If the climate protection project is aimed at achieving a specific, binding emissions target, as stipulated, for example, by the Kyoto Protocol and the recent Paris Agreement, the offsetting is not voluntary. Voluntary offsetting of greenhouse gas emissions is, as the name suggests, voluntary and not compulsory. This means that users make an individual contribution to climate protection without being obliged to do so and without this climate protection contribution being credited against or pre-empted by legal obligations.

Environmental integrity in the sense of voluntary offsetting means that one carbon unit corresponds to one tonne of CO₂eq and is only counted once. In the case of voluntary offsetting, this means that offsetting must not be used to circumvent ambitious and obligatory climate protection in states. The use of project credits should therefore not prevent countries from making binding efforts to enhance their ambitions. Risks such as double counting must be avoided to ensure environmental integrity. Double counting will be addressed separately below.

Voluntary offsetting represents an added value for climate protection if it triggers an additional climate protection measure. This means that the climate protection measure of the project would not have taken place without the expected proceeds from the sale of the credits. Measures that are already economic in themselves and would therefore have been carried out anyway (for example, normal energy saving measures) are therefore not eligible for offsetting (financial additionality) which is guaranteed by the additionality test. There are various verification tests that can check projects with regard to their additionality, for example using an investment or barrier analysis, defined benchmarks or technology lists. In addition, mitigation should not be required by law (regulatory additionality) or be in line with common practice in the region or host country. Nevertheless, the lack of laws or further regulations does not mean that the project is additional per se. It is important to check exactly what the host country itself accepts as reductions to meet its emission reduction target. There are simplified procedures for small projects since complex tests can be particularly costly and may prevent project developers from implementing them.

The figure shows a graph that illustrates the baseline of a climate protection project.

A baseline is first created for each project. The baseline provides information about how greenhouse gas emissions would have developed without the implemented climate protection measure.

For example, emissions from a newly built wind farm would be lower than those of electricity generation from non-renewable energy sources. The achieved emission reduction can then be calculated by comparing the expected project emissions of the climate protection measure to those of the baseline.

Baseline and emission savings must be calculated in a traceable and detailed manner. It is important to make cautious assumptions when calculating emissions savings. This means that emission savings should be rather underestimated than overestimated (conservatism).

Voluntary offsetting should go beyond a mere reduction of greenhouse gases. Ambitious climate protection projects also provide an important, not necessarily climate-related, added value (‘co-benefits’) contributing to sustainable development in ecological, economic and social sense. Therefore, not only should the projects save quantifiable tonnes of greenhouse gases but they must also have a positive impact on the sustainable development of the host country. In this way, they can fulfil one or more UN Sustainable Development Goals (SDGs).

Projects financed by the sale of credits come from different project types. Depending on the type, these can more or less contribute to sustainable development in the project country. However, even within a project type there can be large differences in terms of sustainability, as the contribution depends strongly on the project pattern and implementation. Some of the existing quality standards check the contribution of projects to sustainable development in particular detail and require the provision of appropriate evidence. There are also additional standards that check the positive and negative impacts on sustainability and on human rights and other aspects and thus examine overall sustainability.

Social sustainability can be promoted through projects by maintaining indigenous communities’ access to forests and thus protecting their way of life by involving civil society and the local population in the planning and implementation of the project, or by preserving cultural heritage. In addition, health protection – with a view to improving the local health situation – is also a very important contribution. Another example of social sustainability can also be the side effect that a previously rurally cut-off community is provided with electricity.

Ecological sustainability is, for example, the protection of biodiversity in forest projects, avoidance of further habitat loss and destruction of other ecosystems, or positive effects on regional air or water quality and resource protection of other environmental media such as soil conservation.

Economic sustainability can be achieved by supporting and building up local economic cycles and long-term, ecologically and economically sound investments or by creating local jobs and additional income for families. An example of economic sustainability is the avoidance or reduction of financial support to fossil fuels.

Assessment of projects for their sustainability may be difficult in certain cases and it may concern the political orientation in the host country. There may be great differences within a project type but, in general, it can be said that community-based projects usually make a stronger contribution to sustainable development than industry-based projects. It is important for all projects that they do not jeopardise the social, ecological or economic situation or the project results do not cause significant adverse impacts on other protected assets.

In general, double counting can have three forms. The common feature is that an emission reduction is issued, used or claimed more than once, that means double counted, while the actual emission reduction has taken place only once.

