These terms are confusing and I’m often asked about them. So let’s define them. For the sake of simplicity: I’m focusing on corporate (ACME Corp) climate action. I’m leaving aside personal and governmental procurement for the time being. Also: I’m talking about carbon here—even though the examples below could easily be applied to RECs or other certificates. I’m using plain language, and I welcome your feedback, especially where my definitions seem at odds with regulatory and accounting language.
How I think about insetting and offsetting
Both offsetting and insetting generate carbon claims that can be used to count against ongoing emissions. What distinguishes offsetting and insetting is where the work is done.
Offsetting
Offsets refer to the purchase and consumption of carbon assets: Offsetting consists of buying a certificate (for a ton of carbon, for example) from a company outside your supply chain. These can be removal, reduction, or avoidance credits. Offsets can be verified or unverified, voluntary or regulated. The credits can be used to offset the emissions by ACME Corp to reach internal or external targets for annual carbon emissions. Offsets have a period: they are tied to the particular year in which the removal, reduction, or avoidance took place. They can stretch over long periods; for example, planting a forest will generate offsets over a period of 30+ years. Consequently, claims made with offsets are time-bound. For example, if ACME wants to claim carbon neutrality in 2030, they must use carbon offsets dated 2030 or before, to make a credible claim.
Ongoing effect: Offsetting does not reduce ACME’s direct emissions. For example, if ACME has residual emissions of a hundred tons annually, and buys a hundred offsets, it can claim it is carbon neutral. Buying those offsets does not reduce ACME’s residual emissions, and therefore another hundred offsets will be needed annually, in perpetuity, for ACME to claim it is carbon neutral.
At a basic level, offsets allow for the exchange of carbon assets between companies.
Insetting
Insets refer to the generation and consumption of carbon assets: Almost everything about insetting is the same as offsetting: same generation of claims, same technologies, same time-bound nature, same lack of effect on residual emissions. But the activity that generates those carbon claims is now happening inside ACME’s operations or supply chain.
At a basic level, insets allow corporations to produce carbon assets to count against their emissions.
Buy/consume vs produce/consume is a dynamic with some obvious impacts that are worth enumerating.
Insetting allows ACME to produce credits at cost instead of buying them at the price the market sets. This may have clear benefits: if ACME is a furniture manufacturer with waste biomass, it may be able to produce biochar on-site at a lower cost than a biochar project developer can. The opposite might also be true: if ACME is a steel manufacturing facility running a direct air capture facility as part of its operations, it may not be able to compete on a pure cost basis with cutting-edge DAC plants installed elsewhere. (Also: price might not be the best metric. I make the argument here that there is a lot of value to be derived from insetting, especially in the case of enhanced rock weathering, an argument I make here.)
Proof of work
One piece that both offsetting and insetting share is the need for MRV. As part of making a claim, ACME needs to be sure that the assets it has bought or produced are real. This need for auditable proof requires suppliers to record operational data, manage their inventory, pass third-party verification, develop methodologies to support the activities in question, and account for credit retirement (usually via registries.) This is the realm of the voluntary carbon market, and to a certain extent, part of regulated markets like CORSIA or CARB’s Cap-and-Trade Program. There seems to be a general perception that offsets are likely to have more rigorous MRV processes than insets, though that may be because of the relative immaturity of insetting compared to offsetting.
Naming rights
Offsets and insets are named according to who uses (retires) the credits, not who produces them. Let’s say ACME develops a carbon removal process in their factory. It can produce carbon claims and use them against its footprint. These are insets. Now, let’s say ACME has a few extra tons of carbon credits, produced the same ways as the insets. They want to sell them. For those tons, ACME is a carbon project developer. The moment they’re sold to another company, the credits become offsets.
Changing your apparent position
Claims of carbon neutrality are made based on apparent position. If we imagine a curve representing a company’s net emissions, it can also be useful to think of offsets as a way to change a company’s apparent position vertically on the Y-axis for a period. If ACME’s emissions are a hundred tons in 2024, it can temporarily move its position vertically by purchasing offsets or generating insets and retiring them. ACME won’t have changed its real position (actual emissions), or the slope of its line (rate of decarbonization). If ACME wants to change either its emissions or its rate of decarbonization, it needs something beyond insetting.
Decarbonization and emissions reductions
Changing your real position
Decarbonization and emissions reductions are unlike offsetting and insetting because they refer to real reductions in emissions, not just changes in a corporation’s apparent position.
I find the two terms easy to distinguish:
Decarbonization is the strategic-level goal. For example: “We must decarbonize ACME Corp.”
Emissions reductions are the material steps made toward our goal of decarbonization.
Replacing a gas boiler with a heat pump or swapping out a traditional delivery fleet with an EV delivery fleet are obvious examples of direct emissions reductions. Indirect emissions reductions are less intuitive and take many forms. Eating less meat, permitting changes to support geothermal exploration, rolling out bike paths, and carbon taxes all reduce emissions indirectly.
Decarbonization
Decarbonization refers to the broad goal of reducing emissions and is comprised of direct and indirect emissions reductions.
Direct emissions reductions
Direct emissions reductions are attributable and intentional. Improving the efficiency of an airplane to reduce emissions per passenger is a direct emissions reduction.
Direct emissions reductions are relatively durable. When you replace your boiler with a heat pump, or upgrade your lighting to LEDs, your emissions decline, and stay lower indefinitely.
Indirect emissions reductions
Indirect emissions reductions are a result of cultural, political, or regulatory changes that accelerate the rate of decarbonization. The most comprehensive indirect emissions reduction concept is a carbon tax.
Indirect emissions reductions are less durable. A carbon tax can lose favor, a cultural movement to eat less meat can lose steam, and subsidies to support electric vehicle sales can prove unappealing to the next governing party.
Indirect emissions reductions can be non-correlated and unintentional. Changes in demand, like dramatically fewer people flying during 2020 because of COVID is an example.
Perfect compliments
Last but not least, offsets and insets are compliments to decarbonization, not substitutes for it. In the words of the DOE, specifically in the context of carbon dioxide removal (CDR):
“CDR is an additional, critical tool DOE supports to reach net-zero emissions by 2050 and is not a replacement for deep decarbonization. CDR must be pursued alongside aggressive decarbonization. Efforts around CDR will not replace or take away from ongoing work on avoidance and reduction of emissions at DOE.” - DOE FAQ’s