What is carbon offsetting? How it works, what it can claim and where it fails

Carbon offsetting is the use of a carbon credit to compensate for emissions released somewhere else. The credit should represent one tonne of carbon dioxide equivalent reduced, avoided or removed, and it must be retired so it cannot be used again. Even then, the original emission still happened.

That last point is where a lot of offsetting language goes wrong. A flight, factory or delivery fleet releases greenhouse gases into the atmosphere. Financing a reduction or removal elsewhere may balance part of the climate account, but it does not rewind the activity or make its direct impact disappear.

Offsetting can therefore fund worthwhile climate work without supporting every claim made in its name. The project, the credit, the retirement record and the buyer's wording all have separate jobs to do.

How carbon offsetting works

A defensible offset follows a chain. If one link is missing, the buyer may have funded a project or purchased an asset, but the evidence for an offset claim is incomplete.

Buying a credit and using it are not the same event. A credit can change hands several times while it remains active in a registry. Retirement takes it out of circulation and creates the record needed to show who used it, when and for what stated purpose. Our carbon credit retirement guide explains the serial numbers and registry details behind that evidence.

A carbon credit is not automatically an offset

A carbon credit is the unit. Offsetting is one possible use of that unit. A company might instead buy credits as a climate contribution, retire them without claiming that its own emissions were balanced, or hold them before deciding how they will be used.

The distinction becomes practical when the public wording is tested. "We financed 1,000 tonnes of verified climate action" is a contribution claim. "We offset 1,000 tonnes of our 2026 operational emissions" links the same volume to a defined footprint. "Our business has no climate impact" goes much further than either the credit or the retirement record can establish.

The TPB climate claims hierarchy separates contribution, offsetting, carbon neutral and net zero language. These are not interchangeable labels for the same purchase.

Reduction, avoidance and removal do different jobs

Carbon credits are often grouped under one price per tonne even though the underlying projects make different claims.

Avoidance and reduction projects can direct money toward real emissions cuts and wider social or ecological benefits. They do not physically remove the buyer's emitted carbon dioxide from the air. Removals address that different task, although their storage can range from vulnerable biological carbon to long-lived mineral or geological storage.

None of the categories is a guarantee of quality. A removal can be badly measured. An avoidance project can use a conservative baseline and produce valuable results. The carbon credit quality checklist tests additionality, quantification, permanence, leakage, safeguards and double counting at project level.

What a good offset can prove

A strong evidence file can show that a buyer measured a defined quantity of emissions, selected credits under a named programme and methodology, checked the project and retired the matching number of units. It can also show what vintage was used, where the project operates and whether the retirement record names the beneficiary. If the buyer still needs to distinguish the programme routes themselves, our Gold Standard vs Verra comparison separates standard choice from project quality and claim fit.

It cannot prove that the emitting activity became harmless. Nor does a registry entry prove that the buyer has a credible transition plan, that the project produced every advertised co-benefit or that the public claim complies with current consumer-protection rules.

The Integrity Council for the Voluntary Carbon Market (ICVCM) uses its Core Carbon Principles to assess features such as governance, additionality, permanence, robust quantification and no double counting. The Voluntary Carbon Markets Integrity Initiative (VCMI) focuses on company use and claims. One examines the crediting side of the market; the other addresses what a company should be able to say after using credits.

A worked example: offsetting a 100-tonne footprint

Suppose a company calculates 100 tonnes of Scope 1 and Scope 2 emissions for the year. It cuts energy use and switches part of its supply, but the 100-tonne figure is the measured remainder for the reporting period.

The company buys 100 issued credits from a project it has checked and retires them in the registry. The retirement record identifies the project, methodology, vintage, serial-number range, beneficiary and date. That gives the company evidence that 100 credits have been used against the defined 100-tonne footprint.

A narrow statement could say that the company retired 100 credits for its measured Scope 1 and Scope 2 emissions in that year, while explaining that Scope 3 was outside the boundary. A statement that the whole company is "emissions free" would hide both the original emissions and the missing value-chain footprint.

This is also why buying 100 credits before calculating the footprint is backwards. The buyer cannot know whether the volume matches, which emissions are covered or what claim the evidence can support.

Where offsetting fits with net zero

Net zero is built around deep emissions reduction, followed by neutralisation of residual emissions that remain at the target date. It is not a running total in which a company can keep present-day emissions unchanged and buy an equal number of inexpensive credits every year.

The Oxford Principles for Net Zero Aligned Carbon Offsetting place emissions cuts first and call for offset portfolios to move toward carbon removals and more durable storage over time. The Science Based Targets initiative (SBTi) similarly distinguishes value-chain reductions from neutralising residual emissions at net zero.

Companies may still finance credits before reaching net zero. The clearest approach is to report direct reduction progress separately, describe the credit purchase accurately and avoid presenting support for projects as a substitute for the transition plan. The TPB net zero guide explains the wider target and residual-emissions test.

Why carbon offsetting is controversial

Some criticism concerns poor projects, where baselines can overstate what would have happened without intervention and forest carbon may later be released by fire or clearance. Benefits can also move beyond the project boundary, while communities may be poorly consulted. Verification does not cure those weaknesses if the methodology or underlying data is flawed.

Other criticism is about the buyer. Even a well-run project can be attached to an exaggerated claim. Cheap credits can make it easier to advertise neutrality while postponing changes to fuel use, products or supply chains. The climate project and the corporate strategy must therefore be judged separately.

Claims rules have tightened around this gap. The UK Competition and Markets Authority's Green Claims Code says environmental claims should be truthful, clear, complete and supported by evidence. Advertising guidance also requires marketers to explain the basis and limits of environmental claims rather than assume that consumers understand what "offset" or "carbon neutral" covers.

How to judge an offset claim

Start with the sentence being claimed, then work backwards through the evidence.

• Boundary: Which emissions, activity and reporting period are covered?
• Reduction: What did the buyer cut before turning to credits?
• Credit: Is the unit a reduction, avoidance or removal, and under which methodology?
• Quality: What supports additionality, quantification, permanence, safeguards and no double counting?
• Retirement: Can the registry record be traced to the buyer, volume and stated purpose?
• Wording: Does the public statement stay within that evidence?

A buyer looking for project selection, costs, purchasing routes and evidence files should continue to the carbon offsetting guide for UK businesses. For the mechanics behind issuance, standards and registries, read how carbon credits work.

Sources

• Integrity Council for the Voluntary Carbon Market: Core Carbon Principles
• Voluntary Carbon Markets Integrity Initiative: Claims Code of Practice
• University of Oxford: revised Oxford Principles for Net Zero Aligned Carbon Offsetting
• Science Based Targets initiative: Corporate Net-Zero Standard
• Competition and Markets Authority: Green Claims Code
• Advertising Standards Authority and Committee of Advertising Practice: environmental claims guidance
• Feature image: Mangrove Planting Restoration Project in Changkat Keruing, KUASACSR, CC BY-SA 4.0, via Wikimedia Commons