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The Benefits and Drawbacks of Carbon Offsets

A popular announcements that companies make trying to reduce their environmental footprint is the choice to go carbon neutral, usually by means of carbon offsets. It’s a great idea, however, it can be complex for any business that has been through this process will attest.

If your business is paying to offset the annual greenhouse gas emissions You might think that the funds will allow an immediate reduction in greenhouse gas emissions that is equal to the emissions you generate. In other words, your business has been declared “carbon neutral” in the sense that your actions are not affecting carbon emissions in the atmosphere. But, given how offsets are arranged, it is likely that, even after purchasing offsets, your business is in the end adding carbon to the atmosphere.

What happens to the money you spend on offsets?

The majority of media discussions concerning offsets has focused on offsets as a type of greenwashing. It is unclear how the carbon reductions that offsets offer for sale are rated and whether offset sellers actually perform what they claim they are doing. These are all crucial questions however, there are more fundamental questions regarding the purpose of carbon offsets.

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An analogy can be helpful here. Imagine a bathtub. each gallon of water that is in the tub represents the equivalent of a ton of carbon within the atmosphere. A typical American has to be responsible for around 20 tons of carbon emissions every year. In the analogy of a bathtub, the carbon is symbolized by the 20 gallon water. Quantity of carbon that is in the atmosphere is contingent on the quantity of water that is in the bathtubs around the world.

With no offsets, the amount of your tub is increased by 20 gallons every year. If you purchase offsets, you might think that you have taken 20 grams of water out of the tub, so that the amount of water in the tub is identical to what it was the previous year. This is what people imagine as they consider “carbon neutrality.”

The reality isn’t as easy. You could be purchasing credits that have been created from past actions. Perhaps someone else has taken water from their bathtub and you’re paying them for their actions. In a way it’s like paying them to get the water from your bathtub, however, that water does not disappear. Instead, it is poured into a bathtub of someone else’s.

Or, you could provide funds for the reduction of greenhouse gases that is expected to be coming in the near future. If everything goes as planned, offsets can reduce the volume of water in your bathtub by 20gallons however it will take a long time and while you’re adding water at the amount of 20 gallons per year.

The reason for this confusion isn’t that offset companies are morally restricted. The majority of carbon-reducing projects have large initial expenses and reduce greenhouse gas emissions in the course of ten, twenty, or even fifty years or more. The majority of the reductions in greenhouse gases that are taking place this year are a result of investments earlier in the year. Actions taken now to lower greenhouse gases will help reduce greenhouse gas emissions long into the future.

Numerous “products” are available to customers as offsets with different offset companies providing different mixes of products. Certain offset providers let customers to select the type of offsets you purchase. To know what you will get (and what you won’t) when purchasing offsets, it’s helpful to look over the various types of offsets available on the market.

Carbon Reductions that result from past actions

Certain carbon credits can be traded on the simplest sense of an exchange for financial assets. The U.S. there are two kinds of carbon credits that can be traded, Renewable Energy Certificates (RECs or “Green Tags”) and credits traded on the Chicago Climate Exchange (CCX). Businesses earn these credits through decreasing their carbon emissions over set goals (see the sidebar). After credits have been obtained, they may be sold to firms that haven’t reached their carbon reduction goals , or for offsets to buyers.

What you get from your purchase What does it do? When you purchase CCX credit or RECs through an offset provider this reduces the amount of credits that are offered to companies who haven’t met their carbon reduction obligations, and raises their cost. The higher cost will yield a higher return for companies that exceed their commitments, while increasing the costs of those who do not meet their obligations. This means that your offset purchase will increase the incentive offered to companies that participate with market CCX or REC markets to cut down on emission of carbon. This incentive is an important factor in companies making decisions for investing in green technology Many firms that participate in these markets depend on the sale of credits to ensure that their investment pays off.

Carbon Reductions in the Future

Certain offset companies make use of your money to fund projects that reduce greenhouse gas emissions in the near future. Projects differ widely however, they include solar and wind power and methane capture as well as trees, and biomass.

What you pay for It will be used to fund projects that will, when completed, decrease the quantity of greenhouse gases in the atmosphere. Because many projects to reduce greenhouse gas emissions need large upfront costs, financing is usually an obstacle. The offset sales funds can help clean-energy projects enter the pipeline much faster. Forests are important “carbon sinks” which reduce the carbon that humans emit in the atmosphere. Therefore, should your money be used to fund the planting of trees, it could eliminate carbon dioxide from the atmosphere for long periods of time.

But, if you purchase twenty tons of offsets there won’t be an immediate 20-ton decrease in greenhouse gas emissions. In the case of a renewable energy initiative that has a projected life of 20 years and 20 % carbon reduction will typically be spread across the course of the project, so the carbon reduction is 1 ton every year over 20 years. Furthermore, the reduction won’t begin until the project is completed, which may be up to a year following the purchase.

If the money is used for planting trees the purchase will not reduce greenhouse gases immediately since the amount carbon introduced by trees is proportional with their dimensions. Small saplings do not have a significant impact on greenhouse gas emissions; however, their impact grows as the tree grows. If you purchase the equivalent of 20 tonnes of offsets to will be used for a project to plant trees It’s likely that atmospheric carbon will fall to less than five tons over the first 25 years of tree’s life.

If your offset investment is directed to projects that are aimed at reducing greenhouse gas emissions in the near future, it may be difficult to determine if these projects actually result in the greenhouse gas emissions reductions they claim to reduce greenhouse gas emissions. Many offset companies have information on their websites regarding the projects they invest in and many of them include a third-party auditing or verification procedures. However, the kinds of information offered along with the verification and auditing processes differ significantly from one offset company to another. Furthermore, the calculations of carbon reductions are based on the amount of carbon that could have been released without the project. There are no standards to calculate either baseline emissions or carbon reductions. In the case of tree-planting projects there is also a possibility that trees could be afflicted by disease or that the forest might be burned. The carbon impact calculations of the forest must take into account these risks.

What’s happening with your bathtub? The investment you made removes the water from your bathtub however the amount of water in the tub increases. It’s because you’ve invested only a tiny amount of water over a lengthy duration of. In the period of one year you will are able to add more water into the bathtub (through the normal business processes) than the offset purchase eliminates.


Many offset buyers would like their funds to make the difference in whether a carbon-reduction plan is implemented or not. In the world that carbon offsets are based on, the aspect is referred to by the term “additionality.” The process of determining if a plan is “additional” isn’t always easy. The investments in renewable energy such as energy efficiency, reforestation, and energy efficiency could be considered additional but it’s difficult to discern. Projects are initiated due to a myriad of reasons and project managers have the incentive to make their projects appear “additional” to ensure that they are able to attract offset investors. If you are looking for additionality to you, then read the details carefully. Some claims are more persuasive than others.

What’s a business to do?

If your business is looking to spend money on decreasing the amount of carbon dioxide in the atmosphere start by making changes to reduce your own carbon footprint. These investments are often not just good for the environment but also help you save in the long run. The replacement of incandescent light bulbs by compact fluorescents, utilizing hybrid vehicles for your fleet of the company as well as installing controls for buildings to minimize energy consumption can help reduce the carbon footprint of your business and increase your profitability of your business.

If you’re interested in doing more offset purchases are definitely worth looking into. Profits from offset purchases are crucial to fund a variety of projects that cut greenhouse gases. If you choose to purchase offsets, be sure to study the various offset suppliers. Find out more information on their websites. More transparent and open they’re willing be the more likely their work and their calculations will be viewed with confidence.