Carbon Offsets vs Carbon Credits: What's the Difference?

What’s the difference between carbon offsets vs carbon credits?

The voluntary carbon offset market is projected to reach $700.5 million by 2027 – with an 11.7% Compound Annual Growth Rate (CAGR) – hence the need to understand the difference between carbon offsets vs carbon credits has never before been this pressing. And as a purpose-driven business leader, it’s important you understand the basics before entering this market to reduce the climatic impact of your organization.

Key questions to address include:

What is carbon offsetting?
What is the difference between carbon offsets vs carbon credits?
Can carbon offsetting effectively mitigate climate change, or are we banking on a fruitless quick-fix solution?

This Green Business Benchmark article has been written to answer these questions. Use the links below to learn more.

Thinking about the latter, we’ll attempt to highlight the controversy around carbon offset schemes, with the belief that knowledge is power. Our aim is to support the continuous debate around the effectiveness of carbon offsetting, as highlighting the issues serves to perfect the solutions. And so we introduce our 5 carbon offsetting rules, which are summarized in the infographic below. By following these rules, businesses can mitigate the problems associated with carbon offset schemes.

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It’s important to bare in mind that at the Green Business Benchmark° we prefer you to take real action and reduce the GHG emissions you can control – to lower your carbon footprint in the first place. But we understand every business will have some emissions they cannot eliminate, which is where carbon offsets come into their own.

Defining the difference between carbon offsets vs carbon credits

To understand the difference between carbon offsets vs carbon credits, we must first define the two terms separately.

CARBON OFFSETS VS CARBON CREDITS: WHAT ARE CARBON OFFSETS?

A carbon offset describes the reduction, or removal, of carbon dioxide or other greenhouse gas using a process that measures, tracks, and captures GHG gases to compensate for an entity’s emissions exuded elsewhere. GHGs are captured using projects such as tree planting schemes, renewable energy infrastructure, carbon capture programs, or community-based sustainable developments.

Carbon offsetting works on the following principle: It doesn’t matter where GHG emissions are reduced or absorbed because GHGs mix globally in the atmosphere. Therefore, companies can partner/pay other companies to help minimize their impact on the environment.

Carbon offsetting can be done on an individual or at an organizational level. Many businesses choose to invest in carbon offsetting projects voluntarily, to lower their carbon footprint. To do so, organizations must be aware of their impact. Businesses can estimate total operational emissions themselves, or use online carbon footprint calculator tools.

To find out how you can calculate the carbon footprint of your business read: How To Calculate Your Carbon Footprint.

If you’re wanting to calculate the carbon footprint of a given product or service, follow the specifications laid out in PAS2050, ISO/TS 14067, or the GHG Protocol for products.

CARBON OFFSETS VS CARBON CREDITS: WHAT ARE CARBON CREDITS?

When a business invests in a carbon offsetting project, that business will receive carbon credits. A carbon credit is a transferable instrument, certified by governments or independent bodies, and represents a reduction in GHG emissions of one metric tonne of CO_2e. As such, a carbon credit is a generic term for any tradable certificate or permit. These represent the right to emit a set amount of carbon dioxide, or the equivalent amount of a different greenhouse gas.

An easy way to think about this is to imagine carbon credits as the tokens, or accounting language, used to convey net climatic benefits from one entity to another.

Once purchased, the buyer can retire the credit to claim the GHG reduction. A retired carbon credit is taken off the market, meaning it cannot be traded or swapped, as an entity has claimed the emission reductions promised. This avoids double-counting, e.g. multiple organizations claiming GHG reductions for the same carbon credit.

CARBON OFFSETS VS CARBON CREDITS: WHAT’S THE DIFFERENCE?

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To summarize, a carbon offset, or carbon offsetting, is the practical process (the action) that gives rise to a carbon credit. That is, carbon offsetting involves a project – such as a renewable energy project or a tree planting program – that removes GHGs from the atmosphere. The carbon credit is then the tangible measure that illustrates how much carbon dioxide – or other greenhouse gas – has been removed from the atmosphere via a given carbon offset project – with one carbon credit representing one metric tonne reduction in CO_2e.

Is the demand for carbon offset schemes rising?

