What is carbon offsetting and what makes it credible?

What is carbon offsetting?

Carbon offsetting to achieve carbon neutrality is the process of bringing emissions back to ‘zero’ through a simple addition / subtraction formula. E.g. a company produces emissions as part of doing business – buying electricity from fossil fuels, using transportation, generating organic and plastic wastes – and then pays for carbon credits equal to the amount of emissions they produce.

The carbon credits are also described as carbon offsets interchangeably. They’re issued from projects that reduce or remove carbon from the atmosphere, or prevent it being released – so the net carbon produced by the company is effectively zero because it has been offset by reducing carbon somewhere else.

It sounds simple, but carbon offsetting has its benefits and challenges that need to be understood in order to get it right. That’s why Earthbanc is creating a six-part blog series on carbon offsetting. We’ll start with the basics and work our way through the key elements needed to effectively leverage carbon offsetting as part of our solutions on the road to net zero.

Carbon offsetting requires accurate carbon footprint assessments to be effective 

Under the Greenhouse Gas (GHG) Protocol there are three types of emissions businesses generate:

      • Scope 1 – direct emissions from sources that a business directly owns or controls (company facilities and vehicles)

      • Scope 2 – indirect emissions from energy sources used to power operations (e.g. electricity, heating, cooling)

      • Scope 3 – indirect emissions from the entire value chain, including upstream (e.g. business travel, manufacturing) and downstream (e.g. end-user of a product)

    For a business to effectively use carbon offsets to bring their carbon balance sheet to zero (often referred to as ‘climate-neutral’), they must accurately account for their full scope of emissions. While scope 1 and 2 emissions are relatively easy to calculate, scope 3 presents a significant challenge in its complexity and magnitude.

    Businesses may claim they are climate-neutral or a certain product is, but without a clear emissions accounting framework that comprehensively covers scope 3 emissions, this claim cannot be verified.

    Scope 3 emissions account for the majority of a company’s emissions, up to 90%. BSR’s report on reducing scope 3 emissions posits that ‘action in this area remains fragmented and limited’. Most businesses using offsetting are doing so for only a narrow margin of their total carbon footprint.

    Carbon offsetting can only be considered a credible tool for helping businesses transition to net zero if they:

        • use comprehensive scope 1, 2 and 3 emissions assessments;

        • are working toward decarbonising and reducing all their scope 3 emissions (ideally using Science-Based Targets frameworks) through activities such as switching to renewables, circular bio-economy, materials re-design, etc.;

        • are offsetting all of their remaining scope 3 emissions;

        • and do not mislead customers through inaccurate claims and unclear terminology.

      For many businesses, there is still a long way to go. The important thing is for businesses to keep taking steps toward all the above activities, starting with accurate assessment of their footprint, and offsetting all of it as they decarbonise.

      Carbon credit projects

      Carbon credit projects prevent the release of, reduce or remove carbon through many different means. Some common project areas are:

          • Renewable energy – generating energy from natural sources such as solar, wind, biogas digesters, reduces GHG emissions and displaces fossil fuel use

          • Energy efficiency – products or systems that use less energy than conventional systems reduce emissions, e.g. fuel efficient stoves reduce fuel consumption and wood burning (reducing both deforestation and carbon emissions)

          • Carbon sequestration – carbon is stored in trees and soils through nature-based solutions such as protecting and restoring ecosystems, agroforestry, and reduced deforestation (known as Reducing Emissions from Deforestation and Degradation – REDD+).

          • Capture and destruction of high-potency GHGs – such as methane, are either destroyed, stored for re-use or combusted into energy sources, avoiding more potent emissions release (methane is an approximately 23-fold more potent greenhouse warming gas than C02) and displacing some emissions.

        Certain types of carbon credit projects often yield multiple benefits and contribute to the UN’s Sustainable Development Goals. An agroforestry project can restore a degraded landscape, reducing soil erosion and increasing soil productivity, thereby providing significant adaptation benefits to local communities who steward the project.

        It also strengthens livelihoods through short and long-term cash cropping, and can create market linkages to commodity buyers who are interested in supply chain resilience and reducing scope 3 emissions.

        The project can therefore provide significant social and environmental benefits such as improved soil and water quality, biodiversity, employment opportunities and poverty reduction.

        How carbon projects ensure emissions reductions

        Just as offsetting requires accurate carbon footprint assessment, so too do carbon projects need to be accurate in their quantification and verification of carbon being reduced/removed. This is essential to credible carbon offsetting as it proves the carbon credits issued are accurately offsetting tonne for tonne the carbon generated by the buyer.

        Three principles are essential to verifying the effectiveness of carbon offsetting:

            • Additionality – a project must demonstrate that the carbon reduction took place specifically because of the project’s implementation, and would not otherwise have occurred in a ‘business-as-usual scenario’ without the existence of the project.

            • Permanence – ensures the carbon avoidance, reduction or removal is permanent in nature. This factors into carbon projects being rated as lower or higher risk. Carbon storage, such as in trees and soil, runs a risk of being reversed and released back into the atmosphere. Addressing permanence is therefore an important aspect of nature-based solutions.

            • Leakage – is defined as GHG emissions leaking outside the area of the project as a result of its implementation. For example, a forestry project may shift deforestation from the project area to occur in another unprotected area, rather than avoiding it.

          These three principles have their own unique challenges in being assessed and verified that vary across different types of carbon projects. We will explore these further in forthcoming blogs. Some key problems include the voluntary carbon market industry standards, which use manual techniques such as flying experts in to measure individual trees in samples and then extrapolate to the rest of forests. This manual and expensive monitoring, verification and auditing means carbon offset verification happens only every five years, during which time the permanence of the carbon storage can be lost from fires, deforestation, unsustainable agriculture, etc.

          Summary and what’s next

          In this first blog we’ve outlined what carbon offsetting is and the base requirements for it to be a credible solution in the transition to a future net zero global economy. The need for rigour in both carbon footprint assessment and carbon credit quantification and verification are central to the effectiveness of carbon offsetting.


          In our next blog we’ll explore who benefits from carbon offsetting, and look deeper at some of the problems and opportunities in engaging more stakeholders with adequate incentives. Follow us and stay tuned!


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