Offsetting: Definition
Carbon offsetting balances a company’s carbon emissions by removing an equivalent amount of carbon from the atmosphere, although it can sometimes be less effective than anticipated.
For Sustainability Managers
Understanding Offsetting is essential for accurately tracking and reducing your organisation's carbon footprint.
For CFOs
Offsetting has growing financial implications as climate regulation tightens and investors demand transparency.
For Sustainability Reporting
Accurate measurement of Offsetting is required for credible climate reports across all major frameworks.
Related Terms
Carbon offsetting
Carbon offsetting entails aligning a company's carbon emissions with an equivalent removal of carbon from the atmosphere. In principle, this approach is sound. In fact, carbon removal is the essential concluding phase of a company's pursuit of net zero emissions. Nonetheless, in practice, the term "carbon offsetting" has become linked with subpar practices that often prove less effective than what companies expect when they engage in these activities. This situation can inadvertently result in "greenwashing," where companies only partially compensate for their carbon footprint.
ACCU
Australian Carbon Credit Units (ACCUs) are financial instruments awarded to eligible projects involving energy efficiency, renewable energy generation, and carbon sequestration. Each ACCU represents the avoidance or removal of one tonne of carbon dioxide equivalent (tCO2-e) GHG emissions. ACCUs are traded or sold on the national environmental commodity market through carbon market agents, allowing organisations to offset their carbon footprint or fulfil emissions reduction obligations.
Activity-based method
Activity data specifies the quantity of a particular product or material a company has purchased, enabling more precise emissions estimates than spend-based data. This method employs emission factors obtained from scientific studies.
Additionality
Additionality is a principle applied to carbon removal projects, signifying that a project is additional if it leads to emissions reductions that would not have occurred otherwise.
Base year
Setting emission reduction targets entails specifying a base year and establishing annual reduction goals as a percentage of emissions from the base year.