A short guide to carbon offsets

Carbon offsetting is controversial on a number of levels. While we don’t necessarily endorse it, this feature explains what carbon offsetting is, the different types of offsetting, the standards to look out for, and what you could do instead.

What is carbon offsetting?

Carbon offsetting is paying for someone else to reduce their carbon emissions in order, in theory, to ‘neutralise’ your own.

The market is ballooning – in 2021, the voluntary carbon market more than doubled in size, and by 2022 the tonnage sold was equivalent to nearly 1% of global emissions.

This is due to the rise in company net zero targets: about a third of companies plan to use offsetting to meet their net zero targets. We mark companies down in our Ethiscores for this as they need to be cutting their own emissions now, and it’s way too late to be passing the buck.

However, some individuals are also interested in offsetting their own personal carbon emission, and some businesses want to do it in addition to, rather than instead of, meeting their own targets.

This feature is aimed at these people and businesses, and at anyone who wants to know more about what lies under those glossy corporate claims of ‘carbon neutrality.’

What are the types of different carbon offsetting?

Quality offsets are sometimes talked of as exhibiting features that can be abbreviated (with a bit of effort on word order) as VALID:

• Verifiability – there is a robust audit trail.
• ‘Additionality’ – the carbon savings are additional to what would have happened anyway.
• ‘Leakage’ avoided – emissions are not just moved elsewhere.
• Impermanence avoided – carbon savings will be sustained over time.
• Double-counting does not occur – reductions are only claimed once.

But we would add another proviso to this: the offset should not harm, and ideally should help, other important things like local people and biodiversity.

With those features in mind, here is a tour through the different types of offsets and which ones are likely to be higher quality.

Land use offsets: forestry, biomass, Reducing Emissions from Deforestation and Degradation (REDD)

Land based offsets are largely those aiming to preserve forests or plant new ones. Their popularity has been growing, and they are now the largest category. While they have the potential to do good, they have also been severely criticised.

One issue is permanence. This issue arises because CO2 has a long lifetime in the atmosphere, so when you release carbon dioxide from fossil fuels it is more or less going to stay there permanently. But plants and soils are generally only temporary carbon stores. They absorb CO2 slowly until they reach their maximum size or holding capacity. But without some means of transferring the carbon into a permanent form, you then have to ensure that they remain there indefinitely, or the carbon will all be lost again. At a time of growing pressure on land resources, that is a big ask. Although some carbon offset programs have established extra ‘buffer reserves’ to draw on in case anything happens to the land in question, it isn’t clear whether this adequately addresses the issue.

Land use offsets are also very prone to 'leakage' because, when people are prevented from deforesting in one area, they often just move to a different bit of the forest and do it there instead.

There have, in addition, been some tree-planting offset scandals in which local people were evicted from the land to make way for the trees. One of the most recent ones is from the Republic of Congo, where 400 farming families say that they have been thrown off their land so that the oil company Total can plant trees for an offsetting project. This was reported in late 2022, which makes claims that “that kind of thing doesn’t happen any more” ring a bit hollow.

There are also recent reports that many offsets claiming to reduce deforestation are actually in areas which wouldn’t have been deforested anyway.

Land use projects in the UK are lower risk on all of these fronts because we are a wealthy country with a moderately well-functioning regulatory system, and it is too late for us on the land rights front anyway – we had our land enclosures so long ago that they are largely forgotten.

The Climate Change Committee's UK decarbonisation scenarios include more afforestation within the UK than is actually happening so, by supporting these projects you can help to close that gap.

Renewable energy offsets

While renewable offsets sound good, they are actually now one of the types considered most likely to be junk. This is because many of them appeared just as renewables had become the cheapest source of energy in most countries anyway.

In 2016, a major report for the European Commission looking at ‘compliance’ offsets (see box below) found that most energy-related offsets (renewables, fuel switch, efficient lighting, waste heat recovery), were unlikely to be ‘additional’ – the project would have happened anyway – and the offset money wasn’t actually making any difference.

This doesn’t mean that renewables are always cheap nowadays. As you add larger amounts of renewables onto an electricity grid the overall system costs rise, which changes the picture, and there are more expensive energy-related technologies, such as heat pumps. However, it is precisely to avoid buying such expensive things that most people buy offsets.

