akar.earthCarbon offset: Definition
What is a carbon offset? How offsetting with credits works, how it differs from insetting and contribution claims, and what buyers of Indonesian credits check.
A carbon offset is a reduction or removal of greenhouse gas emissions made outside a company’s own operations and value chain, used to compensate for emissions the company still produces. In practice, offsetting means buying and retiring carbon credits equal to some or all of those emissions.
Why it matters
Offsetting channels money to climate projects, including forest protection and restoration in Indonesia. It is also the most scrutinised use of credits. Regulators, NGOs and courts have challenged “carbon neutral” claims backed by weak credits. The direction of travel is clear: buyers should cut their own emissions first, use high-quality credits, and describe claims precisely.
How offsetting works
- Measure the company’s emissions.
- Reduce them as far as possible.
- Buy credits with strong integrity (additionality, conservative baselines, permanence safeguards).
- Retire the credits in the registry, naming the beneficiary and year.
- Make a claim that follows recognised guidance.
The VCMI Claims Code sets rules for credible claims. Many frameworks now favour “contribution” language over “offset” for credits used beyond science-based targets. Within the supply chain, insetting is the alternative. Our guide to avoiding greenwashing gives practical wording.
Indonesia angle
Indonesian credits are a large share of global nature-based supply, mostly REDD+. Under the domestic system, companies covered by PTBAE-PU emission caps may use SPE-GRK offset units within regulatory limits, traded on IDXCarbon and recorded in SRUK. International buyers should check whether Indonesian credits need authorisation or corresponding adjustments for the claim they intend to make.
Common mistakes
- Offsetting instead of reducing.
- Claiming “carbon neutral” with older, unrated or low-quality credits.
- Not retiring credits, or retiring them without a named beneficiary.
- Using offset claims in markets with strict consumer-protection rules without legal review.
Related terms
See carbon credit, insetting and retirement, or explore the climate finance hub.
Frequently asked questions
Is a carbon offset the same as a carbon credit?
Often used interchangeably. Strictly, the credit is the certificate, and offsetting is the use of retired credits to compensate for your own emissions.
Are carbon offsets greenwashing?
Not inherently. They become misleading when credits are low quality, when claims overstate what was achieved, or when offsets replace rather than add to emission cuts.