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How Can Carbon Offsetting Be a Part of My Finances?

How do carbon offsets work? They can help fund emissions-reducing projects like reforestation or carbon removal. Learn how to buy carbon credits here.

May 25, 2022

The majority of our day-to-day activities have some kind of carbon footprint — meaning they contribute to carbon emissions, which can in turn contribute to climate change. 

Some sources of emissions are fairly obvious. People can hear the fuel filling up their gas tanks and see the emissions exiting their vehicle’s exhaust. 

Other sources, however, are much more hidden. How much trash (or recycling) we produce, for instance, has a major effect. Even the food in our fridge — and what foods we tend to eat — contribute to our carbon footprints. 

We can reduce our emissions with intentional choices, but we can’t entirely eliminate our carbon footprint.

So, is there an alternative?

Some people choose to buy carbon offsets. But how do carbon offsets work, exactly? 

What are carbon offsets?

Carbon offsets enable individuals or companies to pay someone else to reduce the carbon emissions that they cannot — or will not — reduce themselves. 

You can think of carbon offsets like gift cards. Someone purchases an offset that is equal to reducing a certain amount of carbon from the atmosphere — or preventing the same amount in future emissions. 

This carbon reduction is achieved by planting trees, investing in green power infrastructure or through direct carbon capture and storage. 

Various companies and nonprofits sell carbon offsets, which are usually listed in metric tons of carbon dioxide (CO2). An individual can then purchase these carbon offsets, and a large portion of that money will go towards funding activities that directly reduce carbon emissions. 

In theory, a household could become carbon neutral by purchasing enough carbon credits to completely offset their carbon footprint. 

This also happens with compaies. For example, Google has been carbon-neutral since 2007. They have achieved this goal partially by reducing their own emissions, but the bulk of the progress has been made through carbon offsets. 

Carbon credit vs carbon offset

The terms “carbon credit” and “carbon offset” are sometimes used interchangeably. However, their true definitions are different: 

  • A carbon credit is a tradeable asset that represents the right to emit a certain quantity of carbon. In some countries, companies can only emit carbon if they own these carbon credits. Companies can buy and sell carbon credits among one another, and investors can even speculate on them. Carbon credits are less common in the United States, as there is no formal regulation requiring businesses to use carbon credits. 

  • A carbon offset is what’s broken down in this article. It’s an optional product that supports efforts to reduce future emissions and/or draw existing carbon out of the atmosphere. 

How do carbon offsets work?

Companies and nonprofit organizations sell carbon offsets to individuals and businesses. 

The carbon offset isn’t a physical product. Instead, it represents the removal of a certain quantity of carbon from the atmosphere (or an equivalent reduction in future carbon emissions). 

The companies who run carbon offset programs invest heavily in reforestation projects, solar energy installations and other activities that can reduce carbon. They then calculate how much carbon these activities can remove or reduce, and sell the corresponding carbon offsets to anyone interested in buying them. 

Some carbon offsetting programs are nonprofits, while others are for-profit businesses. Either way, the organizations will cover their own operating expenses first, before using the remaining money to fund future projects. 

How to buy carbon offsets

Individuals can buy carbon offsets from the websites of trusted carbon offsetting programs. 

The carbon offsetting industry is not regulated, so it’s important to ensure you’re supporting the right company or nonprofit. 

Some of the top-rated options include:

Each program works slightly differently. Some allow you to choose how much you want to purchase, while others encourage you to calculate your own carbon footprint (or the footprint of  a certain activity, like an international flight) and offset that amount. 

You can use a carbon footprint calculator, or the calculators provided by Terrapass and other offsetting programs. These can help you estimate your total carbon footprint, or the footprint for a specific activity. 

Wondering how to buy carbon credits? That’s a more complex topic, as carbon credits are mainly sold business-to-business, or through the use of brokers. 

For individuals, carbon offsets are more relevant. 

Carbon offsetting and your personal finances

How can carbon offsets be worked into your personal finances? It’s mainly a matter of priorities. 

Is reducing your carbon footprint or net carbon emissions important to you? And is it more important than your other financial goals and responsibilities? 

You could choose to purchase a one-time offset to reduce a portion of your carbon emissions. Or, to consistently offset your household’s carbon emissions, you could make carbon offsets a part of your monthly budget.

For some perspective, this doesn’t need to cost too much. Terrapass, for example, has a plan that costs a household of two around $33.37 per month, with two vehicles and up to five domestic flights per year. 

It’s also wise to work towards reducing your emissions in addition to offsetting your carbon footprint. That could mean driving less, buying local/seasonal foods and dozens of other daily choices

Identify your priorities

Offsetting your carbon footprint is a noble pursuit. If you’re passionate about the environment, it’s worthwhile to explore your options when investigating the question of “how do carbon offsets work?”

With that said, it’s also wise to have your other financial priorities in order. Are you on track to retire comfortably? Have you paid off your high-interest debt, like credit cards and payday loans?

If you have credit card debt, paying it off is a smart financial priority. And the good news is: Tally† may be able to help. Tally helps qualifying Americans consolidate their credit card balances to pay them off faster. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.