Carbon offsets are a way to compensate for unavoidable carbon emissions. When you buy an offset, you fund projects that reduce greenhouse gas (GHG) emissions.
But offsets are no golden bullet to address climate change. Some critics argue that they get in the way of meaningful change to reduce GHG emissions. When not used responsibly, carbon offset credits can also be a form of greenwashing.
Join us as we dive into the sometimes-controversial world of carbon offsets.
What are carbon offsets?
Carbon offsets are a form of trade. When you buy a carbon offset credit — otherwise known as carbon credits — you fund environmental projects that reduce the emissions of greenhouse gases. These projects help to compensate for unavoidable emissions.
These projects can be anywhere in the world, and often involve renewable energy, energy efficiency, reforestation, or even community-based initiatives.
Carbon offset credits are certified by independent certification bodies and governments. But as we discuss below, this doesn't mean that all carbon credits are equally reliable.
Why are carbon offsets used?
Carbon offsets are used by companies to reduce their carbon footprint. This is because some emissions are difficult or impossible to eliminate completely.
Why do companies want to reduce their carbon footprint? For some, it's simply a matter of doing the right thing. Many carbon offset projects claim to reduce deforestation, increase the use of clean energy, and contribute to local economic development.
Carbon offsets can also be a necessary part of getting certified as carbon neutral or becoming a B Corp.
These certifications and memberships can provide a competitive advantage and assist with team morale and recruitment. They can also be used to meet the expectations of consumers for sustainable products and services.
How do carbon offsets help address climate change?
Carbon offsets can play a role in mitigating climate change. By funding projects that reduce or remove greenhouse gas emissions, they help to compensate for unavoidable carbon emissions.
Ideally, carbon offsets can stimulate investment in renewable energy, promote technological innovation, and support sustainable development. By creating a financial incentive for reducing emissions, they can drive changes in those practices and behaviours that contribute to global warming.
That said, there have been plenty of criticisms about carbon offsets, leading some to argue that carbon offsets have a minimal impact on climate change — and in some cases can even be a form of greenwashing.
Are carbon offsets greenwashing?
There are two main ways that carbon offsets can be considered greenwashing.
The first is when the offset programmes don't deliver the promised environmental benefits. Unfortunately, there is evidence that this can happen with even the largest and most reputable providers.
A 2023 investigation by The Guardian found that more than 90% of the rainforest offset credits of Verra, one of the world's largest providers of carbon offsets, "are likely to be 'phantom credits' and do not represent genuine carbon reductions."
The second is when carbon offsets are used without any additional meaningful emissions reduction efforts. For example, it could also be considered greenwashing if carbon offsets were used as a PR exercise to distract from environmentally damaging activities.
It’s worth reiterating that carbon offsets are not a standalone solution to climate change, and they’re not the only actions businesses need to take. According to the Science Based Targets Initiative, offsets should not be used for more than 10% of your emissions:
“Science-based net-zero targets will require long-term deep decarbonization targets of 90-95% across all scopes before 2050. When a company reaches its net-zero target, only a very limited amount of residual emissions can be neutralised with high quality carbon removals. This will be no more than 5-10%.”
Where do you buy carbon credits?
You can buy carbon credits on two kinds of carbon credit markets — the compliance market and the voluntary carbon market. The aim of these markets is to put a price on carbon to incentivise a reduction in greenhouse gas emissions.
These markets are tied to legal obligations set by governments to meet emission reduction targets. One example of a compliance market is New Zealand's Emissions Trading Scheme. Participants in compliance markets are usually large corporations and industries that are required by law to meet specific emission reduction goals.
These markets are based on individual choices to mitigate emissions for various reasons, such as corporate image, sustainability goals, or personal values. Anyone, including businesses of all sizes, can participate in voluntary markets without being legally required to do so.
How do you know how many carbon credits to buy?
If you are looking to buy carbon offset credits to achieve carbon neutrality, you'll first need to know what your carbon footprint is. There are several ways to do this.
Use carbon accounting software
The easiest way to get an accurate carbon footprint is to use carbon accounting software like CarbonTrail.
To get started, simply connect your accounting software. Once you're connected, you'll get a clear estimate of what your carbon footprint is, and where your footprint comes from.
You can also export reports to share with colleagues and stakeholders, or to achieve accreditations.
You can then use this number to decide how many carbon offset credits you need to purchase.
Pay a consultant
Another option is to pay a consultant to estimate your carbon footprint. This process is slower and more expensive, though a consultant can also be used to advise on the purchase of carbon offset credits.
Do it yourself
A third, technically free option is to use a publicly available carbon footprint calculator or a spreadsheet. While this option will avoid other costs, it tends to be less accurate and ultimately has a greater opportunity cost than software-based solutions.
Types of carbon offset projects
There are many different carbon offset projects around the globe, each contributing to the reduction of carbon dioxide emissions in unique ways. Here are some examples across different sectors:
Forestry projects are a popular form of carbon offsetting. They involve activities such as reforestation, afforestation (planting trees where there were none before), and preventing deforestation. These projects work on the principle that trees absorb CO2 from the atmosphere and store it in their biomass (this is why major rainforests are known as natural carbon sinks). Tree planting and forest preservation helps to reduce the overall amount of CO2 in the atmosphere.
Renewable energy projects are another common type of carbon reduction project. These might involve building wind farms, solar power plants, or hydroelectric power stations. By generating electricity from renewable sources rather than from fossil fuels, these projects reduce the amount of carbon dioxide being released into the atmosphere.
Agricultural projects aim to reduce emissions from farming activities. This could involve introducing more sustainable farming practices, such as improved crop management or livestock management, or it could involve changing land use, for example by converting cropland to grassland or forest.
Community-based projects often have strong social benefits, in addition to their environmental benefits. These projects may involve activities such as distributing energy-efficient cookstoves to reduce the amount of firewood needed for cooking, or providing clean water supplies to reduce the need for boiling water to purify it.
Waste to energy
Waste to energy projects involve capturing methane gas from landfill sites or other waste treatment processes and using it to generate electricity. Methane is a potent greenhouse gas, so capturing it and using it to generate electricity not only reduces methane emissions but also reduces the need for fossil fuel power generation.
Requirements for carbon offset projects
For a carbon offset project to be valid, it needs to meet certain requirements. Here are five key principles to keep in mind when considering carbon offset projects.
The emissions reductions achieved by the project must be above and beyond what would have happened in the absence of the project. In other words, the reduction should not be part of business-as-usual activities.
2. No leakage
Leakage refers to the possibility that emissions reductions in one area could cause an increase in emissions elsewhere. Offset projects should carefully account for potential leakage effects and mitigate them.
Permanence refers to the longevity of the emissions reductions. For a carbon offset project to be valid, its benefits should last for a long time, ideally indefinitely.
4. Independently verified
Projects must be verifiable, meaning that their emissions reductions can be accurately measured and confirmed. Carbon offset projects often adhere to established standards and certifications to ensure quality and credibility. Common international standards include the Verified Carbon Standard (VCS), the Gold Standard, and the Climate, Community, and Biodiversity (CCB) Standards.
5. No double counting
The emissions reductions claimed by an offset project should not be counted multiple times by different entities. Accurate accounting is crucial to maintain the integrity of the offset.
Carbon offsets are a legitimate and valuable tool in the fight against climate change. But they are not a licence to emit greenhouse gases without restraint, nor are they a substitute for taking direct action to reduce emissions.
The Science Based Targets Initiative argues that offsets should not be used for more than 10% of your emissions. As a science-based organisation, we agree.
If you want an accurate, real-time view of your emissions to inform your carbon reduction journey, get started with CarbonTrail.