The Essential Guide

to Carbon Offsetting
What companies need to
know about offset projects
Reducing emissions is
a key component to
tackle climate change
There is no doubt that reducing greenhouse gas
emissions is the most crucial component in tackling
climate change and keeping global warming under
1.5 °C. For this reason, the global economy needs to
undergo rapid and deep decarbonisation. Businesses
of all sizes and industries around the world are
called upon to reduce emissions within their
operations and value chains. At the same time,
companies need to be investing in climate mitigation
to address climate change and help the global
community to reduce its carbon footprint. This is
where carbon offsetting comes in.

This mechanism is both an immediate way for

businesses and organisations to take responsibility
for their unabated emissions now and to contribute
to achieving the United Nations‘ Sustainable
Development Goals.

This eBook sheds light on carbon offsetting, carbon

offset projects, and the current standards and quality
criteria of the voluntary carbon market.
People are increasingly aware of the urgency
to join forces in the challenging battle against BY 2050
LIMIT GLOBAL

climate change by taking climate action.

TEMPERATURE TO

1.5 °C

Halving emissions in only a few years from now

will not be possible without the participation of all
industries and businesses. This is a fact.
Even though civic engagement around the world has significantly increased
and more countries have declared their commitment to drastically reduce
greenhouse gas (GHG) emissions in order to limit global warming to 1.5 °C However, achieving this target is not that simple and requires both short-term
by 2050 as enshrined by the Paris Agreement, there is still much to do. and long-term strategies as well as the large-scale deployment of different
measures: carbon offsetting is one of them.
The IPCC report made it clear in early 2022: To reach the goal of net zero
emissions by 2050, we need to reduce GHG emissions by 7.6% every year Learn about the concept of carbon offsetting and what role it plays in a
from 2021 until they are halved by 2030. State and citizen engagement is company’s transition towards net zero emissions, the different technologies used
important to increase awareness of the urgency of tackling climate change in carbon offset projects, and the standards of the Voluntary Carbon Market.
and setting policies that enable climate action.
Carbon offsetting allows
immediate climate action Carbon offsetting allows companies to
compensate for their hard-to-abate green-
house gas emissions, which means the
You may have heard about “carbon offsets” and assume that they involve
emissions that remain after reduction efforts,
reducing CO2 emissions, but there’s a lot more to it than that. Let’s start with to balance out their carbon footprints.
a clear explanation of what carbon offsetting really means. This is achieved by funding carbon offset
The UNFCCC describes carbon offsetting as an action that allows companies projects around the world that reduce,
and individuals “to compensate for the emissions they cannot avoid, by remove, or prevent the release of GHGs
supporting worthy projects that reduce emissions somewhere else.” In other
words, carbon offsetting is climate action that organisations take voluntarily
into the atmosphere.
to reduce, remove, or prevent the release of CO2 and other GHG emissions.
Why is carbon offsetting so important?
Human activities, like transportation, agriculture, and electricity generation, are
responsible for most of the GHGs in the atmosphere over the last 150 years,
causing global warming and driving climate change. A report from the World
Meteorological Organization predicted that the planet could reach 1.5 °C above
pre-industrial levels by 2025, in only three years’ time. Going beyond that threshold
means significantly increasing the impacts of climate change, like extreme
weather conditions and rising sea levels. Moreover, according to recent research
led by the University of Leeds, the current rates of warming will put Earth at risk
of crossing several climate tipping points, which could lead to irreversible shifts
and change the world forever, such as the disappearance of permafrost
peatlands in Europe and Western Siberia.

The effects of rising global warming on Earth according to NASA

419
Carbon dioxide
427
Ice sheets
parts per million (current) billion metric tons per year

1.01
Global temperature
4
Sea level
degrees Celcius since 1880 inches since January 1983

13
Arctic sea ice extent
337
Ocean heat added
percent per decade since 1979 zettajoules since 1955

Source: according to NASA

According to Columbia University, a tipping point is “the point at which small
changes become significant enough to cause a larger, more critical change

39
that can be abrupt, irreversible, and lead to cascading effects”. The permafrost
peatlands store up to 39 billion tons of carbon, which is the equivalent of twice
that stored across all European forests. As the global temperature rises, this BILLION TONS
OF CARBON
permafrost is at increasing risk of thawing and potentially releasing carbon
stored for millennia as well as methane, an even more potent GHG than carbon
dioxide. This in turn will lead to increased global warming and could potentially
accelerate climate change.

