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Offsets

Children of families who live in the Isangi Rainforest in the Democratic Republic of Congo. Offsets have stopped a former logging concession in the lowland tropical forests, an area that hosts 11 percent of the world’s known bird species. 

Credit: Joseph Wasilewski

Offsets

Call to action:

Reduce greenhouse gas emissions at their source as well as purchase high-quality carbon offsets that further reduce atmospheric emissions.

Offsets are carbon credits that individuals and companies purchase to “neutralize” their greenhouse gas emissions. A credit represents one metric ton of emissions. It can be bought or sold for an equivalent (1:1) reduction by an activity that removes greenhouse gases from the atmosphere, such as a growing forest, or avoids their production, such as creating a new source of renewable energy. Although offsets are designed to help reduce emissions, they have been ineffective. Less than 5 percent of offsets that have been sold removed carbon dioxide from the air. Offsets are often used by companies to appear proactive while continuing to generate greenhouse gases. They are complex, difficult to verify, and can be used as a means to greenwash. They can have negative social and environmental impacts that fall unfairly on developing nations, the poor, and Indigenous peoples. They are useful for offsetting hard-to-abate emissions, but immediate greenhouse gas reductions are required to achieve the world’s climate goals.

Action Items

Individuals

Learn why 1:1 offsets have been ineffective at reducing greenhouse gas emissions. The offset market, which began trading formally in 1997, surged to $850 billion in 2021, spurred by widespread pledges from corporations and governments to neutralize their greenhouse gas emissions—called “net zero”—at some point in the future while continuing to pollute today. However, offsets are plagued with a variety of challenges that limit their effectiveness. Offsets are seen as inadequate by activists and dubious by scientists because they are not delivering meaningful reductions in greenhouse gas emissions. Reasons include:

  • Verification of offset impacts are difficult. Offsets measurements are technical, requiring a high level of expertise, detailed accounting, and long-term monitoring. Although credible offset-verifying organizations exist (see Key Players), standards can vary significantly.
  • Offsets don’t live up to promises. A ProPublica report found that purchased carbon credits had not achieved the 1:1 greenhouse gas emissions reductions promised and what greenhouse gas reductions had been achieved had been lost. Another report exposed loopholes in California’s carbon credit program. Another analysis of credits found that nearly 30 percent underperformed. An investigation into offsets used by the airline industry found similar flaws.
  • Offsets must be additional to be effective. An offset must be additional to whatever carbon-beneficial project or practice is going to happen. For example, offsets can’t be sold for a wind or solar farm that would have been built anyway, or to protect a forest that is not in jeopardy of being logged. A research center examined 120 offset projects and found that nearly 40 percent overlapped with protected lands, including national parks.
  • Offsets should not be sold for projects that happened in the past, called legacy credits. For example, a laptop manufacturer is selling offsets to customers for projects implemented in 2006.
  • Offsets often do not have enough permanence. To be effective from a greenhouse gas reduction perspective, an offset must be as permanent as possible. Otherwise, as soon as the sequestered carbon returns to the atmosphere, its effect is nullified. The Bootleg Fire in Oregon in 2021 burned up forest offsets that were supposed to last a century.
  • Offsets that claim to neutralize fossil fuel–generated carbon with biological carbon are especially ineffective. Using nature-based solutions such as planting trees to create credits is popular, particularly among oil companies, but using biological carbon to offset emissions generated by fossil fuels is highly ineffective from a climate perspective. Carbon dioxide persists in the atmosphere for centuries, while biological carbon can cycle back into the atmosphere in a decade. The science is clear: this type of offsetting shouldn’t be done, explained in this interview with Kate Dooley, a carbon accounting researcher.
  • Offsets are subject to fraud and greenwashing. Historically, carbon markets have been rife with dishonesty. In addition to fraud, a lack of transparency can lead to “empty” credits that don’t reduce greenhouse gas emissions. In 2022, Australia’s carbon credit system was called a “sham” by a whistleblower because the credits did not represent real or new cuts in greenhouse gas emissions, an accusation that has led to a formal review.
  • Offset markets are voluntary and unregulated. The voluntary carbon marketplace hasn’t delivered sufficient greenhouse gas reductions, demonstrating that self-regulation has limitations. For example, without regulation, the same offset can be counted twice, once by a government and once by a company. While efforts are under way to strengthen standards and protocols, compliance will still be voluntary.

Learn why offsets have other consequences that need to be considered. The buying and selling of offsets have collateral effects, including:

Learn about high-quality 1:1 offsets and support their use. A carbon credit is considered “high quality” if it addresses the challenges mentioned above, including additionality, underperformance, and permanence. It must generate confidence among buyers and sellers that climate goals are being achieved. Offsets should be purchased for hard-to-abate emissions (see Companies below for more detail). Credible organizations that provide high quality credits include Gold Standard and the Carbon Fund. Verra is a nonprofit that certifies carbon accounting standards for various voluntary carbon markets around the world.

