What are carbon offsets and what can they be useful for

May 18, 2024

Elizabeth Smith

In an era of growing awareness of climate change, reducing carbon dioxide (CO2) emissions has become a crucial goal for companies, governments and individuals. Carbon offsets, or carbon compensations, play a fundamental role in this context.

These are financial instruments that allow companies to offset their carbon dioxide emissions, let’s discover their characteristics together.

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What are carbon offsets?

They are a form of tradable credit that represents the removal of one ton of CO2 or its equivalent in other greenhouse gases from the atmosphere. The idea behind offsetting is that, if an organization or individual emits a certain amount of greenhouse gases, it can “offset” it by investing in projects that reduce or remove the same amount of pollution elsewhere.

They are measured in metric tons of CO2 equivalent: if a company purchases 1 carbon offset it offsets the emission into the atmosphere of 1 metric ton equivalent of CO2 or equivalent greenhouse gases.

Carbon offset objectives

Carbon offsets objectives include:

Carbon neutrality: Help entities become carbon neutral by balancing their emissions with equivalent reduction actions;

Support for sustainable projects: they finance environmental initiatives such as reforestation, renewable energy and improving energy efficiency;

Incentivize the reduction of emissions: they stimulate companies to invest in cleaner technologies and more efficient processes.

How carbon offsets work

Before purchasing them, you need to measure the carbon footprint you intend to offset. This can be done through an analysis of daily activities, business processes or manufactured products.

Once the carbon footprint has been determined, carbon credits equal to the quantity of emissions to be offset are purchased. These credits usually come from projects that have been third-party verified to international standards.

Investment in reduction projects

Funded credits are used for projects that may include:

Renewable energy: Wind, solar or hydroelectric projects that generate clean energy;

Reforestation: Planting of trees to absorb CO2 from the atmosphere;

Energy efficiency: Improving energy efficiency in buildings and industrial processes.

Verification and certification of carbon offsets

Offsetting projects must be verified by accredited bodies to ensure that CO2 reductions are effective and permanent. Common standards include the Verified Carbon Standard (VCS), the Gold Standard and the Clean Development Mechanism (CDM).

Why are they important

Let us now explain their importance.

Contribution to the fight against climate change: Offsetting CO2 emissions is a key component to combating climate change. Although the ultimate goal is to directly reduce emissions, carbon offsets offer an immediate solution to mitigate environmental impact;

Sustainable development: Many projects are located in developing countries and contribute to their sustainable development. They provide not only environmental benefits, but also social and economic ones, such as job creation and access to clean technologies;

Corporate responsibility: For companies, investing in carbon offsets is a way to demonstrate commitment to sustainability and environmental responsibility. This can improve the corporate image and satisfy the demand for concrete actions from consumers and stakeholders but companies must be careful to ensure that it does not become just a façade.

Critical considerations on carbon offsets

Despite their potential usefulness, carbon offsets are sometimes subject to criticism.

It is essential that projects are carefully chosen to ensure that they are truly additional (i.e. that they would not have happened without carbon credit funding) and that they are not simply a “license to pollute”. Furthermore, it is vital that they do not divert attention from the need to directly reduce emissions.