What are carbon offsets and how many really work?

You’ll hear a lot about pledges from companies and governments to cut greenhouse gas emissions to “net-zero,” as they aim to eliminate their impact to help stave off climate change. Ideally a big chunk of that will come from switching to new lower-carbon technologies, developing more energy-efficient processes, switching to renewable energy sources, and recycling materials more effectively. But what about the rest? Many companies claim it’s not economically feasible to go all the way. That’s where the concept of carbon offsets comes in. But offsets are highly controversial, and the debate about them was reignited by the COP27 climate summit in Egypt.

1. What is a carbon offset?

The idea is that when a company, government or individual absolutely must emit carbon dioxide, the same amount of the greenhouse gas will be removed from the atmosphere by other means to compensate. Using the word “offset” to describe environmental initiatives traces back decades to early efforts to tackle pollution, such as the 1970 US Clean Air Act, before halting climate change became the ultimate goal. While offsets have historically centred on the planting or protection of trees, which absorb carbon dioxide, the term has since been applied to a variety of environmental efforts globally.

2. Who is involved?

Most of the discussion of offsets revolves around voluntary ones that are purchased by companies, organisations or individuals trying to meet self-imposed goals. These transactions typically involve developers who propose offset projects, registries that validate whether the carbon savings are real and brokers who match offsets with buyers. At the COP27 summit, US climate envoy John Kerry proposed the development of a new framework for offsets. The programmes are gaining popularity despite mounting scepticism over whether they’re effective in reducing emissions.

3. How big is the voluntary market?

About $1bn in 2021, according to Ecosystem Marketplace. It’s not administered by any specific government or organisation, and there’s considerable debate about how the market has evolved. BloombergNEF analysts estimate that 1,900 carbon offset projects issued credits from 2015 to 2020 with the four major registries. They created more than 344mn carbon offsets in 2021, up from 185mn in 2020.

4. What kinds of projects can produce offsets?

The vast majority of offsets available fall into a category called “avoided emissions.” These are projects that either protect forests, provide people with alternatives to using fossil fuels, or avert emissions from waste. If done right, such projects can reduce the volume of greenhouse gases being added to the atmosphere while providing other benefits to local communities and promoting biodiversity. Beyond planting or protecting trees, offsets can also be generated by preventing the release of greenhouse gases other than CO2, like methane or nitrous oxide. Typically, more expensive offsets involve removing carbon dioxide that’s already in the atmosphere and storing it away. That may involve projects like growing a forest or installing machines that vacuum carbon dioxide out of the air. Just 4% of offsets actually remove CO2 from the atmosphere, according to data from the Taskforce on Scaling Voluntary Carbon Markets, which receives funding from Bloomberg Philanthropies.

5. Are offsets effective?

There’s a big debate about that. Assuming the certification process is watertight (a big “if”), the effectiveness of an offset project comes down to the concept of “additionality.” That’s determined by measuring how much extra good a project achieves compared with what would have occurred in the absence of carbon payments. Projects that flare methane leaking from coal mines or destroy climate-warming gases produced by industry can more easily show that they’re adding real benefits (provided that local laws don’t require these actions). Others, such as new solar farms or preserving well-stocked forests, will often have lower additionality because there’s a good chance these climate-friendly actions would have occurred without money from the offsets market. A growing number of scientists are raising doubts about the effectiveness of the market, and some sellers of offsets have joined the call for more guidelines. For example, weak rules have created incentives for landowners to develop offset projects that don’t actually change the way forests are managed, and therefore do little to help the climate.

6. How will the debate likely play out?

Given the credibility issues surrounding avoided-emissions offsets, a few companies are moving to focus only on the carbonremoval varieties. In 2022, buyers including Alphabet Inc, Meta Platforms Inc and Stripe Inc banded together to launch a $925mn fund committed to buying carbon-removal offsets from new startups. The hope is that the money will help these fledgling enterprises scale up and make carbon removal cheaper; the largest machine capturing carbon dioxide from the air in 2022 had a capacity of only about 4,000 tonnes annually.