What is carbon offsetting?

What is carbon offsetting?

Offsetting is a mechanism used to finance greenhouse gas (GHG) emission reductions or sequestration often equivalent to the residual emissions of an organisation, business or territory. This financing is achieved through the purchase of carbon credits in the voluntary carbon market (VCM), facilitating a measured and verified reduction, avoidance or removal of GHG emissions elsewhere while supporting sustainable development, often in countries that need it most.

Carbon offsetting is based on the principle of geographical neutrality of GHG emissions: the climate impact of one tonne of CO2 equivalent (tCO2eq) reduced, avoided or sequestered is independent of the location of the project. Avoiding the emission of one tonne of CO2e, regardless of the geographical location or method, brings the same climate benefit.

Why carbon offsetting is a vital tool in the climate change ‘toolbox’

The need for urgent climate action has never been more apparent. According to the Intergovernmental Panel on Climate Change (IPCC), the world has until 2030 to cut human-caused CO2 in half to maintain a 50% chance of avoiding the worst effects of climate change. To do this, CO2 emissions need to reach net-zero where emissions are in balance with removals by 2050. Reducing greenhouse gas (GHG) emissions is vital. There is no replacing the urgent need for emissions reductions along a trajectory aligned with limiting global warming to 1.5°C as advised by science. Any credible corporate climate strategy must prioritise this goal and urgently reduce emissions.

However, offsetting also has a key role to play alongside any emissions reduction strategy. Verified offsetting projects that compensate for residual emissions finance crucial sustainable development and preserve existing carbon sinks which are being depleted at an alarming rate. Funding for nature-based solutions is failing. The State of Finance for Nature in the G20, published in January 2022 revealed that current G20 investment in nature-based solutions is insufficient. Considering the small window of time, neither reducing emissions nor preserving natural sinks are enough on their own. Effective net-zero strategies need to pursue both, and organisations must use every tool at their disposal to tackle the climate crisis. They must take full responsibility for the emissions that are still being generated in their day-to-day activities, once all technically and economically feasible opportunities to reduce emissions in all scopes and sectors have been implemented.

Offsetting is effectively putting a price on carbon for organisations, which will push them to accelerate internal reductions, including supply chain emissions, justify investment into new low-carbon business models, and will ultimately demonstrate that business as usual is no longer an option.

Coupled with science-led emission reductions, voluntary carbon offsetting is an integral part of a comprehensive strategy towards net-zero emissions.

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Examples of carbon offsetting

Forestry and conservation

These projects preserve or regenerate natural carbon sinks (e.g., tree planting, protection of existing forests at high risk of deforestation, etc.). These projects also offer many benefits besides carbon reduction, such as the protection of ecosystems and biodiversity, and wider social and economic benefits, such as local job creation and health care for communities.

Renewable energy

These projects avoid GHG emissions by replacing fossil fuel derived energy with renewables (e.g., solar, wind, biomass, etc.). They provide communities and regions with access to renewable technology while also creating jobs locally.

Waste to energy

These projects use urban, industrial, or agricultural waste as raw material and turn it into a useable form of energy. This reduces emissions from burning fossil fuels and/or deforesting land (e.g., capturing methane and converting it into electricity), providing local communities with access to clean and affordable energy while also avoiding the air pollution caused by burning solid fuels, such as firewood.

It is key to support offsetting projects that deliver both environmental and social benefits for people, aligned with the United Nations’ 17 Sustainable Development Goals (SDGs). These include objectives like reducing poverty in all its forms, providing clean water and sanitation for all, achieving gender equality and empowering all women and girls, etc. Beyond climate protection, offsetting projects should focus on achieving tangible and measurable benefits to the communities in which they operate, empowering them to have ownership of a more sustainable future.

For example, EcoAct’s award-winning Sudan Low Smoke Cookstoves project, the first to be developed in a conflict zone, is delivering health and economic benefits to Sudanese families, with particular focus on female empowerment.

The Hifadhi-Livelihoods Cleaner Cookstoves project (financed by The Livelihood Fund and developed in partnership with EcoAct) is training local artisans and project officers to manage the distribution of better and cleaner cookstoves in rural Kenya, which has positive impacts on families, communities and the environment.

Learn more about our voluntary carbon offsetting projects

What is Carbon Offsetting Mangrove Planters Myanmar

Planters in Myanmar at the Deraytaw Myanmar Mangroves Project

What are nature-based solutions (NBS)?

Nature-based solutions are defined by the International Union for Conservation of Nature (IUCN) as “actions to protect, sustainably manage, and restore natural or modified ecosystems that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits”.

