Your sales team wants to call a product climate neutral. A broker offers carbon credits that would cover all your emissions this year. Many companies take this step before they have calculated their footprint or cut any emissions. In the EU, a climate neutral claim about a product that relies on credits is now banned.
- Carbon offsetting: buying carbon credits from projects that avoid or remove greenhouse gases, to balance your own emissions.
- Carbon credit: one tonne of CO₂e avoided or removed, certified under a standard such as Gold Standard or Verra.
- Price: depends on certification, project location, project type and the number of credits you buy.
- When to offset: only after you calculate your footprint and cut the emissions you can.
- Claims: EU law bans product claims of climate neutrality based on offsets; UK regulators also act against such claims.
What is carbon offsetting?
In general terms, carbon offsetting means buying carbon credits from projects that cut emissions or absorb greenhouse gases. You use these credits to balance your own emissions.
A carbon credit is a unit you can trade. It equals one tonne of carbon dioxide equivalent (1 t CO₂e) that was avoided or removed from the air.
Many kinds of projects create these credits. Some absorb carbon dioxide, but most prevent emissions. An independent body certifies the credits under a recognised scheme, such as the Clean Development Mechanism (CDM), Gold Standard or Verra. After that, companies and individuals can buy them to compensate for their own emissions.
We first wrote this text in 2022. Since then, credit prices and the rules for using credits have changed. We describe the current state in our article on carbon credits: what they are, what they cost and how to buy or sell them.
Types of offset projects
There are several main types of carbon offsets. They depend on the project that creates them, and they differ in their aims and in how they work:
- Renewable energy: projects that build solar, wind or hydro plants. They produce electricity without carbon dioxide emissions and reduce the use of fossil fuels.
- Forestry and conservation: projects that plant trees on land that lost its forest, or on land that never had one. Others protect ecosystems, stop deforestation and preserve biodiversity. They are also called nature-based solutions.
- Waste to energy: projects that collect waste from landfills, towns or farms. They capture the methane it releases and use it to make electricity. This cuts methane emissions and gives cheap, sustainable energy.
- Other projects: for example, energy efficiency projects that cut the demand for fossil fuels. Community projects bring new ways to cook or to make electricity. They cut carbon dioxide emissions and prevent local deforestation.
How much does carbon offsetting cost?
The price of a carbon credit depends on four main factors:
- Certification: credits from projects certified by an independent body usually cost more. In return, you can be more confident that the project does what it promises.
- Location: projects in Europe are usually more expensive than projects in poorer regions of the world. Building and running them over their life costs more.
- Project type: renewable energy projects are usually cheaper than projects that improve living conditions for local communities in developing countries.
- Volume: buyers of several thousand credits can often negotiate the price. Some organisations also buy credits together to get a discount.
Prices are likely to rise as more companies offset their emissions. Demand will grow, and financial investors may start to trade on project prices. We have seen the same in the EU Emissions Trading System (EU ETS). For current price ranges, see our article on carbon credits.
Certified or not: which offset should you choose?
Offset projects can be certified or not. Your choice should depend on your goal.
If you want to show customers or investors that your company offsets its emissions, choose a project certified under a standard that is recognised worldwide. In the end, the quality of a project depends on how open it is and on who stands behind it. Reputable standards follow best practice to meet these expectations.
When should you offset emissions?
Offsetting is still voluntary. No law requires a company to buy carbon credits. What has changed is the law on what you may say about offsetting. The EU Empowering Consumers Directive (EmpCo) bans claims that a product has a neutral, reduced or positive climate impact because of offsets. EU countries must apply the ban from 27 September 2026. Some apply it later: Poland from 27 September 2027. In the UK, the competition authority (CMA) can now fine a company up to 10% of its global turnover for misleading claims. At the same time, customers and investors ask about climate neutrality.
For most manufacturing and service companies, it is not possible to become climate neutral or reach net zero without offsetting some emissions.
In an ideal world, a company uses offsets in three steps:
- It calculates its carbon footprint in Scopes 1 and 2, and possibly Scope 3.
- It analyses how to cut the footprint, for example with an energy audit or an energy management system, and then cuts it step by step.
- When it has used up the ways to cut emissions, it buys carbon credits to offset the rest.
In reality, many companies skip the second step, and sometimes the first one too. Often they do not know how carbon credits should be used and what they are for.