Carbon Offsetting is an internationally recognized mechanism to incentivize climate action and work towards decarbonization on a global scale. Purchasing carbon credits provides critical finance for advancing new greenhouse emission reductions and removal technologies. In this changing landscape, navigating the carbon offset market can be challenging.
In the first of this two-part series, experts from Schneider Electric’s Renewable Energy and Carbon Advisory have compiled nearly a dozen frequently asked questions we have received on carbon offsetting to help you get started.
1. What is carbon offsetting?
Carbon offsetting is a qualifying reduction in greenhouse gas emissions, removal, or carbon storage (e.g., through land restoration and tree planting) used to compensate for emissions that occur elsewhere. As a policy-based market mechanism, carbon offsets are designed to accelerate adoption of new greenhouse emission reduction activities or technologies that would not have otherwise occurred without carbon market investments and credit transactions.
Carbon offsets are often interchanged with carbon credits and verified emission reductions (VERs). However, these terms can have slightly different meanings. While offsetting is the action of compensation – a carbon credit, or VER in the voluntary market – is the transferable financial instrument, verified and certified by an independent body and issued on a public registry. A carbon credit represents at least one metric ton of greenhouse gas emissions reduction or removal. Once an organization purchases and uses the carbon credit towards a claim, it is then taken out of circulation and “retired.”
2. What are the quality characteristics of carbon offsets?
Carbon offsets can be used to compensate for an organization’s unavoidable greenhouse emissions. Therefore, offset projects must demonstrate effective climate benefit and meet essential requirements of the voluntary carbon market standards and methodologies. High-quality carbon offset projects should demonstrate that implementation and use of the credits will provide greenhouse gas emission reductions or removals that are:
- Additional to business-as-usual activities
- Permanent and not reversable
- Conservatively calculated from a realistic baseline
- Not overestimated and accounts for potential greenhouse gas emissions leakage
- Not double counted or reported by another entity
- Not associated with social or environmental harms
3. What is additionality and why is it important for carbon offsets?
Additionality is one of the key criteria for determining high-quality carbon offsets. Carbon offsets are “additional” if they can be traced back to the existence, operation, and financial incentives created by global carbon markets whether voluntary or regulated. Without the “additionality” requirement, there is no guarantee that the carbon offset activities will lead to a reduction of greenhouse gas emissions (GHG) into the atmosphere. Implementing and issuing carbon credits for GHG reductions that “would have happened anyway” will result in an increase in global emissions, making climate change worse.
4. What types of projects are eligible for carbon offsetting?
Carbon offset projects generally fall into two categories: Avoidance and carbon removals. Avoidance offset projects reduce or prevent greenhouse gas emissions from being emitted – for example by protecting a forest at risk of harvest or capturing and destroying methane in a landfill. Some types of avoidance offsets can also fund community and environmental benefits that go beyond carbon – such as biodiversity and ecosystem services (forest and land protection projects) and improved health and pollution reduction (efficient cookstoves and clean water projects).
Carbon removal offsets provide funding for nature-based solutions or implementing new direct air capture (DAC) or other advanced technologies. Nature-based solutions sequester and store carbon through reforestation, mangrove restoration and soil regeneration. Other advanced removal technologies capture and store carbon in products like biochar or bio-oil to name a few.
5. How are carbon offsets certified for crediting?
Carbon offset projects undergo a lengthy process of eligibility determination and certification for crediting. An essential first step is selecting a greenhouse gas emission reduction project that would not have already occurred because of “business-as-usual” activities or capital improvements – this is known as the additionality principle. Next steps to determine eligibility require careful project screening and assessment, third-party validation and verification against well-established voluntary carbon market standards and methodologies. Offset developers must register their eligible project on a globally recognized public registry to undergo review by standards experts and other stakeholders. If approved, the carbon credits are issued to be held, traded and retired for use in company claims. Carbon offset projects require ongoing monitoring and verification to determine conservatively estimated emission reduction credits each year.