Carbon offsets and credits help businesses balance out their greenhouse gas emissions and are crucial to tackling the climate crisis.
The two terms are often used interchangeably, so what is the difference? Let’s take a closer look at each phrase and compare the meaning of a carbon offset vs carbon credit.
Carbon offsetting is when an individual, business or country compensates for its greenhouse gas emissions by paying to reduce or remove carbon elsewhere in the world. This act can help organisations achieve carbon neutrality in the short term without reducing their emissions.
Carbon offsets come from projects that remove, store or prevent carbon being released into the atmosphere. Each carbon offset equals 1 metric tonne of CO2 or CO2e removed or avoided. Examples of carbon offset projects include:
· Regenerating forests that store carbon in their biomass
· Improving the energy efficiency of cooking equipment
· Investing in renewable energy to prevent the use of fossil fuels
These projects must meet stringent requirements and be certified by independent organisations to ensure they are legitimate and additional (meaning they wouldn’t have existed without the sale of carbon offsets). At Trace, we favour projects approved by Gold Standard or Verra Verified Carbon Standard (VCS).
By financially supporting these projects – which are often located in developing countries somewhere else in the world – businesses can compensate for their carbon footprint and balance out their impact on the climate, becoming carbon neutral. To go one step further and achieve net zero, companies must actively reduce most of their emissions.
Carbon offset projects generate carbon credits (also known as carbon offset credits). A carbon credit is a tradable permit that allows a business to emit a certain amount of carbon dioxide or equivalent gas (CO2e). Generally, one carbon credit equals 1 metric tonne of CO2 or CO2e.
Some carbon credits are part of a cap-and-trade system, where the amount of carbon dioxide businesses can emit is monitored and limited. Governments are responsible for setting this emissions cap, depending on the business industry and their share of that industry. They also regulate and penalise companies that exceed their emission limits. Examples of cap-and-trade systems exist in the European Union, China and California.
Businesses redeem carbon credits towards their emissions allowance. Companies can also buy, sell and trade credits on carbon markets. They may sell excess credits to others if they purchase more than they need to compensate for their emissions.
Some businesses use carbon credits purely to participate in the regulated economic trading system, rather than to become more sustainable. However, carbon credits aim to incentivise organisations to reduce their emissions so they can spend less on credits.
The terms carbon offset and carbon credit are often used interchangeably. They are both measured in tonnes of CO2e and allow companies to compensate for a certain amount of their greenhouse gas emissions. So, what is the difference between a carbon offset and credit?
Carbon offsetting is the act of compensating for emissions by paying to reduce or remove carbon elsewhere in the world. Carbon offsetting projects create carbon credits, also known as carbon offsets or carbon offset credits. A carbon credit is a certified permit that can be purchased and retired to offset your carbon footprint.
As you can see, the difference between these terms is nuanced, and in many instances, they can be used interchangeably. You buy a carbon credit or offset to offset your emissions. The exception is when we talk about a carbon offset in terms of the action, ‘carbon offsetting’. We cannot do the same with a carbon credit – ‘carbon crediting’ does not exist.
A renewable energy credit (REC) is a tradable certificate representing 1 MWh of electricity generated from a renewable energy resource (such as wind or solar) and returned to the shared grid that transports energy. Companies can purchase these credits when they buy their electricity to prove it came from a renewable source.
The advantage to businesses is that they can show their investors and customers that they are using renewable energy without installing expensive technology, such as solar panels, at their operating locations.
A carbon offset is the reduction or removal of carbon emissions, to balance out those produced elsewhere in the world. Carbon credits or offset credits are permits that represent the right to emit a certain amount of carbon dioxide, thanks to a carbon offsetting project. The two terms are inextricably linked and can be used interchangeably, so neither is ‘better’.
Both RECs and carbon offsets can be generated by renewable energy projects and used by businesses to demonstrate their commitment to sustainability. Neither requires a company to reduce its GHG emissions.
RECs confirm the clean energy attributes of electricity generated from renewable sources. They are measured in MWhs, and companies purchase them alongside their electricity. In contrast, carbon offsets are measured in tonnes of CO2, and companies buy them as standalone investments to compensate for their emissions.
At Trace, all our carbon credits come from verified carbon offset projects by established project developers, so you can be sure you are supporting renewable energy solutions and a greener future for our planet. Check out our article on choosing carbon credits to learn more about how we select and purchase our credits.
The cost of carbon offset credits varies widely and depends on several factors, including the perceived quality of the credit, location, and demand. As this is currently skyrocketing, carbon pricing is increasing rapidly. Pricing on the Voluntary Carbon Market (VCM) surged more than threefold in the last 6 months of 2021 alone.
As an individual or small business, the carbon market can seem complicated and inaccessible, and it can be challenging to purchase only a small volume of carbon credits. That’s where we can help!
At Trace, we’re experts in all things carbon offset and carbon credit related. We carefully select only verified carbon offset projects that deliver maximum impact, and we record and retire all our credits via a public registry. As we procure for our entire community, we can also pass the benefits of volume pricing onto you.
Contact us today to calculate your carbon footprint, start using carbon offsets, and do your bit to help our climate.