What is a Carbon Offset and How Does it Work?

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In an era when the impact of our actions on the environment has never been clearer, the concept of carbon offsetting has emerged as a powerful tool to reduce greenhouse gas emissions.


Carbon offsetting involves compensating for the carbon emissions generated by investing in projects aimed at reducing emissions elsewhere.


But what exactly is a carbon offset, and how can it help us make a meaningful difference in the journey towards net-zero?


Join us as we delve into the fundamental principles of carbon offsets. In this article you will learn about:


Good reading!

What is a Carbon Offset?

carbon offset

A carbon offset is a reduction in greenhouse gas emissions or the removal of carbon dioxide (CO2) from the atmosphere, typically achieved through specific projects or activities. 


These projects are designed to balance out or “offset” an equivalent amount of emissions generated elsewhere, effectively neutralizing the overall carbon footprint.


These projects can vary widely and include activities such as reforestation, afforestation, renewable energy production (e.g., wind and solar farms), methane capture from landfills or agricultural operations, and energy-efficient cookstove distribution in developing countries, among others.


The reduction or removal of greenhouse gases achieved through these projects is quantified in terms of carbon credits.


Carbon projects have their emissions reductions or removals verified by a third party. Verified reductions or removals become carbon credits, providing incentives for developers to invest in climate mitigation. 


Upon purchase and retirement, buyers can include the offset in their GHG inventory as a voluntary “offset”. Similarly, some climate policies across the world allow corporates bound by law to pay a tax or compensate for their emissions reductions to use carbon credits (e.g. Colombia and Australia).


Carbon projects may also result in additional benefits, such as job creation, flood prevention, clean energy access, water conservation, education, or the preservation of biodiversity.


Below is a chart that shows the annual carbon credit generation from projects in the voluntary carbon market from recent years:

carbon offset - issued retired

Source: VAI data

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Types of Carbon Offset Projects

Carbon offset projects are commonly classified based on their contributions to climate change mitigation, either through emissions avoidance or carbon removal:


Avoidance projects reduce or avoid the release of carbon into the atmosphere.


They can take various forms, such as:

  • Renewable energy initiatives that reduce the carbon intensity of the energy mix
  • Technologies that eliminate greenhouse gases (GHGs) at their source like ozone-depleting substances or carbon capture from power plants
  • Energy efficiency measures in industrial processes
  • Reduction of deforestation that prevent the loss of the carbon stock of forests


Removal projects sequester carbon from the atmosphere.


This can be achieved through nature-based solutions that harness the storage of carbon in biomass and soils like reforestation or  improved pasture and crop management. 


More recently, there has been a growing interest in technologies designed to remove carbon from the atmosphere using technology to either store or utilize it, such as direct air carbon capture (DAC) and enhanced weatherization, among others.

Benefits of Offsetting

While carbon projects do indeed prevent, reduce, or remove greenhouse gas emissions, their impact can extend beyond climate change mitigation.


Carbon offsetting assists companies on their journey toward net-zero, emerging as a critical tool in the corporate decarbonization arsenal. A carbon credit offers a unique blend of flexibility, control, and substantial cost reductions, enabling businesses to optimize their net-zero goals in the short term.


They also empower organizations to contribute to global projects that deliver tangible benefits to communities while aligning with the Sustainable Development Goals (SDGs).

Is Offsetting the Solution to Climate Change?

carbon offset

The decarbonization of our economy and its industries should be the first priority to limit global warming to 1.5°C. 


However, we will not be able to reach that goal without carbon credits since they offer a cost-effective and efficient means to curb GHG emissions in the short-term

Offsetting Terms Explained

There are other terms related to carbon offsetting that are important to be known:

Carbon Market

An exchange system for trading carbon credits. These markets can either operate voluntarily or be government-mandated.

Emissions trading schemes

Also known as ‘cap and trade’, are a form of carbon market mechanism. In these schemes, the government sets emission caps for specific sectors, regions, or the entire nation.


Companies operating within these schemes are restricted to emitting carbon within the limits defined by the allowances they hold.


They have the flexibility to trade these allowances among themselves to manage their emissions in a more cost-effective manner.


Refers to the deceptive practice of creating the illusion of engaging in environmentally friendly activities without genuinely taking substantial and verifiable climate action.

Carbon Reduction

Involves implementing actions and strategies aimed at reducing greenhouse gas emissions by preventing activities that would have otherwise led to emissions.


This can include transitioning to renewable energy sources or preventing deforestation, among other approaches.

Carbon Removal

Encompasses measures designed to actively absorb greenhouse gasses (GHGs) from the atmosphere. These removal methods can be achieved through natural, geological, or technological means.


If you want to learn more about the Voluntary Carbon Market, access the full article we have prepared for you!


Carbon offsetting is a way to fight against climate change. It balances emissions, offers immediate benefits, aids corporate decarbonization, and aligns with global sustainability goals through diverse projects like reforestation and renewable energy.


This tool not only balances emissions but also fosters environmental and community benefits. It plays a pivotal role in corporate decarbonization.


Learn more about carbon offsets by booking a demo with our specialists!


Learn more:

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Speak with one of our carbon specialists to learn more about the voluntary carbon market and the VAI platform.

About the authors:

María Elisa Vollmer is Head of Project Data at Viridios AI.  She has five years of experience in sustainability consulting for the public, private, and non-profit sectors. Her diverse background blends international development, environmental policy, and economics. She has a Master’s in Applied Economics from George Washington University and an undergraduate degree in Environmental Policy and Planning from Virginia Tech.


Mariana Marins is Content Marketing Manager at Viridios AI. Mariana has 9 years of experience in marketing across different markets and companies, both in the non-profit and private sectors. Her background includes marketing and GTM strategies, CX, inbound marketing, SEO, and content production.She holds a Bachelor’s degree in Communications/Marketing, a MBA in Business Management and Design Thinking, and an Innovation Leadership Program Certificate from The Hebrew University of Jerusalem.



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