Nature-based solutions include:

  • The preservation of functional and ecologically healthy ecosystems
  • Sustainable management of ecosystems
  • Restoration of degraded ecosystems or creation of ecosystems

Nature-based solutions are a valuable means of climate mitigation and adaptation, and can also provide numerous environmental and social co-benefits.

Therefore, they play a key role in ensuring a sustainable future and supporting an equitable global transition.

Cherokee Forest, an 8,600-acre improved forest management project, Johnson County, Tennessee.

Yucatán Peninsula, Mexico, where EcoAct is developing a mangrove restoration project with local partners

What are the benefits of offsetting projects?

Voluntary carbon offsetting is not, and should not be, only about trading carbon. It’s a vital tool to direct private financing to climate-action projects that would not otherwise get off the ground, such as reforestation projects or investment in renewable technologies and the infrastructure needed to expand their reach.

Within a robust climate strategy, carbon offsetting:

  • Provides organisations with an additional tool to advance climate action
  • Shows that climate leadership has shifted from being a cost to being a competitive advantage
  • Translates organisations and investors’ capital into projects that contribute to a low-carbon economy leaving no one behind
  • Helps organisations stay on track with their present and future climate goals
  • Puts a price on emitting carbon that motivates the emitter to reduce or stop the underlying emitting activities
  • Provides vital finance to protect and restore endangered precious carbon sinks and natural habitats
  • Drives capital and low-carbon technology to local economies
  • Delivers wider environmental, social, and economic benefits aligned with the UN SDGs, such as protection of ecosystems and endangered species, job creation, education, and healthcare

What is the voluntary carbon market (VCM)?

Carbon markets can be both mandatory (compliance) schemes and voluntary programmes. The voluntary carbon market (VCM) operates outside the mandatory markets but in parallel, allowing companies, governments, NGOs and individuals to purchase carbon offsets voluntarily.

Their motivations are diverse: to act on climate change; to create added value for their customers, investors or citizens; to anticipate future regulation, or to engage in a collaborative process with key stakeholders (e.g., employees, NGOs, media), etc.

The VCM is playing a key role in raising corporate climate ambition. However, to ensure a material contribution to global decarbonisation efforts, organisations such as the International Carbon Reduction & Offset Alliance (ICROA) and the different certification bodies are working to make the VCM more robust, standardised, and transparent.

Project developers can apply to private entities and international standards to certify their projects and prove the amount of carbon emissions reduced, avoided, or removed. As a result of this certification, developers obtain voluntary carbon credits. These are stored at a personalised account in a registry owned or retained by the standard that certified the project.

Project developers can sell their credits directly to organisations, sell their credits through a broker or an exchange, or sell to a retailer who then resells the credits to organisations.

According to the international standard for certifying carbon emissions reductions, the Verified Carbon Standard (VCS) or VERRA, by the end of 2019, the VCM had achieved over 608 million tonnes of CO2e in emission reductions or removals, which is the equivalent of more than 131 million cars taken off the road for a year.

What is a carbon credit?

One carbon credit is equivalent to one metric tonne of reduced, avoided or removed CO2 or equivalent CO2. Once purchased, the credit is then retired through publicly accessible emission registries held by international standards and global exchanges. When a credit is used for offsetting, it becomes an offset, and the credit is permanently retired so it cannot be reused (for transparency and accountability, carbon credits are assigned serial numbers).

Why is there such variation in price of carbon credits?

The carbon market like any other market is driven by supply and demand, competition, and competitive pricing. In addition, market dynamics mean that project developers adjust their pricing to reflect market demand.

The voluntary carbon market encompasses many different project types in many different locations. As well as a range of co-benefits (such as employment opportunities for local communities or education programmes), each project has a unique scope that impacts the cost structure. This has a direct effect on operational cost and is among the reasons why voluntary carbon credits vary in price.

Beyond operational costs, the geography of the project, delivery time and the different types of projects, the price of a carbon credit is also influenced by:

  • Volume of credits purchased at a time – as in any other market, the higher the volume the lower the price.
  • Credit vintage – the vintage of a carbon offset refers to the year that its associated credits were issued. Generally, carbon credits are issued once they complete a third-party verification. The older the vintage the cheaper the price. Usually, organisations seek out carbon offsets with vintages around the same timeframe as the residual emissions that they are looking to offset.

It is important to always consider that the price of a carbon credit must account for the costs of setting up a project, its ongoing monitoring, and the cost of gaining verification. Most importantly, it must enable its long-term viability.

How do we ensure emission reductions and other social and economic benefits are taking place?

Only credits from third-party accredited projects, adhering to internationally recognised standards should be considered (Gold Standard, Verified Carbon Standard (VCS), American Carbon Registry, Climate Action Reserve, etc.) Verified carbon offsetting projects ensure that the credits are high-quality and offer measured emissions reductions, which have been subject to a rigorous auditing process. They also ensure that the projects provide additional and measured value to the communities in which they operate, and that these do not negatively impact the ability of local communities to earn their livelihoods, as well as protect local and indigenous people’s rights.

