Fundamentals of offsetting and climate contributions
Every person and every business leaves a carbon footprint on the planet. More and more people are becoming aware of this and are doing their bit to protect the climate. But what to do with residual emissions?
Grad Global - Podcast | Prof. Dr. Dirk Messner: Grad Global - Podcast | Prof. Dr. Dirk Messner: Warum ist Nichtstun teurer als Klimaschutz? (in German only)
Taking responsibility for unavoidable emissions
Voluntary action on climate protection is guided by a clear principle: to avoid and reduce emissions as a matter of priority. As regards the residual emissions, which cannot currently be prevented, responsibility will be assumed in the next step.
This approach applies to every conceivable activity in our daily lives and economic activities that result in the release of greenhouse gases. This commitment applies to both the private and public sphere: travelling by car, train or plane can be managed just as responsibly as the consumption of gas, electricity or heating energy at home or in an office building. The environmental footprint of entire events – from emissions resulting from the use of venue space right through to catering – can also be recorded and offset. To address this responsibility for residual emissions, stakeholders today have two basic options available: offsetting and climate contributions.
When implemented correctly, offsetting and climate contributions are a valuable part of global climate action. Nevertheless, they are not a panacea and cannot stop climate change on their own. To achieve our climate targets, we need far-reaching changes in industry and society – from the energy and transport transitions right through to our personal consumption habits. Critics are right to warn against reaching a false conclusion: no one should be able to buy a ‘clear conscience’ at little financial cost and put off making the necessary behavioural changes. The principle of ‘avoid and reduce before taking responsibility must always take precedence.
What do we mean by voluntary offsetting and climate contributions?
By ‘voluntary offsetting’ and ‘climate contribution’, we essentially mean the same practice: stakeholders finance certified climate protection projects in order to financially offset their residual greenhouse gas emissions. Stakeholders may be individuals, companies or organisations. Through offsetting or a climate contribution, they thus make an individual contribution to climate protection without being obliged to do so. As the name suggests, this is done voluntarily and is not a legal requirement. This means that this voluntary market differs fundamentally from the mandatory regulatory market (such as the EU Emissions Trading Scheme), in which certain industrial and energy sectors are legally obliged to demonstrate that they hold a limited number of government-issued emission allowances to cover their CO2 emissions.
To this end, the producers of greenhouse gas emissions finance specific measures that lead to a reduction in greenhouse gas emissions elsewhere. This may, for example, involve (co-)financing the construction of a wind turbine in Costa Rica or providing efficient cooking stoves in Rwanda for families in rural areas.
Offsetting: exclusive crediting for neutrality claims
Offsetting serves to balance out residual greenhouse gas emissions in the accounts, in order to make a claim regarding a company’s own ‘climate neutrality’. This model requires the highest level of formal integrity under the rules of the Paris Agreement. Because all signatory states are pursuing their own national climate targets (NDCs), emission reductions from climate protection projects are, in principle, also taken into account in national emissions inventories.
If, for example, a company were to count the same emission reduction towards its own carbon neutrality whilst it is simultaneously recorded in the national inventory, it would be double-counted. On paper, the reduction would exist twice, but only once in the atmosphere.
In order to credit one tonne of CO2 as personal offsetting, the host country of the climate protection project must therefore officially waive its right to include this in its own national accounts. This government-level adjustment is referred to as a ‘Corresponding Adjustment’. It ensures that the reduction is in fact only counted once – by the individual, company or organisation doing the offsetting.
Contribution Claim: financial support not reflected in the balance sheet
The contribution claim represents a paradigm shift in voluntary climate protection. Rather than purchasing credits to offset their own emissions balance on paper (‘to become carbon neutral’), private individuals or organisations invest in global climate protection. The mitigation actions achieved remain entirely within the host country’s emissions account and help that country to meet its national climate targets (NDCs). As this model does not require a ‘corresponding adjustment’ (government offsetting), no exclusive credit is recorded in, for example, the organisation’s own account. Consequently, making a contribution claim to climate protection does not confer any claim to ‘climate neutrality’. The focus shifts away from individual action towards transparent, solidarity-based, global climate protection.
