What Is a Carbon Offset and How Does It Work?

For businesses looking to invest in sustainability, carbon offsets may be one path to carbon neutrality. Here is what carbon offsets are and how businesses may employ them to achieve their sustainability goals.

This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.

For businesses looking to invest in sustainability, carbon offsets may be one path to carbon neutrality. In 2021, one in five of the world’s 2,000 largest publicly traded companies were committed to a “net-zero” emissions target. However, sustainability is on the radar for businesses of all sizes. With many options to choose from carbon offset programs, some of these offsets have also been vulnerable to manipulation. Before investing in carbon offsets, consider how much you’d like to fund and research the program you plan on partnering with. Here is what carbon offsets are and how businesses may employ them to achieve their sustainability goals.

What is a carbon offset?

Carbon offsets are activities that make up for the emission of carbon dioxide and other greenhouse gasses. These emissions are made up by reducing the same emissions elsewhere. The term offset itself has been used since the late 1970s, cited as a part of the U.S. Clean Air Act that details how new emissions in high-pollution areas could be allowed only where other reductions were made to offset those increases.

Businesses considered carbon neutral have net-zero carbon emissions — the operations associated with the business emit the same amount of carbon dioxide and other greenhouse gasses into the atmosphere as are offset. You can achieve carbon neutrality through emission reductions or purchasing carbon offsets. Carbon offsets can be bought, sold, or traded as part of a carbon market by consumers and businesses alike. Purchasing a carbon offset means you are buying a commitment from that company or organization that they will remove a certain amount of greenhouse gas emissions from the atmosphere. Costs of carbon offsets may vary.

Ways businesses can offset their carbon footprint

There are a variety of programs that help offset carbon emissions, according to the Massachusetts Institute of Technology’s Climate Portal. Here are a few forms they could take:

  • Reforestation projects: Reforestation projects focus on rebuilding landscapes destroyed by deforestation. These areas could have been affected by natural disturbances such as wildfire or drought, as well as unnatural ones like logging or mining. Planting trees combats soil erosion, air pollutants, and carbon sequestration amongst other things.
  • Carbon-storing agricultural practices: These programs include practices such as crop diversity through rotations and cover crops, feed management, conservation tillage, and efficient nutrient management. Some of these programs will also employ technological approaches to removing and storing carbon, such as using carbon dioxide as a raw material to produce graphene, direct air capture, and engineered molecules.
  • Waste and landfill management: Waste management commonly employed by farmers includes methane reduction by replacing open manure lagoons with anaerobic digesters to capture and destroy that methane. For example, in 2018 Google partnered with Oneida-Herkimer Solid Waste Management Authority to offset its carbon footprint using a waste and landfill management program partner.
  • Building renewable energy: There are many alternatives to non-renewable energy, including solar power (using radiant light and heat from the sun to generate electricity), wind power (using the energy of the wind to generate electricity), hydropower (using fast-running or falling water to produce electricity), and geothermal energy (using energy from the earth’s crust typically seen as water and/or steam carrying the energy to the surface to produce electricity).
  • Offer carbon-neutral shipping options: For example, Canopy Humidifiers partners with programs like Neutrl to give customers an option to pay a small fee to offset the impact of their purchase based on the weight of the time and shipping. Some airlines also allow customers to offset part of the carbon footprint of their flight. Alaska Airlines partners with Carbonfund.org to provide this option.

Types of carbon offset programs

Below are some of the trading programs listed in a 2021 Environmental Protection Agency’s trading program guide. Some of these are voluntary programs while others are compliance programs.

-American Carbon Registry (ACR): This nonprofit organization was founded in 1996 as the first private voluntary offset program in the world. It operates in global voluntary and regulated carbon markets.

The options above are only a few of many carbon offset programs available. In addition to helping the planet, investing in carbon offsets could help boost your business’s reputation with your prospective customers and employees.