the practice of giving money to support projects that reduce [greenhouse-gas-emissions] or draw greenhouse gases out of the atmosphere.

Carbon offsetting is an economic model for supporting projects that counteract the primary cause of human-caused climate change.

Target Markets

There are two main groups of buyers that are interested in purchasing carbon offsets.

Compliance customers, especially branches of government, may be legally compelled to demonstrate net-zero carbon emissions in a given reporting period. If the cost of reducing emissions is high or the path to net-zero extends beyond the reporting period, the organization may purchase carbon offsets as an interim measure.

Voluntary customers, most often private citizens, may be interested in purchasing offsets as a means of private action on climate change or as a way of reducing guilt associated with personal carbon footprint. Organizations selling carbon offsets to this group of buyers often price them with relevance to specific resource-intensive purchases or activities, such as purchasing flights for long-distance vacations.

Evaluating Offsets

Carbon offset projects must guarantee four principles in order to be considered high quality offsets.

  • Additionality. The project must provide a reduction in emissions compared to a business-as-usual baseline.
  • Permanence. The avoided emissions or collected carbon must not make its way back into the atmosphere over a reasonably long timeline.
  • Not double-counted. No other organization or nation can take credit for the avoided emissions.
  • Leakage. The project must not support or encourage emissions in another area.

Verifying that a particular project guarantees all of these principles is a challenging task, and that has led to the formation of certifying bodies like Gold Standard that provide evaluation of offset projects.

Controversy

The practice of using carbon offsets has garnered controversy because it is easy to find offsetting projects that miss at least one of the four important principles for a high quality offset. And furthermore, there is concern that the use of carbon offsets may create a moral hazard where high-emitters feel entitled or encouraged to continue or even increase activities that generate carbon emissions.

A 2016 study estimated more than 80% of carbon offset projects do not meet the criteria for additionality.

Alternative Models

There are some other economic models that have similar goals to carbon offsetting.

  • Carbon Tax
  • Cap and Trade
  • Low-carbon investing