Summary
The main difference lies in the promise and the purpose. Whilst offsetting aims to achieve a carbon-neutral balance, the climate contribution is seen more as a form of ‘subsidy’. This can take place even without a mathematical offsetting of balances. The emissions reductions remain with the host country and can be counted towards its climate targets.
| Ddifferences | Offsetting | Climate contribution |
|---|---|---|
| Statement | “I produce one tonne of CO2 and ensure that one tonne is saved elsewhere.” | “I produce emissions and donate an amount X to help advance global climate action.” |
| Focus | Personal carbon neutrality (individuality) | Support for climate action (solidarity) |
| Perception | It is often criticised that this is perceived as a way of ‘buying one’s way out’ of emissions without changing one’s own behaviour. | It is considered more modern, as it does not suggest that one’s own emissions simply ‘disappear’ because of the money spent. |
| Calculation | 1 tonne of emissions = 1 tonne saved | Emissions are not necessarily, but can be, the same saving |
| Technical terms | Offsetting | Contribution claim |
Further informationen
(available in German only)
Umweltbundesamt: Freiwillige Kompensationszahlungen als Klimabeitrag nutzen
Der Internationale freiwillige Kohlenstoffmarkt
Klimareporter: "Wir sollten uns vom Gedanken der CO2-Kompensation verabschieden"
Öko-Institut: Klimaneutral durch CO2-Kompensation? (Podcast)
Quarks Daily: Fliegen ohne schlechtes Gewissen - CO2 Kompensation okay? (Podcast)
Key elements of the approach
Any entity wishing to offset their carbon footprint voluntarily or make a climate contribution should bear the following in mind:
Important information for companies regarding advertising claims
For companies, choosing the right terminology is no longer merely a matter of style, but poses a significant risk of liability and legal action.
- Tighter legal controls: The German Act against Unfair Competition (UWG) already imposes strict penalties for misleading environmental advertising.
- Strict bans from September 2026: The new EU Directive (EmpCo) will close the loophole at EU level for vague environmental claims on products or those based on offsetting (outside the value chain).
- The safe alternative: Using the term ‘climate contribution’ ensures protection from accusations of greenwashing. It allows one to honestly describe financial support for projects without claiming that your product is ‘neutral’ – a claim that could be legally challenged.
A detailed overview of the new legal prohibitions under the EmpCo Directive and the stricter provisions in the German UWG, can be found below.
Science Based Targets initiative (SBTi)
The SBTi is a globally recognised organisation that supports companies in setting science-based targets for emissions reductions. Several thousand companies have set SBTi-verified, Paris Agreement-compliant climate targets. Whilst the majority of these targets focus on medium-term emissions reductions, just over 500 companies are already pursuing a stricter, official net-zero target. With regard to offsetting, the SBTi takes a strict and clear stance:
- No substitute for reduction: Offsetting must never be used as a substitute for genuine, in-house emissions reductions.
- Reduction hierarchy: Companies must follow the ‘reduction hierarchy’. This means that avoidance of emissions and their active reduction within their own operations and throughout the value chain takes absolute priority.
- The Net-Zero Standard (90% rule): To obtain the SBTi’s official ‘Net-Zero’ seal, companies must first reduce their total emissions by at least 90 percent in real terms.
- Neutralisation of residual emissions: Permanent carbon removal is only intended for the absolutely unavoidable residual emissions (maximum 10 percent) to achieve final neutralisation.
Requirements for climate protection projects
For climate protection projects on the voluntary market to have a genuine impact and command trust, they must meet strict requirements. Only these requirements ensure that every tonne of CO2 purchased actually contributes to climate protection.
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Voluntary offsetting represents added value for climate protection if it acts as the catalyst for an additional climate protection measure. This means that the project’s climate protection measure would not have taken place without the expected revenue from the sale of the credits. Measures that are already economically viable in their own right and would therefore have been carried out anyway (such as standard energy-saving measures) are therefore not eligible for offsetting (financial additionality). An additionality assessment ensures such a claim. Various tests are available to verify a project’s additionality, for example through an investment or barrier analysis, defined benchmarks, or technology lists. Furthermore, the reduction should not be required by law (regulatory additionality) or correspond to standard practice in the region or the respective host country. However, the absence of laws or further regulations does not mean that the project is, by definition, additional. It is essential to examine precisely what, for example, the host country itself counts as reductions towards achieving its climate protection target. Simplified procedures are available for small-scale projects, as complex assessments can be particularly costly and may prevent project developers from implementing the project.
Graphic about baseline and emission savings Source: DEHSt For each project, a baseline scenario is first drawn up. The baseline provides information on how greenhouse gas emissions would have developed had the climate protection measure not been implemented.