The Verified Carbon Standard (VCS) and VERRA also require projects to establish mechanisms for communication with local stakeholders during project design and implementation. Concerns can be raised about any potentially negative impacts and must demonstrate to the auditor at validation and every verification that it has taken due account of all, and any input received.

The feasibility and effectiveness of projects are a priority for EcoAct. We only engage with projects that have been certified by internationally recognised standards. These projects are subject to rigorous auditing processes that ensure that the project adheres to the following criteria:

  • Additionality: reductions in emissions achieved by the project are supplementary to what would have happened in the absence of the payments derived from the sale of carbon credits.
  • Permanence: refers to emission reductions being ‘permanent’ and representing a long-term mitigation benefit. Measures are in place to limit the risk of reversal of CO2 emission reductions to ensure their permanence.
  • No leakage: the mitigation activity does not lead to the increase of emissions outside the boundaries of the activity.
  • Measurability: net GHG emission reductions or removals by sinks are quantifiable using recognised conservative methods against a credible baseline.
  • Independent auditing: mitigation activities and their emission reductions are validated and verified by independent third-party auditing bodies. Activities and emission reductions are assessed against the applied methodologies.
  • No negative impact on local populations: mitigation activities being implemented do not lead to negative impact or harm to local communities.
  • No double counting: to ensure the environmental integrity of mitigation activities, emission reductions or units cannot be claimed or accounted more than once. The new accounting framework in Article 6.2 of the Paris Climate Agreement addresses the critical issue of accounting for internationally transferred mitigation outcomes (ITMOs) to avoid double-counting, both by the country obtaining them and the country supplying them.
  • According to the principle of measurability, the avoided or sequestered emissions of each project must be verifiable according to a recognised methodology, developed by experts and verified by an independent body. Without a certified and verified methodology, a project cannot issue carbon credits.

To ensure the robustness of the carbon credits being sold, EcoAct has additional due diligence processes via its EcoScore©. We rigorously assess more than 30 criteria around seven main risks categories (political, legal, financial, communication, social, environmental and industrial). EcoScore© is a unique risk management matrix designed in accordance with international standards on risk management, notably ISO 31000, and it enables us to select the most high quality projects.

In addition, we carry out audits in the field to check first-hand projects’ carbon reduction or sequestration activities and their positive impacts in the communities. We also work closely with project developers and local communities to verify the methodologies used to assess emissions reductions and co-benefits.

How can we ensure the permanence of offsetting projects?

Climate change is already having a lasting impact on global ecosystems, with rising sea levels, frequent flooding, wild fires, droughts, etc. All these risks must be better integrated not only into carbon finance but also (and above all) into all environmental projects.

As part of the certification process, the international carbon standards require projects to conduct a risk analysis, including forecasting climate impacts at the project level, which must be demonstrated through project documentation and feasibility studies. For example, if part of a mangrove is expected to be eroded due to sea level rise within 100 years, then the appropriate VCS certification methodology requires that this area cannot be considered in the calculations unless an adaptation measure is implemented to prevent this erosion.

This is a difficult exercise that requires foresight at project level but allows us to reflect on the importance of adaptation actions. This is an important point to consider: to have a better chance of functioning, a carbon offset project, whether restoration, reforestation, afforestation, or conservation, must imperatively implement adaptation measures and consider climate risks.

In the case of extreme weather events, malicious acts (e.g., deliberate fires), or negligence, the Verified Carbon Standard (VCS) for example, has a process in place to mitigate risks and respond to a potential carbon loss.

In short, project developers have a real interest in doing everything possible to prevent this type of event from interfering in their projects by implementing the necessary actions and measures in advance.

What makes EcoAct different from other carbon offset providers?

For over 16 years, EcoAct has been promoting best practice, rigour and transparency across all our clients’ net-zero plans – from emissions management, through drastic CO2 emission reductions, to carbon offsetting of residual emissions.

We encourage and support our clients in setting and achieving science-based emission reduction targets (aligned with the Science Based Targets initiative’s recommendations) while developing and implementing a robust carbon offsetting strategy that best aligns with their values and priorities.

As an accredited project developer and Gold Standard partner, we are dedicated to both supporting and developing high-quality certified carbon offsetting projects that put nature and communities at their centre, delivering tangible and measurable benefits to local communities.

We facilitate a revenue stream to support the development and implementation of projects, but we also provide clients with staff expertise, due diligence, and risk management, along with the compliance elements of carbon credits registry management and surrender.