The global voluntary carbon credit market has increased drastically over the years, removing 95MtCO_2e in 2020, up from 44MtCO_2e in 2017. We’ll explain what a carbon credit is later in this article. The important point here is that companies are paying other companies to capture the carbon they emit at an accelerating pace. As such, the value of the carbon credit market continues to reach record heights.

Once more, according to a report by Ecosystems Marketplace, a growing number of companies are committed to achieving net-zero, often by using carbon offsets for the “last mile“, i.e. to account for the emissions they cannot eliminate. This is reflected in the spike of carbon offset credit retirements. E.g. for the first time since 2017, more carbon offsets were retired than issued in quarter one of 2021. In summary, this data shows more and more companies are committed to seeing offset projects through to completion.

In theory, carbon offsetting seems like a sound process. If a business emits X amount of CO_2e, then surely investing in projects elsewhere that reduce GHG emissions by X amount of CO_2e leads to carbon neutrality?

Unfortunately, carbon offsetting is not that simple and comes with some caveats. Not meeting these specifications can lead to greenwashing, and has caused scepticism over carbon offset schemes. After all, we want companies to lower their emissions, and not to “buy” their way out while they continue to emit carbon without consideration or remorse.

It’s important to understand why carbon offsetting has received criticism to make informed investment decisions. Let’s address the elephant in the room and take a look at this controversy.

Can carbon offsets effectively mitigate climate change? Following the five rules of carbon offsetting to avoid greenwash

One individual opposed to carbon offsetting is Guardian columnist George Monbiot. Monbiot explains that carbon offset projects are an indulgence for the rich, where businesses can…

“…buy complacency, political apathy and self-satisfaction.” – George Monbiot, Paying For Our Sins

In other words, has carbon offsetting developed into some sort of purgatory for our environmental sins? Is it okay for us to fill up our gas-guzzling SUVs if we promise to plant a tree in Paraguay?

Monbiot hits on one of the main concerns when it comes to carbon offsetting. Critics’ acclaim offsetting grants decadence for businesses with environmentally damaging operations. The mechanisms are provided to divert attention towards an easy solution for lowering an organization’s carbon footprint. Yet, businesses aren’t pushed to make fundamental strategic, structural, and behavioral changes for greener operations in the first place.

For instance, let’s take a look at EasyJet. This airline allows consumers to offset flight emissions at checkout. A noble action, but let’s not forget the climatic impact of flying. A return flight from London to San Francisco emits ~5.5 tonnes of CO_2e per person, which is more than a typical passenger vehicle emits in one year, and about half the carbon footprint of someone living in Britain. The airline industry is responsible for 5% of global GHG emissions. Can carbon offsetting really counteract an industry with a high carbon footprint, and one that’s dedicated to growth? Is it fair for EasyJet to flaunt carbon offsetting programs when the fundamental objectives are to market, promote and expand air travel?

This example introduces our first rule of carbon offsetting. That is:

Carbon offsetting rule #1: Best practice states that any offset approach should be linked to reductions in GHG emissions internally.

Thinking about rule #1, carbon offsetting comes hand-in-hand with carbon reduction.

You see, the problem with solely focusing on carbon reduction strategies is that they’re tied with yearly targets (e.g. reductions to be made in 5 years, 10 years, 20 years, etc). This means there will be years of additional emissions before these targets are realized. Carbon offsetting allows entities to reduce total emissions today, while also focusing on their internal GHG emission reduction targets.

Further criticism towards carbon offsetting comes from – but is not exclusive to – tree planting regimes. The main concerns associated with tree planting offset projects are:

Timing: There’s a time delay before the carbon offsets promised are captured. Trees grow over years, and during that time capture carbon from the atmosphere. Hence, these carbon offsets are forward-sold. They account for the carbon capture potential of a planted tree, not the real offsets made. Many external factors in that time can reduce the offset potential of the tree planting project (e.g. trees die, catch fire, and are chopped down). This decreases the accuracy of the offset credit promised.
Originality: Sometimes an offset scheme promises to reduce GHG emissions, yet these emission reductions would have been made anyway, regardless of the funded project. E.g. An area of land could already be planned for reforestation by governmental schemes in X years, which would make offset schemes with the same target irrelevant.
Permanence: Forests are fragile ecosystems. They are susceptible to clearing, fires, and mismanagement. The 2002 mango tree planting project funded by Coldplay gives a stark reminder of this fact. Coldplay wanted to offset the emissions of their second album and funded the plantation of 10,000 mango trees. Yet years later, few survived. In addition, the project kicked native peoples from their land, questioning the ethics of this scheme.
Ethics: The aforementioned example brings us to the fourth criticism of offset schemes, that is, just because carbon offsets are made, doesn’t mean the project is ethical. There are many factors to consider when investing in carbon offset projects. Ethics are not expendable to push GHG emission reductions.
Monocultures and invasive species: To cut costs, reforestation schemes have been known to plant fast-growing invasive species, reducing diversity and leading to monoculture (a single crop) plantations. This can disrupt natural ecosystems, and invalidate the offsetting efforts.

