What is Carbon Offsets?

What is Carbon Offsets?

Carbon offsets represent measurable, verified reductions or removals of greenhouse gas emissions from the atmosphere, used to compensate for emissions occurring elsewhere. When an organization offsets one tonne of its CO₂ emissions, it funds a project that reduces or removes an equivalent tonne—such as protecting a forest that would otherwise be logged, capturing methane from a landfill, or deploying clean cookstoves in developing communities.

Why It Matters

Carbon offsets occupy a contentious but necessary position in the climate toolkit. The reality is stark: even the most aggressive decarbonization strategies leave residual emissions that current technology cannot eliminate. Aviation, cement production, and agriculture all face hard-to-abate emissions that will persist for decades. Offsets provide a mechanism to take responsibility for these emissions while permanent solutions develop.

The offset market has undergone a credibility crisis and subsequent reformation. Between 2022 and 2024, investigative reporting and academic research revealed that many popular offset categories—particularly avoided deforestation (REDD+) projects—significantly overstated their climate benefits. Some studies suggested that over 90% of rainforest credits from a major registry did not represent genuine emissions reductions.

This reckoning has been productive. The ICVCM's Core Carbon Principles now provide a quality taxonomy, and the Voluntary Carbon Markets Integrity Initiative (VCMI) has established guidelines for how companies should use offsets in their climate claims. The market is shifting from cheap avoidance credits toward higher-quality removal credits—reforestation, biochar, enhanced weathering, and direct air capture—that offer greater permanence and verifiability.

Corporate buyers are adapting. Microsoft, Stripe, and Frontier have pioneered advance market commitments for carbon removal, paying premium prices to scale nascent technologies. This approach accelerates innovation while establishing price signals that attract investment. The offset market is evolving from a compliance exercise to a genuine climate finance mechanism.

How It Works / Key Components

Offset projects follow a standardized lifecycle: design, validation, implementation, monitoring, verification, and credit issuance. Project developers create a design document detailing the activity, its baseline scenario, the methodology for quantifying reductions, and the monitoring plan. Independent third-party auditors validate the design and periodically verify actual performance.

Quality assessment centers on five criteria. Additionality ensures the project wouldn't have happened without offset revenue. Permanence addresses whether stored carbon will remain sequestered for meaningful timescales—a particular challenge for forestry projects vulnerable to fire or policy changes. Accurate quantification requires conservative baseline assumptions and robust monitoring. Leakage assessment checks whether the project displaces emissions rather than reducing them. Social and environmental co-benefits—biodiversity protection, community livelihoods—add value beyond carbon accounting.

The offset landscape spans diverse project types. Nature-based solutions include afforestation, reforestation, avoided deforestation, wetland restoration, and soil carbon management. Technology-based solutions encompass methane capture, industrial gas destruction, clean energy deployment, and engineered carbon removal. Removal credits (physically extracting CO₂ from the atmosphere) command higher prices than avoidance credits (preventing emissions that would have occurred) due to greater permanence and additionality.

Retirement—permanently removing a credit from circulation by recording its use—is the final step. Credits must be retired in a recognized registry to prevent double-counting. Organizations should match retirements to specific emissions in specific reporting periods, with transparent disclosure of the offset types, vintages, and standards used.

Council Fire's Approach

Council Fire advises clients on building offset portfolios that meet emerging quality standards while delivering meaningful climate and social impact. We conduct due diligence on project quality, structure procurement strategies that manage price and delivery risk, and ensure offset use is positioned within a credible hierarchy where direct reductions take precedence.

Frequently Asked Questions

Are carbon offsets greenwashing?

Not inherently, but they can be when used to avoid genuine emissions reductions or when the credits purchased lack integrity. Credible offset use follows the mitigation hierarchy: measure, reduce, then offset residual emissions with high-quality credits. Transparency about what is being offset and why is essential.

What makes a high-quality carbon offset?

High-quality offsets demonstrate real additionality, permanent carbon storage (or equivalent), conservative quantification, no significant leakage, and independent third-party verification under a recognized standard. Co-benefits for local communities and ecosystems further strengthen quality.

Should companies invest in removal or avoidance offsets?

Both have roles, but the market is moving toward removals. Avoidance credits (preventing deforestation, deploying renewables) face additionality challenges, while removal credits (reforestation, direct air capture) provide more durable climate benefits. Leading frameworks like SBTi require removals for neutralizing residual emissions under net-zero targets.