Carbon Offsets Explained: All You Need to Know

Carbon Offsets Explained: All You Need to Know

Grace Smoot

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The global climate crisis threatens our planet’s environmental, economic, and social health. Reducing greenhouse gas (GHG) emissions and our carbon footprint is necessary to maintain a sustainable planet for future generations. And one tool to help achieve this could be carbon offsets. So we had to ask: What are carbon offsets really and could they help us mitigate climate change?

Carbon offsets are monetary investments in environmental projects that reduce CO2 emissions elsewhere and attribute it to you. They do not directly reduce your carbon footprint and are only as effective as the underlying carbon offset projects are. Yet, they are one tool to mitigate climate change.

Keep reading to find out what carbon offsets are, the impact you can have with them both individually and globally, their benefits and drawbacks, and why they may not be the most effective way to mitigate climate change.

The Big Picture of Carbon Offsets

We already have governmental-level policies in place to reduce greenhouse gas emissions (GHGs), but how do we reduce emissions from activities where sustainable alternatives are not yet widely available? The answer just might be carbon offsets.

Carbon offsets are a way to reduce carbon emissions beyond what we each can achieve through individual actions. They are measured in tons of carbon dioxide (CO2) equivalents and are bought and sold through international brokers, online retailers, and trading platforms. 

Carbon Offset: a way for a company or person to reduce the level of carbon dioxide for which they are responsible by paying money to a company that works to reduce the total amount produced in the world, for example by planting trees”

Oxford Dictionary

Carbon offsets can play a crucial role in reducing our carbon footprint, the amount of CO2 emissions associated with an individual or an entity and one of the ways we measure the effects of human-induced global climate change. It primarily focuses on the GHGs associated with consumption, but also includes other emissions such as methane, nitrous oxide, and chlorofluorocarbons.

Illustration of global annual CO2 emissions
Our World in Data: Annual CO2 Emissions

To ensure a healthy planet for future generations, we must reduce our carbon emissions. And one way to do this is by utilizing carbon offsets.

What carbon offsets areReductions in GHG emissions that are used to compensate for emissions occurring elsewhere
How carbon offsets workYou purchase offsets on behalf of a large corporation or on the voluntary market. Your money is used to fund projects that reduce GHG emissions
The impact of carbon offsets on your own emissionsCarbon offsets do not directly reduce your carbon footprint
The impact of carbon offsets on global emissionsCarbon offsetting mitigates the problem, but it doesn’t work at the core issue of reducing overall carbon emissions
The overall effectiveness of carbon offsets on reducing carbon emissionsCarbon offsetting is effective if projects are additional, permanent, meet certain key criteria and project standards, and do not engage in greenwashing
The main benefits of carbon offsetsBalancing off GHG emissions, improving air quality, maintaining healthy ecosystems, supporting green jobs
The main drawbacks of carbon offsetsPlanting trees can’t replace cutting CO2 emissions, offsets are to a great extent PR schemes, and offsets often contribute to climate colonization

How Do Carbon Offsets Work

Essentially, carbon offsets are reductions in GHG emissions that are used to compensate for emissions occurring elsewhere. Because GHGs are found everywhere in our atmosphere, cutting GHGs at any location on earth provides emission reduction benefits. 

How Do Carbon Offsets Reduce Carbon Emissions

The goal of carbon offsets is to reduce carbon emissions in order to mitigate climate change.

  • Carbon offsets can represent direct or indirect emission reductions. Purchasing carbon offsets funds carbon emission reduction projects which either prevent carbon from entering the atmosphere or remove it once it’s already there. 

When you hear the words “carbon offset”, think about the term “compensation”. Offsets represent the reduction, avoidance, destruction or sequestration of the equivalent of a ton of carbon in one place to “offset” an emission taking place somewhere else. Carbon offsets are designed for situations where emissions are impossible to reduce because you can use the funds to reduce emissions in other areas. 

What Impact Do Carbon Offsets Have on Your Own Carbon Emissions

One of the best ways we can aid in the fight against global climate change is to reduce our carbon footprint. To do this, we first have to reduce our own carbon emissions. 

  • Carbon offsets do not directly reduce your carbon emissions. 

Carbon offsets do not directly reduce your own carbon emissions. When you purchas e carbon offset, it only makes others reduce their carbon footprint to compensate for your carbon footprint. 

What Impact Do Carbon Offsets Have on Global Carbon Emissions

Every year we pump over 36 billion tons of carbon  into the atmosphere, fueling climate change. Carbon offsets aim to reduce global carbon emissions and mitigate this phenomenon.

  • Carbon offsets mitigate the problem, but they do not work at the core issue of reducing overall carbon emissions. 

