Sand Martin Wood in Faugh near Carlisle, Cumbria, UK, was acquired by the carbon offset company co2balance in September 2006/ Though seen as controversial by some carbon offsetting is one way of a company or individual to reduce their emissions, as the trees absorb and sequestrate carbon as they grow.
Ashley Cooper/Construction Photography/Avalon—Getty Images
October 28, 2022 3:27 PM EDT

As climate change threatens to reshape the planet forever, more and more companies are promising to improve their carbon footprint. But reducing greenhouse gas emissions doesn’t just happen overnight. That’s why many big corporations have turned to carbon offsets to bridge the gap.

“It’s a transitional tool,” says Sarah Leugers, chief strategy officer for Gold Standard, a voluntary carbon offset program based in Switzerland. “A company should be on a science-based decarbonization journey and use carbon offsets to take responsibility for emissions along the way.”

A carbon offset is a mechanism through which an individual or organization with an emissions reduction goal pays someone else to reduce emissions. Scientists think about climate mitigation and the greenhouse effect in terms of the whole earth; this means that atmospheric damage from carbon dioxide emitted by a factory in Chicago can be made up by the reduction in CO2 from a project introducing electric stoves to villages in rural India. Carbon offset projects often take place in developing countries in the Global South because the costs to take actions such as planting trees (or paying people to avoid cutting them down) or installing wind farms are significantly cheaper than in industrialized countries.

Even the biggest proponents of carbon offsets agree they’re not a silver bullet—and there are some with an even harsher critique. “In many cases, [carbon offsets] take the place of someone reducing their own emissions, and they can justify or alleviate the guilt of continued emissions,” says Barbara Haya, director of the Berkeley Carbon Trading Project at the University of California, Berkeley.

The system has come under scrutiny for not delivering on the emissions reductions promised. Both Haya and Danny Cullenward, policy director at the California-based climate research firm CarbonPlan, call the system “broken,” relying on flawed methodologies and incentives with little oversight. Both recommend that businesses focus on reducing emissions in their own operations—such as reducing business travel, using electric vehicle fleets, and switching to renewable energy—over a heavy investment in offsets.

The carbon offset market has grown dramatically in recent years, with major companies like Google and Amazon promising to go net-zero on emissions, in part through buying offsets, and airlines like United and American letting consumers purchase offsets equivalent to the tons of carbon emitted from their flights. In 2021, the total market value of voluntary carbon markets (VCM) reached nearly $2 billion, according to Ecosystem Marketplace, an initiative of Forest Trends, a nonprofit environmental finance organization in Washington, D.C. That figure is nearly four times higher than the value of VCMs the previous year at $520 million.

As the industry goes mainstream, there are hundreds of new carbon offset projects making big environmental promises and few resources to decipher what’s real and what’s bunk. Here’s how the process works and what a business should evaluate if it decides to use carbon offsets.

Certification is a Critical Part of the System

Carbon offset programs encompass many types of projects, although the most common ones include renewable energy projects (such as wind, solar, and hydroelectric), methane capture and combustion (burning methane turns it into a less harmful compound that can be used as fuel), energy efficiency (such as electrification), and forestry-related (like reforestation), according to the Las Vegas-based carbon offset company 8 Billion Trees, which runs big planting operations in the Amazon Rainforest.

One carbon offset credit represents one metric ton of carbon dioxide reduced in the atmosphere, whether through avoidance or capture of CO2. The prices vary depending on the project type, timeline, region, labor and material costs, and other factors. Projects must estimate the metric tons of CO2 avoided and then submit this information to a carbon offset registry, which then translates that climate impact into individual credits that can be bought and sold in a decentralized marketplace.

To receive internationally recognized credits for funding, projects are certified by one of the four major carbon offset registries that set the industry standards. The big four, according to experts, are the American Carbon Registry (ACR), Climate Action Reserve (CAR), and Verra (Verified Carbon Standard)—all three of which are based in the U.S.— and the Switzerland-based Gold Standard.

This certification involves an audit by a third-party verifier, commissioned by the project developer. Project protocols or methodologies approved by Verra, for example, must be scientifically sound, with permanent, measurable emissions that are conservatively estimated—meaning the methodology doesn’t overestimate the climate benefits of the project.

“Make sure [a carbon credit] is issued from an internationally recognized standard, because there are a lot of new organizations emerging that are claiming to issue carbon credits but don’t have the fundamental attributes,” says Leugers, of Gold Standard. Many projects, for example, do not have conservative baseline settings for calculating emissions reductions, or they would have happened even without the intervention of the program. Going with internationally verified projects can help alleviate this issue.

Nonetheless, Haya is skeptical of the methodologies used by carbon offset projects. “We’re in a poor-quality loop,” she says. “Because there are so many credits generated that exaggerate project impact, the prices are too low. At current prices, they’re not high enough to really drive emissions reductions.”

She says that registries should enforce stricter rules on what counts as a carbon offset credit within a project. A project that is liberal with its methodology will ultimately over-exaggerate credits generated and the benefit to the planet. But when registries do crack down on guidelines, project developers will often find another registry willing to accept their lenient protocols.

Monitoring, Reporting, and Verification

In any protocol, a project must include a plan for how progress is reported, emissions are calculated, and credits are issued. Once the plan is implemented, the project enters the monitoring, reporting, and verification, or MRV, phase.

