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Carbon offsets

How does carbon offsetting work?

Published on
October 27, 2021

In light of the latest report by the IPCC, there is no way around it. Our world needs a dramatic reduction in greenhouse emissions to avoid and mitigate the devastating effects of climate change already being experienced in our present day. Everyone must do their part in this effort, both individuals, businesses, and organisations. While the solution is simple (reduce GHG emissions), this is easier said than done. Yet, carbon offset projects offer a means for individuals and businesses to take immediate climate action to help reduce emissions, but how do they work?


What is a carbon offset?

Carbon offsets, also called carbon credits, refer to future reductions in GHG emissions. They can also refer to the storage or sequestering of carbon through projects such as reforestation. The idea behind them is that they can 'offset' emissions that are generated elsewhere. Given the fact that some carbon emissions are still unavoidable for many companies and firms, they can still use carbon offsets to compensate for their emissions and achieve net-zero. 


In the end, it doesn't matter where these reductions occur. GHG emissions mix uniformly in the atmosphere. This means that it does not matter where GHG emissions come from, their effects are felt globally. It is for this reason that, on the flip side, it does not matter where GHG reductions take place, the benefits will be the same. Because any reduction in GHG emissions benefits the planet as a whole, highly developed countries are incentivized to help developing countries achieve their climate goals. Not only that, Article VI of the Paris Agreement acknowledges that some countries will choose to pursue voluntary cooperation with other countries through the transfer of emission reductions (carbon offsetting) to meet their own climate pledges. In doing so, the ambitions and aims for mitigation and adaptation actions can be much higher than they would otherwise,so long there is no “double-counting” of GHG reductions (meaning the reduction is counted by the country which received the transfer and the country where the reduction occurred). As such, you will find that many carbon offset projects are located within the developing world. 

There are many different projects available that individuals and organisations can invest in to reduce or store emissions. Reforestation projects, solar and wind farms, upgrading cookstoves, and waste management projects are all examples of effective carbon offsets.


What are carbon credits?

To be clear, carbon offsets and carbon credits are often used colloquially to refer to the same thing. However, a “carbon credit” is the financial unit of measurement that offset projects use to help transition to a net-zero future. As we mentioned, one carbon credit represents the removal or reduction of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere. For context, the average person in the UK emits between 5.3 - 12.6  tonnes per year. After taking as many steps as you can to reduce the emissions of your organisation, purchasing carbon credits is another way to tackle the GHG emissions that may be currently unavoidable in your business operations. 


How does offsetting work?

As we mentioned, individual carbon offsets represent reductions in GHG emissions, but how does this work? These projects can reduce future emissions in several ways: 

  1. Through the capture and destruction of GHG emissions that would be emitted into the atmosphere otherwise. For instance, methane gas capture projects can reduce methane emissions. 
  2. By replacing the use of fossil fuel usage through renewable energy production. Carbon offset projects could fund the building of solar or wind farms that would reduce future emissions.
  3. Through the sequestering of greenhouse gases or their storage to prevent being emitted into the atmosphere. Reforestation projects would be an example, considering forests capture and store carbon from the atmosphere.

Once these offset projects can demonstrate their reduction, these individual credits can be sold to companies or organizations seeking to offset their emissions. Once purchased, carbon credits are retired, leading to a future reduction of GHG emissions.


How does a company actually reduce their emissions with carbon offsets?

If that is how carbon offsets reduce emissions, how does a company actually reduce its emissions with carbon offsets? The process is actually rather straightforward:


1. First, a company must determine its carbon footprint.

2. Then, the organisation could take its own steps to make reductions through actions such as becoming more energy-efficient, reducing waste, etc 

3. At a certain point some GHG emissions are unavoidable in our current society. Therefore, companies can purchase carbon offsets to account for these.

3.1 The next step would be choosing between the many carbon offsets. There are many ways to do this. Companies can work with offset brokers, project developers, or other offsetting organisations, such as Consequence.

3.2 Once a selection(s) has been made, you simply need to provide payment.

3.3 Finally, the purchased carbon credits are then retired on a public registry. This means that those carbon credits cannot be used by another organisation to offset their emissions.


What is a carbon footprint?

If done properly, with fully vetted and trusted offset projects, carbon offset projects can help both individuals and organisations compensate for their carbon footprints. A carbon footprint is the emissions that are generated by the actions, production, or consumption of an individual or organisation. The total amount of all these emissions are known as "carbon footprints". 


Are carbon offsets effective? 

Yes, carbon offsets can be effective in reducing and removing GHG emissions. However, that does not mean that every carbon offset project is effective. That is why you will find that there are different auditing organisations, such as the United Nations, the Gold Standard and Verra, that monitor, verify, and certify that the carbon offset projects truly reduce the emissions they claim. Such standards are necessary because truth be told, some offsets are not effective. For instance, in 2019, ProPublica found that some carbon credits for forest-based offset projects in Brazil were sold to US and European organisations, but the trees were logged anyway. 


Common criticisms of carbon offsets

Carbon offsetting is controversial in some circles, especially among some environmental activists. Some have even famously compared them to the selling of indulgences. 


The most common criticisms of carbon offsets fall along the following lines:

  • “Carbon offsets allow polluters to go on polluting, buying carbon credits without otherwise taking steps to reduce their emissions otherwise” 
  • “Carbon offsets are not a long-term solution and are not doing enough to truly reduce emissions”
  • “Carbon offsets create negative incentives that can result in avoiding regulating certain polluting sectors and industries”


Nevertheless, many of these critiques are misplaced. Ultimately, there is no denying that there are problematic carbon offsets out there, and, while there is some truth to these critiques, they do not invalidate carbon offsetting as a whole. 


There are critics who suggest carbon offset projects should only include those that remove and store GHGs. Reforestation projects, for example, would be such projects. But such a narrow focus on these offset projects cannot address the reduction of fossil fuel usage. Sure, in decades to come, forests planted now can be sequestering significant amounts of CO2 from the atmosphere, but avoidance projects stop us from burning fossils fuels and emitting carbon now.

Significant action will indeed be necessary to curb GHG emissions by 2050 and, carbon offsets alone are not enough. But that doesn't mean they are useless or ineffective. Investment towards renewable energy, as a means to transition away from fossil fuel usage, is desperately needed, and certified carbon offset projects act as one way to provide that investment. 

Sources for reference.

  • Source Consequence, Leading Your Business Through Climate Change, 2011
  • Source UN Framework Convention on Climate Change, Cooperative Implementation, 2021
  • Source Consequence, What is Your Carbon Footprint? For UK, 2021
  • Source Consequence, What is Your Carbon Footprint? For UK Households, 2021
  • Source Gold Standard, About Us, 2021
  • Source Verra, Who We Are, 2021
  • Source Song, Lisa, An Even More Inconvenient Truth, 2019
  • Source The Economist, Sins of Emission, 2006
  • Source Broekhoff, Derik, Should Carbon Offsets Only Include Removing CO2 From The Atmosphere?, 2020
  • Source Consequence, FAQ, 2021
  • Source Consequence, Product Overview, 2021

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