Once you’ve cut Scope 1, 2 and 3 emissions to 90% of your baseline (which should be the priority), the next step to net zero is addressing residual emissions. These are unavoidable emissions which are core to your business operations, and they must stay under 10% of your baseline. You can address these through two options: purchasing carbon offsets or retiring regulated allowances through the UK Emissions Trading Scheme (ETS). This resource compares both to find what best suits your business.
You can choose to address all or part of your residual emissions, e.g. by Scope, product, or service, each year on your journey to net zero. This would make you carbon neutral, a stepping stone to net zero, but emission reduction remains the key priority.
What are carbon offsets?
Carbon offsets are schemes that reduce or remove emissions in the atmosphere. There are two main types: avoidance and removal. When purchasing offsets you receive market-based certificates representing one tonne of CO₂e reduced, removed, or avoided.
Avoidance offsets don’t directly remove carbon from the atmosphere but prevent carbon being emitted elsewhere. For example, investing in solar panel projects as this prevents carbon from entering the atmosphere as it allows renewable energy to be used instead of fossil fuels. Avoidance offsets cannot be used to become net zero but can be used for being carbon neutral.
Removal offsets directly remove carbon from the atmosphere. They can also deliver biodiversity and social value benefits over the project’s lifetime. For example, investing in a reforestation project as trees remove carbon dioxide from the atmosphere. Permanent carbon capture and storage offsets offer the best long-term removal but are expensive and not widely available.
There are increasing numbers of environmental impact projects that are developing into carbon offsets. These allow for a more holistic environmental lens rather than a purely carbon lens. Some examples are peat bog restorations, kelp forest regrowth and coral reef restoration. Nature-based offsets can deliver environmental and social value co-benefits, creating compelling stories and encouraging stakeholder buy-in.
Offsets face criticism over permanence, additionality, and timing. To avoid greenwashing, choose high-integrity projects and conduct due diligence – look for verified standards like Gold Standard, Quality Assurance Standard, and Verra which ensure projects are robust. We understand that SMEs may have limited resources for extensive due diligence. Carbon Compared is a free, impartial platform that simplifies this by analysing and comparing offsets to find credible options aligned with your goals.
What is the UK Emissions Trading Scheme permit cancellation?
The UK Emissions Trading Scheme (ETS) is a regulated “cap-and-trade” system, where polluting industries (power, steel, chemicals, etc.) must mandatorily surrender permits equal to their emissions. The total number of permits is capped and reduced yearly, meaning emissions fall over time. Voluntary permit cancellation cuts the cap further, reducing permit availability and directly limiting industrial pollution. This creates verifiable, system-wide emissions reductions. Unlike offsets, cancellations are fully traceable via the UK Government’s ETS registry, and they can deliver faster impact as every retired allowance reduces the cap tightening supply compelling emitters to further reduce their emissions.
The UK Government plans to expand the number of sectors covered by ETS and add engineered greenhouse gas removal (GGR) credits into the scheme by 2029. Engaging early through the City Carbon Cancellation (C4S) service secures reductions today and aligns with future net zero compliance. For more information visit www.c2zero.net or email enquires@c2zero.net.
Understand Your Compensation Options
| Voluntary Offsets | Carbon Cancellation (UK ETS) | |
| Mechanism | Buy and retire credits from offset projects | Buy and retire UK ETS allowances |
| Verification and regulation | Varies by standard (e.g. CDM, Gold Standard). Some schemes may not be verified so due diligence required | Fully regulated cap-and-trade scheme; retirements recorded on UK ETS register |
| Timing of Impact | Future removals (years to decades) | Near immediate cap reduction |
| Additionality and permanence | Varies and some reversal risk (e.g. reforestation) | Permanent and guaranteed as allowances retired from regulatory cap |
| Co-benefits | Biodiversity, community development, providing funding for environmental and community projects | Every gram of carbon is traceable and trackable enabling ‘carbon’ to be attached to products improving branding, margins and product desirability |
| Traceability | Project reports, registries | Fully auditable via government register and distributed ledger |
| Price range and volatility | £1 – £100+ per tonne of carbon offset – quality varies, pricing via intermediaries | Market price set by supply vs demand. Since 2024 prices have ranged between approximately £30 and £60 per tonne (including transaction costs) |
| Benefits | Supports environmental and social value impacts | Fast, traceable reduction in regulated emissions |
Determining Your Compensation Approach
The decision whether to offset or to cancel is based on many factors including risk, cost, co-benefits, and preference. Voluntary offsets can deliver social and environmental co-benefits provided you accept the risks and invest the time to realise these. ETS cancellation delivers fast, instantly verifiable, and permanent emissions reductions. A mixed portfolio approach is often appropriate to reduce risk via diversification.