The answer is clear: To prevent climate change, companies need to drastically

reduce greenhouse gas emissions, halving them by 2030. In the longer term,
90% to 95% of emissions should be eliminated before 2050, according to the
Science Based Targets initiative (SBTi).

During their transition towards net zero emissions, companies should “take
action to mitigate emissions beyond their value chains” by investing in climate
mitigation projects outside of the value chain (i.e. carbon offsetting). Examples
include “high-quality, jurisdictional REDD+ credits or investing in direct air
capture (DAC) and geologic storage”.

That is why the international community has agreed to adopt different measures
with global impacts, to pave the way for the transition to net zero emissions by 2050.
One of these measures that allow, among others, businesses to contribute to the
overall mitigation effort is carbon offsetting.
Responsible offsetting must follow
the mitigation hierarchy
The need to drastically reduce and cut carbon emissions is unequivocal.
According to the SBTi’s net zero standard, companies should focus on
rapid and deep emissions cuts first, not instead of, offsetting. This means,
that companies should follow the “mitigation hierarchy”, committing as a
first order priority to reduce their value chain emissions before investing
to mitigate emissions outside their value chains.

Once this option is exhausted, companies should “go further by making

investments outside their science-based targets to help mitigate climate
change elsewhere”. This is where carbon offsetting comes in.

Carbon offsetting can play “a critical role in accelerating the transition to

net zero emissions at the global level”, as stated by the SBTi. In this context,
the UNFCCC declared carbon offsetting as part of three steps that companies
should follow: measuring their corporate carbon footprint, reducing as much
as they can, and offsetting what emissions they cannot avoid.

However, a report from the Royal Society and Royal

Academy of Engineering stated that only reducing GHG
emissions, even drastically, will not be enough to reach
the net zero goal by 2050. The same report affirmed the
necessity of nature-based removals and technological
solutions such as direct air capture and carbon storage
as an integral part of any climate action strategy on the
road to net zero.
Therefore, to counteract the unabated emissions, we will need to enhance
and add to GHG sinks around the globe. These are natural storage systems
that absorb and remove GHGs from the atmosphere, such as plants, the soil,
and the ocean.

For a better understanding of the role of sinks and why they are crucial to
tackling the climate crisis, it is useful to explain the carbon cycle.

The carbon cycle, which is vital to life on Earth and even a part of the air we
breathe, consists of sources and sinks. The sources emit carbon into the
atmosphere. The sinks, such as forests, absorb carbon from the atmosphere
and serve as natural storage systems. In the past, the carbon cycle was
delicately balanced in the atmosphere. But with the beginning of industrialisation,
human activities like burning fossil fuels have rapidly increased the amount of
CO2 in the atmosphere. The level is already higher than at any time in the last
3.6 million years. Once humans started burning coal, gas and oil, the carbon
that was stored in these fuels for millions of years was suddenly released in a
very short period, while at the same time, carbon sinks are visibly continuously
shrinking and weakening.

Therefore, to restore this delicate carbon cycle, we need rapid and dramatic
decreases in GHG emissions. At the same time, we need to look for ways to
activate the removal of those emissions from the atmosphere.

According to the SBTi, most industries will only be able to reach net zero
through neutralisation (i.e. investing in carbon removal offset projects). That’s
why we need to invest in carbon removals today to increase the supply and
drive innovation in the space. This is where carbon offset projects come in.
So, what is a carbon offset project?
 Clean cookstoves

Carbon offset projects – giving

back to nature and communities
As a company, when you buy a carbon credit, you are buying a guaranteed
and verified environmental outcome. The idea is that by purchasing ex-post
credits, in other words credits where the CO2 reduction, avoidance, or removal
has already occurred, you can make substantiated and credible claims
about your own historic emissions. All offsetting standards have insurance
buffers to cover for any chances of reversal, and all projects go through
rigorous due diligence and regular auditing.

Carbon offset projects can be broadly classified into three types, based on
the function of their environmental contribution to achieve the net zero target:

• Projects that reduce GHG emissions through energy efficiency measures

(such as clean cooking stoves, and clean drinking water) or through the use
of renewable energy sources like wind or solar energy.
Solar energy
• Projects that avoid emissions like forest protection, also called REDD+ projects.