The large amount of junk renewable offsets sloshing around on the market has been a source of major tension at international climate talks. In general, we’d advise avoiding buying renewable offsets unless they are for more expensive technologies, or for pilot projects that need help getting off the ground.

Industrial gas and methane reduction (HFC-23, adipic acid, nitric acid, landfill gas, coal mine methane)

Another form of offsetting is paying for the capture and destruction of strong greenhouse gases like HFC-23 and methane.

Huge amounts of ‘compliance’ offsets (see box below) have historically gone to Chinese chemical plants in return for them destroying HFC-23, a stupendously strong greenhouse gas. HFC-23 is pretty easy to destroy, and some chemical factories are known to have produced HFC-23 just so they could get paid for destroying it again, although, in 2013, the standards were tightened to stop this happening.

However, this kind of offsetting produces obvious perverse incentives at the wider level, such as helping to fund industries which we actually need to be moving away from, and governments being persuaded not to regulate the industries so they can keep getting the foreign funding.

We thus advise steering clear of these projects too.

Energy efficiency, water purification and cookstoves

Some offsets involve projects to improve cookstoves in poorer countries, or to reduce the need to boil water through water purification.

These projects have major health co-benefits, which is a good reason to support them – the WHO argues that “close to 4 million people each year die prematurely from illness attributable to household air pollution from inefficient cooking practices using polluting stoves partnered with solid fuels and kerosene.”

However, there is reason to be suspicious of the amount of carbon they claim to be cutting. The 2016 EU Commission report found it pretty questionable.

And offsetting may also not be the best way to support these projects. Cookstove improvement projects are already done by standard charities (e.g. Cook Stove Project).

Most carbon offsetting is done by for-profit companies, and a 2009 calculation of the cost of offsetting with Certified Emission Reductions (see box below) calculated that, on average, only about 30% of the money made it to actual projects, with the rest being taken by verification costs, overheads, and project developers’ profits.

Net negative technologies

Although they are a tiny proportion of the offset market, you can now buy offsets for ‘net negative’ technologies that actually permanently remove carbon from the atmosphere, for example, through the Finnish company Puro.earth.

The technologies being discussed as net negatives include biomass/wood in construction (where it is preserved), biochar (charcoal added to agricultural soils - charcoal doesn’t break down to CO2 like biomass does, and it can also be good for the soil), Biomass with Carbon Capture and Storage (BECCS), and Direct Air Capture and Storage (DACCS).

Many of these technologies are really still in development. There is a good case for supporting these developments – we are going to need them to get to net zero, as there are always a few stubborn emissions that you can’t eliminate. But it is worth noting that although Puro.earth does talk about the more exciting, and expensive, technologies like BECCS and DACCS, when you look at what they actually offer, the projects are all for biochar or biomass in construction.

Quality standards for carbon offsetting

Nowadays offset projects are invariably verified by a third-party standard. We cover the main ones below.

The Verified Carbon Standard (VCS or Verra)

Verra approves about three quarters of voluntary offsets. It has been very harshly criticised, however, including recently by the Guardian, which conducted an in-depth investigation and estimated that a significant percentage of its projects, including more than 90% of its rainforest offsets, are likely to not represent genuine carbon reductions. However, Verra strongly disputed the Guardian’s conclusions. Several months after the investigation, the CEO of Verra announced he will step down.

The Gold Standard (GS VERs)

The Gold Standard, developed by the WWF, requires projects to benefit the local population as well as cutting carbon, and it is generally regarded as stricter than many of the others.

But independent scrutiny has still raised issues. Like all the other standards, it allows programme developers to collect their own data on how much carbon is being saved. One academic study looked at a Gold Standard-approved project in Kenya supplying water filters. The academics found that many recipients weren’t actually using them much, and thus only a quarter of the claimed carbon savings were really being made. The Gold Standard disputes these findings.

The Woodland Carbon Code (WCC) and Peatland Code

The Woodland Carbon Code and Peatland Code certify woodland and peatland restoration projects in the UK, which are sold through both offset companies and NGOs like the RSPB. They are the only voluntary standards backed by the government, and are generally considered pretty robust.

