Carbon offsetting: What is it and why is it misunderstood?

Carbon offsetting is essentially the act of compensating for one’s greenhouse gas emissions by supporting or funding an environmental project elsewhere, with an overall aim to improve public health, promote sustainable consumption and/or reduce poverty.

From waste management programmes and ecosystem conservation to the development of renewable energy projects, offsetting is diverse in its scope. In 2019, the market for offsetting was valued at over $600 million USD, a figure which is thought to grow by more than 333 times to an estimated $200 billion by 2050.

The astounding rise in popularity of carbon offsets has brought about a lot of criticism and controversy (especially amongst activists) as a result of the goal of offsetting often being misunderstood.

Why is carbon offsetting on the rise?

Carbon offsetting has experienced a meteoric rise in popularity in recent years as both consumers and government institutions have prioritsed climate action and sustainability initiatives, pushing many companies to set plans for net carbon neutrality. In 2019, corporate carbon offsetting pledges rounded up to around 104 MtCO2e, setting a new all-time record.

To put that into perspective, that would be the equivalent to completely eliminating the carbon footprints of approximately 18 million British citizens. This interest in corporate carbon offsetting is only projected to rise, with some estimating forecasted growth of x15 by 2030.

How is carbon offsetting misunderstood?

Offsetting is indeed a vital option, but one of many alternatives. When conceptualising a strategic journey towards sustainability, carbon offsetting should be seen as a last resort. Only after an individual or organisation has exhausted other options for reducing emissions should offsetting be employed to take care of the rest.

In a large toolbox of possibilities, offsetting is a vital option - but one of many.

Carbon offsets alone will not solve the climate crisis; however, without offsets, climate change becomes harder to solve. Offsets function as a transitional part of a greater sustainability plan and help to prime new green markets for environmental, social and corporate governance (ESG) investment.

Although offsetting is not an all-in-one solution to climate change, the amount of capital flowing into renewable energy, biomass, energy efficiency and clean drinking water projects is undoubtedly an extremely promising sign for the future of these markets. In a post-pandemic world primed for sustainable finance and banking, it is likely that we will see these projects become more reliable and credible as time goes on.

Who does carbon offsetting really help?

Offsetting can provide hope for both individuals and communities most in need across the globe. Take the Dalit people of Nepal as an example: The now defunct yet socially pervasive caste system designates them as “untouchable” – a classification with bleak societal and cultural implications. Nearly 50% of all Dalits are exposed to poverty and 60% suffer from chronic childhood malnutrition.

However, a Gold Standard certified offsetting project in Nepal provides the Dalit people and other indigenous groups with access to cooking stoves that encourage cleaner burning and improve indoor air quality.

By using these stoves that reduce firewood consumption by half, the Dalit people can help combat the prevalent malnutrition in their community, as well as reduce  the emissions they produce while cooking. Energy efficiency is just one of the many forms that offsetting projects can take, and nearly 60 tons of CO2 have been saved from this initiative alone.

What does the future hold?  

As the demand for voluntary carbon offsets has increased, the market supply has rapidly followed suit. There is growing excitement around new start-ups that utilise the latest satellite imaging and radar technologies to bolster transparency and accountability of offsetting projects.

Some emissions are just unavoidable. That’s where offsetting shines.

These types of companies have the potential to dramatically increase the effectiveness of carbon offsetting programmes and revolutionise an already fast-paced market – and they’re getting noticed by prominent investors, too.

Offsetting doesn’t absolve us of our responsibility to reduce emissions; however, it is a critical tool to achieving a greener future, and a brighter tomorrow for all.

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