Definition 1
Offsetting means compensating for emissions by buying and retiring one or more carbon credits or units from a project that meets all of the following:
(a) it is compliant with [insert name of voluntary standard or principles, for example the Oxford Principles for Net Zero Aligned Carbon Offsetting and/or the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement Crediting Mechanism [or successor UNFCCC mechanism]
(b) 1 tonne of Carbon Dioxide Equivalent Greenhouse Gases (GHGs) are avoided, reduced or removed by the project
[(c) it prioritises removing GHGs from the atmosphere within the value chain prior to turning to offsets, rather than avoiding or reducing third party emissions of GHGs]
[(d) it has considered and implemented strategies to gradually minimise reliance on offsets]
[(e) it has considered the importance of carbon removal offsetting for any Residual Emissions]
[(f) it takes account of a just transition and addresses wider social and environmental goals]
[Drafting note: contract writers may choose to define this item (f) referring to a just transition and wider social and ecological goals. If it is not defined, it may be difficult to enforce because, depending on the agreement, it may be unclear what this looks like.]
(g) it ensures the credits or units are measured, verified, demonstrably additional to what would otherwise have occurred, reported, correctly accounted for, are not double counted (that is, counted by more than one party, or credited under more than one carbon crediting programme) and have low risks of reversal and negative impacts on people and the environment
(h) it ensures that the credits or units are from activities that provide social safeguards, promote equity and benefit both ecosystems and local communities.
[Drafting note: contract writers may prefer to specify which voluntary or regulated market they want to purchase carbon credits from.]
Drafting notes and guidance
Many organisations use carbon offsets to compensate for their greenhouse gas (GHG) emissions by funding or facilitating emissions reduction and removal projects - such as airlines supporting reforestation to offset flight emissions.
However, carbon offsetting presents significant challenges, including:
- delaying urgent action - it can divert organisations from essential efforts to reduce emissions at the source.
- questionable quality - concerns about the actual effectiveness of offset projects, the integrity of claimed carbon reductions, and the true impact of removals.
To address the impact and quality challenge, organisations should consider projects that adhere to established, recognised standards that seek to verify offsetting projects – including but not limited to the Oxford Principles for Net Zero Aligned Carbon Offsetting, which acts as guidance on credible and net zero aligned offsetting, and prioritises cutting emissions and ensuring the integrity of credits. Standards should be in line with science IEA or IPCC Sectoral reduction pathways, such as the ISO Net Zero Guidelines, Race to Zero, UNSG HLEG Integrity Matters or the STBi Corporate Net Zero Standard.
We recommend companies with offsetting strategies refer to the latest Oxford Principles for Net Zero Aligned Carbon Offsetting, which outline key principles for offsetting. The 2024 principles are:
1. cut emissions, ensure the environmental integrity of credits used to achieve net zero, and regularly revise your offsetting strategy as best practice evolves
2. transition to carbon removal offsetting for any residual emissions by the global net zero target date
3. shift to removals with durable storage (low risk of reversal) to compensate any residual emissions by the net zero target date
4. support the development of innovative and integrated approaches to achieving net zero.
Offsetting, neutralisation and counterbalancing
It is important to distinguish offsetting, neutralisation and counterbalancing.
Neutralisation is a practice through which GHGs are durably removed from the atmosphere, on a timescale commensurate to the emission, including geologic removal to neutralise fossil-fuel based emissions and land-based carbon removal to remove forms of methane. Neutralisation outcomes, which can be in the form of a credit or unit, should demonstrate:
(a) compliance with a voluntary standard or principle, for example the Oxford Principles for Net Zero Aligned Carbon Offsetting and/or the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement Crediting Mechanism (or successor UNFCCC mechanism);
(b) removal of 1 tonne of carbon dioxide equivalent GHGs;
(c) that the credits or units are measured, verified, demonstrably additional to what would otherwise have occurred, reported, correctly accounted for, and have low risks of reversal and negative impacts on people and the environment; and
(d) that the credits or units are from activities that provide social safeguards, promote equity and benefit both ecosystems and local communities.
An effective counterbalancing strategy should focus on responsible Offsetting and neutralisation practices that do all of the following:
(a) prioritise within value chain opportunities to reduce or remove GHGs from the atmosphere prior to the use of third party reduction or removal projects
(b) have considered the importance of moving toward neutralisation of ongoing and Residual Emissions
(c) are regularly revised to ensure it aligns with scientific best practice
(d) take account of a just transition and address wider social and environmental goals.