For example, operating a newly built wind farm would result in lower emissions than generating electricity from non-renewable energy sources. By comparing the expected project emissions from the climate protection measure with those of the reference scenario, the resulting emission reduction can then be calculated.
Baseline figures and emission reductions must be calculated in a transparent and detailed manner. When calculating emission savings, it is important to make cautious assumptions. This means that emission savings should be underestimated rather than overestimated (conservatism). To ensure this conservatism, many crediting mechanisms provide for what is called discount factors, whereby a portion of the calculated emission reductions is deducted as a precautionary measure.
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A good climate protection project must answer one key question: Is CO2 really being removed from the atmosphere in the long term and permanently? This is known as permanence. To ensure reliable offsetting, projects must securely sequester CO2 for decades or even centuries. As there are always residual risks in nature (such as with forests or peatlands), reputable standards operate with a safety net: they retain a portion of the generated credits as a sort of ‘buffer’. Should a forest, for example, burn down or be illegally cleared, the damage is offset – both financially and in terms of its climate impact – from this global buffer. This ensures that the promised climate benefit for the atmosphere is maintained in the long term.
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Offsetting and climate contributions should go beyond the mere reduction of greenhouse gases. Ambitious climate protection projects also deliver significant added value that is not necessarily climate-related (‘co-benefits’) – namely, a contribution to sustainable development in ecological, economic and social terms. The projects should therefore not only save quantifiable tonnes of greenhouse gases but also have a positive impact on the sustainable development of the host country. In this way, they contribute to one or more of the UN Sustainable Development Goals (SDGs).
Projects financed through the sale of credits come from a variety of project types. Depending on the type, these may contribute to a greater or lesser extent to sustainable development in the host country. However, the minimum requirement remains that they must cause no negative impact on other sustainability goals. Yet even within a single project type, there can be significant differences in terms of sustainability, as the contribution depends heavily on how the project is designed and implemented. Some of the existing quality standards examine the projects’ contribution to sustainable development in great detail and require the provision of appropriate evidence. There are also supplementary standards that scrutinise the positive and negative impacts on sustainability, and on human rights and other aspects, thereby assessing overall sustainability.
Social sustainability can be promoted through projects, for example by ensuring that indigenous communities retain access to forests, thereby safeguarding their way of life; by involving civil society and the local population in the planning and implementation of the project, or by preserving cultural heritage. In addition, the protection of health – with a view to improving local health conditions – is also a very important contribution. Another example of social sustainability can be the knock-on effect of providing electricity to a community that was previously isolated in a rural area.
Environmental sustainability refers, for example, to the protection of biodiversity in forestry projects, the avoidance of further habitat loss and the destruction of further ecosystems, positive effects on regional air and water quality, and the protection of other environmental media such as soil conservation.
Economic sustainability can be achieved, for example, by supporting and developing local economic cycles and making long-term investments that are meaningful both from an environmental and economic perspective, or by creating local jobs and providing families with an additional source of income. Another example of economic sustainability is the avoidance or reduction of expenditure on fossil fuels.
Assessing projects in terms of their sustainability can be difficult on a case-by-case basis and relates to the political orientation of the host country. There can be significant differences within a single project type. In general, however, it can be said that community-based projects (the distribution of efficient cooking stoves and the construction of small-scale biogas plants in rural areas) usually make a greater contribution to sustainable development than industry-based projects. It is important for all projects that they under no circumstances jeopardise the social, environmental or economic situation, or even lead to significant adverse effects on other protected interests as a result of the project.
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Generally speaking, a distinction is made between three forms of double-counting. What these have in common is that an emission reduction is allocated, used or claimed in at least two places – and is therefore counted twice – whilst the actual emission reduction has occurred only once.
Forms of double-counting:
- Multiple issuance of emission reductions (‘double issuance’) means that a reduction has been issued as a credit at least twice. This means, for example, that a project saved one tonne of CO2, but two credits were issued. In other words, more credits were issued than reductions were achieved. An emission reduction may appear incorrectly in several standards, registries or reports.
- The multiple use of emission reductions (‘double use’) means that a reduction is sold or used for different purposes at least twice. This is the case, for example, when a project saves one tonne of CO2 and thus generates a credit, but this credit is then resold to two different parties. This can happen, for instance, where registration has been carried out incorrectly. If a credit is not properly cancelled, this can also lead to ‘double use’, as the credit can be reused.
