What is Really Meant by Carbon Offsets?

When we talk about sustainability in the business world, a lot of people get lost. What does “going green” mean for my company? What can I do to make my operations more environmentally friendly? Carbon offsets are one of the most misunderstood concepts when it comes to sustainability, so let’s break it down and take a look at what they really mean. Essentially, it looks like carbon offsets allow businesses to “buy” their way out of emissions by funding environment-friendly projects elsewhere. In other words, if your company creates 1,000 tons of CO2 each year, you can purchase carbon offsets that will fund projects (like wind farms, trees or energy efficiency upgrades) that will reduce emissions by 1,000 tons elsewhere. But I can hear some of you thinking…isn’t that cheating? And what does that really change?

On one hand, these offset programs can be incredibly helpful in reducing emissions and saving the environment, but on the other hand we can’t just buy our way out of this problem. This time, we will all need to do the hard work to put us on the road to a sustainable future and carbon offsets are one tool that help us make that change.

What is carbon?

So, if we are going to understand carbon offsets and platforms, then it is important that we get on the same page about emissions and carbon. The best way to understand carbon is to think about nature as a checking account. We all put carbon into that checking account when we breathe out or through our everyday actions. Those carbon deposits are then balanced by the carbon we take in with food and other products. But we have spent more money (or carbon) that we had in the account, and now we cannot afford to pay what we owe.

Like any bank, nature has a limit for how much money (carbon) it can store in its “account”. When we deposit too much carbon (emit too many greenhouse gases) then nature will reach its carbon limit and it won’t be able to absorb any additional carbon. At that point, the only thing we can do is remove some of the existing carbon by pulling greenhouse gases out of the atmosphere, like planting more forests or letting soils act as “sinks”.

What are emissions?

When it comes to creating carbon emissions, most of us are familiar with the concept of vehicle emissions. While this is one major source of carbon emissions, there are actually a lot more sources that you may not have thought about. Fossil fuel power plants release carbon dioxide into the atmosphere when they burn fossil fuels like coal and oil to make electricity. Homes give off heat through their gas furnaces and they also generate carbon emissions when they burn gasoline to run their cars. Even gas-powered lawn mowers give off carbon emissions! The big picture here is that any product or process that requires energy gives off carbon emissions, which means almost everything we do has some impact on the environment.

The good news is that there are ways to “offset” those emissions. The bad news is that it still doesn’t mean that we can all run around thinking it’s okay to continue to live as we have. Afterall, that is how we got into this mess. It simply means that when you start making positive changes towards carbon offsets in your life, then it can make a much bigger impact than you think.

Who uses carbon offsets?

Carbon offsets are used by companies across all sectors of the economy. They’re used by everyone from airlines to manufacturers, retailers to hotels. Wherever they source their electricity or heat, wherever they ship goods and services, carbon offsets help them compensate for that carbon footprint. But again, most companies use offsets to support other sustainable initiatives within the company.

What are carbon offsets?

A carbon offset is when you take some amount of carbon that you plan on emitting into the atmosphere and use it to fund projects that reduce carbon somewhere else. For example, if your company is going to emit 1,000 tons of CO2 into the atmosphere this year, then you can offset those emissions by planting trees that will absorb 1,000 tons of CO2 from the atmosphere over their lifetime.

On the surface, it sounds great. But when you dig deeper into how offsets work, there are a lot of challenges to consider. In fact, if we take a closer look at carbon offsets then we might realize that they can be complicated and even controversial at times.

…some people argue that carbon offsetting is useless…

What are the benefits of carbon offsets?

While offsets themselves are not the silver bullet solution to the carbon crises, they certainly play a role in helping companies and individuals reduce their carbon footprint. They also have unseen benefits in migrating peoples thinking toward making their lives more sustainable.

Carbon offsets help make it possible to do things we can’t yet do without emitting some amount of carbon (like flying or heating our homes). They also give us the opportunity to support renewable energy and conservation programs that we believe in, like avoiding deforestation and supporting cleaner power. At the end of the day, carbon offsets help us take action that reduces our collective carbon footprint and helps put us on the path to a sustainable future.

In addition to helping companies compensate for their own emissions through the purchase of offsets, they also play an important role as a business tool as well as a source of internal motivation. In fact, many companies choose to use carbon offsets as a way to communicate with employees around the importance of climate action. For example, some companies might require their employees to purchase carbon offsets for travel they do on company business. This is an easy way for them to communicate that it’s important for everyone in the company to reduce their impact through things like working remotely or video conferencing.

What are the limitations of carbon offsets?