Carbon offsets do not have a significant impact on global carbon emissions because in comparison to our 36 billion tons of carbon emissions, carbon offsets for only ~1 billion tons of CO2 have been listed for sale on the voluntary market. Meaning that only about 0.8-1% of our annual CO2 emissions are offset.

The COVID-19 pandemic triggered the largest decrease in energy-related carbon emissions since World War II, a decrease of 2 billion tonnes. However, emissions rebounded quickly and rose by 6% in 2021 to 36.3 billion tonnes, their highest ever level. This indicates that the earth is still warming at an accelerated rate, and still not enough is being done to implement direct carbon reduction measures.

Illustration of annual CO2 emissions globally
Our World in Data: Annual total CO2 emissions

How Effective Are Carbon Offsets in Reducing Carbon Emissions

Carbon offsets can be effective at reducing carbon emissions under certain conditions.

Different carbon offset projects have different effectiveness rates. Direct CO2 removal is the most effective category of offsets followed by renewable energy, energy efficiency, and carbon sequestration

To be beneficial, carbon offsets must be additional and permanent. That means that these projects must reduce GHG emissions more than would have occurred if there were no projects to begin with, and they must remain in effect forever, in the sense that a tree planted to offset carbon should never be removed. 

Key criteria to look for in a carbon offset program include:

  • A clearly defined protocol that determines which types of projects are eligible and how emission reductions will be measured
  • Independent third-party verification of compliance with the protocol
  • Registration of offsets in an offset registry, which tracks each credit with a unique serial number to ensure it is only used once 
  • Transparency in project implementation and reporting 

Carbon offset project standards are also used to ensure transparency and quality in the creation, quantification, and verification of offset projects. They include:

  • Verified Carbon Standard (VCS): The world’s leading voluntary GHG program, with 1700+ projects having removed 630+ million tons of CO2 from the atmosphere. 

But most importantly, carbon offsets must be realized in order to be effective. A main problem with carbon offsets is that the number of sellers on the voluntary carbon market exceeds the buyers by about 600-700 million tons. Meaning that only about 300-400 million tons of CO2 offsets actually get realized.

When offsets are listed but realized, we are not mitigating any effects of climate change. In return, the rates of temperature rise, sea-level rise, ice melting, and ocean acidification continue to increase as the earth warms.

Related: Are you interested in learning how effective carbon offsets are, really? Check it out in this article here: “How Effective Is Carbon Offsetting Really? Here Are the Facts

What Are the Main Benefits and Drawbacks of Carbon Offsets

Carbon offsets have benefits and drawbacks that are important to understand before you decide whether or not to purchase them. Supporters tout their ability to improve environmental health while opposers assert that they don’t really work.

What Are the Main Benefits of Carbon Offsets 

Carbon offsets can help reduce your overall GHG emissions to balance off your personal carbon footprint to fight climate change – at least in the short term. But their benefits even go beyond that.

  1. Improves Air Quality: Degradation of air quality as a result of carbon emissions is a serious issue. In 2009, the U.S. government declared CO2, CH4, N2O, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6) threats to the public health and welfare of current and future generations. Reducing C02 emissions would lead to improved public health in terms of asthma, respiratory allergies, airway diseases, and lung cancer.  
  1. Protects Ecosystems: Healthy ecosystems have been linked with cleaner air, water, and food. Protecting forest habitats increases carbon sequestration and defends against erosion. Protecting agricultural land ensures a robust, secure, and prosperous food system. Protecting aquatic ecosystems ensures a readily available supply of freshwater. Lastly, protecting biodiversity protects human health because many plants and animals are used in modern medicines
  1. Supports Green Jobs: The renewable energy sector employed 12 million people worldwide in 2020, with solar energy making up the bulk of those jobs. Renewable energy jobs continue to increase as we start to realize just how beneficial renewable energy is for our environment. 

If used correctly, carbon offsets can provide environmental, economic, and social benefits that go beyond just reducing GHG emissions.

What Are the Main Drawbacks of Carbon Offsets 

The global carbon offset market was estimated at nearly $10 billion in 2010 and has since grown to represent anywhere between $40 billion and $120 billion. But despite all of its success, carbon offsetting is not without its limitations. 

