CO₂ compensation: What is it and how does it work?

A company can achieve CO₂ compensation by purchasing a CO₂ certificate through an intermediary company. This certificate is created by CO2-saving activities of a project, such as renewable energy generation. The amount of CO2 saved is determined using calculation methods set by a certification company. These calculations are then verified by auditing companies, such as TÜV, and based on this, the CO2 certificates are issued.

The largest certifier on the market is Verra: over 75% of all emissions on the voluntary offset market worldwide are certified by Verra, and 40% of these certificates guarantee CO₂ reduction through forest protection. This does not involve reforestation, but rather ensuring that forests are not cut down.

Problems with CO₂ compensation through forest protection projects

The calculations for CO2 savings are very complex and therefore difficult for many people to understand, which can lead to this issue going undetected for a long time.
CO₂ offsets through forests extend over a longer period of time, but the offset is accounted for immediately – however, forests can be destroyed or altered at any time due to natural or anthropogenic impacts.
CO₂ offsetting should only apply if “additionality” is guaranteed, i.e. it must be proven that the amount of CO₂ emitted would certainly have been emitted without the purchased certificate, but this is difficult to prove.
In this context, an August 2023 study by West et al and Verra Registry found that after analyzing a significant percentage of projects, more than 90% of rainforest CO₂ allowances are likely “phantom credits” and do not represent true carbon reductions.