Carbon Credits vs. Carbon Offsets: What You Need to Know

Carbon credits and carbon offsets are two ways to reduce your carbon footprint. But what are they, and how do they work? In this guide, we’ll compare carbon credits vs. carbon offsets, explaining the differences and similarities between them and how each is bought and sold.

What Are Carbon Credits and Carbon Offsets?

Carbon credits and carbon offsets are both units of measurement that represent a reduction in greenhouse gas emissions. A greenhouse gas is a gas that traps heat in the atmosphere, contributing to climate change.

Carbon credits are created through emissions trading programs. These programs set a cap on the total amount of greenhouse gasses that can be emitted by a particular sector or region. Every company gets a certain number of credits, representing the amount of carbon dioxide they can legally emit. Usually, a credit is equal to one metric ton of carbon dioxide emissions or other greenhouse gasses. Companies that emit less than their allotted amount can sell their surplus credits to companies that emit more than their allotted amount. Companies with surplus credits are those that reduced their emissions below a legal limit. Companies who emitted more than their credits allow must buy the credits to offset their deficit.

Carbon offsets are created through projects that reduce greenhouse gas emissions. These projects can range from renewable energy projects to reforestation projects. When you purchase a carbon offset, you are essentially paying for someone else to reduce their emissions on your behalf. In other words, you are not reducing your own carbon emissions, but you are paying to support projects that reduce emissions to “offset” the emissions you are continuing to produce. 

For example, a company may continue emitting carbon through business as usual operations, but may also purchase a carbon offset that supports reforestation efforts. This aims to reduce an amount of carbon emissions roughly equivalent to the amount that the company continues to produce. Learn more: Carbon Offsetting Infographic: Everything You Need to Know about Carbon Offsets

Key Differences: Carbon Credits vs. Carbon Offsets

The key difference between carbon credits and carbon offsets is that credits set emission limits, while offsets allow organizations to compensate for their emissions by supporting emission reduction projects elsewhere.

While both carbon credits and offsets contribute to the overall goal of reducing greenhouse gas emissions, they operate at different levels. Carbon credits are typically used within a regulated system, while carbon offsets provide flexibility for organizations to go beyond their regulated emissions limits and support additional emission reduction projects.

What Is the Purpose of Carbon Credits and Carbon Offsets?

Carbon credits and carbon offsets work by allowing you to reduce your carbon footprint without having to make changes to your own lifestyle or business practices. For example, if you fly on a plane, you can offset your emissions by purchasing carbon offsets from a renewable energy project. Similarly, a business whose emissions exceed a legal limit must buy a carbon credit to continue emitting carbon or other greenhouse gasses in their operations.

Carbon credits and carbon offsets are a helpful tool in pushing companies to acknowledge emissions and in reducing net carbon emissions. However, there are some concerns about their long term efficacy, as well as other risks associated with carbon credits and offsets.

Risks of Using Carbon Credits and Carbon Offsets

While carbon credits and offsets offer a valuable mechanism for organizations to address their carbon footprint, it’s important to be aware of the associated risks. These risks include:

Continuation of Emissions: Some critics of carbon credit and carbon offset programs argue that these programs encourage companies and individuals to continue emitting greenhouse gasses. Rather than reducing their emissions, they can simply purchase offsets or credits in order to continue business as usual. Over time, critics are concerned that this is not an effective strategy to actually fight climate change.

Greenwashing Risk: Some individuals or businesses may misuse carbon credits or offsets to create a false impression of environmental responsibility. Instead of implementing substantial internal emission reduction measures, they solely rely on offsets to appear more eco-friendly than they actually are.

Leakage Risk: There is a possibility of leakage, where emissions reductions achieved by one project are offset by increased emissions from another source or project. This can occur if funds generated from the sale of carbon credits are directed toward projects that don’t effectively reduce emissions or inadvertently cause emissions elsewhere.

Fraud Risk: Unfortunately, the carbon credit market has witnessed cases of fraudulent activities. This includes the creation and sale of false or invalid carbon credits, as well as misrepresentation of project outcomes. Therefore, it is crucial to exercise caution and only purchase carbon credits from reputable and trustworthy sources.

To mitigate these risks, it is important to prioritize internal emission reductions as the primary strategy for achieving carbon neutrality. Companies should transparently communicate their emission reduction efforts and not solely rely on offsets. When selecting carbon credits or offsets, thorough due diligence should be conducted to ensure additionality (in the case of offsets), credibility, and authenticity. Working with recognized certification standards, engaging in transparent transactions, and verifying the track record of offset providers can help minimize the risk of falling victim to fraud.

By being mindful of these risks and taking proactive measures, organizations can effectively utilize carbon credits and offsets to make genuine progress towards their sustainability goals while maintaining integrity and accountability.

Learn more about how businesses can offset their emissions: Corporate Carbon Offsetting: Exploring How Companies Can Achieve Net Zero Emissions