What are carbon offsets?

Recently, companies and public entities are increasingly announcing timelines to become carbon neutral effectively reducing their greenhouse gas emissions to zero. In many cases this will be challenging, and an emissions residual will remain, after interventions have been done to increase energy efficiency and reduce emissions.

The easiest and arguably often the only way to offset these remaining emissions residuals is to purchase carbon offsets. But what exactly are carbon offsets?

Carbon offsets are commoditized “avoided” or “removed” greenhouse gas (GHG) emissions that are bundled together in units of tons of CO2 equivalent (tCO2e). These units are then often certified and sold off to polluters looking to neutralize their own carbon emissions.

Carbon offsets have been around for a while. They started their existence under the Kyoto protocol, which allowed industrialized nations to “buy” emissions reductions from developing countries to offset their own greenhouse gas pollution. After a number of scandals and scams involving carbon offsets their reputation is somewhat dented, especially because over 99% of offsets today are “emissions avoidances”, which avoid emitting carbon by protecting ecosystems, enhance energy efficiency or increase tree planting.

Despite this murkiness in terms of actual impact on greenhouse gas emissions offsets can in principle be a great tool to monetize nature and its ecosystem services, finance efficiency enhancements and incentivize environmental protection.