Carbon Offsets Explained: What They Are, How They Work, and the Nuances Brands Need to Know

In 2023, the voluntary carbon market traded an estimated $2 billion in credits. That same year, an investigation by The Guardian and academic partners found that approximately 94% of the most widely used rainforest carbon credits could be considered near-worthless. Both facts are true. That tension is exactly why carbon offsets deserve a clear-eyed explanation.

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Carbon offsets are one of the most funded yet most misunderstood tools in corporate climate action. Used well, they channel capital toward genuine emissions reductions while a brand works through harder structural changes. Used badly, they are a financial transaction dressed as environmental progress.

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What is a carbon offset?

A carbon offset is a reduction or removal of greenhouse gas emissions in one location that is used to compensate for emissions occurring elsewhere. When a company purchases carbon offsets, it is paying for a project that either prevents emissions from happening (avoidance) or actively removes CO2 from the atmosphere (removal). In theory, one tonne of CO2e avoided or removed elsewhere cancels out one tonne of CO2e the buyer is emitting.

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The logic is straightforward. Not every tonne of emissions is equally easy to reduce. A brand can redesign its packaging, switch to renewable energy, and optimise its logistics. But some emissions are harder to eliminate in the short term, and offsets allow companies to fund reductions elsewhere while continuing to work on their own harder problems.

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The TLDR: offsets are a tool for managing carbon emissions that cannot yet be reduced. They are not a substitute for actually reducing emissions. This distinction is where most of the legitimate controversy sits.

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Avoidance credits vs removal credits: they are not the same thing

The two fundamental types of carbon offsets have meaningfully different climate implications, and it matters which type a business is using.

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Avoidance credits are generated by projects that prevent emissions from occurring. The most common examples: REDD+ projects (Reducing Emissions from Deforestation and forest Degradation) that pay communities to preserve forests rather than clearing them; methane capture at landfills or farms that prevents methane reaching the atmosphere; renewable energy projects that displace fossil fuel generation; and clean cookstove distribution in developing countries that reduces wood burning.

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Avoidance credits prevent carbon that would otherwise have been emitted. They do not take carbon out of the atmosphere. This is an important distinction. Avoidance credits limit the rate at which atmospheric CO2 increases; they do not reverse what has already accumulated.

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Removal credits are generated by projects that actively take CO2 out of the atmosphere and store it. Examples include reforestation, direct air capture technology, enhanced weathering, biochar, and blue carbon projects that restore coastal and marine ecosystems including mangroves, seagrass meadows, and kelp forests.

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If you happened to watch David Attenborough's 2025 documentary Ocean, you may recall the important role that blue carbon sinks play in absorbing CO2e from the atmosphere.

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Essentially, coastal and marine ecosystems are among the most carbon-dense on the planet. Mangroves sequester carbon at up to four times the rate of tropical forests per hectare. Seagrass meadows cover less than 0.2% of the ocean floor but account for up to 10% of all carbon buried in ocean sediment annually. When restored and protected, these ecosystems generate verifiable removal credits with measurable, long-term storage.

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Removal credits represent a more direct form of carbon accounting. Oxford University researchers recommend that companies shift their offset portfolios over time toward a greater proportion of high-quality removal credits and away from avoidance credits. Avoidance credits represent a carbon debt that must eventually be balanced; removal credits represent a genuine subtraction from the atmospheric carbon stock.

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Why this distinction matters for brands. If your brand offsets using avoidance credits, you are paying to preserve a forest rather than actually removing the fossil carbon embedded in your product from the atmosphere. The fossil carbon from petrochemical feedstock remains in circulation. Removal credits provide a more defensible basis for carbon neutral claims.

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Carbon offset quality standards

Not all offsets are equal. The quality of a carbon offset project depends on whether it meets a set of criteria ensuring the claimed climate benefit is real.

The four main quality criteria are additionality, permanence, measurability, and uniqueness.

• Additionality means the emissions reductions would not have happened without the offset funding. A wind farm that would have been built regardless does not generate additional climate benefit.
• Permanence means the carbon storage is long-lasting; a forest that is later logged or burned releases its sequestered carbon, undermining the permanence of the offset.
• Measurability means the reductions can be accurately quantified and independently verified.
• Uniqueness means the credit is not double-counted or claimed simultaneously by two different parties.

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The main voluntary quality standards are:

• Gold Standard (Gold Standard Foundation): 3,500+ projects in 100+ countries, 348 million tonnes CO2e. Focus: climate, development, and biodiversity co-benefits; strong social requirements.
• Verra Verified Carbon Standard (VCS) (Verra): 2,300+ projects; 1.2 billion+ tonnes CO2e issued. Focus: largest voluntary market; broad project types.
• Climate Action Reserve (CAR): North America focused. Focus: rigorous US and Canadian protocols.
• American Carbon Registry (ACR) (Winrock International): 788 projects, 289 million tonnes CO2e. Focus: US projects; recognised under the California compliance market.
• Plan Vivo (Plan Vivo Foundation): smaller scale, community-focused. Focus: community forestry and land use; emphasis on livelihoods.

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What the evidence shows

The credibility challenges in the voluntary carbon market are well-documented and worth understanding before diving in and buying credits.

A 2023 investigation by The Guardian found that approximately 94% of the rainforest offset credits under REDD+ methodology could be considered near-worthless. The forests being protected were not at significant risk of deforestation without the project funding, meaning the credits did not represent real avoided emissions.