At its core, carbon offsetting is not about buying your way out of guilt for something you’ve already done. It’s not simply an excuse to keep polluting either. Rather, it’s a way to support projects that work towards cleaner energy and more sustainable practices now and into the future. The ability to balance out the carbon imbalance is within our reach, but with 7 billion souls on the planet, we are limited by our inability to change quickly.

In addition to that, there are some specific limitations of carbon offsets as well. In most cases they don’t represent a reduction in emissions from your own activities as much as they make a contribution to projects designed to reduce emissions (e.g., planting trees). They also don’t necessarily mean you’re making progress towards achieving your own environmental targets since offsets represent an addition to your carbon balance, not a substitution for emissions reductions.

Finally, it’s worth noting that there are different types of offsets out there and they can vary widely in terms of quality and effectiveness. Even if you purchase high-quality offsets then it’s still important to recognize that the problem of climate change can’t be solved by offsetting alone. Without proactive targets and strategies for reducing emissions, companies (and the rest of us as well) will never reduce our carbon footprint to a level that solves the problem at hand. And the increase in billion dollar weather events that we have seen in the last few years will become trillion dollar weather events.

Why is nothing happening about climate change?

Climate change is too large of a problem for one person to tackle. And that is why we feel overwhelmed and helpless to fix what needs to fixed. Carbon offsets are becoming increasingly popular around the world as people look for ways to take their own personal action against climate change. Some are planting trees and others are shifting their buying habits to sustainable businesses. Although many people are skeptical about the real impact offsets have, there is no denying that they can play a role in helping us reduce our emissions.

Carbon offsets represent an important option for people who want to help take action against climate change but also need to use carbon-intensive products and services as part of their daily lives. They also can serve as a motivation to companies to reduce their emissions even more. We all have the ability to take individual action against climate change, but sometimes it’s just nice to see that there are other options out there that can help us take meaningful action.

Does carbon offsetting really work?

There are many ways that carbon offsetting works, but they may not all be in the ways that you expect. First of all, carbon offsets only give us a portion of the information that we need to understand the full scope of the issues surrounding carbon emissions. Second, different types of carbon offsets do work in different ways. Finally, there are even some carbon offsetting programs that may not necessarily be effective at all (and you could potentially waste your money on these), but they may be beneficial in other ways that you didn’t expect. So, let’s break it down.

It is best to look at specific examples to see what we mean.

Carbon offsetting means that you add up all of your carbon emissions for a specific period, such as a year, and then you pay an organization to offset that amount by supporting carbon reduction projects elsewhere on the planet. So, if you travel frequently for business or pleasure, then the carbon offsets generated from these flights would be one example of carbon offsets. 

Carbon offsets are commonly associated with companies that are looking to practice carbon neutrality. While carbon neutrality is slightly different than what most people think of when they consider carbon offsets, both types of reduction strategies can often go hand in hand. And while this may seem like splitting hairs at first, there are some important differences that you may want to consider.

When it comes to carbon offsets, the most commonly thought about source of emissions is flying (in fact, this has become something of a cliche). But this isn’t necessarily an accurate picture of what needs to change. For example, if everyone were to fly as much as they wanted, then this would result in an unsustainable planet. So, if everyone were to offset their flying, but not change any other habits regarding consumption or waste disposal, the same problem would still continue to rise. But offsetting your flights is a good start.

Carbon offsets are supposed to help you cover your carbon emissions, so that you can have a smaller ecological footprint. But what if you are a company? Well, it is true that companies can often have much larger carbon footprints than individuals because they are serving so many more people at once. But this also means that the potential benefits of carbon offsets for companies are far larger, if you can find a way to effectively implement them. So, as you can see, it is not a cut and dry issue.

an Accredited Emission Reduction (AER) offsets one tonne of carbon dioxide through third party approval processes.

What are the types of carbon emission reductions?

Even though there are multiple methods of practicing carbon offsets, all offsetting programs are not created equally. As an example of this, it is important to understand the differences between Accredited Emission Reductions (AERs) versus Emissions Reduction Units (ERUs). Both of these are types of carbon offsets, but they do have some important distinctions.

What is an AER?

AER stands for Accredited Emission Reduction, and it is most often associated with the clean development mechanism or CDM. AERs are most often created from projects that have been approved by a third party agency. Once these projects have been approved, they can then be used to generate carbon offsets on a large scale.

When you pay for AERs, you are trying to compensate for a specific ton of carbon dioxide, with another ton. In order to make this happen, allowances are required from an approved legal body or regulator. This is meant to help offset the damage that your particular activity has caused by creating a unit for trade. For instance, if you have a personal car and it spews out 7 tons of CO over the course of a year, you can purchase 7 AERs to compensate for this.

What is an ERU?