Budget constraints often steer towards low-cost offsets with limited verifiable impact. Prioritising quality over quantity means fewer tonnes from credible, high-integrity projects may deliver far greater impact than purchasing more tonnes from unreliable sources. Whether buying offsets or cancelling ETS allowances, the goal is targeted investment aligned with your ambition and values.
Implementation
1. Determine ambition
- Decide your approach – offsetting, cancelling ETS allowances, or a mix.
- Determine compensation scope – whether you are addressing emissions from specific products, part of, or total residual footprint.
- Set clear, measurable goals – for example, “Offset 1,000 tCO₂ via nature-based projects and retire 500 tCO₂ of UK ETS permits in FY 2025.”
2. Set budget
- Allocate funds to cover both offsets and ETS allowance purchases.
- Factor in ETS market fluctuations with flexible budgeting.
3. Design approach
- Decide your allocation between offsetting and carbon cancellation.
- Break down by product lines if you plan product-level certification or QR-code tracking.
4. Agree ownership
- Assign responsibility for sourcing high-quality offsets and managing ETS transactions.
- Clarify roles for reporting and oversight of compensation activities.
5. Source High-Quality Offsets
- Choose offset projects certified to recognised standards, for example:
- Gold Standard for renewable energy and community development
- Verified Carbon Standard for forestry and methane capture
- Use Carbon Compared to find credible, goal-aligned offsets.
- Assess for co-benefits including biodiversity, job creation, and water security.
- Require third-party verification and ensure provisions for ongoing monitoring.
6. Cancel UK ETS Permits
- Estimate total tonnes to retire via the UK ETS.
- For small quantities (from 200kg to ~5 tonnes) you can place an order directly online via City Carbon Cancellation (C4S) portal.
- For larger orders (over 5 tonnes), or if you’d like to assign carbon to specific products, services or activities, please email carboncancellation@c2zero.net and we’ll contact you with steps.
- All transactions are recorded on blockchain.
- Permits are cancelled on the UK ETS Register to match all transactions.
- Transaction verification documents will be provided for all orders. For large orders, you will also receive an individual cancellation certificate issued by the Environment Agency.
7. Effective governance and integration into Net Zero Action Plan
- Integrate compensation decisions into existing sustainability and net zero action plans.
- Reassess compensation in line with carbon footprint measurement and net zero action plan annually.
- Compensation actions should evolve with your broader decarbonisation journey.
8. Communicate Transparently
- For both options, full disclosure and transparency is essential to avoid greenwashing.
- Implementation is never exact so organisations must navigate shifting circumstances, incomplete data, and limited scope. Open, continuous communication is key to preserve credibility and avoid reputational risk.
- Verification & Proof of Action – Attach cancellation certificates or QR codes to product packaging, digital touchpoints, or campaign materials. Stakeholders can scan for real-time verification via the C2Zero platform, reinforcing trust and traceability.
- Disclose with Purpose – Publish sustainability reports that showcase offset projects and ETS cancellation certificates. Highlight the wider co-benefits delivered, such as biodiversity restoration or positive social value impacts, alongside the rigour of emissions permit cancellation.
- Report Real Reductions – Share regular updates on reductions, methodological changes, and any refinements to offset or ETS strategies. Be candid about what’s covered, and what isn’t, to set realistic expectations and mitigate greenwashing claims.
