Quick Comparison
| Carbon Offsets | Carbon Credits | |
|---|---|---|
| Scope | Compensate for emissions by funding reduction/removal projects elsewhere | Tradeable units representing the right to emit or a verified reduction of one tonne CO₂e |
| Applicability | Voluntary markets, corporate net-zero claims | Both compliance (cap-and-trade) and voluntary markets |
| Required/Voluntary | Primarily voluntary | Can be either regulatory or voluntary |
| Geography | Global project-based | Jurisdiction-specific in compliance; global in voluntary |
| Key Focus | Funding emission reduction or removal projects | Accounting unit for emissions trading |
What is a Carbon Offset?
A carbon offset represents a verified reduction or removal of one metric tonne of carbon dioxide equivalent (CO₂e) from the atmosphere, generated by a project outside the buyer's own value chain. When a company purchases an offset, it funds activities like reforestation, methane capture at landfills, or clean cookstove distribution in developing regions. The fundamental premise is that greenhouse gases mix globally, so a tonne reduced anywhere benefits the climate everywhere.
Offsets are issued by standards bodies such as Verra (Verified Carbon Standard), Gold Standard, and the American Carbon Registry. Each standard enforces criteria around additionality, permanence, and third-party verification. A reforestation project in Brazil, for example, must demonstrate that the trees would not have been planted without offset revenue, that the carbon will remain sequestered for a defined period, and that an independent auditor has confirmed the claimed reductions.
The offset market has faced scrutiny. A 2023 investigation by The Guardian and academic researchers found that over 90% of Verra's rainforest protection credits did not represent genuine emissions reductions. This prompted Verra to overhaul its methodology and tighten baseline-setting rules. Buyers today face real reputational risk if they rely on low-quality offsets without proper due diligence.
What is a Carbon Credit?
A carbon credit is a broader term for a tradeable instrument representing one tonne of CO₂e. In compliance markets—such as the EU Emissions Trading System (EU ETS), California's cap-and-trade program, or China's national ETS—credits are called allowances. Regulated entities receive or purchase allowances and must surrender enough to cover their annual emissions. If they reduce emissions below their allocation, they can sell surplus credits.
In voluntary markets, the term "carbon credit" is often used interchangeably with "carbon offset," though technically every offset is a credit but not every credit is an offset. Compliance credits (allowances) are created by regulation, not by project-based emission reductions. Their price is set by supply and demand within the regulated market—EU ETS allowances traded above €90/tonne through much of 2023-2024, while voluntary credits ranged from under $2 to over $50 depending on project type and vintage.
Carbon credits function as the accounting currency of emissions trading. Whether generated through cap-and-trade allocation or project-based verification, they enable the transfer of emission reduction value between parties. Article 6 of the Paris Agreement establishes rules for international transfer of credits (called Internationally Transferred Mitigation Outcomes, or ITMOs), linking national and voluntary markets under a common governance framework.
Key Differences
1. Origin mechanism. Offsets originate from discrete projects that reduce or remove emissions. Compliance credits originate from government allocation under a regulatory cap. This distinction matters because an offset requires proof of additionality, while an allowance exists because a regulator created it.
2. Market context. Offsets operate primarily in the voluntary carbon market (VCM), valued at roughly $2 billion in 2023. Compliance credits trade in regulated markets worth over $900 billion annually. The price signals, liquidity, and regulatory backing differ enormously.
3. Verification and oversight. Offsets are verified by independent standards bodies (Verra, Gold Standard, ACR, CAR). Compliance credits are governed by national or regional regulators with legal enforcement powers. The level of accountability is structurally different.
4. Price range. Voluntary offsets vary wildly in price—from less than $2 for older renewable energy credits to $100+ for direct air capture removals. Compliance credits tend toward higher, more stable prices because scarcity is enforced by regulatory caps.
5. Use in climate claims. Offsets are used to claim carbon neutrality or to compensate for residual emissions in net-zero pathways. Compliance credits satisfy legal obligations. Using offsets for corporate claims increasingly requires adherence to the Voluntary Carbon Markets Integrity Initiative (VCMI) Claims Code.