Caveats to reforestation schemes can work to avoid the above issues mentioned. In addition, acknowledging these problems has diversified the type of offset projects available on the carbon market. Today offset schemes include clean energy and community projects. Yet, the rules of carbon offsetting remain the same. Keeping the above in mind and adding to rule #1, we have:

Carbon offsetting rule #2: Timing for when the promised offsets are captured should be considered and stated. Forward selling of offset credits should be avoided unless the offsets are certain.
Carbon offsetting rule #3: Offsets made should be unique to the project in question and not funding schemes that will happen anyway.
Carbon offsetting rule #4: A clear strategy to ensure project permanence should be successfully established.
Carbon offsetting rule #5: Local communities and ecosystems must not be negatively affected.

Carbon offsetting is all about finding solutions to climate change. Carbon offsetting allows us to recognize we’re financing the problem, but we can also invest in the solutions by following the rules of offsetting.

THE BENEFITS OF CARBON OFFSETS

As with any debate, it’s important to consider both sides. Having addressed the issues, let’s consider the benefits carbon offsetting projects bring.

Benefit #1:Carbon offsetting raises awareness around the climatic impacts of operations, and also educates and communicates the issues of climate change. Thanks to offsetting efforts, more and more businesses are aware of their impact, and are now prepared to act.
Benefit #2: By putting a price on pollution, carbon offsetting works as a sort of green tax in that the true cost of a polluting activity is realized. By offsetting, although voluntary, the price of a GHG emitting activity is raised meaning consumers will look for less carbon-intensive alternatives. This changes the game in business, as organizations are pushed to compete on a sustainability level.
Benefit #3: The money invested into carbon offset schemes is used to reduce emissions and support communities. In this sense, offsetting acts as a climate lever.

Offset Business Emissions While Reducing GHG Emissions Internally

Carbon offsetting is a valuable tool to help us obtain a zero-carbon future. Yet, carbon offset schemes are only effective when the rules are met. To recap, the rules of carbon offsetting are:

Carbon offsetting rule #1: Best practice states that any offset approach should be linked to reductions in GHG emissions internally.
Carbon offsetting rule #2: Timing for when the promised offsets are captured should be considered and stated. Forward selling of offset credits should be avoided unless the offsets are certain.
Carbon offsetting rule #3: Offsets made should be unique to the project in question and not funding schemes that will happen anyway.
Carbon offsetting rule #4: A clear strategy to ensure project permanence should be successfully established.
Carbon offsetting rule #5: Local communities and ecosystems must not be negatively affected.

Rules #2 and above are in the hands of the offset provider. Yet, as a business looking to offset your GHG emissions, it’s your job to search for providers that follow these rules. Looking for certification is crucial to finding such offset schemes.

Thinking about rule #1, this is mainly in the hands of the entity searching for the offset. As a business, you need to be strategizing to reduce your GHG emissions in the first place, as well as investing in carbon offset schemes. And this is where the Green Business Benchmark° can help.

At GBB, we will support you as you work to create a sustainable business, with a focus on the action and initiatives you can implement internally before you resort to offsetting. Our GBB EcoAssessment will guide you towards improved business sustainability by presenting green initiatives you can institute. This includes initiatives that directly work to reduce GHG emissions internally.

You can then communicate your achievements honesty and transparency to your consumers using GBB’s online EcoProfile, which will detail what green initiatives your business has implemented. When the time is right, after you’ve completed GBB’s EcoAssessment you’ll receive a green seal to certify your efforts.

GBB was created to provide organizations with an affordable means of green certification, with plans starting for any size business. Sign up to the Green Business today and start reducing your GHG emissions internally. Then consider offsets, but only after you’ve taken some immediate actions.