Carbon offsets: what are they and how do they work?

According to NASA, Earth’s average surface temperature has risen by about 2 degrees Fahrenheit (1 degree Celsius) since the late 19th century, with most of the warming occurring within the past 40 years.

This rapid rise in temperatures has had a number of negative effects on the environment, including the disruption of ecosystems, shrinking ice sheets in Greenland and the Antarctic, rising sea levels, and extreme weather events.

Anthropogenic climate change is now a serious cause of concern for people all around the world. But there’s still time to take climate action. If the rise in the world’s temperatures is kept below 1.5 degrees Celsius, this may allow us to reduce projected losses and limit the damage.

Many individuals and businesses are now taking immediate measures to combat climate change. One of these measures is purchasing “carbon offsets”.

Below, we’ll explore what carbon offsets are, how they work, and how you can get started with carbon offsetting now. But first, let’s dive into a related concept: your carbon footprint.

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What is a carbon footprint?

Levels of carbon dioxide (CO₂) in our atmosphere have been rising dramatically since the mid-20th century due to human activity. Carbon dioxide, along with other gases like methane, traps heat near the Earth’s surface. This phenomenon is known as the “greenhouse effect”, and it is one of the main drivers of global warming.

While many industrial processes emit significant amounts of carbon dioxide, so do day-to-day activities. According to the CO₂ Human Emissions Project, some human sources of carbon dioxide emissions include cement production, deforestation, and burning fossil fuels (like coal, oil, and natural gas).

The total amount of greenhouse gases generated by a person or organization’s actions is called their “carbon footprint”. Some examples of common activities that contribute to your carbon footprint are eating meat, using electricity and heat, and traveling (by plane, train, car, etc.).

What are carbon offsets?

Carbon offsets are a way of mitigating your company’s environmental impact. A carbon offset involves the commodification of one metric ton (tonne) of CO₂e emissions reduction. It turns carbon reduction into a credit that can be bought, sold, and traded.

The idea is that by purchasing carbon credits (for example, in the form of a donation to an environmental project), you can help with carbon emissions reduction or carbon removal, countering your initial carbon-producing activity and making it "carbon neutral".

In general, there are two types of carbon offsets: voluntary and compliance. Voluntary offsets are purchased by choice to help the environment, while compliance offsets are used to meet legal obligations in regions that use cap-and-trade systems and carbon markets (like the EU Emissions Trading System).

While carbon offsets are a great way to help the environment, there are many other actions businesses can take to meet their carbon reduction goals. Companies can increase the efficiency of their operations by first making more eco-friendly choices (for example, recycling and reducing waste to avoid sending it to landfills, choosing renewable energy and improving energy efficiency, and using more efficient transport options).

However, even after optimizing for efficiency, you will still have a residual carbon footprint. Carbon offsets can help mitigate the impact of this footprint.

How does carbon offsetting work?

First, you’ll need to calculate how many metric tons of carbon dioxide are generated by a specific business activity.

You’ll then need to purchase carbon credits: for example, by donating a fixed amount of money to a nonprofit environmental project. The amount of your donation should correspond to the amount of carbon emissions created by the initial activity. In this way, you’ll have “offset” your own emissions to net zero.

Accurately calculating carbon emissions can be difficult. Luckily, there are software solutions out there that can make the process easier.

For example, Perk is an all-in-one business travel platform where you can book, manage, and report on business travel. The platform offers built-in functionality (such as the Green Trip program and Green Trip API tool) to help companies understand, lower, and offset their carbon emissions.

How does buying carbon offsets work?

When you purchase offsets, you’ll typically pay a fixed amount based on a calculated price for each metric ton of carbon dioxide equivalent you emit. This price may depend on different factors related to the type of carbon offset projects you’ve chosen.

If you choose Perk and opt into the Green Trip program, you’ll be charged for each trip you take at a price of €10 per ton of CO₂e (or the equivalent in your local currency).

What types of emission reduction projects are out there?

The goal of carbon offset projects is to counteract greenhouse gas emissions — either by lowering future global emissions, or reducing current CO₂e levels in the atmosphere. Different projects have different methodologies to reduce emissions.

Some popular types of climate solution initiatives include forestry (reforestation and tree planting [afforestation]), methane capture, renewable energy projects (such as wind farms or hydroelectric power plants), and direct carbon capture.

Carbon offset projects may take place anywhere in the world. For example, the projects we’ve selected for Green Trip are located in Thailand, Cambodia, and Turkey.

How to choose a carbon offset project to support

It’s important to be selective about the carbon offset projects you support. Above all, the offset programs you choose should make a tangible, measurable impact on CO₂e emissions. You should also take care to choose reliable projects that are properly supervised and efficiently run.

Not only are all Green Trip projects VERRA (Verified Carbon Standard) approved, they’re also hand-selected by our sustainability team. We choose projects based on the UN’s Sustainable Development Goals, and aim for emissions accuracy, permanence, and social benefit to local communities. Learn more about the projects.

How to use Green Trip to better understand your company’s carbon footprint

As companies become increasingly focused on reaching net-zero targets, a great place to start is with business travel. However, understanding the impact of business travel may be easier said than done. Businesses face many challenges in measuring CO₂e emissions from travel, including the need to develop a consistent methodology, and difficulties in aggregating data from multiple sources.

For this reason, at Perk, we’ve developed two different solutions to make it easier for our customers to drive down their emissions through data. Here’s what we built:

Green Trip

All Perk users and clients can now understand their business travel footprint. They can opt in to offset the carbon emissions of all of their business trips by investing in VERRA-accredited projects focusing on biogas capture, forestry, and renewable energy.

Green Trip API

An external, open-source API that businesses can integrate directly into their own platforms and workflows. You can use Green Trip API to create net-zero strategies through actionable data insights, build a sustainable travel policy and monitor its progress, and see exactly what aspects of your business travel are leaving the highest carbon footprint. Green Trip API’s calculations comply with the standards set by the World Resources Institute’s Greenhouse Gas (GHG) Protocol.

So how do these initiatives work in practice? Here are a few practical examples:

Company X has set an objective to reduce their travel-related carbon footprint.

They log into the Green Trip API dashboard and discover that 10% of their business trips are between London and Paris, and 100% of those trips are taken by plane. That comes to be around ~0.9% of the cost of their entire business travel!

With Green Trip API, Company X determines that they can reduce their carbon emissions by almost 75% if they implement a policy that gets their business travelers to take the Eurostar train instead of a flight.

You can also get more granular than that. For example:

Company Y frequently books trips between London and New York.

By looking at their dashboard, they discover that travelers flying with one airline emitted more carbon than travelers flying with another airline.

They can now start booking all their travelers onto the more carbon-efficient airline and reduce their carbon footprint by about 22%.

Carbon offsets: what are they and how do they work?

What is a carbon footprint?

What are carbon offsets?

How does carbon offsetting work?

How does buying carbon offsets work?

What types of emission reduction projects are out there?

How to choose a carbon offset project to support

How to use Green Trip to better understand your company’s carbon footprint

Green Trip

Green Trip API

To learn more about how to reduce your carbon footprint, check out Perk’s ultimate guide.

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