Forms of double counting:

• Double issuance of emission reductions means that a reduction has been issued more than once as a credit, for example, one tonne of CO₂ was saved by a project, but two credits were issued. In other words, more credits were issued than reductions were achieved.
• Double use of emission reductions means that a reduction has been sold more than once or used for different purposes. For instance, this is the case if a project saves one tonne of CO₂ and thus generates a credit, which is then sold to two different interested parties. This is the case when the registration is incorrect or if a credit has not been deleted properly, double use can occur by re-using the credit.
• Double claiming means that an emission reduction is claimed by more than one party. For instance, when a company offsets its emissions using this reduction and at the same time the state credits the reduction in its inventory for the fulfilment of his emission reduction targets. This can also happen when two countries want to credit the same reduction because one has financially supported a project in the other country.
  Double counting leads to more reductions than have actually been achieved in the atmosphere which poses an environmental integrity problem. Double counting naturally makes it difficult and complex for voluntary offsetting using mitigation results from national climate protection projects if these are also counted towards the target achievement

See more under "Offsetting from 2021"

In contrast to the Kyoto Protocol, all countries that have ratified the Paris Agreement now draft reduction targets for their national greenhouse gas emissions (NDCs). These targets may be set independently and updated and improved at any time. This is stipulated in Article 4.11 of the Agreement. However, according to Article 4.9, a new and, if possible, more ambitious NDC must be communicated at least every five years. Thus, countries can specify in their NDCs which sectors (for example energy efficiency) and projects (for example cookers for the rural population) and the associated emission reductions they would like to use for meeting their targets. If a project – and the resulting mitigation – is counted by the host country and the financier, this results in double claiming. This means that both parties claim the same reduction for themselves and more emissions would be reduced on paper than would actually be detectable in the atmosphere. The Paris Agreement also clearly stipulates that countries must avoid double counting when balancing their NDCs under Article 4.13 and when transferring reductions internationally under Article 6.

This rule should also be observed by the voluntary market. If a company wants to make a financial contribution to a project in a developing or threshold country to offset its emissions that cannot be avoided or further reduced, it must ensure that the emissions are not already counted by the host country. This is not in line with the ambition concept of the Paris Agreement and does not agree with voluntary offsetting, which must provide additional and voluntary climate protection inasmuch the reduction results go beyond the respective binding national target.

Various options are discussed here.

If the reductions are within the nationally determined contributions (NDCs), the reduction results may not be counted towards the country's emission reduction target. This would be the case however, if the project activity took place in one of the country’s reported sectors. A country may announce that it wants to reduce emissions by 40 percent in the energy sector. A solar project that is supposed to serve as voluntary offsetting cannot then contribute to this 40 percent target. For this purpose, the reduction quantities should be released for the voluntary market and corresponding surcharges should be shown in the balance. These surcharges are called ‘corresponding adjustments’ and experts refer to offsetting within the NDC (‘inside-NDC model’) with a ‘corresponding adjustment’.

This problem does not formally emerge in areas outside the NDC. Here, experts refer to offsetting outside the nationally determined contribution (‘outside-NDC model’). Financial incentives should also be avoided here to discourage mitigation actions from shifting into this area and thus the state pursues unambitious climate protection by deliberately not including these areas in future NDCs. However, so-called conditional reduction targets included by a country in its NDC from the outset only under the condition of external financing would be eligible for consideration.

It is important to avoid double counting here too. Double counting can not only exist between two countries but also between different parties who may be within the same country. This makes offsetting by reductions from climate protection projects in Germany very complex. Germany set reduction targets (as early as under the Kyoto Protocol) and has committed to monitoring and reporting the emission reductions achieved from all sectors, including those from the land use and forestry sector (Land Use, Land Use Change and Forestry (LULUCF)). If a domestic climate protection project achieves emission reductions – for example in forests or peatlands – this takes place on an area that is reported in the German greenhouse gas inventory and thus counted towards meeting emission reduction targets target. If these carbon sequestration were now to be used by a private individual to offset their own emissions and justify climate neutrality, this emission reduction would be double counted without the national ambition level having been increased. Double counting is still the case if the climate protection measure takes place on land owned by the stakeholder since the emission reduction or carbon sequestration achieved on that land is reported in the German greenhouse gas inventory regardless of land ownership. This double counting problem makes offsetting in Germany very complex.

‘Corresponding adjustments’ could also be shown in the German balance sheet to prevent double counting, or extra projects, project or sector areas could be set aside for use within the framework of a voluntary offsetting approach. However, no corresponding mechanisms have yet been envisaged for Germany (or the EU) that would allow domestic or intra-European reductions to be released to the voluntary market and removed from the national inventory.

Due to the holistic German climate protection strategy across all sectors, there are also no possibilities to implement projects outside of the German NDC and use them for voluntary offsetting.

A financial contribution to such a project is nevertheless important and valuable as it can help achieve and stabilise the German emission reduction target. The answer to the next question explains how this can be done.

The good news is there is an alternative. Both national and international climate protection projects within and outside an NDC, can still be supported financially – without any risk of double counting. The alternative is to use the credits in a different way and communicate this correspondingly. The reduction result can be better identified and communicated as a contribution to the host country's emission reduction target instead of striving for a neutral position. This communication emphasises the climate protection contribution made as a joint effort to the emission reduction target (‘contribution claim’). For example, statements such as ‘Together we are helping Germany to achieve climate protection contribution’ or ‘On the way to mutual climate neutrality’ can be made. Instead of emphasising their own separate neutrality, a company or public administration may declare that they have made a financial contribution to the project country’s emission reduction target amounting to the emissions to be offset.

There are already efforts in the voluntary market to offer climate protection projects with this communication (for example through the Gold Standard). This avoids the problem of double counting and the risk of being criticised for offsetting without real added value instead of gaining a good reputation.