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What Is Carbon Offsetting?

Find out what carbon offsetting is, how it works, the different types of offsets and why they're so important.

carbon accounting blog 04-07-2022

Published April 7, 2022

Kawamori Bloomberg
Kawamori BloombergPersefoni CEO Kawamori Discusses Offsets with Bloomberg

Persefoni CEO Kawamori Discusses Offsets with Bloomberg

As the world races to decarbonize, carbon offsetting has become a significant part of companies' ambitious net-zero plans. Offsetting refers to the removal of carbon from the atmosphere to counteract emissions made elsewhere. Offsetting can be achieved either naturally through exploiting natural carbon sinks or technologically through carbon capture and storage or renewable energy.

Carbon offsets, especially in sectors that find it hard to decarbonize, like aviation and oil and gas, have in recent years seen an increase in popularity. It is not without its critics, however. Some claim offsets give large polluters an excuse not to reduce their carbon. And, as there is also no international body verifying the authenticity of carbon offsets, many entities claim it remains a ‘wild west.’

Natural Offsets

To provide a bit more context, let’s quickly explain the carbon cycle. The carbon cycle is the earth’s biogeochemical system of absorbing carbon in organic matter, water bodies, and geology and releasing it through decomposition, forest fires, and volcanic activity. Carbon offsets employ the carbon cycle and use land-use change and reforestation to absorb more carbon. 

Nature already removes 41% of our emissions each year, primarily in the forests and ocean. Therefore projects that limit deforestation and protect carbon sinks are the most effective ways to offset emissions today.

Other natural carbon offsets include the enhancement of natural processes such as biochar, enhanced mineralization, and ocean fertilization. Although these methods are effective in storing carbon, they are less studied, more expensive, and have several trade-offs. 

Technological Offset 

We now know it is not enough to decarbonize merely through implementing renewable energies and energy efficiencies. We will also have to remove carbon from the atmosphere to keep global warming below 1.5C. The IPCC lists technological methods of carbon removal in almost all of their pathways to net-zero by 2050. Methods of offsetting carbon mechanically include techniques such as Bio-energy with carbon capture and storage, direct air capture, and renewable energy. 

Technological offsets include a host of innovations that mechanically absorb carbon from the atmosphere or directly from industrial processes and store CO2 for re-use in aviation fuels, food and drinks, or permanent storage. Permanent storage can be through injecting CO2 into the ground or through mineralization. The benefit of mineralization is that the carbon is in a stable state and will not be re-released into the atmosphere. 

Although technological offsets will play some role in carbon offsetting, some of the technologies are still in their infancy and not yet fully mature. Additionally, the cost and energy usage in capturing carbon at the moment makes it difficult to scale to the extent needed to make a huge difference.

Natural vs. Technological

Although technological offsets will be a necessary part of carbon offsetting and have their advantages, they are still in the early stages of research and development. A nature-based solution to carbon offsets is preferred because of the co-benefits of protecting natural carbon sinks or rewilding nature through land-use change and reforestation. These co-benefits include increasing biodiversity, economic opportunity for communities in the global south and in promoting resiliency for humans and nature to adapt to a changing climate. 

However, one benefit of a technological solution over a nature-based one is the immediate impact. A technological solution like direct air capture can begin removing carbon immediately, whereas there is a significant time lag with nature-based solutions. A new forest may take decades to remove carbon effectively. 

Creative Carbon Accounting

Some believe carbon offsetting maintains the status quo and allows large polluting companies to greenwash their emissions through creative accounting with dubious unverified offsets.

There are many questions still hanging over the validity of carbon offsetting, how can offsets be guaranteed to be permanent i.e., how can forest offsets be protected from logging and wildfires? Or, were the offset projects going to happen anyway, was this forest never going to be cut down but is now being sold as credits?

Mission-driven companies are attempting to change offset aspersions and answer any lingering questions of offset validity and beginning to move into the offset space to ensure high-quality carbon credits are being traded. Or, to provide accurate third-party verifications to ensure the validity of offsets.

Although it has its detractors, the case for carbon offsets is building. Our necessity for carbon removal to reach net-zero is clear. In light of this, the carbon offset market's relevance in a net-zero world is set to grow from $1billion in 2021 to as high as $180 billion by 2030. As the carbon market grows, it will become increasingly important for independent bodies such as the American Carbon Registry and Verra to set standards and guidelines to maintain the quality of carbon credits, 

While carbon offsets play an important role in our quest for net-zero emissions, they cannot be used as a substitute for decarbonizing and energy efficiencies. Offsets must work in tandem with accurate measurements of carbon performed preferably by accurate carbon accounting software, then pick off the low-hanging fruit (switching to renewable energy and using energy efficiencies) before utilizing carbon offsets to mitigate the rest of their emissions. 

© 2022 Persefoni AI Inc. All rights reserved. This presentation is the exclusive property of Persefoni and may not be copied or distributed, in whole or in part, without the express permission of Persefoni. Persefoni is the leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.

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carbon accounting blog 04-07-2022
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