  • Earthshot Labs blends science, technology, economics, and traditional ecological knowledge into projects that restore degraded land around the world with the help of carbon markets.
  • Carbon Tanzania has implemented numerous locally led nature-based climate-solution projects, including the Ntakata Mountains Project that has helped sixty-three thousand Indigenous people protect and restore their land.
  • Solar Sister trains and supports women entrepreneurs to deliver clean energy and cookstoves directly to homes in Nigeria, which can reduce black carbon emissions (see Clean Cookstoves Nexus).
  • A high-quality carbon credit that go beyond 1:1 to 2 times, 5 times, or 10 times of metric tons of greenhouse gas removed is called an onset (see Onsets Nexus).

Reduce your carbon footprint. Offsets are often marketed to individuals as a way to help climate change without having to change behavior. Companies sell offsets to people who want to neutralize their carbon footprint, including on air travel. Lower your carbon footprint in your daily life before purchasing a 1:1 offset.

Make a direct donation to an organization or initiative that protects and restores carbon sinks, improves the lives of people, and works to reverse climate change. For example, nongovernmental organizations (NGOs) play a critical role in the defense of tropical forests, including Rainforest Action Network, Amazon Watch, African Rainforest Conservancy, and the African Wildlife Foundation (see Tropical Forests Nexus).

Pressure companies, institutions, and governments to accomplish actual reductions in greenhouse gases and not use offsets. There are many organizations you can join that are working to reduce greenhouse gas emissions:

Groups

Offset Verifiers

Increase scrutiny of 1:1 offsets and use verification protocols that ensure transparency and accuracy. Carbon credit markets are unregulated, resulting in a wide variety of carbon credit verifiers, some more reputable than others. Verifiers can be accredited and validated, but standards and protocols vary. Many verifiers are funded by industry and some do not make public the methodology used to make their determinations.

Companies

Steeply reduce your greenhouse gas emissions. In 2022, a major report concluded that the net-zero plans of twenty-five large corporations, which lean heavily on offsets, would reduce their greenhouse gas emissions by only 40 percent on average and not 100 percent, as they claimed. Instead of relying on offsets, companies must first make deep cuts in their greenhouse gas emissions, including those generated up and down their value chain. Actions must be transparent, verifiable, and long lasting. They include:

  • Undertake and disclose a full accounting of greenhouse gas emissions. Many companies only count emissions directly under their control—called Scope 1. Indirect emissions— called Scope 2—are sometimes not counted, such as the share of greenhouse gas emitted by a power plant producing electricity for the company. Emissions not directly under a company’s control, such as the mining of raw materials, processing, transportation, storage, and disposal—called Scope 3—are often excluded by a company in the carbon accounting of its value chain. Scope 3 emissions frequently represent the majority of a company’s total greenhouse gas emissions. For example, most emissions linked to selling a pair of jeans come from growing the cotton, making the fabric, and distributing the final product. Disclosure should include the emissions associated with subsidiary companies.
  • Speed up timelines. Some companies set distant date targets for their emissions reductions in order to delay implementation. The urgency of the climate crisis requires immediate action and moved-up deadlines. For companies with more distant target dates, they need to set—and hit—interim targets that result in actual emissions reductions sooner rather than later. The Climate Institute recommends five-year targets.
  • Don’t “inset.” Offsetting emissions within the value chain of a company—as opposed to outsourcing the emissions reduction to a third party—is sometimes called “insetting.” These claims are problematic (see p. 47 of this report). Insetting has no officially accepted definition or standards and is not recognized by any certifying institution, raising concerns about integrity, transparency, and independent verification.

Use high-quality 1:1 offsets for hard-to-abate greenhouse gas emissions that cannot be eliminated yet. Many companies produce greenhouse gases as part of their operations or value chain that are more difficult to reduce or eliminate, such as in certain types of heavy industry. There are strategies to address these hard-to-abate emissions that involve different economic models, new technology, and renewable energy, but in the interim they can be offset. However, do not use offsets based on biological carbon (see pp. 36 and 45 of this report).

  • The Carbon Offset Research and Education Initiative of the Stockholm Environment Institute (SEI) describes a high-quality carbon offset as creating a high level of confidence that use of the credit will be effective in its impact on greenhouse gas emissions reduction. By their criteria, an offset must be (1) additional; (2) not overestimated; (3) permanent; (4) not claimed by another entity; and (5) not associated with significant social or environmental harm. SEI has a guide that will help companies achieve these goals.
  • Native is a public benefit corporation that helps corporations reduce their Scope 2 and Scope 3 emissions and link them to high-impact carbon and renewal energy projects.
  • Climate Action Reserve is a global offset registry for carbon markets that specializes in high-quality carbon projects reported through a transparent and publicly accessible platform.