The following 9 major limitations should be taken into account when implementing carbon offset programs:

  1. When you purchase a carbon offset, you are paying someone else to cut their emissions so you don’t have to cut your own emissions.
  1. Global warming is still occurring at an accelerated rate because offsetting CO2 emissions does not cut CO2 emissions at the source, it only mitigates emissions.
  1. If carbon offset projects are not additional and permanent, they can make climate change worse because they are not offsetting any carbon.
  1. The richest of the world emit the majority of the world’s carbon. Offsets are just licenses to pollute with the benefit of aiding those in developing countries.
  1. The varying levels of effectiveness of carbon offset programs make it difficult to choose one that actually reduces emissions. Direct CO2 removal is the most effective category of offsets followed by renewable energy, energy efficiency, and carbon sequestration.
  1. If a carbon offset program is not carried out until the end, then we cannot reap the program’s benefits. For example, planting trees is a common offset program that is only effective if those planted trees are protected during their life span for the carbon benefits to be realized. 
  1. We emit far more CO2 than we can offset because of carbon sink (e.g., atmosphere, forests, soil, ocean) limitations.
  1. Of the credits for 1 billion tons of CO2 listed on registries, only about 300-400 million tons of CO2 offsets actually get realized. 
  1. Investing in non-verified credits, not prioritizing in-house emissions reductions, and double-counting carbon credits are methods of greenwashing. Also, companies may advertise a specific program, but it may be just for public attention instead of to actually reduce emissions.

These limitations make the current voluntary carbon market fragmented and complex, which leads to confusion, inconsistencies, and general distrust of the system.

Related: Are you interested in learning more about the biggest carbon offsetting limitations? Check it out in this article here: “What Are the Biggest Carbon Offsetting Limitations? (All 9 Explained)

Why Are Carbon Offsets Important to Fight Climate Change

Using carbon offsets can reduce our consumption of and reliance on fossil fuels (i.e., coal, oil, and natural gas). Reducing your consumption of these, in turn, reduces your carbon footprint, which has huge impacts on environmental, economic, and public health. A reduced carbon footprint due to lower GHG emissions can mitigate the effects of climate change, improve public health, boost the economy, and maintain plant and animal diversity.

What are Better Alternatives to Carbon Offsetting 

The main argument against carbon offsets is that they don’t really work. Instead of substituting offsetting carbon emissions, we should instead cut the emissions directly at the source. Basically, if we stop emissions from getting into the atmosphere in the first place, we won’t have to worry about offsetting.

The fastest way to cut emissions directly at the source is to reduce your carbon footprint. And these reduction measures don’t have to involve drastic changes either. Actions that may seem small can have a big impact because those small changes add up! You can reduce your carbon footprint in three main areas of your life: household, travel, and lifestyle. 

Reduce your household footprint:

Reduce your travel footprint:

  • Walk or bike when possible: The most efficient ways of traveling are walking, bicycling, or taking the train. Using a bike instead of a car can reduce carbon emissions by 75%. These forms of transportation also provide lower levels of air pollution.

Reduce your lifestyle footprint:

  • Switch to Renewable Energy Sources: The six most common types of renewable energy are solar, wind, hydro, tidal, geothermal, and biomass energy. They are a substitute for fossil fuels that can reduce the effects of global warming by limiting global carbon emissions and other pollutants.
  • Recycle: Recycling uses less energy and deposits less waste in landfills. Less manufacturing and transportation energy costs means less carbon emissions generated. Less waste in landfills means less CH4 is generated.
  • Eat less meat and dairy: Meat and dairy account for 14.5% of global greenhouse gas emissions, with beef and lamb being the most carbon-intensive. Globally, we consume much more meat than is considered sustainable, and switching to a vegan or vegetarian diet could reduce emissions. 
  • Take shorter showers: Approximately 1.2 trillion gallons of water are used each year in the United States just for showering purposes, and showering takes up about 17% of residential water usage. The amount of water consumed and the energy cost of that consumption are directly related. The less water we use the less energy we use. And the less energy we use, the less of a negative impact we have on the environment.

Because offsetting is an indirect way and not a direct way of reducing emissions, it alone will not be enough to significantly reduce global carbon emissions. Direct measures of emission reductions, such as reducing individual energy use and consumption, are better alternatives to offsetting.

Related: Are you interested in learning why reducing your carbon footprint is so important? Check it out in this article here: “4 Main Reasons Why Reducing Your Carbon Footprint Is Important

Final Thoughts

Carbon offsets allow us to reduce GHG emissions in ways we wouldn’t be able to accomplish individually. Offset programs involving direct CO2 capture, renewable energy, energy efficiency, and carbon sequestration can reduce GHG emissions, which improves air quality, protects ecosystems, and supports green jobs. When implemented properly, these benefits can outweigh the drawbacks. 

Carbon offsets are a good place to start if you want to get into the carbon-emission reduction game, but in order to be effective in the long-term, we must not rely on them solely. Cutting emissions from the source and then offsetting the remainder is the best way to reduce our carbon footprint and provide the highest environmental benefits.

Stay impactful,

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