What is Carbon Offsets?
On a broad level an offset can be described as an instrument that is used to reduce emissions of greenhouse gases (GHGs) from other places. Carbon offsets come in two types: avoided emissions and emission reductions. A good example of an avoided emission is to convert landfill gas into a fuel used for combustion. This eliminates the release of landfill gas into the atmosphere. It also decreases emissions from sourcing traditional fossil fuels.
One example of emissions reduction would be afforestation projects that capture CO2 from the atmosphere and then store it in a biomass sink. The variety of offset types and project types could be specific to a company’s environment as well as social governance policy and used in narrative development. In the context of decarbonization, carbon offsets are used to reduce the carbon footprint towards a net-zero goal. But, businesses are discovering alternative ways to utilize carbon offsets such as; offsetting business flights, events, innovative product line-ups, as well as transportation of products sold.
In order to properly incorporate carbon offsets into your strategy for decarbonization it is vital to comprehend the advantages and limitations of carbon offsets. This way you can be sure you are selecting the most effective projects to figure out how best to implement them within the overall strategy for decarbonization.
Benefits of Carbon offsets
Carbon offsets send a direct market signal through putting the value of a commodity which has not previously been priced. The aim to offset carbon emissions is to price GHG emission on the basis of their social and economic impacts. This is also known as the social cost of carbon.
The project must be able to go through additionality before it can proceed to ensure that the methodology is in line with requirements as defined by registry organizations. Additionality checks the project to determine if its “additional”. The test determines if the project will contribute in the reduction and reduction in GHG emissions. The most crucial additionality test is an investment analysis. In other words, could the project had been completed without the financial incentive of carbon offsets? If not, the plan is not accepted. This assures the public that the environmental benefits obtained by an end-user of a carbon offset led to the reduction in GHG emissions that wouldn’t have occurred without that financing.
Projects who are granted offset allowances that are traded on the market on a voluntary basis have to conform to the registry’s rules and regulations. They must also follow third-party approved methodologies, monitor emission reductions and avoidances, and be verified by third party verification organizations. It is highly recommended that those looking to offset offsets purchase offsets that were granted by top registries. The top registries are The Voluntary Carbon Standard, The Gold Standard, American Carbon Registry The Climate Action Reserve, The Climate Action Reserve, and The Climate Action Reserve.
Carbon offsets come in a array of different types of projects that could assist a company in not only reducing emissions, but also in creating an image. Certain projects have associated co-benefits , like protection of the ecosystem gender equality, improvement of impoverished communities, safe drinking water, and so on. An example would be providing solar cook stoves for women living in South America. It is a benefit socially to the women there which reduces biomass from being burned and improves the quality of air in this part of the world. Another example is converting land that was used for cattle grazing to its original land-use, such as a rainforest. This is a project that has the added advantage of ecosystem and wildlife management.
Offsets are a simple way to lower a company’s emissions and build narrative , but they must be utilized in a proper manner. Certainly, using offsets only to achieve zero will cause a lot of scrutiny. It is advised to utilize offsets in order to cut down on non-necessary scope 1 emissions and scope 3 (value chain) emissions. This should be done in conjunction with stakeholder engagements and operational changes.
The Carbon Offset limitation
The main problem with carbon offsets is that they’re not a fix-all solution. They are a tool for decarbonization , but they must be utilized wisely. Additionally, offsets are a cost. Other strategies such as solar panels, energy efficiency, and downsizing will generate a return-on-investment over time for companies and should be recommended first or utilized in conjunction with offsets. It is likely that the cost of offsets will be passed down to consumers, however the opposite can be argued. Putting a price on carbon will have a direct impact. If consumers must pay higher prices for GHG intensified products, they’re more likely to choose products with lower costs and lower GHG intensities.
Other limitations to offsets are related to target setting. The Science-Based-Target Initiatives (SBTi) does not permit offsets to count towards targets in scope 2, however, they are permitted once operational changes are implemented for emissions that fall within scope 1. Offsets are certainly allowed for internal strategies and can be sold as carbon-neutral but when they are used to achieve SBTi goals, they must comply with the requirements. However, renewable energy certificates can use to offset scope 2 emissions as per the SBTi.
There have been a number of controversy concerning businesses that pollute inexplicably and use offsets to offset their emissions instead of increasing their efficiency in energy use, therefore it is suggested that businesses safeguard their reputation by ensuring that the business sees buying offsets as a tool to offset emissions with operational adjustments, to limit emissions that cannot be avoided and to help set targets for internal strategies, and offsets against historic emissions.
In the context of the global transition to decarbonization, a lot of companies will have no choice but to use these credits in order to reach their net-zero goals, at least in the short to medium term.
Carbon Offsets as a Tool in Decarbonization Strategies
In summary to access carbon offsets is a popular instrument for decarbonization because of their convenience and co-benefits, narrative construction and distinctive use-cases however, they do have limitations. The offsets provide direct finance for various projects, however, it is important to ensure that your organization is selecting projects that have been registered with the best credible registration agencies. There is a chance of being seen as engaging in polluting behavior and using the offsets as a cover, so businesses are advised to consider implementing offsets for narrative purposes, reducing unnecessary scope 1 emissions, Scope three (value-chain) emissions and historical emissions, as well as events including business travel. Additionally, the regulatory environment is constantly changing and could affect long-term plans which are centered around offsets. In this regard, Inogen Alliance recommends that carbon offsets be considered just one option in the overall decarbonization strategy. Carbon offsets when paired along with Renewable Energy Certificates, power purchase agreements, and operational changes like: energy efficiency, on-site renewables reduction in size, and green product sources can be a potent instrument to reach carbon neutrality.
© Islington Stories 2025