Carbon Offsets (2024)

Carbon offsets are tradable “rights” or certificates linked to activities that lower the amount of carbon dioxide (CO₂) in the atmosphere. By buying these certificates, a person or group can fund projects that fight climate change, instead of taking actions to lower their own carbon emissions. In this way, the certificates “offset” the buyer’s CO₂ emissions with an equal amount of CO₂ reductions somewhere else.

How does buying carbon offsets keep CO₂ out of the atmosphere?

Carbon offsets fund specific projects that either lower CO₂ emissions, or “sequester” CO₂, meaning they take some CO₂ out of the atmosphere and store it. Some common examples of projects include reforestation, building renewable energy, carbon-storing agricultural practices, and waste and landfill management. Reforestation in particular is one of the most popular types of projects to produce carbon offsets. Carbon offsets are granted to project owners, who sell them to third parties like companies that want to balance the CO₂ they put into the atmosphere by paying to remove CO₂ from somewhere else.

Although carbon offsets are easy to understand, there are many challenges in producing them. To issue carbon offsets, a project needs to prove it will actually reduce emissions. The amount of CO₂ being kept out of the atmosphere also needs to be accurately measured. This process requires well-documented standards and protocols, as well as a trusted way to verify that the project is doing everything it claims. These procedures can be expensive and specific to one type of project. But without them, we cannot trust that buying carbon offsets really lowers the amount of CO₂ in the atmosphere.

Benefits and challenges

The advantages of carbon offsets may outweigh their challenges. For example, imagine a company trying to switch from a process that emits a lot of CO₂ to a carbon-free, but expensive, technology. If the company can issue a carbon offset for each ton of CO₂ its new technology keeps out of the air, selling these offsets may help finance the investment.
This principle can also apply at a national, regional, or sectoral level. Countries, states or industries with targets to reduce their emissions may buy offsets from other countries, states, or industries where greenhouse gas reduction is cheaper. This can make it cheaper overall for the world to meet its emissions targets.

Although carbon offsets have appealing benefits, it is important to keep in mind the challenges and costs of using them, including the difficulty of verifying their environmental benefits. Several studies of offset markets have found evidence of “over-crediting,” or selling offsets that promise more emissions reductions than they actually achieve. Another concern is whether companies and countries are using carbon offsets as a “get out of jail free card” to avoid lowering their own carbon emissions. Nonetheless, if used appropriately, offsets can be a useful tool in the fight against global warming.

Updated November 8, 2022.