- Multiple claiming of emission reductions (‘double claiming’) between the voluntary market and national climate targets occurs when a reduction achieved in the voluntary market is simultaneously credited towards the national climate protection targets of the host country of the climate protection project. This can also occur when two states wish to claim the same reduction, because one has provided financial support for a project in the other’s state.
Double-counting means that more emissions reductions are reported on paper than have actually been implemented in the atmosphere, and therefore poses a problem of environmental integrity. The result is that the climate continues to warm, even though, on paper, two stakeholders claim to be making progress. This double-counting problem naturally makes it difficult and complex to voluntarily offset reduction successes from national climate protection projects if these are also recorded as part of the target achievement.
Whilst ‘double claiming’ should be ruled out in the context of offsetting for balance sheet purposes when a claim of ‘climate neutrality’ is made, this double counting is admissible in the context of climate contributions. Since, for example, a company does not claim its own neutrality in this context but rather supports global climate protection, the project may fall within the host country’s Nationally Determined Contributions (NDCs). The project country utilises and records the climate protection success for itself. The only crucial factor here is transparent communication: the company must not advertise that its own carbon footprint has been ‘neutralised’, but rather transparently communicates the financial contribution it is making towards the partner country’s targets.
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Credits with environmental integrity may only be issued for emission reductions or sequestration that have already been achieved (ex post). If credits are sold before the climate protection success has been achieved (ex ante), this fact must be made transparent. The purchase of such credits can contribute to financing; however, climate protection success is only achieved once the emission reduction or permanent sequestration has actually been realised. Due to this uncertainty, ex-ante credits are only of limited suitability for binding climate protection commitments.
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A climate protection project must not simply shift the problem to another location. This is known as carbon leakage. Before a project begins, a thorough assessment must be done to determine what will happen to the land’s previous use. A typical example: a project reforests a large area with new trees to store CO2. Previously, however, this land was used by local farmers as pasture for their livestock. If the farmers now have no more space for their animals, they may move to a neighbouring area and clear a patch of virgin forest there to create new pasture. In this case, there would be no climate benefit whatsoever. The CO2 savings generated by the new trees are immediately offset elsewhere by the trees that have been felled. A reputable project must therefore incorporate solutions for the local community right from the start – for example, by providing alternative, sustainable grazing land or promoting more efficient farming methods. This is the only way to ensure that the climate protection effect is genuine and not simply shifted elsewhere.
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To ensure this system remains reliable, all projects must go through three stages:
- Monitoring: The exact volume of emissions saved is recorded continuously.
- Transparent reporting: All data is documented comprehensively and in a traceable manner.
- Independent verification: External verifiers independently check that all figures and calculations are correct.
This test procedure is time-consuming and involves costs. Nevertheless, the desire to reduce these administrative costs must never lead to a watering down of control standards or to inaccurate calculations. Without comprehensive and transparent verification, the credits – and ultimately the market – will lose their credibility.
Project types and crediting standards
There is a wide spectrum of climate protection projects – ranging from nature-based solutions to technological approaches. Independent verification standards play a crucial role in ensuring the quality and environmental integrity of the credits amidst this diversity. As a reliable point of reference and a rigorous quality benchmark, the Federal Government expressly recommends the new UN mechanism under the Paris Agreement, known as the Paris Agreement Crediting Mechanism (PACM).
Project types
There are a number of different project types. These range from modern technology for clean energy to the protection of ecosystems. Broadly speaking, climate protection projects can be categorised according to whether they avoid emissions, reduce emissions or capture CO2 from the atmosphere and store it.
Crediting standards
Standards in the voluntary market ensure the quality and credibility of climate protection projects. They are designed to ensure that the CO2 credits sold do indeed deliver a real environmental benefit. Although private standards dominate at international and national level, there are also standards administered by the public sector.
Rules and guidelines for accounting and communication
There is no single, all-encompassing law governing the areas of offsetting and climate contributions. Instead, the market is regulated by a complex network of international treaties, European frameworks and national laws.
The key legal pillars are categorised into three levels:
The global level: The Paris Agreement (Article 6)
The Paris Agreement forms the basis under international law. Article 6 is particularly important for the carbon market. For one, it prohibits double counting. Article 6.4 (PACM) provides officially regulated, reliable access to the global carbon market for private stakeholders.
