What Are Carbon Offsets and How Do They Work?
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April 18, 2023
min read

What Are Carbon Offsets and How Do They Work?

Carbon offsets play a vital role in the global effort to combat climate change.

Carbon offsets are a mechanism that allows individuals, companies, and governments to compensate for their greenhouse gas (GHG) emissions by investing in projects that reduce, avoid, or remove GHG emissions from the atmosphere. 

These projects can take various forms, such as renewable energy installations, reforestation, or energy efficiency improvements. According to Refinitiv, the global carbon market was €865 billion ($924 bln) in 2022, demonstrating the increasing prevalence of carbon offsets as a tool for addressing climate change.

Carbon offsets provide an additional source of funding for vital environmental projects that might not otherwise be economically viable. According to the Verified Carbon Standard, its portfolio of projects has collectively reduced or removed over 500 million tonnes of CO2e. 

Moreover, carbon offsets enable organizations and individuals to take responsibility for their emissions and contribute to the global effort to limit global warming to 1.5°C above pre-industrial levels, as outlined in the Paris Agreement

Carbon offsets also help raise awareness about the need to reduce GHG emissions and drive innovation in low-carbon technologies.

What are Carbon Offsets

Carbon offsets are measurable and verifiable reductions, avoidance, or removal of greenhouse gas (GHG) emissions from the atmosphere. They are typically quantified in metric tons of carbon dioxide equivalent (CO2e) and can be traded or sold as a commodity. By purchasing carbon offsets, individuals, companies, and governments can counterbalance their own GHG emissions and contribute to global climate change mitigation efforts.

How do carbon offsets work?

  1. Project design: Create a greenhouse gas reduction/removal project.
  2. Quantification: Calculate the project's carbon reduction potential.
  3. Validation: Verify the project's design through third-party organizations.
  4. Registration: Register the project with a carbon registry.
  5. Implementation: Execute the project and monitor emissions.
  6. Verification: Confirm actual emissions reductions through third parties.
  7. Issuance: Receive carbon credits for verified reductions.
  8. Sale/transfer: Sell carbon credits to offset emissions for buyers.
  9. Retirement: Permanently remove credits to prevent reuse.
  10. Reporting: Buyers report retired credits in emissions accounting.
  11. Ongoing monitoring: Ensure sustained emissions reductions.
  12. Continuous improvement: Apply lessons learned to future projects.

Types of carbon offsets:

There are several types of carbon offsets, categorized based on the nature of the projects they support. Some common types include:

Renewable energy offsets: These offsets are generated by projects that promote clean and renewable energy sources, such as wind, solar, hydro, and biomass. By displacing fossil fuel-based energy production, these projects help reduce GHG emissions.

  • Energy efficiency offsets: These offsets are produced by projects that aim to reduce energy consumption and improve efficiency, such as upgrading lighting systems, retrofitting buildings, or installing more efficient industrial equipment.
  • Forestry and land use offsets: These offsets are generated by projects that focus on forest conservation, reforestation, or afforestation. By preserving or expanding forest areas, these projects help remove carbon dioxide from the atmosphere through the natural process of photosynthesis.
  • Methane capture and destruction offsets: These offsets are created by projects that capture and destroy methane, a potent greenhouse gas, from sources such as landfills, agricultural waste, or coal mines. By preventing methane from being released into the atmosphere, these projects help reduce overall GHG emissions.
  • Carbon capture and storage offsets: These offsets are generated by projects that capture carbon dioxide emissions at their source (e.g., power plants or industrial facilities) and store them underground or convert them into other products. This technology is still emerging, but it has the potential to significantly reduce GHG emissions from large-scale emitters.
  • Community-based offsets: These offsets are produced by projects that directly benefit local communities, such as clean cookstove distribution or access to clean water. In addition to reducing GHG emissions, these projects often have significant social and environmental co-benefits.

Reduction in CO2 emissions; Economic and Social Benefits

One of the primary benefits of carbon offsets is their contribution to the reduction of global CO2 emissions. By supporting projects that reduce, avoid, or remove greenhouse gas emissions, carbon offsets play a crucial role in mitigating the impacts of climate change. According to a report by Forest Trends' Ecosystem Marketplace, voluntary carbon offset projects have reduced or removed over 437 million metric tons of CO2e between 2016 and 2020, demonstrating their effectiveness in addressing climate change.