• Projects that remove and capture released GHGs directly from the atmosphere
through nature-based solutions such as afforestation, reforestation, and
revegetation (ARR), and soil organic carbon, or technology-based solutions
such as direct air capture and carbon storage (DACCS).
Drinking water Wind energy

Health & education

Carbon offset projects can also have other co-benefits
not only for the environment but also for communities,
such as better access to health and education, people’s
well-being, and their social and economic prosperity.
Moreover, carbon offsetting also contributes to the
United Nation’s 17 Sustainable Development Goals
(SDGs) like no poverty, zero hunger, good health, and
clean water and sanitation.
Offsetting projects drive technology
transfer and sustainable development
Most carbon offset projects are located in the global south and emerging Thirdly, the Kyoto Protocol, which is considered as the originator of the
economies. Why? There are three main reasons for this: offsetting mechanism, stated that climate change is a problem affecting the
whole planet, and reducing GHGs anywhere contributes to overall climate
Firstly, the principle of carbon offsetting is based on the fact that no matter change mitigation. Furthermore, it mandated that industrialised countries
where GHGs are emitted or avoided, they have the same impact on the reduce their GHG emissions compared to 1990 levels because it was these
climate. Therefore, GHG emissions caused in northern Europe, for example, countries that were responsible for the majority of the GHG emissions and
can be reduced or compensated for through carbon offset projects in southern for most of today‘s climate change impacts.
Asia or western Africa.
To help countries to meet their emissions reduction targets, the Kyoto Protocol
Secondly, in addition to reducing or preventing GHG emissions, carbon offset established, among other strategies, the Clean Development Mechanism (CDM).
projects in the global south and emerging economies can contribute to the
sustainable development of the hosting countries. This can occur, for example, This mechanism allowed countries with emission reduction commitments under
by improving health or creating new jobs or education opportunities for the the Kyoto Protocol to implement emission reduction projects in developing
local community. Moreover, carbon offset projects might facilitate the transfer countries. In other words, an industrialised country was permitted to offset its
of green technology to help the hosting country to tackle climate change. GHG emissions through the financing of carbon offset projects in developing
Offset projects are also a way to help those least responsible for historical countries that were not mandated to do so. This is where the initial principle
GHG emissions to benefit from some of the solutions. Nevertheless, nature- of carbon offsetting originates from.
based projects in Western Europe or USA are still important as these areas
need to preserve and restore their natural sinks too.

With the Paris Agreement of 2015, the successor of the Kyoto Protocol, the international community agreed that
climate change is a shared problem that can be only tackled through global cooperation. Furthermore, it was
reaffirmed that developed countries should provide financial, technical, and capacity-building support to countries
that are more vulnerable to the impacts of climate change.
How does voluntary
carbon offsetting work?
Carbon offsetting is quantified in tonnes, also called metric tons, of
carbon dioxide equivalents (CO2e). Once the carbon saving has been
verified, a project issues carbon credits each corresponding to 1 tonne
of carbon dioxide. As a reference, one carbon credit is equivalent to
1 tonne of CO2 not emitted or an equivalent amount of other GHGs
removed, reduced, or prevented by a carbon offsetting project. The
issuance is recorded on a public registry managed by an independent
standard body such as Verra or the Gold Standard. For a company
to make an offsetting claim, they would need to purchase the carbon
credit, and then retire it on the registry. This avoids double counting
and ensures that no one else can make a claim with the same carbon
credit. This is a very important requirement that will be explained later
in this eBook.

