Carbon Offsetting Explained

Haynes Lynch
May 2021

The last time you purchased a gift from Etsy or ordered cosmetics from Oil + Water, you may have seen a message claiming your shipments are offset and carbon neutral, but what does that actually mean? There is so much terminology and scientific jargon hovering around carbon emissions that it can be hard to decipher exactly what you are buying and, more importantly, why it is important. Without getting too caught up in the confusion, let’s get right into the basics.

By definition, a carbon offset is a certificate representing the reduction of one metric tonne of CO2 emissions. For conceptualization purposes, one metric tonne of CO2 (or CO2 equivalent) is roughly equal to the emissions produced by driving from San Francisco to Atlanta (~2,500 miles) in an average gas-mileage car (~25 mpg). The EPA created a great equivalency calculator to see some other comparisons. This reduction can be created in a few different ways. Reducing emissions, absorbing carbon from the atmosphere, or avoiding emissions altogether by switching to renewable energy are the three most common ways that carbon credits are created. Within these categories, offset projects take many different forms. At the time of writing, Dot Neutral has enabled companies to offset across 13 carbon offset and renewable energy initiatives from wind farms in Texas to energy efficiency projects in Canada. Other popular offset options that you might see include waste-to-energy systems, improved energy efficiency, and substituting biofuel for fossil fuel.

Once an offset project has been proposed, it must undergo a verification process to determine if it actually does reduce carbon emissions, and, if so, by how much. Third-party organizations such as the Climate Action Reserve (CAR) and American Carbon Registry (ACR) evaluate proposals to ensure that they are “real, additional, permanent, verifiable and enforceable.” Without this step, there would be no way to hold individual projects responsible for accurately estimating and maintaining their carbon reductions. After the stamp of approval has been granted, the offset credits enter a registry and can be purchased for use.

Companies often purchase carbon offsets to compensate for the emissions produced during the manufacturing and distribution processes. Individuals can also participate in the offset market to neutralize their carbon footprints caused by activities such as air travel or package delivery. Platforms like Dot Neutral provide an avenue for companies to offset their tracked emissions from these projects. Outside of these exchange mediums, the only way to dispense of carbon offsets is Over-The-Counter Trading (OTC) in which businesses interact and negotiate directly with the offset producer. OTC is typically reserved for businesses wanting to purchase specific credits in large quantities.

So far, we have covered exactly what a carbon offset is, how they are verified, and who purchases them, but why does this market exist in the first place? The atmospheric concentrations of CO2 and other Greenhouse Gases (GHGs) are at historic highs and directly correlate to post-industrial emissions beginning in the early 1800s. Because these gases trap heat in the Earth’s atmosphere, global temperatures are rising and the predicted consequences are drastic. Enter carbon offsets. By neutralizing the emissions that companies and individuals produce, we are able to curb some of climate change’s negative externalities. Furthermore, we fund projects that promote conservation and renewable energy in the process. Carbon offsets are not the end-all-be-all solution to climate change, but they certainly cannot hurt.

Haynes Lynch

Haynes is a rising senior at Duke University majoring in Public Policy and Environmental Science. He has been tracking carbon markets in the U.S. for the past year and currently works on independent research surrounding emerging carbon tracking technologies. Outside of these interests, Haynes is a strong advocate for environmental justice and hopes to work more with climate policy post-graduation.

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