Make a financial contribution to cover unabated emissions. Companies can financially support climate projects as a way to cover their hard-to-abate emissions, called a climate contribution. However, this support cannot involve a greenhouse gas neutralization claim by the company (see p. 38 of this report), particularly any that involve fossil fuel–generated emissions. Determining the level of support can be achieved by placing an internal carbon price on greenhouse gas emissions that a company generates. This Blueprint for Corporate Action on Climate and Nature explains the details. Here is the basic process:

  • Price emissions. Impose a price per unit of emissions for a company’s greenhouse gas emissions that have yet to be reduced or cannot be eliminated. This price will generate funds than can supports onsets. The price should be based on best available scientific evidence and in alignment with the objectives of the Paris climate agreement. This price should be reviewed and adjusted each year. A survey of 2,600 companies found that nearly a quarter were using an internal carbon charge and another 22 percent planned to do so. Here are case studies. Here is a perspective from India. Here is a guide to applying an internal carbon fee to supply chains.
  • Include the carbon price in a company’s goods and services. Internal carbon pricing can be added to line items, overall project budgets, and the sale costs of products. The carbon price of staff travel, particularly air travel, can be incorporated into project budgets, client invoices, and expense reports. Communication of company goals supported by these additional costs will be necessary in order to raise awareness and convince clients why they need to pay at higher rates, especially at the proposal stage for new projects and contracts.
  • Support a worthy climate project. The internal fee on carbon outlined in the previous steps creates cash within the company that can subsequently be used to support projects that address climate change. For example, NewClimate Institute used internal carbon pricing to support the development of a project for renewable heating and power at a rural school in Mongolia.

Source renewable electricity instead of using renewable energy credits (REC). Similar to carbon credits, renewable energy credits are tradable, nontangible commodities. A credit represents 1 megawatt-hour of electricity generated from a renewable energy resource that was then fed into the electrical grid—sometimes called “green electricity.” RECs have many of the same challenges as carbon credits. The installation of renewable electricity with storage technology on a company’s premises or as part of a local microgrid energy system can ensure that it is directly using renewable energy.

Don’t use unproven and unsuitable technology for offsets. Schemes to capture and permanently store atmospheric carbon dioxide are often included in net-zero pledges by corporations as a type of offset. However, scientists and activists have serious doubts about their effectiveness. Carbon dioxide removal (CDR) technology such as direct air capture faces significant technical, financial, and operational challenges and are unsuitable for offsetting due to a lack of guaranteed permanence. Additionally, they are not yet available for deployment at meaningful scales, and may never be (see Direct Air Capture Nexus).

Governance

Do more to achieve actual and meaningful greenhouse gas emissions reductions. While the United Nations has established a Net Zero Coalition to reduce greenhouse gas emissions as close to zero as possible by 2050, Climate Action Tracker graded the strength of net-zero pledges made by nations, many of which utilize carbon offsets, and determined that their targets are insufficient to meet the 1.5ºC climate goals set forth in the 2015 Paris Agreement, including that of the United States.

  • In Australia, a change of government in 2022 resulted in the introduction of a progressive climate change bill with improved emissions reduction targets. The government is also reviewing the nation’s carbon credit scheme with an eye toward reform.
  • A new bill passed by the U.S. Congress is expected to significantly reduce emissions over the coming decade, bringing the U.S. closer to delivering on its pledge to cut emissions to half of 2005 levels by 2030.

Regulate corporate reporting of emissions reductions and climate claims. The lack of regulation of carbon markets has led to exaggerated claims by corporations about their climate goals and accomplishes, including their support for “carbon neutral” fossil fuels. The carbon accounting reported by corporations is often opaque, and the language used to describe their actions is vague and confusing, leaving the public unable to effectively evaluate corporate actions and goals. Governments need to compel corporations to provide consumers with a full picture, including all greenhouse gas emissions within their value chain (Scopes 1–3).

Develop verified data on greenhouse gas emissions at the city, county, and state levels of government. Credible and standardized carbon accounting practices, including the use of offsets, is needed at all levels of government in order to develop and implement local climate action plans that reduce greenhouse gases.

  • The state of Maine’s Climate Action Plan calls for a comprehensive carbon-cycle analysis is to allow for accurate future participation in carbon-offset markets.

Provide stronger regulation of offsets and carbon credit markets. There is no single governmental authority in charge of carbon accounting, leaving what counts as a reduction in emissions to the discretion of companies and individual verifiers, creating an opening for greenwashing and fraud. For example, some countries choose not to count emissions from polluting sectors like aviation or shipping.

  • The EU’s proposed Corporate Social Responsibility Directive aims to introduce a standardized reporting template and data format for various aspects of climate change mitigation, but the directive remains under development and will not come into force until 2023 at the earliest.

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