UK woodland projects must avoid monocultures by conforming to the UK Forestry Standard, which means a maximum of 75% of the trees can be a single species.

Fairtrade Carbon Credits (FCC)

The Fairtrade Climate Standard is an add-on to the Gold Standard, launched in December 2015.

Fairtrade Carbon Credits are GoldStandard carbon credits with the addition of Fairtrade standards like labour standards, a price floor and a premium.

SocialCarbon, and the Climate, Community & Biodiversity (CCB) standards

These are add-on standards that intend to ensure that the local community and biodiversity benefit from the offset. They do not quantify or verify quantities of carbon saved.

What are the problems with carbon offsetting?

There are number of problems with carbon offsets. Some of these include

• it is not paying the true cost of decarbonisation
• it focuses on 'easy wins' and things already happening, not additional
• it's not preventing actual carbon cuts

Cost of decarbonisation vs prices of carbon offset

One of the major criticisms of offsetting is that it involves false equivalences. The basic idea behind it was that you may as well pick the low-hanging fruit first – the cheap, easy wins. Its cheerleaders were fond of saying “the atmosphere doesn’t care where you make emission cuts”.

But the thing is that, over time, the atmosphere does care (metaphorically speaking), because some cuts are more sustainable in the long term. Some enable you to make more cuts. Some are just harder to do.

This becomes clear when you look at prices. An international group of economists called the High Level Commission on Carbon Prices estimated in 2017 that to incentivise the changes required to reach the 1.5 degree Paris target, a carbon price of at least £37-74/tonne would be needed in 2020, rising to £46-£92 in 2030.

Yet voluntary offset prices are an order of magnitude lower – around £3-5/ tonne. This makes it very visible that offsetting almost by definition doesn’t involve paying a fair share of the cost of decarbonisation.

When you have to pick all the fruit, picking the low-hanging fruit is not equivalent to climbing the tree to pick the harder fruit, or getting started on making the ladder you’re going to need to reach it.

It is also this fact – that offsetting is aimed at picking the low-hanging fruit, that is one of the reasons why it is so plagued with accusations of fraud.

Few 'additional' schemes, and low achievement rates

Easy things are often not meaningful things. If something is very easy, its ‘additionality’ can start to look dubious, as people may well have done it anyway. It may be plagued with ‘leakage’, because it probably isn’t addressing deep underlying problems, so symptoms just get shifted around.

And to make it worse, offsets are a uniquely abstract commodity – they only exist relative to an idea of what would have happened without them, something which nobody knows. Recent research by academics and the Guardian have suggested that many anti-deforestation offsets are in areas that would not have been deforested anyway. The easiest place to prevent deforestation is, indeed, where nobody is trying to deforest in the first place.

Again, looking at prices can be instructive – UK land-based offsets generally cost £10-20/tonne, while the Climate Change Committee estimates that UK afforestation will cost £65-105/tonne in 2035. As the Committee says:

“Some present prices are lower than might be expected, suggesting that they may not be fully reducing/removing the quantity of emissions they claim, providing fairly strong evidence of failed additionality and over-claiming.”

The 2016 European Commission report referenced above, which looked at Clean Development Mechanism offsets, estimated that only 2% of the projects and 7% of the credit supply had a high likelihood of cutting the carbon claimed.

What is the best approach to carbon offsetting?

Given that offset cuts are so uncertain, if you do want to buy them it is best to take a broad approach to maximise your chances of doing good overall – thinking not just about tonnes of carbon, but also things like health benefits and whether the overall industry is one that you want to be supporting.

We think reasonable bets are Woodland and Peatland Code-approved UK projects, net negative technologies, and Gold Standard-approved projects in poorer countries which have other benefits, such as improved cookstoves.

But the most important thing is to understand that offsets are not a substitute for cutting your own emissions, and to take claimed emission cuts with a Mount Sodom’s worth of salt.

And, if you are a business, given the uncertainty around the effectiveness of most offsets, any claims that your products or projects are 'carbon neutral' because you use carbon offset schemes need to be avoided, or accusations of greenwashing will never be far away.