Simply put, carbon offsetting allows individuals, organisations, and nations to support environmental projects around the world to balance out their own carbon footprints. However, for offsetting to make a real difference, it must be done well.

According to a recent study by Compensate, which evaluated over 170 nature-based carbon projects, 90% of these projects failed their criteria. While high-quality carbon credits are available in the market, finding them requires hard work, expertise, and critical thinking.

We asked Niklas Kaskela, Co-Founder & Chief Impact Officer at Compensate (and one of the most trusted proponents of high-quality credits) to help us understand the dynamics behind carbon credit markets, what to look for, and what to avoid.

Let’s start with the basics, what are carbon offsets really?

Carbon offsets are reductions in carbon dioxide emissions or other greenhouse gases made to compensate for emissions caused elsewhere. Offsets are measured in tonnes of carbon dioxide-equivalent (CO₂e), meaning the impact of all greenhouse gases is combined and expressed in CO₂. Each tonne of emissions reduced and removed by an offsetting project creates one carbon credit. Companies, nations, and individuals can invest in these projects directly or buy the credits.

The basis for the international carbon market and the pricing of greenhouse gas emissions was created in 1997 with the adoption of the international treaty, the Kyoto Protocol. The protocol enabled transnational emissions trading and set up mechanisms for emission reduction and carbon removal projects to be developed, financed, and implemented by the private sector.

Carbon credits are certified for quality and impact by internationally recognised standards and traded in numerous ways through the carbon market. While both support the fight against climate change, the voluntary carbon market is separate from official cap and trade emissions trading, in which governmental organisations allocate and sell emission permits.

There are numerous types of offsetting projects, but in short, they can be divided into two categories: ones that reduce future emissions and ones that soak up the CO₂ already in the atmosphere.

A carbon emission reduction project is one that reduces emissions (e.g., a wind power project). A carbon capture project is one that removes carbon dioxide from the atmosphere (e.g., an afforestation project)

There are three main categories of carbon reduction projects:

1) Forestry and land use, including forest conservation, afforestation/reforestation, and soil carbon

2) Renewable energy

3) Projects decreasing industrial emissions, including waste disposal and energy efficiency

Ok, we see how it should be working, but how is it really playing out?

In short, demand for high-quality credits far outweighs the supply which has led to some serious malfunctions in the market. The effectiveness and actual climate impact of offsetting has therefore been widely questioned.

The voluntary carbon market is characterised by a plethora of actors, methodologies, project types, and standards. It’s a tough job for businesses, organisations, and individual consumers to try to navigate this complex market. Outright opportunism and greenwashing are not uncommon. Especially in the early days of the voluntary carbon market, the lack of standardised quality criteria generated widespread concern. In response, carbon market actors launched several efforts to create standards and protocols to improve the quality and credibility of voluntary offsets. Standards like Verra, Gold Standard, and American Carbon Registry (ACR) have become market leaders in reassuring offset buyers about the quality of the carbon credits that are being bought, but these leading standards still leave a lot to be desired.