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A simple guide to carbon credits and carbon offsetting

November 27, 2023

High-quality carbon credits offer the opportunity to finance carbon removal or reduction projects, thus offsetting emissions.

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Do you know what makes a good carbon offset?

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These days carbon offsetting is all the rage. But what are carbon offsets? Purchasing high-quality carbon credits offers companies and organizations the opportunity to finance carbon removal or reduction projects to counteract their own emissions.

The logic goes that once a company accounts for its carbon emissions, it can become carbon neutral simply by financing an equal amount of carbon removal or reduction elsewhere. The money paid for carbon credits typically funds sustainable projects—tree-planting or the protection of carbon stored in a forest that would otherwise be destroyed are just two examples.  


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Carbon offsetting use cases 

In recent years, climate change has entered mainstream public discourse. In response to soaring public pressure, governments and businesses have rallied to prove their commitment to drastically reducing or eliminating emissions. General Motors and Ford are poignant examples of the corporate attitude shift. To stay relevant in an eco-conscious world, both automakers scrapped previous climate change denials and traded their fossil fuel lobbying efforts for commitments to carbon neutrality. But to get there, they’ll both likely need to explore carbon offsets.  

For other companies in industries with hard-to-abate emissions behaviors— fossil fuels, shipping, steel, cement, trucking, and airlines—carbon credits are a lifeline because these industries are more challenging to electrify than other sectors. 

Air travel is responsible for 3.5% of global warming, and 80% of the carbon footprint from air travel comes from large and long-haul flights. While electric planes are on the horizon for regional air travel, emissions from commercial flights won’t change anytime soon due to the limitations of existing battery storage technology

For businesses, purchasing carbon credits is an efficient, ad hoc, and often affordable way to reduce emissions while they tackle decarbonization measures. But beware—if offsets are the only solution to curb your carbon footprint, rather than just part of a broader sustainability strategy, climate change impact will remain business as usual. Furthermore, from a business perspective, offsets are a recurring annual cost unlike operational changes which can reduce things like energy spending.

Environmentalist and critic George Monbiot equates offsets to sinners paying to absolve their guilt. In a perfect world, offsetting should be a last resort for residual emissions, only used once you reduce your carbon footprint as much as possible through internal mitigation.  

Is there a difference between carbon credits and carbon offsets?

To counterbalance—or offset—emissions, carbon credits allow organizations and individuals to finance carbon removal or carbon reduction projects.

A carbon credit is a tradable permit that allows a business or organization to produce a certain amount of carbon emissions. These are often traded on public and private markets, where low-emitting businesses sell excess credits to those exceeding their carbon emissions allowance.

There are two types of carbon credits: voluntary emissions reduction (VER) and certified emission reduction (CER). VERs are exchanged in voluntary markets with no third-party oversight, and CERs have regulated investment vehicles offered through institutional carbon funds, with the primary purpose of offsetting a specific project’s emissions, for example, a new power plant.

A carbon offset is essentially what happens to that carbon credit once it is purchased—a company balances or draws down a stated carbon credit inventory against its own carbon emissions.

Quality issues 

Buyer beware: Carbon credits don‘t always live up to their promise. The global carbon market has plenty of problems: inflated carbon removal claims, double-counting, outdated and uncertain measurement, and a lack of accountability or regulation. An infamous ProPublica investigation on global forest preservation carbon credits found inaccuracies in measurements, drastically inflated carbon removal claims, and the gut-wrenching practice of trees cut or burned before their realized carbon removal benefit.  

In the interim, it’s up to the offset buyer to learn how to differentiate between good and bad carbon set credits. 

Further reading: 11 types of high-quality carbon credit and carbon offset projects on Sustain.Life

What makes a high-quality carbon credit? 

The criteria for a high-quality carbon credit can be remembered with the acronym P.A.V.E.R.:


Carbon has to stay sequestered from the atmosphere, which is especially important for nature-based offsets. For example, trees should stand for decades to qualify because they sequester carbon as they grow. 


A project is additional if the greenhouse gas reduction would not have happened if not for the offset purchase. A 2016 European Union report found that 85% of offsets are not additional, which is often true for renewable-energy offsets. They fail the additionality test because the wind farm or solar array would be built regardless of the carbon finance. 


Offsets need to be measurable, monitored over time, and validated by an independent third-party or a UN or government body. 


Carbon credits need to be tracked, usually through a registry, to prevent double counting. You want to ensure that the credit you buy represents carbon that belongs to you and you alone. 


The amount of carbon reduction or removal sold must come from direct activity of the offset project. 

Good carbon offsets are hard to come by. Here’s what to look for.

Download the carbon offset checklist

How to find high-quality carbon offsets 

Looking beyond the carbon can help you align your choice of carbon credit projects with your organization’s broader mission, interests, and environmental impact. Two projects that sequester the same amount of carbon can have completely different co-benefits. One may provide social benefits, like financing the replacement of coal cookstoves with ones powered by renewable energy in India or Asia; another could offer something completely different like increased biodiversity, reforestation, ecosystem restoration, or wildlife protection.

Offsetting standards bodies are a great place to look for registered carbon offset projects. The following “Big Five” are the most rigorous and reliable voluntary carbon offset standards on the market:  

  1. Climate Action Reserve (CAR) – The premier offset standard for the North American carbon market.
  2. Verra’s Voluntary Carbon Standard (VCS) – Verra is a non-profit organization that operates the Verra registry and several standards.  
  3. American Carbon Registry (ACR) – A non-profit and the first voluntary greenhouse gas registry.  
  4. Gold Standard (GS) – General certification standard created by the WWF. 
  5. Plan Vivo – Standard for projects that support communities and smallholders in the developing world.

If you’re considering a carbon offsetting program or looking into the practice, it’s important to practice diligence in selecting an ESG management software and provider and only to use offsets when appropriate. Sustain.Life utilizes Cloverly’s digital infrastructure to provide carbon credit buyers with access to thoroughly vetted projects. With the widest selection of high-quality carbon credit projects in the world, Cloverly is trusted by more than 200 leading businesses across many industries, including financial services, ESG carbon accounting, private equity, logistics, travel, ecommerce, and more.

Editorial statement
At Sustain.Life, our goal is to provide the most up-to-date, objective, and research-based information to help readers make informed decisions. Written by practitioners and experts, articles are grounded in research and experience-based practices. All information has been fact-checked and reviewed by our team of sustainability professionals to ensure content is accurate and aligns with current industry standards. Articles contain trusted third-party sources that are either directly linked to the text or listed at the bottom to take readers directly to the source.
Rebecca Sokolov
Rebecca Sokolov is a sustainability consultant and advisor with over five years of experience.
Alyssa Rade
Alyssa Rade is the chief sustainability officer at Sustain.Life. She has over ten years of corporate sustainability experience and guides Sustain.Life’s platform features.
The takeaway

• Offsetting should only be used once you reduce your carbon footprint as much as possible through internal mitigation.

• There are rigorous and reliable voluntary carbon offset standards on the carbon market.

• It’s important to practice diligence in selecting a provider and only to use offsets when appropriate.