ERU stands for Emission Reduction Unit, and it is most often associated with the clean development mechanism or CDM. When you buy ERUs, you are not buying carbon dioxide emissions in an identical unit for trade. Instead, these offset credits are expressed in different metrics that have been normalized for easy comparison. This is because ERUs are comparing two emissions that have completely different types.

For example, you may have 1 ton of carbon dioxide you wish to offset, but the same number of methane gas emissions. Methane has a much higher potential to trap heat than CO2 does, which means that it is also more environmentally harmful. So, instead of comparing apples and oranges it brings them both into a common measurable metric and converts them into one standardized unit. This standardized unit is then called a tCO2e or tonnes CO2 equivalent which means that you are buying the amount of carbon dioxide emission reduction for one tonne, not exactly one tonne of carbon dioxide. The key here is that this is normalized, so that the offset comparison can be made much more easily.

Is an AER better than an ERU?

To truly determine whether one carbon offset unit is better than another, you must really understand the type of offsets each represents. If there is a project or company that sells both types of offsets, it makes sense to buy both types. After all, if you are truly trying to reduce carbon emissions it only makes sense that you would want the offsets that most accurately represent your individual impact.

As an example of this, let us say you have an electric car and your electricity is emitted from one source. This may mean that whatever electricity plant is emitting the power is creating other emissions in the process. If this is the case, you want to buy AERs that represent this.

On the flip side, if your power comes from hydroelectric dams where no greenhouse gases are emitted, then you would buy ERUs because these accurately represent your true carbon dioxide emissions. The reason for this is that while you may not personally emit any CO, your electricity is still coming from a hydroelectric dam which would cause the release of methane.

To summarize, an Accredited Emission Reduction (AER) offsets one tonne of carbon dioxide through third party approval processes. One unit will represent one tonne of carbon dioxide equivalence (tCO2e). These are the best kinds of offsets if you know what your individual carbon emission profile is. On the other hand, Emission Reduction Units (ERU) are often preferred by people who are unsure of their exact carbon profiles because ERUs allow an easier comparison through normalized metrics that offset different types of greenhouse gases. We know that it can be a bit of a challenge to get your head around it but you are heading in the right direction. Keep going!

What are some examples of carbon offsets?

We get asked about offsets for personal use, small and local companies, medium sized businesses and small cap companies. Each one is different and with different motivations. Nonetheless, if we are going to make our societies sustainable, then it is imperative that we all begin to understand how we can make little changes that will add up to big change over time.

Some examples of offsetting are:

  • Offsetting a plane flight by donating money to a tree planting organization.
  • Buying a rooftop wind turbine that offsets the electricity you use in your home.
  • A personal car with low emissions can be offset if it is determined that equivalent amounts of methane are not released into the atmosphere through the process of generating that electricity.
  • Offsetting a trip by car to and from work once a week with public transit.
  • Buying an electric leaf blower that emits no carbon dioxide.
  • Project investments such as solar panels for farmers’ markets, energy efficient light bulbs at your office, or offsetting the electricity used to run your home freezer.

For businesses some offsetting examples might include:

  • Offsetting office electricity with green energy.
  • Allow employees to work remotely one day per week. This reduces the number of trips in a car, thus reducing carbon dioxide.
  • Purchase hybrid buses for public transport options for employees.
  • Hosting Lean Green days where staff eat lunch from reusable containers to reduce the amount of waste that is sent to landfill.
  • Offsetting some paper usage by implementing a green purchasing policy for office supplies, as well as offsetting the electricity used to print these new supplies.
  • Making all disposable items from recycled materials and eliminate those items that have been created with harmful chemicals.

In terms of big business examples, some companies are offsetting their electricity by purchasing pre-approved solar panels for their commercial buildings. Others are planting trees to help sequester carbon dioxide in the future. Some companies are sponsoring high school environmental clubs and others are buying all new hybrid vehicles for public transportation use at corporate locations. For larger emission offsets, some companies are buying into carbon offset projects.

What is the difference between a carbon credit and a carbon offset?

This is a common question, but let us alleviate any confusion between carbon credits and carbon offsets. First of all, a carbon credit is a certificate issued to a carbon offsetter by a third party, who has verified that the emission reductions have been achieved. Each credit represents one tonne of CO. Carbon credits can be sold from entities such as governments and companies that have reduced their emissions below the required cap.

In contrast to this, an offset is a specific reduction in emissions that has been verifiably achieved from a specific source or activity. One tonne of CO is reduced by one offset, and this can be used to mitigate emissions in a different location.

What does financial viability mean for carbon offsets?

Financial viability is the extent to which an investment is able to provide returns or profits that are valuable enough to cover the costs of doing business. For carbon offsets this could be through selling carbon credits to companies or government, but there are other routes for profitable returns. This is an area where entrepreneurs have often been creative in providing incentives so that their projects can work financially.

