Tools and Tips

What are offsets and what do they do?

October 30, 2023 | James Lin

Image by Gerhard G. from Pixabay

Image by Gerhard G. from Pixabay

You may have heard of something called offsets in relation to sustainability and net zero. For example, when booking a flight online, you may see an option to pay money in order to offset the emissions your flight will generate. This means you can pay someone else (possibly in a different country) to undertake an action that will cancel out your own emissions, giving you the peace of mind that you are helping the environment. Sounds great, right? Or, is there more to the story? Given the no-so-subtle use of foreshadowing, you probably just realized the answer.

Before understanding offsets, we must first understand net zero (see our article). Let’s look at how the federal government defines net zero emissions: “anthropogenic emissions of greenhouse gases into the atmosphere [that] are balanced by anthropogenic removals of greenhouse gases from the atmosphere over a specified period” (see section 2 here). And what does this have to do with anything, you ask?

First meaning of net zero: physical emissions removals from the atmosphere

Consider two people named Emmett the Emitter and Ophelia the Offsetter. Emmett the Emitter wants to take a flight that will create 10 units of emissions per capita (meaning his share of the flight’s total emissions is 10 units). In order to achieve net zero, Emmett must either remove 10 units of emissions from the atmosphere, or pay someone to do so.

Fortunately for Emmett, for the right price, Ophelia the Offsetter is ready to remove emissions for him through a technology called carbon capture & storage (CCS), without adding any emissions of her own. Emmett takes his flight as planned, and pays Ophelia for her efforts. The net effect therefore is that Emmett’s 10 units added to the atmosphere are balanced by Ophelia’s 10 units subtracted from the atmosphere. See the image below.

Emmett’s 10 units added to the atmosphere balanced by Ophelia’s 10 units subtracted from the atmosphere

In practice, for this scenario Emmett and Ophelia may be the same entity, such as an oil company using CCS on its own emissions. Note that CCS does not capture 100% of emissions, hence this example is for illustration purposes only and does not perfectly represent reality.

Second meaning of net zero: avoided emissions

The offset industry uses a different definition of net zero, and this difference is the basis for its existence in the first place. This time, both Emmett the Emitter and Ophelia the Offsetter plan to each take a flight that will generate 10 units of emissions per capita. In order to achieve net zero, Emmett takes his flight as planned, and pays Ophelia to not take her flight. In contrast to the previous section, now Emmett’s 10 units added to the atmosphere are balanced by Ophelia not adding 10 units of her own as a result of Emmett’s payment. See the image below.

Emmett’s 10 units added to the atmosphere balanced by Ophelia not adding 10 units of her own

Note that Ophelia this time does not physically remove any emissions from the atmosphere in order to balance Emmett’s emissions; all that is required is for her to not undertake her own activity. This scenario may sound odd, since there are 10 more emissions units in the atmosphere than before (from Emmett’s flight), yet net zero is still achieved.

But wait, there is an added complication: how does anyone know that Ophelia’s avoided emissions were a direct result of Emmett’s payment? In other words, what if she had no plans to take her flight in the first place? Ophelia has incentive to hide her true intentions, since she stands to earn Emmett’s payment by acting as if his money led to her avoided emissions (even if it did not). Put differently, in the diagram above, does the $ symbol directly cause the crossed out 10 units?

Think about that last point for a moment. Suppose Ophelia has no plans to take a flight in the near future, and she sees that Emmett is willing to pay money to someone who claims to make a decision to not take a flight as a condition for accepting the money. Ophelia can easily (and falsely) claim to be that someone and accept Emmett’s payment.

So should you buy offsets?

Now that you know what you are actually paying for, are offsets worth buying? The answer depends on what you want to achieve, but keep the following in mind:

  1. If Emmett flies, his flight will generate emissions regardless.
  2. Buying industry offsets may make no difference (other than money changing hands) since Ophelia may never have intended to undertake her action in the first place.
  3. Emmett’s offset purchase may make him think he is helping the environment, and encourage him to continue flying without guilt. He would be unknowingly creating emissions uncompensated by removals or avoided activities elsewhere.

Happy offsetting (or not)!


Marc Jaccard’s book

For further reading, check out chapter 9 of Mark Jaccard’s book The Citizen’s Guide to Climate Success. In the context of buying offsets for flying, the book recommends the following alternatives:

  1. Invest in an electric vehicle, electric heat pumps, or solar panels, actions that actually reduce emissions by an individual;
  2. Pay for goods and services that encourage companies to reduce emissions, such as buying energy from a supplier that uses renewable natural gas;
  3. Donate to climate-conscious organizations and politicians.

Paper from Nature

More further reading is available in a journal article from Nature. Note the section titled “Attribute 4 – effective regulation of carbon offsets,” which deals with credibility of offsets.

The federal offset system

There is also something called the Federal GHG Offset System, whereby entities that remove emissions from the atmosphere generate “offsets” that can balance out positive emissions (their own or someone else’s). These federal offsets should not be confused with the second meaning of offsets described in this article, which do not involve emissions removals.

Unrelated ending joke

The next time you have trouble making a binary decision, toss a coin, not because the coin will decide for you, but because once it is in the air you will have made up your mind.

James Lin

James is the son of INZ founder Charles. He has a PhD in economics from the University of Alberta.

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