What is voluntary carbon offsetting and how can it drive climate action and nature restoration?

As an integral part of an organisation’s robust net-zero strategy and transformation roadmap, voluntary carbon offsetting enables organisations to take responsibility now for the residual emissions they are unable to abate through decarbonising their value chain. They can do that by supporting both carbon reduction/avoidance and removal projects beyond the company’s value chain – an essential contribution to bridging the existing financial gap for climate change and providing vital support to nature regeneration. We explain what voluntary carbon offsetting is, how it works and why being part of it is essential for our collective environmental and social responsibility.

What is voluntary carbon offsetting?

Put simply, voluntary carbon offsetting is a mechanism used to finance greenhouse gas (GHG) emission reduction/avoidance or removals equivalent to the residual emissions of an organisation beyond its value chain. This financing is achieved through the purchase of carbon credits, where one carbon credit equals approximately one metric tonne of reduced/avoided or removed carbon dioxide (CO₂).

In line with the Science-Based Targets initiative (SBTi) Mitigation Hierarchy, organisations should use carbon offsetting once all other efforts have been made to avoid and reduce value chain emissions. This proactive step underscores a commitment to address residual emissions now and actively mitigate the impact of organisational activities on climate change.

While there is concern that organisations may use carbon offsetting to pay to continue to pollute, research by Sylvera and Trove, now part of MSCI, has found that organisations using carbon offsetting are likely to decarbonise twice as fast as those organisations who don’t use offsetting as part of their net-zero strategy. Offsetting is effectively putting a price on carbon for organisations, which incentivises them to accelerate internal emissions reductions, including supply chain emissions, and justify investment into new low-carbon business models.

What types of carbon offsetting projects are there?

Carbon offsetting projects fall into two main categories: removals and reduction/avoidance projects. Removal projects are those that capture and permanently store carbon, thereby removing carbon from the atmosphere. This is done through the funding of carbon-capture technologies that physically remove carbon dioxide from the environment, or through the restoration of ecosystems such as through afforestation, reforestation or improved forest management.  

On the other hand, reduction/avoidance projects ensure to adopt technology, processes or protect existing natural carbon sinks to avoid GHG emissions that would have otherwise been emitted if nothing changed in the area where projects operate.  Examples of reduction/avoidance projects include the distribution of improved cookstoves, renewable energy and forest protection.

Both types of projects are essential to address the amount of greenhouse gases in the atmosphere. We need to work to remove carbon dioxide from the atmosphere whilst simultaneously working to prevent new GHG emissions from being released, through the protection of existing carbon sinks.

It is also key to support carbon removal and reduction/avoidance projects that deliver both environmental and social benefits for people, aligned with the UN Sustainable Development Goals. Beyond carbon, both solutions provide many of these benefits to communities in which they operate, whether through the creation of jobs, improved health or equipping individuals with new skills and educational programmes.  

The Hifadhi-Livelihoods projects, Hifadhi I and Hifadhi II, have been developed and financed by the Livelihoods Fund, in partnership with EcoAct & Climate Pal. Both projects, certified under Gold Standard, have worked with Climate Pal, EcoAct’s Kenyan subsidiary on the ground to distribute 120,000 locally manufactured cookstoves and over 200,000 seedlings to date. Beyond the reduction of 1,830,707 tonnes of carbon from the atmosphere, achieved by both projects from 2013 to 2023, the Hifhadi-Livelihoods projects stand as a great example of delivering tangible co-benefits to local communities, supporting the creation of 55 full-time jobs for local community members. Hifadhi I has recently completed its final crediting cycle and has come to an end, while Hifadhi II is commencing its second crediting period, poised to remain active in the field for at least another 5 years.

Who certifies carbon projects?

Within the Voluntary Carbon Market (VCM), there are several different certification bodies. The standards set out by these organisations, such as the Verified Carbon Standard (VCS), the Gold Standard, Climate Action Reserve and American Carbon Registry (ACR)  make sure project developers adhere to rigorous criteria to ensure projects are meeting their environmental and social goals and responsibilities. Certification by an internationally recognised body and validation by a third-party is essential for rigorous and robust offsetting.

At COP28 a landmark agreement was made between key players in the VCM, where leading independent carbon crediting standards announced they will start working together to improve consistency, transparency and quality across the carbon project certification landscape. This development is key to ensuring companies use carbon credits with confidence and consequently improve and scale the flow of climate finance to host countries.

What makes a high-quality carbon credit?

Carbon credit quality is a multi-faceted and rapidly evolving concept. EcoAct sources only the highest quality credits and we define these as meeting minimum standards of: real, measurable, permanent, independently verified, additional and unique, based on the ICROA Code of Best Practice – the leading industry Accreditation Programme committed to enhancing integrity in the Voluntary Carbon Market in support of the Paris Agreement Goals. We also go further to ensure equitable stakeholder participation and benefit sharing, strong social and environmental co-benefits, and no adverse impacts on the environment and local communities.

As a member of ICROA, we consider only carbon credits certified by an endorsed GHG crediting programme, meeting rigorous standards and subject to third-party auditing and transparent registries.

New initiatives are underway to set a higher bar for carbon credit quality, namely The Integrity Council for the Voluntary Carbon Market (ICVCM) through its Core Carbon Principles and assessment framework. We support this effort to send a clear signal on quality and drive demand for the highest quality credits. We are optimistic that ICVCM and participating GHG crediting programmes will meet the mark in redefining quality to drive trust, integrity, and investment in the voluntary carbon markets.

How does EcoAct ensure the quality of our carbon offsetting projects?

In addition to ensuring all the projects in our portfolio meet rigorous third-party standards and accreditations, EcoAct has an additional due diligence process through the use of the EcoScore©. EcoScore© is a unique risk management matrix designed in accordance with international standards on risk management and built on over 18 years of carbon market experience. We rigorously assess more than 30 criteria around seven main risk categories.

In addition, EcoAct’s dedicated team of experts within our Nature- and Technology-base Solutions unit regularly conducts field visits to check first-hand projects’ carbon reduction/avoidance or removal activities and their positive impacts on the communities.

EcoAct is a carbon credit retailer and project developer with over 18 years of experience in the VCM. Our Nature- and Technology-based Solutions unit supports organisations on their net-zero journey through the identification and development of the best-in-class carbon offset projects worldwide.

Funds from the sale of carbon credits are reinvested back into the market and into our research and innovation work to advance corporate climate action. An example is the first methodology developed by our Climate Innovation & Knowledge Centre for certifying conservation and preservation measures for seagrass beds, in cooperation with Digital Realty France, Schneider Electric France, and the Calanques National Park. Approved by the Directorate General for Energy and Climate of the Ministry for the Ecological Transition in France, this first-in-class methodology paves the way for the effective preservation of an important carbon stock and a key natural habitat of the Mediterranean – the Posidonia meadows.

Explore the positive impact of carbon offsetting and discover how EcoAct can assist you in developing and communicating a robust carbon offsetting strategy. Connect with our experts to get started.