Carbon offsets and credits

Carbon offsetting is a carbon trading mechanism that enables entities to compensate for offset greenhouse gas emissions by investing in projects that reduce, avoid, or remove emissions elsewhere. When an entity invests in a carbon offsetting program, it receives carbon credit or offset credit, which account for the net climate benefits that one entity brings to another. After certification by a government or independent certification body, credits can be traded between entities. One carbon credit represents a reduction, avoidance or removal of one metric tonne of carbon dioxide or its carbon dioxide-equivalent (CO₂e).

A variety of greenhouse gas reduction projects can qualify for offsets and credits depending on the scheme. Some include forestry projects that avoid logging and plant saplings,^[1][2] renewable energy projects such as wind farms, biomass energy, biogas digesters, hydroelectric dams, as well as energy efficiency projects. Further projects include carbon dioxide removal projects, carbon capture and storage projects, and the elimination of methane emissions in various settings such as landfills. Many projects that give credits for carbon sequestration have received criticism as greenwashing because they overstated their ability to sequester carbon, with some projects being shown to actually increase overall emissions.^[3][4][5][6]

Carbon offset and credit programs provide a mechanism for countries to meet their Nationally Determined Contributions (NDC) commitments to achieve the goals of the Paris Agreement.^[7] Article 6 of the Paris Agreement includes three mechanisms for "voluntary cooperation" between countries towards climate goals, including carbon markets. Article 6.2 enabled countries to directly trade carbon credits and units of renewable power with each other. Article 6.4 established a new international carbon market allowing countries or companies to use carbon credits generated in other countries to help meet their climate targets.

Carbon offset and credit programs are coming under increased scrutiny because their claimed emissions reductions may be inflated compared to the actual reductions achieved.^[8][9][10] To be credible, the reduction in emissions must meet three criteria: they must last indefinitely, be additional to emission reductions that were going to happen anyway, and must be measured, monitored and verified by independent third parties to ensure that the amount of reduction promised has in fact been attained.^{[11] [12]}