Economic benefits:

Carbon offsets can generate economic benefits in several ways. For businesses, investing in carbon offsets can help them meet regulatory requirements, achieve sustainability goals, and enhance their brand reputation. This can translate into increased customer loyalty, improved investor relations, and a competitive advantage in the marketplace.

Furthermore, the projects supported by carbon offsets can stimulate local economies by creating jobs, fostering technological innovation, and promoting the development of low-carbon industries. For instance, renewable energy projects can lead to job creation in manufacturing, installation, and maintenance, while afforestation projects can provide employment opportunities in tree planting and forest management.

Social benefits:

Many carbon offset projects not only reduce GHG emissions but also deliver social benefits to local communities. For example, clean cookstove projects can improve indoor air quality and reduce respiratory illnesses, while access to clean water projects can reduce waterborne diseases and improve overall public health. By promoting these co-benefits, carbon offsets can contribute to the achievement of the United Nations Sustainable Development Goals (SDGs), which aim to end poverty, protect the planet, and ensure prosperity for all.

Top Carbon Offsetting Standards:

  1. Gold Standard: Established by the World Wildlife Fund (WWF) and other international NGOs, the Gold Standard certifies carbon offset projects that have high environmental integrity and contribute to sustainable development goals.
  2. Verified Carbon Standard (VCS): Developed by the non-profit organization Verra, the VCS is one of the most widely used voluntary carbon offset standards globally, providing a robust framework for measuring, reporting, and verifying emission reductions.
  3. Climate Action Reserve (CAR): A U.S.-based carbon offset registry, CAR develops and maintains high-quality standards for quantifying and verifying GHG emission reduction projects in North America.
  4. American Carbon Registry (ACR): ACR is a leading voluntary carbon offset registry in the United States, providing standards and methodologies for quantifying GHG emission reductions across various sectors.
  5. Plan Vivo: This standard focuses on community-based forestry and land-use projects, emphasizing the social and environmental co-benefits that these projects provide to local communities.

Top Carbon Offsetting Projects (as of 2022):

  1. Kariba REDD+ Project, Zimbabwe: This project aims to protect nearly 785,000 hectares of forest and wildlife on the border of Zimbabwe and Zambia, reducing deforestation and supporting local communities through sustainable development initiatives.
  2. Kasigau Corridor REDD+ Project, Kenya: Located between Tsavo East and Tsavo West National Parks in Kenya, this project protects over 200,000 hectares of threatened dryland forest, providing habitat for endangered species and supporting local communities through job creation and education programs.
  3. Cookstoves Project, Ghana: This project distributes efficient cookstoves to households in Ghana, reducing the need for firewood and charcoal, lowering GHG emissions, and improving indoor air quality.
  4. Aqua Clara Kenya Water Filter Project: This project provides affordable and effective water filters to rural communities in Kenya, reducing the need to boil water for purification and thus decreasing GHG emissions from burning firewood or charcoal.
  5. Chol Charoen Biomass Project, Thailand: This project involves the installation of a biomass power plant that uses agricultural waste to generate clean electricity, reducing GHG emissions and providing a sustainable energy source for the local community.


Carbon offsets play a vital role in the global effort to combat climate change by providing a mechanism for individuals, businesses, and governments to take responsibility for their greenhouse gas (GHG) emissions. 

Throughout this article, we have provided a comprehensive understanding of carbon offsets, including their definition, how they work, and their various types. 

Furthermore, we have highlighted the challenges associated with carbon offsets, such as ensuring transparency and accountability, and provided best practices for purchasing carbon offsets from reputable providers.

Recommended reading

If you want to learn more about scope reporting and carbon disclosures, check out our free resources:

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Considering all of the facts about scope 4 avoided emissions, you can now take steps to accurately report the emissions within your control.

Book a call with us to see how 15Rock can help with carbon accounting and how easy it is to measure, reduce, offset, report, and certify all of your emissions in our easy-to-use platform.

Keywords: Carbon Offsets, Climate change, ESG, CO2 emissions, Reputable offset providers, Verification issues, Transparency, Best practices.

Feature Image Credits: Image by vectorpouch on Freepik