EcoAct’s role, therefore, goes beyond trading carbon credits. It offers a set of services and expertise needed to guarantee high-quality certified carbon offsetting projects, and so ensures the environmental and social integrity of each carbon offsetting project we develop or support.

We regularly visit and audit projects ourselves and through a detailed on-site due diligence process and framework, we verify the reality of a project’s operations on the ground and impacts in the field. We also engage with project developers and local communities to understand and verify the methodologies used to assess emissions reductions and to hear the experiences of project beneficiaries.

Funds from the sale of carbon credits are also 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 Interxion, Schneider Electric France, and the Calanques National Park.

Four tips to ensure you are investing in robust and effective carbon offsetting:

1. Work only with those experienced in designing and implementing certified offsetting projects.

2. Give preference to offset providers that are partners of the most rigorous standards, signatories to best practice and audited by third parties.

3. Select carbon credits that benefit from reference standards focusing on accounting, monitoring and verification of projects, and that are subject to registration by a recognised independent entity.

4. Communicate transparently on your offsetting efforts, with clear information on the selected projects and their impact.

More on how to communicate your offsetting strategy.

What are the criticisms of offsetting?

There is a perception that offsetting enables polluters to simply pay to continue polluting. Reducing emissions should always be the primary focus of a net-zero strategy.  If organisations are merely using offsets as a means to pay to pollute without engaging in reducing their emissions, they will be subject to increasing risks to their business both from the impacts of climate change as well as the risks associated with their reputation, their ability to gain investment and the demands of upcoming legislation. These organisations will not thrive long term.

Robust carbon offsetting strategies acknowledge that offsetting is no replacement for emissions reductions. Such strategies need to also detail the scopes the offsetting accounts for, and the number of credits purchased (in tCO2e), as well as include information about the projects supported in terms of environmental and social impacts generated.

How does carbon offsetting help us reach net-zero?

There is enormous pressure now from all angles to achieve net-zero as soon as possible. We are in a climate emergency and that requires urgent and ambitious action from business by every means possible. Independent climate focussed initiatives, such as the Science Based Targets initiative (SBTi), CDP, WWF, the United Nations, and the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) all agree that carbon offsetting plays an important role in taking responsibility for emissions, throughout the journey to net-zero.

Organisations cannot offset their way to net-zero. Net-zero is a long-term goal requiring deep decarbonisation of 90-95% of emissions and removal of the remaining 5 to 10% of value chain emissions. In the near term, organisations are encouraged to invest in carbon offset projects that reduce emissions outside their value chain to address the following global gaps:

  • Timing gap: As a planet we must decarbonise as quickly as possible. Current planned action from governments around the world will lead to overshooting required timelines advised by the IPCC and climate science.
  • Ambition gap: According to the Climate Action Tracker, all the global pledges and targets in existence will still lead to approx. 2.7°C of warming by 2100. Regarding policies on climate action in practice, it can lead to approx. 2.5°C – 3.5°C of warming.
  • Finance gap: Governmental funding of low-carbon pathways are not enough on their own. The United Nations Environment Programme (UNEP) says the finance gap currently stands at USD 4.1 trillion. The private sector is therefore a critical tool in mobilising capital, and this must be utilised in an effective way.

Carbon offsetting plays a solid role in helping bridge these gaps, and while it should not be seen as the solution, it should be seen as a valuable means to finance sustainable development and support projects that are doing some vital work to preserve habitats, implement sustainable development and improve people’s lives whilst eliminating some of our international carbon emissions.

Our commitment

As part of our voluntary carbon offsetting offering, we follow the guidelines defined by the International Carbon Reduction & Offset Alliance (ICROA) Code of Best Practice.

ICROA is a non-profit initiative housed within the International Emissions Trading Association (IETA) that brings together actors committed to promoting emissions reductions and offsetting to the highest standards of environmental integrity and in support of the Paris Agreement.

Each year, ICROA accredited organisations, such as EcoAct, are audited to ensure their activities adhere to ICROA’s Code of Best Practice.

To guarantee clients ownership of carbon credits, we have established an internal registry of carbon credits for buying, selling, and cancelling transactions. Following ICROA’s best practice, the registry is also audited annually by an independent auditor, certifying that:

  • The traceability of purchases, sales and cancellations of carbon credits is ensured through registration in one or more international registries accredited by different standards.
  • Their origin is identified, and carbon credits sold and cancelled correspond to unique, permanent, and measurable emissions reductions or sequestration.

In addition, we carry out our own audits on all our voluntary carbon offset projects to ensure their quality and compliance with market best practice.

Aware that climate change impacts both our economy and wellbeing, we only select and develop projects that provide the greatest possible co-benefits in line with the UN SDGs.

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