Carbon Offsetting for SMEs: What Works, What Does Not, and What to Avoid

What Is a Carbon Offset?

A carbon offset is a certificate representing one tonne of CO2 equivalent that has been removed from or prevented from entering the atmosphere somewhere in the world. When a company buys offsets, it is paying for someone else's emissions reduction — typically tree planting, renewable energy projects in developing countries, or methane capture at landfill sites.

Offsets are controversial, widely misunderstood, and frequently misused. This guide explains what they are, when they help, and what to avoid.

The Two Main Voluntary Carbon Markets

Verra Verified Carbon Standard (VCS) — the world's largest carbon credit registry. Projects are independently audited. Credits are called Verified Carbon Units (VCUs). Used by most forest conservation and renewable energy offset projects.

Gold Standard — co-founded by the WWF. Stricter requirements than VCS, with an additional sustainable development assessment. Generally considered higher quality.

Avoid offset providers that do not issue certificates through one of these two standards, or through official national schemes. Unnamed, unaudited "tree planting programmes" are common scams.

Carbon Neutral vs Net Zero: A Critical Difference

The Science Based Targets initiative (SBTi) does not allow offsets to count toward emissions reduction targets. You can offset residual emissions to claim "carbon neutral" status, but your SBTi target progress must come from genuine operational reductions.

What the SBTi Says About Offsets

1. SBTi's Corporate Net-Zero Standard (2021) requires companies to:
2. Reduce Scope 1 and 2 emissions by at least 90% by 2050 (against a base year)
3. Reduce Scope 3 emissions by at least 90% by 2050
4. Offset the remaining 10% using permanent carbon removal — not avoided-emission offsets

This means forest protection credits and renewable energy credits do not count toward a net zero claim under SBTi rules. Only technologies like direct air capture, enhanced weathering, or biochar with measurable permanence qualify.

When Offsets Are Useful for SMEs

Offsets have a legitimate role in two scenarios:

1. Bridging while you reduce: While you implement efficiency measures, renewable energy installations, or fleet electrification, you can offset current emissions to make a credible carbon neutral claim to clients — as long as you disclose that it is offset-based and show a reduction trajectory.

2. Residual emissions that cannot be eliminated: Some emissions are genuinely unavoidable — a small amount of gas for heating a 200-year-old listed building, or a flight to a client site with no rail alternative. Permanent removal offsets can cover these.

What to Avoid

• Renewable energy credits (RECs or REGOs) bought as offsets: These do not represent CO2 removed from the atmosphere
• "Carbon neutral" claims with no reduction plan: The EU Green Claims Directive (coming 2026) will ban claims based solely on offsets
• Cheap offset bundles without vintage or registry information: Typically worthless
• Double-counting: If your electricity supplier already claims renewable status for the grid, do not buy additional REGOs for the same electricity

What to Say on Carbon Questionnaires

Most procurement questionnaires now ask: "Do you use carbon offsets? If so, which standard?" The correct answer is specific:

"We purchase [X tCO2e] of verified carbon credits per year under the Verra VCS standard (project ID: [number]) to offset residual emissions not yet eliminated through operational reductions. Our reduction target is [X]% by [year]."

Do not claim "carbon neutral" without being able to provide documentation for the offsets used.