Few tools in the climate toolbox spark as much debate as carbon offsets. For some, they’re a practical way to fast-track money into solutions the world needs right now to fight climate change. Critics meanwhile accuse them of over-promising, under-delivering, and letting companies off the hook as they delay the necessary work of cutting their carbon output down to size.

Both instincts can be true, but there are promising signs of change on the horizon. Before we get there, though, let’s clear up a common confusion: what is the difference between carbon credits and carbon offsets? Carbon credits are tradeable units, each representing one ton of carbon emissions avoided or removed. Offsets are how those credits are used to balance out emissions made somewhere else. Think of it like a currency system: credits are the units that businesses and countries can use to trade, and offsets are how you spend them to balance the books on your emissions.

At their best, offsets channel real finance into projects that cut or remove emissions, all while delivering tangible benefits for communities. These projects can look like protecting forests, capturing methane (a short-lived but powerhouse greenhouse gas), restoring mangroves, or other nature-based solutions.

When carbon markets first entered the scene, years of early promises collided with reality: some projects overestimated their climate benefits, while some buyers treated credits as a substitute for genuinely reducing their emissions in the first place. The result: public skepticism and widespread headlines about greenwashing. 

With all that said, are carbon offsets the climate solution we’ve been waiting for, or just an illusion as some claim? To get to the bottom of this, it’s worth demystifying how carbon markets actually work, and what they can deliver when done right. 

A Brief Explanation of Voluntary Carbon Markets

First things first: Carbon offsets are the mechanism that let companies support climate projects that reduce or remove the same amount of emissions they can’t eliminate on their own. The first order of business for businesses is obvious: reduce emissions fast. That can come from switching to clean power, electrifying vehicles, redesigning products to be more sustainable, or fixing lengthy supply chains that take a toll on the environment. But even the most eco-conscious companies have leftover emissions they can’t eliminate completely — the process of creating or serving for profit inevitably leaves a footprint.

This extra contribution needed to cover the cost of doing business is often called “beyond value chain mitigation;” in other words: once a business has done everything it can to shrink its own carbon footprint, it helps fund climate action that cuts emissions elsewhere. You should know that there are two kinds of carbon markets: compliance and voluntary. The first is a government-mandated system, where companies are required by law to trade permits that limit how much they can pollute. 

In the voluntary market, companies choose to buy and “retire” carbon credits, each representing one ton of CO₂ (or equivalent) reduced, avoided, or removed. Note that “retiring” a credit means taking it off the shelf once it’s been bought, so no one else can claim that same reduction. The key word when discussing this market is “choose”: unlike the previously mentioned compliance systems created by law like cap-and-trade or aviation’s CORSIA, participation here is voluntary — and responsibility sits squarely with the purchaser to make the best buys. It’s this voluntary side that’s attracted both corporate enthusiasm and criticism in equal measure. 

Now, let’s dive into how it all works in principle: 

• A project developer (say, restoring mangroves or capturing landfill methane) designs a carbon removal project that meets recognized standards.
• The project’s climate impact is measured and independently verified; credits are then issued on a public registry.
• A company buys and then permanently retires those credits.

In practice though, the details of how this all plays out matter a lot. The quality of a carbon credit depends on a few technical-sounding ideas that are easier to grasp than they seem:

• Additionality asks whether the project would have happened anyway. If it would, then the credit isn’t a real reduction. 
• Permanenceasks how long the measured benefit will last; if stored carbon can easily leak back to the atmosphere, what’s the contingency plan to ensure long-term benefits?
• Leakage is about displacement — did the pollution simply move somewhere else? 
• Double counting ensures that no one is claiming credit for the same ton twice.

On paper, these rules should guarantee quality. But in reality, verifying them can be tricky. Projects operate in wildly different environments, and measuring what would have happened without them often involves educated guesswork. Independent auditors (those who calculate the worth of a credit) rely on models and assumptions that can vary.

Why Offsets Can Help — and Where They Don’t

Offsets matter because they help deliver near-term wins while companies work on the harder, longer-term task of transforming their operations. Strong examples of effective carbon market stories include capturing methane from landfills or manure systems to help cool the climate more quickly; installing clean cookstoves so families burn less charcoal and wood in close kitchen quarters; or protecting forests where they face real threats. When done right, these projects do double duty: cutting emissions while supporting communities.

But not every offset lives up to its promise. For instance, some forest projects used weak or outdated baselines to measure impact, inflating their credit numbers. In other instances, companies bought the cheapest credits available and treated them as an excuse to delay essential internal changes to cut emissions.

The backlash however has forced a reset: tougher rules, better data (verified through satellites, sensors, and on-the-ground audits), clearer claims standards, and stronger social safeguards. But it’s important to remember that offsets alone are not a silver bullet — they’re a financing tool. And like any tool, how useful it is depends on how it’s used. Handled carelessly, they cost not just money and public trust, but precious time in the urgent fight against climate change.

The Bottom Line

Voluntary carbon markets can help accelerate climate action, but only if they’re used to complement, not replace, real emissions cuts. When companies treat offsets as a bridge rather than a loophole, they strengthen both credibility and climate impact.

Broken down, it’s pretty simple: cut emissions where you can. Fund projects that work. Be honest about both. The golden rule is simple: offsets must complement, not replace, cutting a company’s own emissions. Think of them as the “yes and,” of climate action, never the “instead.”