Overview
A carbon offset is a unit of account. It represents one metric tonne of CO2-equivalent (CO2e) emissions that have been avoided, reduced, or removed from the atmosphere through a specific project, and that reduction has been verified and certified so it can be sold to someone else who wants to claim credit for it.
The logic is geographic flexibility: if it’s cheaper or faster to reduce emissions in one location than another, the climate doesn’t care where the reduction happens. A company in Germany that can’t yet decarbonise its manufacturing might purchase offsets from a reforestation project in Brazil. The net effect, in theory, is the same tonne of CO2 not in the atmosphere. In practice, the theory is considerably harder to execute than it sounds.
Offsets are traded in two distinct markets. The Cap-and-Trade compliance system uses carbon permits (also called allowances), legal rights to emit under a government-set cap. Offsets are different: they’re certificates generated by voluntary or project-based schemes, outside the compliance system. Confusing the two is a common error, and the distinction matters when communicating about corporate climate claims.
The voluntary carbon market (VCM) is where companies, governments, and individuals purchase offsets without a legal obligation to do so, purely to meet their own net zero or carbon neutral commitments. The VCM grew significantly through the early 2020s before coming under intense scrutiny, with multiple investigative reports finding that many widely-used offset projects delivered far less climate benefit than their certificates claimed.
Three Types of Offsets
Emission reductions cut the amount of greenhouse gas produced in the first place. Examples include renewable energy projects that displace coal-fired power, and methane capture projects at landfills or livestock facilities.
Emission avoidance prevents emissions that would otherwise have occurred. Clean cookstove projects in developing countries, replacing wood or charcoal with more efficient stoves, are a widely used example. Forest protection projects under the REDD+ framework (Reducing Emissions from Deforestation and Forest Degradation) fall here too: they generate credits by claiming that without the project, the forest would have been cleared.
Emission removals actively pull CO2 out of the atmosphere. Reforestation and afforestation (planting trees) are the most common examples; direct air capture (DAC) and enhanced weathering are newer, more expensive approaches. Removals are generally considered higher quality than avoidance, because they address existing atmospheric concentrations rather than just slowing the flow.
The Additionality Problem
The single most important concept in offset quality is additionality: the emissions reduction must be additional to what would have happened anyway without the project. If a forest was never going to be cut down, protecting it doesn’t reduce emissions, it just maintains a baseline. Certifying it as an offset and selling the certificate inflates the apparent climate benefit without delivering a real one.
Additionality is notoriously difficult to verify because it requires predicting a counterfactual, what would have happened in the absence of the project. This is inherently uncertain, and that uncertainty is routinely exploited. Investigative journalism in 2023, including work by The Guardian and other outlets, found that a large proportion of REDD+ forest credits from a major certifier significantly overstated their carbon benefit.
The Greenwashing risk is acute. Companies claiming carbon neutrality on the basis of low-quality offsets are making a claim that is almost certainly misleading, a pattern that sits squarely within the Greenwashing Typology of false or unsubstantiated claims.
Standards and Verification
Several standards bodies certify offset projects. The most prominent include Verra (which administers the Verified Carbon Standard, or VCS), Gold Standard, and the American Carbon Registry. Each sets rules for project eligibility, baseline-setting methodology, and independent verification. Quality varies significantly between project types and registries.
The UNFCCC and COP process has been attempting to establish Article 6 of the Paris Agreement, a framework for internationally traded carbon credits between countries. The Article 6 negotiations have been slow and contested, partly because the rules around avoiding double-counting are genuinely complex.
The Science Based Targets initiative (Science Based Targets Initiative) discourages the use of offsets as a substitute for direct emissions reductions, arguing that companies should use offsets only for residual emissions after achieving deep decarbonisation, not as a primary strategy.