Skip to content

Carbon Credits 101 - Introduction to Carbon Offsetting

The carbon offset market and the concept of carbon credits itself can be confusing and hard to navigate. It's clear a lot of companies want to offset their emissions, but how can they be sure what they're paying for really makes a difference? I'll explain the basic terms used in the industry and how to find carbon offsets and credits that are trustworthy and transparent.

What is carbon offsetting?

Carbon offsetting is compensating for greenhouse gas emissions created by you or someone else.

Carbon offsets are measured and priced in tonnes of carbon dioxide-equivalent (CO2e), and can be traded on marketplaces such as Meliora.

Are carbon credits the same as carbon offsets?

Carbon credits, or allowances, allow companies to produce a certain amount of emissions. As an example, a company receiving or purchasing one carbon credit has the right to generate one ton of CO2 emissions. Carbon credits/allowances are generally handed out and sold by government or state organizations, but companies with excess credits/allowances are usually allowed to resell them to other companies

Who creates carbon credits and offsets, and how?

Carbon credits or allowances are issued by governmental entities based on the emissions targets they have set for themselves. Usually, these are based on international agreements, such as the Kyoto Protocol and the Paris Agreement. A key element of this system is that the limit, or "cap", for carbon credits is reduced yearly, forcing companies to become more environmentally friendly and sustainable.

Carbon offsets, on the other hand, can be issued by companies that reduce the GHG in the atmosphere by varying methods. Purchasing carbon offsets is voluntary, which is why the carbon offset market is known as the "voluntary carbon market". While companies are not required to purchase carbon offsets, the importance of being sustainable and investing in the future of our planet is driving more and more companies to the voluntary carbon market, therefore also driving the demand for more companies to come up with methods of efficiently reducing carbon emissions from the atmosphere.

How are carbon credits priced and who sets the price?

The price of carbon credits is partly driven by supply and demand, but the higher the credibility of a carbon credit project and the efficiency of the technology, the higher the price of a credit is likely to be. Some geographical locations might have higher pricing simply due to having a more affluent population or higher GDP. Also, purchasing or selling carbon credits in larger batches can reduce the price per tonne.

Why is carbon offsetting important?

While greenhouse gas emissions in many cases cannot be avoided, they can be compensated for. Carbon offsetting is a way for companies to ensure whatever greenhouse gases they create with their activities, they can offset these emissions by investing in renewable energy production, carbon capture technologies, or other methods of carbon offsetting.

How can carbon credit trading benefit my company?

Many companies simply have the goal of polluting less or even becoming carbon-neutral. Of course, these are both actions that are beneficial for any company's public image and help attract more customers. CPG (consumer packaged goods) companies highlighting sustainability are growing 90% faster compared to their competition. Sustainability can truly be a competitive advantage.

In many cases, carbon offset projects also push companies to become more environmentally friendly and find new ways to reduce emissions. Companies that have a clear goal of offsetting everyone ton of CO2 that they produce work hard to find every possible avenue of making it happen.

Which types of carbon offset projects are there?

There are various different types of carbon offset projects and assets, some more trustworthy and credible than others. It is important to ensure that whatever carbon offsetting you do, the project and initiatives behind it actually deliver on their promises.

  • Renewable energy - power generation technologies such as solar, wind, hydro, tidal, and others. These are examples of zero-carbon technologies, meaning they do not generate GHG emissions.
  • Carbon capture - carbon capture and storage technologies are ways to reduce CO2 emissions by capturing emissions before they are released into the atmosphere. The captured emissions are then compressed to a liquid and stored in underground storage reservoirs.
  • Agricultural projects - in agriculture, carbon credit certificates are created by farmers utilizing farm management methods that replenish and trap carbon in the ground, reducing GHG emissions. Examples of such methods include cover cropping (plants that cover the soil instead of plants grown to be harvested) or reduced tillage farms, which is the practice of minimizing disturbance to the soil by reducing the intensity, frequency, and depth of tilling.
  • Forestry - projects such as afforestation (conversion of land that has not been forested for a minimum period of 50 years) or reforestation (conversion of non-forested land into forests) can be considered carbon offset projects, but their impact in the short-term (<20-50 years) is not an efficient method of fighting climate change today. In the long-term, more forests of course have a positive impact on the climate and biodiversity, but as carbon offset projects, afforestation and reforestation suffer from credibility issues and accusations of greenwashing.

Does carbon offsetting actually work or is it just greenwashing?

Carbon offsets can have a poor reputation in some circles, due to the low quality of a number of early projects that have gained notoriety and damaged the industry.

While there are always untrustworthy actors, there are more than enough companies developing renewable energy production, zero-carbon technologies, and carbon capture projects to create a market of credible, measurable carbon offsets that can be reliably used to offset the greenhouse gases created. The key is identifying the right, transparent projects, technologies, and assets, and developing the credibility of the entire industry. Carbon offsets are one of the most effective methods of fighting climate change, a common goal for all of humanity.

See latest projects