Carbon Markets: Insetting, Offsetting and Certification
As businesses and governments work towards climate targets, carbon markets have developed as a mechanism to balance emissions with verified reductions or removals. Understanding the difference between insetting, offsetting and the various carbon market structures is essential for anyone engaging with carbon projects, particularly those involving land use and soil carbon.
Insetting and Offsetting of Emissions
Carbon dioxide emissions have the same impact on the climate regardless of where they are produced. In theory, emitting one tonne of carbon dioxide can be balanced by removing or preventing the release of one additional tonne elsewhere.
Offsetting refers to the process of compensating for emissions by funding activities that reduce or remove carbon from the atmosphere. Examples include tree planting, peatland restoration or soil carbon sequestration. A company may emit carbon through its operations but purchase carbon credits generated by such projects to balance those emissions.
Insetting follows a similar principle but occurs within a company’s own value chain, typically outside its direct operations. This often relates to what are known as scope 3 emissions. For example, a food manufacturer might support regenerative farming practices within its supply chain to reduce or remove emissions associated with the crops it purchases. Insetting therefore links climate action more closely to a business’s existing commercial relationships.
Carbon Credits and the Voluntary Carbon Market
A carbon credit represents one tonne of carbon dioxide, or its equivalent in other greenhouse gases, that has been measured, verified and either reduced, avoided or removed from the atmosphere. Businesses or individuals can purchase carbon credits to compensate for their own emissions.
Voluntary carbon markets operate without direct government or regulatory mandates. Credits can be bought and sold through brokers or via registries such as Verra, Gold Standard, Climate Action Reserve and American Carbon Registry. Once a carbon credit has been used to offset emissions, it must be retired and cannot be traded again.
Verification schemes ensure that carbon reductions or removals are credible. These include the Verra Verified Carbon Standard, Gold Standard Voluntary Emission Reductions and United Nations Certified Emission Reductions. Each scheme sets out methodologies for measuring, reporting and verifying carbon outcomes.
Approaches to soil carbon estimation differ across markets and schemes. Long term field sampling at scale is often cost prohibitive, so modelling is widely used to estimate changes in soil carbon stocks. However, periodic direct measurement is required to validate these models. Advances in remote sensing and digital data platforms are improving the efficiency and cost effectiveness of monitoring over time and at larger scales.
Compliance Carbon Markets
In contrast to voluntary systems, compliance carbon markets are regulated under mandatory carbon reduction regimes. These operate at regional, national or international levels and typically apply to sectors such as power generation and other energy intensive industries. The European carbon compliance market is one example. Participants in these systems are legally required to hold allowances or credits to cover their emissions.
High Quality Carbon Removals and Certification
Carbon removal refers to the deliberate capture of carbon dioxide from the atmosphere and its storage in a stable reservoir. This reservoir may be biological, such as soil or biomass, or technological, such as engineered storage systems.
To be considered high quality, carbon removals must meet several criteria. These include accurate quantification, long term storage durability, prevention of leakage, delivery of additional climate benefits and contribution to wider sustainability objectives. Projects must be regularly verified by an independent certification body under a recognised public or private scheme. Verified removals are then recorded in publicly accessible registries to ensure transparency and prevent double counting.
A central principle in assessing quality is additionality. A carbon removal is only considered additional if it would not have occurred without the financial incentive provided by carbon credit funding. If a practice is already legally required or commercially mandated by a buyer, the associated emissions reduction or soil carbon increase would not normally qualify as a high quality additional removal.
For land based projects, particularly those involving soil carbon, understanding these distinctions is critical. The credibility of carbon markets depends on robust measurement, transparent verification and clear demonstration that climate benefits are real, additional and long lasting.