To do this, offsetters need to know how much it costs them to reduce one tonne of CO, (like food miles) how much they can make from selling carbon credits and if this is enough to cover the costs of reducing emissions. Their profit margin needs to be a certain amount for their project to work financially.

The World Bank Group requires projects applying for funding from its Carbon Finance Unit to have been verified as financially viable by a third party. This ensures that the projects being funded have a good chance of being able to repay loans.

There are two reasons why an individual might want to purchase carbon credits.

What kind of offsetting is already happening in the world?

Like most things in the sustainability field, the carbon market and it’s effectiveness is evolving organically. That is to say that the offsetting industry is quite literally being created by entrepreneurs and businesses, and being piloted or regulated by governments. This means that many of these projects are small scale, locally based efforts designed to achieve specific goals. There are literally thousands of companies around the world selling carbon credits of all shapes and sizes.

Some of these have been highly successful, like the founders of the ice cream company Ben and Jerry, who used offsets to counterbalance their total emissions for a number of years. They offset all their distribution and manufacturing, which was responsible for around 50% of the business’s carbon footprint.

In 2019, studies showed that the biggest areas of carbon offsetting were large-scale tree planting projects and renewable energy generation. They went on to say that carbon offsetting should “shift away from land-based sequestration and other types of vegetation to avoid possible conflicts with food production.”

What are some of the problems with carbon offsetting?

Despite being called offsets, these projects do not actually offset emissions. This is because this practice does nothing to reduce actual levels of CO in the atmosphere. Instead they simply displace where the mitigation happens, which can mean that efforts to reduce emissions are concentrated in one area, while others are left emitting CO.

The carbon market has also faced criticism for being too slow to evolve and for not having developed enough of a framework to facilitate large scale, internationally agreed upon mitigation strategies. The International Panel on Climate Change (IPCC) said in 2015 that offsets could be “an important component” of many countries’ climate plans, but that the market was becoming increasingly crowded and “fragmented”, which can actually make it difficult for uptake of carbon credits.

On a more practical level, many people believe that tree planting is not an effective way of offsetting emissions because trees take decades to grow before they absorb CO, while much displacement takes just weeks or months. It is a work in progress.

Why are individuals more likely to purchase carbon offsets?

There are two reasons why an individual might want to purchase carbon credits. Firstly, some may be keen to help slow climate change and be concerned about their own carbon footprint. For example, they might fly too much or not recycle enough at home. The second reason is that some people may be making an investment decision, hoping that carbon offsetting investments will have a better return than other financial assets.

What are the unforeseen benefits of offsetting carbon?

While there is a lot of argument over whether offsetting actually works, or it is just another way to make money off of the public’s desire to do something about climate change, it is important to know that there are new technologies popping up all of the time. Offsetting carbon emissions has enabled companies and individuals across the globe to help support struggling communities in need. There are multiple organizations that have been formed with the sole purpose of helping developing communities. These organizations typically work in the areas of food, water and energy security. Through offsetting, these organizations have been able to make a difference in people’s lives all over the world.

The carbon markets are also rapidly becoming a dominating force in today’s economy. According to a recent World Bank Report, the voluntary carbon market is expected to grow to $10 billion in the next few years. This will result in more offset projects coming online, thus increasing the number of overall offsets available to offset your emissions.

So, while some people argue that carbon offsetting is useless and that it just enables us all to continue doing things that are harmful to the environment, offsetting has provided new technologies, processes and solutions to climate change. It has also provided new revenue sources for organizations in need of funding to provide necessary items such as food, clean water and renewable energy technologies.

But the most powerful impact of carbon offsets that we have seen is the changing of hearts and minds.

  1. For individuals, it empowers them and lets them take action, which reduces their stress levels. Then they tell two friends and so on and so on and so on.
  2. For businesses, it gives them peace of mind so they can focus on what they do best – profitably solving problems with their products and services. But it also gets people taking action which spreads to their employees, their customers and their families. It also attracts the best people to your business.
  3. For nonprofits, offsets are a way to finance important work so that more people can have access to clean water, renewable energy technologies and sustainable farming practices.

It’s clear that carbon offsets are starting to make a difference in all facets of life. The next step is for people to start taking action by offsetting their own carbon footprint and encouraging others to do so as well. This is how carbon offsets can really change the world.

In conclusion on greenhouse gas emissions & greenhouse gases

Carbon offsets can be a complicated matter and we encourage you to do more research on the subject. We would like to end by saying that any time we make a purchase that helps us understand our individual carbon emissions, we are buying something that is better than doing nothing. Remember, little changes over time will add up and we hope that this article will help you make informed decisions about carbon offsets. If you have any questions or want more information, we’re here to help. Thanks for reading!