Business Energy Glossary
What is a carbon offset?
A carbon offset is a tradable certificate representing the reduction, avoidance, or removal of one tonne of carbon dioxide equivalent (CO2e) achieved by an external project. Organisations buy carbon offsets to balance their own emissions in carbon neutral and net zero claims. Offsets are issued by accredited project developers and tracked in central registries. The voluntary carbon market (used by businesses and individuals) operates alongside compliance markets (UK ETS, EU ETS) where regulated emitters must surrender allowances for their emissions.
Carbon offsets have grown rapidly with corporate net zero commitments but have faced significant scrutiny over offset quality, additionality, and the role of avoidance vs removal offsets. Understanding offset categories matters when evaluating corporate climate claims and when considering offsetting as part of an organisation strategy.
On this page
How carbon offsets work
A carbon offset is a certificate representing one tonne of CO2e reduced, avoided or removed by a project outside your own operations. It doesn’t change your energy bill or the emissions from your supply, so offsets are generally used only after direct reductions.
The lifecycle of a carbon offset:
- A project (renewable generation, forest planting, methane capture, etc.) is developed under an accredited standard.
- The project measures the emission reduction, avoidance, or removal achieved.
- An independent verifier confirms the measurement.
- The standard issues carbon credits equal to the verified tonnes CO2e.
- The credits are sold to organisations or individuals seeking to balance their own emissions.
- The buyer retires the credits (removes them from the registry), claiming the underlying emission reduction against their own footprint.
Each credit is uniquely identified and tracked through the registry to prevent double-counting.
Types of offset project
| Category | Examples | Typical price (2024) |
|---|---|---|
| Avoided deforestation (REDD+) | Protecting tropical forest from logging | £3 to £15 per tCO2e |
| Renewable energy | Wind, solar, hydro projects in developing countries | £2 to £10 per tCO2e |
| Improved cookstoves | Efficient stoves replacing open-fire cooking | £5 to £20 per tCO2e |
| Methane capture | Landfill, agricultural anaerobic digestion | £5 to £15 per tCO2e |
| Afforestation / reforestation | New tree planting | £15 to £40 per tCO2e |
| Direct air capture (DAC) | Engineered CO2 removal | £300 to £800 per tCO2e |
| Biochar | Stable carbon from agricultural residues | £100 to £200 per tCO2e |
Offset quality standards
The main international carbon offset standards:
- Verra Verified Carbon Standard (VCS). Largest voluntary standard globally; broad project types.
- Gold Standard. Focus on sustainable development co-benefits alongside carbon impact.
- American Carbon Registry (ACR). US-focused projects, range of types.
- Climate Action Reserve (CAR). US-focused, methodological rigour.
- Plan Vivo. Small-scale community-based projects.
- Woodland Carbon Code (UK). UK-specific standard for woodland creation projects.
- Peatland Code (UK). UK-specific standard for peatland restoration.
Quality criteria across standards include additionality (the reduction would not have happened without the offset revenue), permanence (the reduction is durable), and measurement accuracy.
Avoidance vs removal offsets
| Type | What it does | Net zero acceptability |
|---|---|---|
| Avoidance | Stops emissions that would have occurred (e.g. renewable energy displacing fossil generation) | Limited; not typically counted toward net zero residuals |
| Removal | Actively removes CO2 from atmosphere (e.g. afforestation, DAC, biochar) | Required for net zero residual balancing under SBTi and credible frameworks |
The shift toward removal-only offsetting for net zero claims has driven demand for nature-based removal solutions (afforestation, soil carbon, blue carbon) and engineered removals (DAC, biochar, BECCS).
Carbon offset prices
Offset prices vary substantially:
- Avoidance offsets. £2 to £20 per tCO2e for most project types.
- Nature-based removals. £15 to £40 per tCO2e for afforestation; higher for high-integrity projects with co-benefits.
- Engineered removals. £100 to £800 per tCO2e for biochar, DAC, and similar.
- UK ETS allowances (compliance). £30 to £80 per tCO2e in recent trading.
- EU ETS allowances (compliance). Similar range to UK ETS but separate market.
Premium offsets with strong co-benefits (community, biodiversity) command higher prices than basic project credits.
Role in net zero strategies
The role of offsets in credible net zero strategies has been clarified:
- Offsets are not a substitute for deep emission reduction.
- Offsets are appropriate for balancing residual emissions after deep reduction (typically less than 10 per cent of base year emissions under SBTi).
- For net zero balancing, removal offsets (not avoidance) are required.
- Voluntary near-term offsetting (above and beyond the net zero pathway) can support climate action but is not credited against net zero targets.
The Voluntary Carbon Markets Integrity initiative (VCMI), Integrity Council for the Voluntary Carbon Market (ICVCM), and other frameworks have developed quality criteria for credible offset use.
a carbon offset FAQs
What is a carbon offset?
A tradable certificate representing the reduction, avoidance, or removal of one tonne of CO2 equivalent achieved by an external project. Organisations buy and retire offsets to balance their own emissions in carbon neutral and net zero claims.
What types of carbon offset projects exist?
Avoided deforestation, renewable energy in developing countries, improved cookstoves, methane capture, afforestation, direct air capture (DAC), biochar, and others. Each has different characteristics, prices, and quality profiles.
How much do carbon offsets cost?
Highly variable. Avoidance offsets cost £2 to £20 per tCO2e. Nature-based removals cost £15 to £40 per tCO2e. Engineered removals (DAC, biochar) cost £100 to £800 per tCO2e. UK ETS compliance allowances trade at £30 to £80 per tCO2e.
What is the difference between avoidance and removal offsets?
Avoidance offsets prevent emissions that would have occurred (e.g. renewable energy displacing fossil generation). Removal offsets actively remove CO2 from the atmosphere (e.g. afforestation, DAC). Net zero residual balancing under SBTi requires removal offsets.
Are offsets a credible part of net zero?
For balancing residual emissions after deep reduction (typically less than 10 per cent of base year), yes, using removal offsets. Offsets are not a substitute for deep emission reduction. Credible net zero pathways prioritise absolute reduction first.
What are the main offset standards?
Verra Verified Carbon Standard (VCS), Gold Standard, American Carbon Registry, Climate Action Reserve, Plan Vivo, Woodland Carbon Code (UK), and Peatland Code (UK). Standards differ in methodology, project types, and verification rigour.
Can I claim carbon neutral using offsets?
Carbon neutral claims have been allowed using full offsetting (no reduction required), but the practice has faced significant scrutiny. The UK ASA and Green Claims Code now require substantiated claims and clarity on offset use; many businesses are moving away from carbon neutral toward net zero pathways.
What is the voluntary carbon market?
The market for offsets bought voluntarily by businesses and individuals (rather than for regulatory compliance). Distinct from compliance markets (UK ETS, EU ETS) where regulated emitters must surrender allowances.