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What in the world is a carbon offset?

By Dr. Destenie Nock

Addressing climate change requires reducing greenhouse gas (GHG) emissions. One way to reduce GHGs is through the use of voluntary carbon offset credits, sometimes simply called offsets, or carbon credits.

Carbon offsets are generally defined as a reduction in GHG emissions that flow into the atmosphere. This can occur from a company reducing their energy usage, making their supply chain more sustainable, or increasing carbon storage (e.g., planting trees). Carbon offsets are often used to compensate (“offset”) emissions that are generated in other parts of the world.

Sometimes the term “carbon offset” is used interchangeably with “carbon credits” or “carbon offset credits.” However, these terms have unique meanings. A “carbon offset” is equivalent to one metric tonne of CO2e avoided, reduced or removed from the atmosphere, while a “carbon credit” is a certificate (financial instrument) that an organization can purchase to offset their emissions. It can also be representative of alternative GHGs (e.g., methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), nitrogen trifluoride (NF3), and sulfur hexafluoride (SF6)) that are equivalent to one metric tonne of CO2. Often purchasers of offset credits can use these to claim the underlying reduction and progress towards their own GHG reduction goals.

The overall purpose of these credits is to provide direct financial incentives to implement mitigation activities to accelerate the transition towards a low-carbon economy, in line with the world’s Nationally Determined Contributions (NDCs) under the Paris Agreement. Carbon markets have been recognized by Article 6 of the Paris Agreement as a key tool in the fight against climate change because they can be used to convey net climate benefits being exchanged between entities while allocating capital efficiently into decarbonization activities. When released into the atmosphere, GHGs mix globally, which means that GHG reduced in one part of the world will have worldwide benefits. Carbon offsets make it cost-effective for organizations to enable emission-reducing activities outside of their geographical regions. On our path towards a global carbon market, carbon offset credits will aid entities in reducing overall GHGs.

Companies that plan to participate in the carbon offset market should look into carbon offset programs that offer assistance in progressing through the set of rigorous conditions that must be met to ensure they are purchasing certifiable and legitimate carbon offset credits. These carbon offset programs should adhere to the Core Carbon Principles outlined by the Integrity Council for the Voluntary Carbon Market (ICVCM), which result in high-integrity credits that generate verifiable climate impact backed by transparent data.

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