6. Fungibility. Compliance credits within the same system are fungible—one EU allowance equals another. Offsets are heterogeneous; a tonne from a cookstove project differs materially from a tonne of direct air capture in terms of permanence, co-benefits, and risk profile.
7. Retirement vs. surrender. Offsets are "retired" from a registry to make a claim. Compliance credits are "surrendered" to a regulator to meet obligations. Both actions remove the unit from circulation, but the legal and operational contexts differ.
Which One Do You Need?
If your organization operates in a regulated jurisdiction—power generation in the EU, large emitters in California, or covered entities in China's ETS—you need compliance credits. There is no choice involved; it's a legal obligation.
If you're pursuing voluntary climate commitments, offsets enter the picture. The Science Based Targets initiative (SBTi) requires companies to prioritize deep decarbonization within their value chain and limits the role of offsets to neutralizing residual emissions only after near-term targets are met. Under the VCMI Claims Code, companies can make "Silver," "Gold," or "Platinum" claims based on how much they offset beyond their reduction trajectory.
For companies not yet subject to compliance markets but anticipating future regulation, building familiarity with both mechanisms is prudent. Internal carbon pricing—assigning a shadow price to emissions—can bridge voluntary and compliance thinking.
Can You Use Both?
Absolutely, and many large emitters do. A power company in the EU surrenders allowances for its regulated emissions while purchasing voluntary offsets for Scope 3 emissions not covered by the ETS. A multinational might face compliance obligations in one jurisdiction and use voluntary offsets for operations elsewhere.
The critical rule is: no double counting. A tonne of reduction cannot simultaneously satisfy a compliance obligation and back a voluntary offset claim. Article 6 of the Paris Agreement introduced "corresponding adjustments" to prevent countries from counting transferred credits toward both the seller's and buyer's national targets. Similar principles apply at the corporate level.
The Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles provide a quality benchmark that companies can use to ensure their voluntary purchases meet a threshold of environmental integrity, regardless of whether they also participate in compliance markets.
Council Fire's Perspective
The offset-versus-credit distinction matters far less than the quality of what you're buying and the honesty of the claim you're making. We've seen organizations hide behind cheap offsets to avoid the harder work of operational decarbonization, and we've seen others dismiss offsets entirely when high-quality removal credits could genuinely accelerate climate outcomes. The right approach is a credible reduction pathway first, with offsets playing a defined, transparent role for residual emissions.
At Council Fire, we help clients navigate both compliance obligations and voluntary commitments with a focus on integrity. That means selecting credits with robust additionality evidence, aligning purchases with SBTi and VCMI guidance, and building internal capacity to manage carbon accounting across both market types.
Frequently Asked Questions
Are carbon offsets the same as carbon credits?
Not exactly. All offsets are carbon credits, but not all carbon credits are offsets. In compliance markets, credits (allowances) are created by regulation rather than by project-based emission reductions. The term "carbon credit" encompasses both compliance allowances and voluntary offsets.
Can I use carbon offsets to meet compliance obligations?
Generally, no. Most compliance systems accept only their own allowances, though some (like California's cap-and-trade) allow a limited percentage of compliance obligation to be met with approved offset credits from specific project types and registries.
How do I ensure the offsets I buy are legitimate?
Look for credits verified under recognized standards (Verra VCS, Gold Standard, ACR) that meet the ICVCM Core Carbon Principles. Prioritize credits with recent vintages, clear additionality evidence, and strong permanence guarantees. Avoid the cheapest available credits without understanding why they're cheap—price often correlates with quality in the voluntary market.
What is the difference between avoidance offsets and removal offsets?
Avoidance offsets prevent emissions that would otherwise have occurred (e.g., protecting a forest from deforestation). Removal offsets actively pull CO₂ from the atmosphere (e.g., direct air capture, biochar). The SBTi's net-zero standard requires companies to use removal credits, not avoidance credits, to neutralize residual emissions at the net-zero target year.
Need help with Carbon Offsets vs Carbon Credits: Key Differences Explained?
Our team brings decades of sustainability consulting experience. Let's talk about how Council Fire can support your goals.