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Carbon offsetting - how it works
Carbon offsetting - how it works

How carbon offsetting works

Updated over a week ago

The Carbon Offsetting Process

Every company will have some “unavoidable emissions” that cannot be eliminated using conventional means, such as clean energy or electric vehicles. These unavoidable emissions can be balanced out through the purchase of carbon offsets, from third parties. Global demand for carbon offsets has created a market in which these can be bought and sold. In these markets, one carbon offset is equivalent to either: removing one metric tonne of carbon dioxide (tCO₂) from the atmosphere (“removal offset”) or preventing the emission of one tCO₂ (“avoidance offset”).

The carbon offsetting mechanism. Source: UNEP 2019

The carbon offsetting mechanism.

The fundamental principle behind carbon offsets is that atmospheric CO₂ is geography agnostic. Suppose a UK-based factory wants to eliminate its emissions: It has already invested in pollution-reduction measures and energy-efficient technology, but its emissions cannot be reduced beyond 10,000 tCO₂/year. Purchasing 10,000 carbon offsets will compensate and/or neutralise those emissions (depending on the type of offset purchased). Even if the purchased offsets originate halfway across the globe in Kenya, the UK factory’s climate impact is recognised as carbon neutral.

However, CO₂ doesn’t tell the whole story. Other greenhouse gases (GHGs) have a significant impact on climate change—including methane (CH4), nitrous oxide (N2O), the so-called F-gases (hydrofluorocarbons and perfluorocarbons), and sulphur hexafluoride (SF6). These GHGs have varying lifetimes in the atmosphere, and many have global warming potential (GWP) greater than CO₂. Carbon offsets include methane and other GHG emissions, which are converted into “carbon dioxide equivalents” (CO₂e) units for ease of comparison, hence colloquially an offset is always referred to as representing 1 tonne of CO₂.

The life cycle of a carbon offset

How are carbon offsets created? There are three basic links on the carbon market value chain - see figure below. A project developer performs an activity that can produce carbon offsets (e.g. by planting a mangrove forest, preventing a tropical rainforest from being cut down, or capturing carbon directly from the atmosphere). A verification body signs off on the efficacy of the project, and then offsets that represent the climate benefit delivered by the project are issued . A buyer purchases the offsets to compensate for their emissions. Intermediaries, such as brokers or consultants, can assist with every part of the process, from the development of the project itself to connecting developers with the demand side.

The Voluntary Carbon Market Value Chain. Source: S&P Global Platts

The Voluntary Carbon Market Value Chain.

Carbon offsets themselves are ‘issued’ meaning they are created by a relevant carbon standard. This can only occur once the project has been audited by an external 3rd party to confirm that the carbon standards have been followed. Caron offsets are issued in a registry, which is similar to a bank account. When a company purchases carbon offsets, these are transferred from the project developer’s account, into the customer’s account. Once the offsets have been ‘used’, for example to offset a company's 2022 footprint, the offsets are retired. This means that the offsets can no longer be transferred, and that the customer has become the beneficiary of the climate benefit delivered by the offsets.

At Pledge, we purchase carbon offsets from our carbon offsetting partners (project developers). We then create different carbon offset portfolios, which are then visible on our platform. Once a customer has decided which portfolio they want to support, all they have to do is select the amount of offsets they want to purchase, and then pay through the platform. We then issue a carbon offset certificate as proof of what you have purchased. This certificate shows the links to the underlying registries, where you can see the credits that have been purchased and subsequently retired. We take care of all the admin, so that we can provide our customers with easy access to high quality carbon offsets.

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