The European level: The EmpCo Directive
The EU is taking strong action against greenwashing through the EmpCo Directive (Empowering Consumers for the Green Transition). Vague claims (including images, graphic representations or symbols) on products will be banned from 27/09/2026. The ban applies to:
- unsubstantiated general environmental claims,
- false statements regarding the scope of an environmental claim,
- environmental claims based on offsetting outside the value chain,
- the unauthorised use of a sustainability label,
- advertising minimum requirements that are already mandated by law, and
- future environmental performance without an implementation plan.
Conclusion: Advertising claims must be true, verifiable and may not be misleading. In future, claims must be even more precise and transparent. For companies, the EmpCo guideline means the end of traditional offsetting advertising at product level: Any advertising claim on a product (as well as in associated text, images or symbols) that asserts or suggests that the product has a neutral, reduced or positive environmental impact due to greenhouse gas offsetting outside the value chain will be strictly prohibited from 27/09/2026.
Further information (in German only):
UBA: Neue Regeln zum Schutz vor Greenwashing
The national level: German law
In Germany, the key pieces of legislation are the Act Against Unfair Competition (UWG) and the Federal Climate Change Act.
- The UWG is the instrument through which the government implements the European EmpCo Directive into national law. When it came into force, the UWG had already prohibited misleading conduct through deception (Section 5 UWG) and the withholding of material information (Section 5a UWG). However, the EmpCo Directive tightens these provisions and supplements them with a ‘blacklist’ (Annex to Section 3 UWG containing new per se prohibitions).
- The Federal Climate Change Act (KSG) sets out the binding framework for Germany. It legally stipulates the deadline by which Germany must achieve greenhouse gas neutrality. While the Act generally sets the framework for the whole state, Section 15 KSG places an obligation on the Federal Government itself. It regulates the ‘climate-neutral federal administration’.
Further initiatives & committees
In addition to government legislation and guidelines, internationally recognised, independent initiatives ensure that the voluntary carbon market is scientifically analysed and provide the following guidelines:
Integrity Council for the Voluntary Carbon Market (ICVCM)
This body focuses exclusively on the supply side, that is, on the quality of the CO2 credits themselves. It sets the global benchmark for high-quality climate protection projects. Through the ten Core Carbon Principles (CCPs), the ICVCM sets out scientifically sound fundamental principles. Only projects that can be shown to deliver genuine, measurable and irreversible benefits are awarded the coveted CCP seal of approval. The ICVCM, in effect, assesses the product.
The document can be downloaded from
The Integrity Council for the Voluntary Carbon Market: The Core Carbon Principles
Voluntary Carbon Markets Integrity Initiative (VCMI)
This initiative takes a completely different approach, focussing on the demand side. It monitors the behaviour of companies that purchase credits. The aim is to ensure that companies make consistent, honest and transparent climate protection claims. Before a company is even allowed to advertise using the VCMI seal, it must provide evidence of a scientifically robust carbon footprint assessment and pursue its own genuine reduction targets (Claims Code of Practice).
This code can be downloaded from the following address:
Voluntary Carbon Markets Integrity Initiative: Claims Code of Practice
Oxford Principles for Net Zero Aligned Carbon Offsetting
The principles drawn up by the University of Oxford serve as a strategic, long-term roadmap for a climate-neutral economy.
The principles can be viewed at:
Oxford Principles for Net Zero Aligned Carbon Offsetting (revised 2024)
The German position paper ‘Paris-aligned Carbon Markets’
In this paper, the Federal Government sets out how the voluntary carbon market must be brought into line with the strict rules of the Paris Agreement. The aim is to make climate protection projects worldwide more honest, transparent and effective. In this context, the Federal Government emphasises that voluntary engagement by the private sector plays a key role in mobilising urgently needed, additional funding for global climate protection. The main points of the paper are:
- Clear priority (mitigation hierarchy): Genuine climate protection projects must never be used as an easy way out. For companies, avoiding and reducing their own greenhouse gas emissions must always take precedence before offsetting is even considered.
- High quality and fairness: The purchase of CO2 credits must adhere to strict environmental and social standards. Projects must not cause environmental harm elsewhere and must protect the rights and living conditions of local communities.
- Incorporation of UN rules (Article 6): To ensure that the voluntary market functions effectively and closes investment gaps in global climate action, the official Paris Agreement rules must be applied. As a key quality benchmark, the German Government recommends the UN Crediting Mechanism (PACM) under Article 6.4. This is the only way to prevent emissions reductions from being double-counted and to ensure that the market actually contributes to a global increase in climate targets.
The position paper is available at
Bundesumweltministerium:"Paris-aligned Carbon Markets" nach dem Übereinkommen von Paris
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