Carbon offsets - how do they work, and who sets the rules?

Carbon offsets occur when a polluting company buys a carbon credit to make up for the greenhouse gas it has emitted. The money should be used to fund action somewhere in the world that remove the same amount of carbon out of the air, or to prevent carbon emissions.

As governments pressure the private sector to limit greenhouse gas emissions, the world’s largest companies have turned to a financial product to offset their environmental footprints — carbon credits.

It’s a hot market, hitting all-time highs in volume and on track to be worth $1 billion in 2021, according to Ecosystem Marketplace, a market publication run by the environmental finance research nonprofit Forest Trends. And just ahead of the United Nations Climate Change Conference starting Sunday, the U.N. Environment Programme issued a report that said carbon markets could “help slash emissions” with clearly defined rules and transparency.

Carbon credits are most often created through agricultural or forestry practices, although a credit can be made by nearly any project that reduces, avoids, destroys or captures emissions. Individuals or companies looking to offset their own greenhouse gas emissions can buy those credits through a middleman or those directly capturing the carbon. In the case of a farmer that plants trees, the landowner gets money; the corporation pays to offset their emissions; and the middleman, if there is one, can earn a profit along the way.

An Australian professor recently created a furor by asserting that the carbon market was “largely a sham,” as most of the carbon credits approved did not represent real or new cuts in greenhouse gas emissions. “At this point, there is no one standard that everyone kind of abides by,” Soh said. However, there are organizations that articulate what a good carbon credit looks like and help journalists with environmental accountability reporting. For local regulations, specifically in Australia, the Australian Carbon Credit Units set out rules that can be used to judge whether the carbon reduction is good enough, Soh said. Within voluntary markets, the Integrity Council for the Voluntary Climate Market is an independent governance body that sets and enforces global threshold standards using science and expertise. And the third group to look at are industry-oriented organizations, such as the International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation. Pay attention to the work that is coming out of the Voluntary Carbon Markets Integrity Initiative, Soh said it is helping “companies articulate what is a fair and good claim.”