A plain-language guide to how they work and what to watch out for. 

To limit global warming to 1.5°C and avoid the most catastrophic consequences of climate change, the world must reach net-zero greenhouse gas emissions by mid-century (UN Intergovernmental Panel on Climate Change AR6, 2022). That requires deep emissions cuts across every sector. As businesses work to address climate change, carbon offsets have become an increasingly visible tool to complement a broader climate strategy.  

However, there remains a large barrier to entry into carbon markets. At Deduci, sharing our market knowledge with clients is one of our highest priorities, and this article is meant to support new buyers by answering some of the first questions they’ll be faced with. 

What Is a Carbon Offset? 

Before we understand offsets, it’s important to understand why we would need them in the first place. The actions of individuals and large corporations – such as traveling to a conference, commuting to the office, or even hosting a Zoom meeting – releases greenhouse gas (GHG) emissions into the atmosphere, namely carbon dioxide or its equivalent (CO₂e). The total emissions produced by an individual or company’s actions is known as a carbon footprint or GHG inventory. 

Carbon offsets, also referred to as carbon credits, represent a reduction or removal of GHG emissions. Governments, companies, and individuals can purchase offsets to compensate for their own emissions by funding projects that reduce or remove carbon elsewhere — such as reforestation or building renewable energy infrastructure. Each verified project generates credits, measured in metric tons of CO₂e, that the buyer can apply against their own carbon footprint. 

Offsets are traded on two types of markets: 

• Compliance markets — regulated programs (e.g. California’s Cap-and-Trade, the EU ETS) where companies must stay within legal emissions caps. 

• Voluntary markets — where companies and individuals purchase offsets to support net-zero or carbon neutrality goals, without a legal obligation to do so. 

How are Carbon Offsets Classified? 

There are two fundamentally different categories of offsets:  

Avoidance (Reductions) 

Avoidance offsets prevent GHGs from being released in the first place — for instance, protecting forests at risk of deforestation or deploying cleaner cookstoves in communities that would otherwise use traditional, open-fire cooking. These offsets avoid additional GHGs from entering the atmosphere, but they do not address a company’s or individual’s emissions. 

Removals 

Removal offsets, sometimes referred to as Carbon Dioxide Removal (CDR), actively extract CO₂ and store it durably — through reforestation, soil carbon sequestration, or technologies that directly capture CO₂ like Direct Air Capture (DAC) and Bioenergy Carbon Capture & Storage (BECCS) — for long periods of time (ideally, thousands of years). These offsets remove atmospheric GHGs and can compensate for the emissions produced by a company or individual.  

What Makes a Carbon Offset High Quality? 

Offset quality varies based on the project type, the verification methodology used, and several other factors such as: 

• Additionality — ensures the emissions avoidance or removal wouldn’t have happened without financial investment in the project 

• Permanence — the amount of time that the carbon removed or avoided will be kept out of the atmosphere  

• Measurability & verification — offsets are quantified using rigorous methodologies, monitored robustly, and verified by independent third parties like Isometric, Verra (VCS), Gold Standard, Climate Action Reserve, and American Carbon Registry. Deduci only sources projects that have been verified on a leading third-party registry.  

• No double counting — the same emission reduction isn’t claimed by more than one party 

• Co-benefits — strong projects also deliver biodiversity or community social & economic outcomes (e.g., species richness, job creation, improved agriculture) 

Companies should reduce emissions across their own operations and value chain as far as possible — and for what remains that cannot be eliminated, the IPCC has made it clear that carbon dioxide removal will be an “essential element” to reach net zero.   

Carbon offsets are a tool, not a silver bullet. Used well, they direct real investment into climate and nature. Used poorly, they become a substitute for genuine action. The difference comes down to quality, integrity, and knowing what to look for. We break down the most common misconceptions in Carbon Offsets Decoded: Debunking 5 Common Myths. 

If you’re finishing this article with more questions than answers, we offer in-depth carbon market workshops that can be tailored to your business’ context. Alternatively, you can reach out to info@deduci.com to be amongst the first to know about our upcoming free webinars.