuclear energy the zero-carbon answer to powering AI?
Tech giants like Google, Amazon, Meta, and Microsoft are exploring nuclear energy to power their AI data centers with low-carbon, 24-hour electricity. With growing demand, government support, and financial backing, the U.S. is likely to announce new nuclear capacity within the next year. This is notable, as only three reactors have been built since the mid-1990s. The big questions are who will take on the project risk and the timeline for these long-term investments.