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A 2024 study published in Nature Communications analysed the twenty companies retiring the largest volumes of voluntary credits between 2020 and 2023. The researchers found that 87% of purchased offsets carried a high risk of not providing real and additional emissions reductions. Most did not meet standards regarding credit vintage and country of implementation.

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These findings do not mean all offsets are worthless. They mean that buying cheap, high-volume, poorly verified REDD+ credits is not equivalent to genuine climate action. High-quality removal credits from projects with robust additionality, permanence, and independent verification are more likely to deliver real outcomes. They are also more expensive and less abundant.

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Carbon neutral vs net zero: what the terms actually mean

These terms have specific technical meanings that are not interchangeable, and conflating them creates both legal and reputational risk.

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Carbon neutral typically means that CO2 emissions associated with a product or company have been offset by an equivalent quantity of CO2 reduced or removed elsewhere, usually through purchased credits. Most carbon neutral claims require ongoing offset purchases to maintain status; they do not represent a permanent carbon solution.

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Net zero refers to a state where greenhouse gases emitted into the atmosphere are balanced by an equivalent amount removed. The Science Based Targets initiative (SBTi) defines corporate net zero as achieving deep reductions in Scope 1, 2, and 3 emissions (at least a 90% reduction from a base year), with only genuinely unavoidable residual emissions addressed through verified carbon removal. SBTi does not allow offsets to substitute for near-term emission reduction. They address only the final residual fraction.

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Climate positive or carbon negative means removing more carbon from the atmosphere than is emitted. It requires a net removal position, not just balance, and is a more ambitious claim than either of the above.

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The distinction matters because a brand claiming net zero through offset purchases, without the underlying 90% structural emission reduction, is not net zero in any scientifically meaningful sense. It is a language choice with growing legal exposure.

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How carbon offsets relate to your packaging decisions

For brands, offsets are most appropriately used as a bridge measure while structural packaging changes are being implemented.

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The recommended sequence:

1. Reduce first through packaging redesign, material switches, lightweighting, and supplier engagement on renewable energy.
2. Then offset the genuinely unavoidable residual emissions using high-quality, independently verified removal credits.

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As eco-modulated EPR fees begin to take effect in varying markets, the financial incentive for reducing actual embedded carbon and improving recyclability will be considerably stronger than the incentive to offset it. Brands investing in structural changes now are building a more durable competitive position than those relying on offset purchasing.

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At Grounded Packaging, our partnership with SeaTrees reflects this sequencing. For residual emissions in our own operations that we cannot yet eliminate, we fund blue carbon restoration through SeaTrees, specifically mangrove, seagrass, and kelp forest projects that generate verifiable removal credits with long-term storage and measurable sequestration data. We are transparent that this is a bridge measure, not a substitute for the harder work of reducing emissions at source.

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What this means for you and your brand

Carbon offsets are a legitimate tool when used correctly: high-quality, independently verified, weighted toward removal rather than avoidance, and addressing only the genuinely unavoidable residual emissions after real reductions have been made.

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The brands best positioned through the regulatory changes progressing from 2026 will be those who can demonstrate actual emission reductions in their packaging, with offsets in a supporting rather than leading role.

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Frequently asked questions

What is the difference between an avoidance offset and a removal offset?

An avoidance offset prevents emissions from occurring, such as protecting a forest from deforestation or capturing methane from a landfill. A removal offset takes CO2 already in the atmosphere and stores it, through mechanisms such as reforestation, direct air capture, or blue carbon restoration. Removal offsets are generally considered more robust for achieving genuine atmospheric carbon reduction because they actively subtract from existing CO2 levels, whereas avoidance offsets only slow the rate of increase. For brands making carbon neutral claims, high-quality removal credits provide a more defensible scientific basis.

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How do I know if a carbon offset is high quality?

Look for credits certified by recognised standards such as Gold Standard, Verra VCS, or ACR, but treat certification as a starting point, not a guarantee. Within certified programmes, look for: recent vintage (credits issued within the last two to three years), independently verified additionality, long-term permanence safeguards, and transparent methodology. For removal credits, look specifically for projects with measurable sequestration data and long-term storage guarantees. Avoid cheap, old, or poorly documented REDD+ credits from jurisdictions with weak governance.

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What is blue carbon and why does it matter?

Blue carbon refers to carbon stored by coastal and marine ecosystems including mangroves, seagrass meadows, and kelp forests. These ecosystems are among the most carbon-dense on the planet: mangroves sequester carbon at up to four times the rate of tropical forests per hectare, and seagrass meadows account for up to 10% of all carbon buried in ocean sediment annually. When restored and protected, they generate verifiable removal credits with long-term storage and strong co-benefits for biodiversity, coastal resilience, and fisheries. Blue carbon projects tend to score well on additionality and measurability and represent a high-quality subset of the removal credit market.

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Sources and further reading

• Ecosystem Marketplace, State of the Voluntary Carbon Market 2024: ecosystemmarketplace.com
• The Guardian / SourceMaterial / Die Zeit investigation into Verra REDD+ credits (2023): theguardian.com
• Demand for low-quality offsets undermines voluntary carbon market integrity (Nature Communications, 2024): nature.com
• Oxford Principles on Net Zero Aligned Offsetting: smithschool.ox.ac.uk
• ICVCM Core Carbon Principles: icvcm.org
• Verra Verified Carbon Standard overview: verra.org
• Gold Standard Foundation: goldstandard.org
• SBTi Corporate Net Zero Standard: sciencebasedtargets.org
• ISO 14068-1:2023 Carbon neutrality standard: iso.org
• EU Green Claims Directive: ec.europa.eu
• UK CMA Green Claims Code: gov.uk