What are carbon offsets? (2024)

As companies increase the focus on their net zero and carbon neutral environmental commitments, you may hear the term carbon offsets used more often. This is because companies may use carbon offsets to compensate for their own emissions and/or because they offer them to you to compensate for the emissions you cause by using their products or services. So, it’s a good time to answer the question, what are carbon offsets?

First, let’s understand some carbon basics

One way to address the greenhouse gas (GHG) emissions causing harm to the planet’s ecosystem (and to humans) is to take the extra carbon out of the atmosphere. (Since carbon dioxide is the most commonly produced greenhouse, the word carbon gets used as a synonym for all GHGs.)Drawing down carbon from the atmosphere is known as carbon sequestration.

Nature-based carbon sequestration example

Trees are a nature-based place to sink the carbon into. They absorb carbon through photosynthesis and store it in their trunks, branches, foliage and roots…as the long as trees are living and healthy. If a forest burns down all that stored carbon is released back into the atmosphere. Reforestation activities that preserve, restore or recreate forest ecosystems are an example of actions to mitigate excess carbon.

Other activities and projects

There are other activities or project types that improve the balance of GHGs in the atmosphere. Four examples are:

1.Methane gas capture in a landfill (Landfills emit a lot of methane, a very bad GHG. Through innovative technology, methane can be captured and used as a renewable fuel for things like electricity, industrial heat and vehicle fuel.)

2.Creation of wind farms

3.Providing cleaner burning cookstoves (More than 3 billion people in the developing world face environmental harm from burning wood, charcoal, crop residues and coal. Providing solar-powered or fuel-burning household stoves reduces GHG emissions.)

4.Solar energy

Now, for offsets

Put most simply, carbon offsets fund these activities that are improving the balance of GHGs in the atmosphere. When you purchase a carbon offset (like at check-out when you pay for an airplane ticket), you are paying for the deployment or management of these activities or projects.

Why is there opposition to offsets?

There are two primary criticisms of carbon offsets: (1) the effectiveness of the offsets is sometimes inaccurate and/or misleading, and (2) offsets divert from the long-term actual reduction of carbon emissions by polluters.

When it comes to the first criticism, effectiveness or quality of the offsets, the projects must actually be managed competently and produce legitimate and permanent carbon mitigation. To achieve this, they need to be certified by a credible source. Also, the project benefits must be additional, meaning the carbon-reducing action would not have otherwise happened. If it was going to happen anyway, special carbon mitigating action should not be claimed... that is misleading.

The NewClimate Institute recently published their Corporate Climate Responsibility Monitor 2022, and included several sections on carbon offsets.A summary of the offsetting scorecard on the 25 companies they assessed is below. You can learn more about carbon offsets best practices on pages 36-44 of their report. I also summarized the report here.

The second criticism of offsets is that they divert resources from investments for finding solutions that permanently change behavior and operations. For example, instead of a company spending money to buy offsets to compensate for the GHGs they continue to emit, they should spend the money on R&D or to upgrade to better technology equipment that would reduce their actual GHGs now. Critics say offsets should only be used for the carbon that can’t be stopped because the technology to do so does not yet exist, for example, viable sustainable aviation fuel. The Science Based Target Initiative (SBTi) net-zero methodology allows only a limited dependence on carbon removals to neutralize the 5-10% emissions that cannot yet be eliminated.

Bottom line

The atmosphere’s level of GHGs is causing climate changes that are hurting vulnerable populations and the planet’s ecosystem. The problem is enormously complex to solve. One way to contribute to the solution is by funding high quality projects that either permanently sequester existing atmospheric carbon or slow new carbon emissions.

Next time you are asked to offset your carbon footprint at check-out, consider doing it because it will help. However, be a responsible investor and ask the offset seller these questions: (1) What is the project? (2) Is the carbon impact permanent and additional? (3) How is the project certified?

Sources & further reading

Disclaimer: Sustainability Navigator is Elba Pareja-Gallagher's personal ESG newsletter published every Monday. Views expressed are her own. Corrections and respectful feedback are always welcome.