Two types of carbon credits are the most common. Verified Emissions
Reductions (VER) are exchanged within the voluntary market, while
Certified Emissions Reductions (CER) are carbon credits that were
created within the compliance market but can also be purchased
voluntarily. This leads us to explain how carbon credits are traded.
Understanding the Voluntary Carbon Market
The purchase and sale of carbon credits are Generally, the VCM is a decentralised market that In this market, companies and organisations can buy
conducted through carbon markets. There are facilitates trade between buyers and sellers of and sell carbon credits voluntarily, not because they
two types of carbon offset markets: voluntary carbon credits from GHG emissions reduction, are obliged to comply with legal obligations.
and compliance. removal, and avoidance.
However, there are no global regulations that define
As our focus here is on voluntary offsetting, As the name suggests, the VCM is driven by voluntary, how carbon credits purchased on the VCM align with
compliance offsetting is not explored further in private initiatives and not regulated by governments. science-based decarbonisation targets.
this eBook. Companies, organisations, or even In other words, while governments were wrestling
individuals are participants in the Voluntary with ways to address the impact of climate change, But various organisations have built on existing
Carbon Market (VCM), which functions in parallel private parties, who were concerned about the standards and guidelines from compliance markets
with compliance markets. So, what is the VCM? increase of GHG emissions and wanted to take to ensure the quality of voluntary offsets and
climate action into their own hands, took initiative increase their transparency and credibility.
and established the VCM.
Why do high standards in voluntary markets matter?
Even though voluntary offsetting is based on a self-imposed
commitment to contribute to climate action, carbon offset Therefore, to ensure that carbon offset projects satisfy internationally recognised
projects must be stringently validated, registered, and quality standards, they must abide by at least the following four characteristics:
regularly verified by third-party auditors according to
strict and internationally recognised standards, like the 1. Exclusion of double counting
Gold Standard, the Verified Carbon Standard (VCS), or It must be ensured that the GHG emissions saved through the carbon offset project
Plan Vivo. are accounted for only once. Double counting occurs when GHG emissions reductions
generated by a carbon offsetting project are claimed more than once by the same or
Carbon credits issued under one standard and retired in different buyers. Therefore, double counting is avoided through the issuance and
the registry of that standard cannot be transferred or used retirement of carbon credits in only one registry, as previously explained.
again by another standard. For example, a carbon credit
issued under the VCS is stored in the VCS registry. Once 2. Additionality
it is sold, it is then retired in the VCS registry and cannot This criterion applies to two key aspects: financial and environmental additionality.
be moved to the registry operated by another standard. Financial additionality means that the carbon offset project can only be realised through
additional funding and would not happen without the revenues generated through
The Clean Development Mechanism (CDM), established the carbon credit sales. On the other hand, environmental additionality means that the
under the Kyoto Protocol as the first major offsetting carbon offset project must lead to lower levels of GHG emissions compared to the
scheme, set three basic criteria to evaluate carbon offsets: baseline scenario (in which the project does not exist).
additionality, permanence, and verification. Other standards
now comply with the same criteria. Later, a fourth criterion 3. Permanence
was added to exclude double counting. This means that the GHG emissions reductions or savings must be permanent or at least
take place over an extended period, providing long-term benefits for the climate even
after the crediting period of a carbon offset project is finished.

4. Regular verification by independent third parties

This is a very crucial criterion to ensure that the internationally recognised standard
requirements are met. Carbon offset projects must be constantly monitored by the
project developer and regularly verified by independent third parties such as TÜV
Nord, SCS Global or Aenor. These Validation and Verification Bodies (VVBs) check
the compliance of the project with the respective methodology and verify the actual
amount of GHG emissions removed or avoided retrospectively.
Afforestation

Beyond carbon reduction, projects

improve the lives of local communities
As previously mentioned, standards such as the Gold Standard or the VCS
are designed to provide interested companies and consumers with “greater
transparency and confidence in the credibility and integrity of certified
offsets”. Additionally, certified projects are regularly audited and verified by
independent, third-party VVBs.

On top of this, additional standards such as the Climate, Community, and

Biodiversity (CCB) and the SocialCarbon Standard provide transparency that
the certified carbon offset projects provide co-benefits to the environment
and local communities.

While the main focus of carbon offset projects is to reduce, prevent, or remove
GHG emissions from the atmosphere and restore the delicate balance of
the carbon cycle, many also aim to provide social, economic, and other
environmental co-benefits for local communities and contribute to achieving
the UN‘s SDGs.

Social and economic co-benefits include the fight against poverty and
hunger, creating jobs, better education and health, improving the supply of
clean drinking water, free cooking stoves, and the dissemination of clean
and affordable solar, biomass, wind, and hydroelectric energy.

Environmental benefits include protecting biodiversity, maintaining habitats

for native animal and plant species, improving local air and water quality,
and clearing plastic waste from the ocean.
Carbon offsetting:
Contributing to global climate goals
Primarily intended to reduce, remove, or prevent GHG emissions from being
released into the atmosphere, carbon offset projects have significant benefits
not only for the environment but also for societies.

They foster the protection and restoration of natural ecosystems, help to meet
the Paris Agreement goals, and contribute to sustainable development and
reducing poverty in coutries in the global south, as stated by the UNFCCC.
To achieve these aims, carbon offset projects must meet defined criteria set by
internationally recognised standards, namely the exclusion of double counting,
additionality, permanence, and being independently verified. Furthermore,
carbon offset projects should provide additional social and economic benefits
to the sustainable development of the hosting countries and local communities.

Certainly, rapid and deep GHG emissions reduction is crucial to keep global
warming under 1.5 °C. However, carbon offsetting represents for companies both
an immediate climate action and a crucial long-term measure beyond their
value chains to neutralise any unabated emissions, enhance carbon sinks,
and restore the natural world. It is also an important source of financing climate
action and helps communities around the world to improve their livelihoods.

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