A carbon offset is a name given to a carbon credit when it is retired by an organization to compensate for their greenhouse gas (GHG) emissions.
A carbon credit represents one ton of carbon dioxide (CO2) avoided or removed from Earth’s atmosphere; that’s where the “carbon” in carbon offsetting comes from. It can also represent an equivalent amount of another GHG, measured in carbon dioxide equivalent (CO2e).
How does carbon offsetting work?
Carbon offsetting works like this:
- The greenhouse gas emissions of an organization, product, service etc. are measured (usually over that calendar year). Ideally all emissions from across operations and the value chain (scopes 1, 2 and 3) will be considered here, but this is not alway the case.
- For each ton of CO2e, the organization purchases one carbon credit.
- The organization then “retires” the credit with the registry. This means that the credit cannot be traded again or claimed by anyone else, so the retirer has sole and permanent claim to the ton of CO2 associated with that credit.
Importantly, a carbon credit isn’t necessarily a carbon offset. Credits can be used for wider purposes than offsetting (although currently offsetting is the most common use for credits).
What is the purpose of carbon offsetting?
The purpose of carbon offsetting is to help us collectively achieve our global climate goals in time to avoid the worst outcomes of the climate crisis. It allows emitters to compensate for the climate impacts of their activities by funding emissions reductions or removals projects across the world, which would not have otherwise been possible without the revenue from selling credits.
The key idea is that emissions must be addressed on a global scale, and quickly. Scientists’ best estimates for a 1.5°C pathway suggest we need to halve global emissions this decade and reach global net zero by 2050. Although it is imperative that organizations take every possible step to reduce their emissions now, technological or economic limitations mean this cannot happen quickly enough in some sectors, or some parts of the world. Voluntary carbon markets are a valuable tool to allow global cooperation to reduce emissions more quickly.
High integrity offsetting
For carbon offsetting to be effective it must be a part of an organization’s broader climate action strategy, following the mitigation hierarchy: reducing their own emissions is an essential first step, before compensating for emissions that can’t be avoided. Carbon offsetting cannot be used to replace GHG emission reduction activities, but as a complement. This is an increasingly well-established market norm, most famously codified by the Science-Based Targets Initiative (SBTi).
Offsetting is not yet regulated, although many expect that to change in future. However, stricter requirements around transparency are emerging. For example, the SEC’s draft guidance on climate-related disclosures suggests that organizations using offsetting will have to disclose a range of information about the credits they have bought and retired, as well as what other actions they are taking to mitigate their climate impacts (particularly emissions reductions). This will increase public scrutiny of climate strategies, opening up reputational risks for organizations with low ambition climate strategies.
There are also an increasing number of initiatives offering guidance to organizations wanting to use offsets most effectively. Most recently, the VCMI (Voluntary Carbon Markets Integrity Initiative) published a draft code of practice outlining how to use offsetting as part of a credible climate strategy.
Finally, offsetting can only be effective if high quality credits are used. If a credit does not reliably represent 1 ton of CO2e emissions avoided or removed from the atmosphere, then it cannot credibly be claimed to compensate for emissions. It is essential that organizations conduct sufficient due diligence to confidently make this claim. Learn more about how Sylvera can help you navigate the complex issue of carbon credit quality here.
Offsets are valuable, but not a silver bullet
Offsetting has become a dirty word in some areas of the environmental community, and it is true that there are examples of “greenwashing”, such as using poor quality credits or where offsets are used to avoid more difficult actions. However, when high quality carbon credits are used as part of a wider climate strategy aligned with net zero pathways and the mitigation hierarchy, offsetting is a valuable tool to increase short term climate action and accelerate global decarbonisation. Offsets alone will not solve climate change, but they are a vital tool in our arsenal.