Insetting vs Offsetting Emissions
Global emissions must fall by 45% from 2010 levels by 2030 to limit warming to 1.5°C, according to the IPCC. Yet, many industries like chemicals, aviation, shipping, cement remain notoriously difficult to decarbonize due to their reliance on fossil fuels, complex supply chains and various other factors.
Heightened regulatory scrutiny from frameworks like the EU ETS, FuelEU Maritime, and the Carbon Border Adjustment Mechanism (CBAM) underscores the urgent need for scalable, credible decarbonization solutions. While offsetting emissions through carbon credits is widely recognized, its credibility is increasingly questioned, diminishing its appeal, whereas insetting, a newer and more integrated approach, offers a promising alternative by directly reducing emissions within a company’s operations or supply chain.
Carbon offsetting involves purchasing carbon credits from external projects to compensate for emissions, without necessarily changing the company’s own practices. In contrast, insetting involves reducing emissions or sequestering carbon within a company’s own operations or supply chain, directly addressing its environmental impact.
Unlike traditional carbon offsets, which fund external projects (e.g., tree planting), inset credits represent verified emission reductions within a company’s own operations or supply chain. This internal focus not only drives direct impact but also creates a new asset class — credits that can be traded for revenue, making sustainability a strategic business move.
Take Verra [1] for instance, a leading player in the carbon offsets market with its Verified Carbon Standard (VCS) program. These credits, called Verified Carbon Units (VCUs), come from external projects like reforestation, renewable energy, or waste management, which reduce or remove emissions elsewhere in the world. C3 [2] on the other hand, focuses on inset credits. These credits represent verified emission reductions within a company’s own operations or value chain — for example, an airline switching to sustainable aviation fuel or a chemical plant using bio-methane. Inset credits are about reducing a company’s direct carbon footprint (scope 1 emissions), and enables value chain partners to more actively abate their scope 3 emissions.
Offsetting is simply inadequate to reach Net Zero
Offsetting relies on projects like reforestation or renewable energy to compensate for emissions, but global energy demand — projected to grow 20–30% by 2050 (per IEA) — requires systemic decarbonization that offsets alone can’t achieve at the pace needed for net zero. These projects often face supply constraints (e.g., limited land for forestry) and credibility issues, with many studies questioning their impacts. However, offsets can still play a transitional role if high-integrity credits are prioritized.
The size of the global carbon credit market remained on ice last year, at around USD 1.4 billion. Credit demand (i.e., “retirements”) was pretty much flat on 2023 while average spot prices fell 20%. — MSCI [3]
In contrast, insetting or direct emission reductions within operations scale more effectively with demand and align with long-term sustainability. Thus, while offsetting isn’t inherently unsustainable, its limitations make it insufficient as a standalone solution for net zero in a high-demand future. Insetting also offers a compelling financial incentive — “carrots” — for established companies to redirect their capital into sustainability projects, strengthening their market position and secure a competitive edge. Without such co-financing mechanisms, these initiatives often lack economic feasibility due to additionality — making insetting a vital tool to overcome high costs and uncertain returns.
[1] https://verra.org/
[2] https://carbon3.net/
[3] https://www.msci.com/www/blog-posts/frozen-carbon-credit-market-may/05232727859
Authored by Ilja Nevolin from Carbon3