Jodi Manning, vice president and director of marketing and partnerships for California-based Cool Effect, a nonprofit carbon offset provider, says the reporting timelines for their projects vary. Cookstove projects may be evaluated yearly, while forestry projects may be every three years. Nonetheless, Cool Effect says it requires updates every six to 12 months and performs regular site visits with photos and interviews.

At Gold Standard, most projects are required to report back about once a year, Leugers says. She points to Gold Standard’s membership with the International Social and Environmental Accreditation and Labeling Alliance (ISEAL) and its grievance process—to lodge complaints against projects or Gold Standard—as mechanisms for transparency and accountability.

Cullenward of CarbonPlan believes strict compliance with protocols can still be flawed. “We have a system for saying we followed the rules,” Cullenward says. “We don’t really have a system for checking whether or not the rules make any sense.”

Much of the uncertainty is inherent to carbon offsets as a whole, says Haya. “We know how to measure emissions. For offsets, you’re measuring emissions reductions and you have to measure against a counterfactual scenario of what would likely have happened without your program. It’s immeasurable, [and] the uncertainty is being deliberated by a set of actors that all benefit from more credits at poor quality.”

Assessing the Quality of the Carbon Credit

To assess a carbon offset credit’s quality, there are four major terms to know: additionality, permanence/durability, buffer pool, and leakage.

Many experts say the long-term climate benefits of carbon offsets rely on the concept of additionality, which means credits should only be generated for projects that would not happen without funding from carbon offset programs. “If the funds go to pay for trees that would’ve been planted anyway, then no offset should be generated for those trees,” Haya says. “You’re not reducing emissions, you’re just paying someone to do what they would’ve done anyway.”

Cullenward says many carbon offset companies exaggerate the additionality of projects. A recent study looking at wind farms in India found that at least 52% of carbon offsets were for projects that would likely have been built regardless of help from the United Nations-run Clean Development Mechanism, an international offset program established under the Kyoto Protocol in 1997.

“Time and time again,” he says, “when academics and financially disinterested parties do research projects to try and carefully assess the plausibility of those baseline claims, they find smoldering dumpster fires.”

Permanence is the idea that the project’s benefit to the atmosphere is irreversible, while durability is the expected measurement of how long that benefit will last. Some reduction endeavors are permanent; for example, driving less and switching to an electric stove prevents greenhouse emissions from happening in the first place.

“When we put CO2 in the atmosphere from burning fossil fuels, it has permanent consequences,” Cullenward says. “The effect on the atmosphere and the oceans extends quite literally into geologic time. So if you want to use an offset credit to say, ‘It’s OK I put CO2 in the atmosphere [from driving or flying],’ the duration of the claim that’s being made needs to match the duration of the impact of CO2 emissions.”

Other projects cannot be guaranteed to be permanent. To reap the long-term environmental benefits of forestry projects, a tree would need to live for 100 years to store a metric ton of carbon. But droughts, fires, and diseases happen, and when a tree dies, the carbon dioxide is released. Therefore, project developers must take these risks into account when creating their protocols.

To mitigate natural disasters that could reverse the environmental benefits of a project and any other setbacks, carbon offset providers create a buffer pool as insurance. In any given project, between 10% and 25% of credits are held in a companywide pool, which ensures the project over-delivers on its goals.

And “if there is a fire,” Cullenward says, “the people who bought and sold credits on the market are kept whole, so long as their credits in the buffer pool are retired to account for those losses. If a million tons of CO2 goes up in flames in a forest, a million credits can be retired from the buffer pool. So as long as that system is solvent, the program is on track to meet its durability claim.”

But buffer pools are not foolproof. In a recent study of California’s forestry offset program, Cullenward and fellow researchers found that wildfires have diminished 95% of the carbon credits in the buffer pool during the program’s first 10 years. In other words, the carbon loss from wildfires is drastically outpacing the climate benefits of preserving trees through this state-mandated offset program.

Protocols need to account for leakage, which is the idea that projects can cause emissions to increase outside the areas generating offset credits. Haya says this occurs in some forest conservation projects. “If a landowner commits to reducing emissions by reducing the amount of timber they’re harvesting [without changing] the demand for timber products, someone’s conservation on one side of land just displaces timber harvesting somewhere else,” she says.

When evaluating a carbon offset scheme, many companies focus on the co-benefits of projects, such as sustainable development, jobs for locals in the region, community empowerment, health improvements, and biodiversity.

Dee Lawrence, founder of Cool Effect, says she always looks for projects with an environmental justice point-of-view that goes beyond the carbon benefits. She points to recent projects from the company, which include restoring mangrove trees in Myanmar that helps improve livelihoods in poverty-stricken communities by providing jobs, and a biogas digester project in China that transforms methane gas from waste into renewable energy and improves human health by providing cleaner air. “If a carbon offset is done correctly, it can be transformational,” Lawrence says.

As for Haya, she recommends thinking about carbon offsets as one tool of many in the toolbox—but ultimately, she says, cleaning up one’s own operations will truly have the biggest impact.

This article is part of a series on key topics in the climate crisis for time.com and CO2.com, a division of TIME that helps companies reduce their impact on the planet. For more information, go to co2.com

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