Carbon offset schemes allow individuals and companies to invest in environmental projects around the world in order to balance out their own carbon footprints. The projects are usually based in developing countries and most commonly are designed to reduce future emissions. This might involve rolling out clean energy technologies or purchasing and ripping up carbon credits from an emissions trading scheme. Other schemes work by soaking up CO 2 directly from the air through the planting of trees.

Some people and organisations offset their entire carbon footprint while others aim to neutralise the impact of a specific activity, such as taking a flight. To do this, the holidaymaker or business person visits an offset website, uses the online tools to calculate the emissions of their trip, and then pays the offset company to reduce emissions elsewhere in the world by the same amount – thus making the flight "carbon neutral".

Offset schemes vary widely in terms of the cost, though a fairly typical fee would be around £8/$12 for each tonne of CO 2 offset. At this price, a typical British family would pay around £45 to neutralise a year's worth of gas and electricity use, while a return flight from London to San Francisco would clock in at around £20 per ticket.

Increasingly, many products are also available with carbon neutrality included as part of the price. These range from books about environmental topics through to high-emission cars (new Land Rovers include offsets for the production of the vehicle and the first 45,000 miles of use).

Over the past decade, carbon offsetting has become increasingly popular, but it has also become – for a mixture reasons – increasingly controversial.

Is the whole concept of offsetting a scam?

Traditionally, much of the criticism of offsetting relates to the planting of trees. Some of these concerns are valid, but in truth most of the best-known carbon offset schemes have long-since switched from tree planting to clean-energy projects – anything from distributing efficient cooking stoves through to capturing methane gas at landfill sites. Energy-based projects such as these are designed to make quicker and more permanent savings than planting trees, and, as a bonus, to offer social benefits. Efficient cooking stoves, for instance, can help poor families save money on fuel and improve their household air quality – a very real benefit in many developing countries.

Even in the case of energy-based schemes, however, many people argue that offsetting is unhelpful – or even counterproductive – in the fight against climate change. For example, writer George Monbiot famously compared carbon offsets with the ancient Catholic church's practice of selling indulgences: absolution from sins and reduced time in purgatory in return for financial donations to the church. Just as indulgences allowed the rich to feel better about sinful behaviour without actually changing their ways, carbon offsets allow us to "buy complacency, political apathy and self-satisfaction", Monbiot claimed. "Our guilty consciences appeased, we continue to fill up our SUVs and fly round the world without the least concern about our impact on the planet … it's like pushing the food around on your plate to create the impression that you have eaten it."

A similar if more humorous point is made by the spoof website CheatNeutral.com, which parodies carbon neutrality by offering a similar service for infidelity. "When you cheat on your partner you add to the heartbreak, pain and jealousy in the atmosphere," the website explains. "CheatNeutral offsets your cheating by funding someone else to be faithful and not cheat. This neutralises the pain and unhappy emotion and leaves you with a clear conscience."

CheatNeutral may be tongue-in-cheek but the indulgence and cheating analogies have both become de facto arguments against carbon offsetting. But do the comparisons stand up? Not according to David Roberts, staff writer at Grist. "If there really were such a thing as sin, and there was a finite amount of it in the world, and it was the aggregate amount of sin that mattered rather than any individual's contribution, and indulgences really did reduce aggregate sin, then indulgences would have been a perfectly sensible idea," Roberts has written, mirroring similar claims made by others sympathetic to offsetting. "The comparison is a weak and transparent smear, which makes me wonder why critics rely so heavily on it."

And what about the claim that people use offsetting as a way to avoid changing their unenvironmentally friendly ways? This is nonsense, too, according to the offset schemes themselves, which claim that most of their customers are also taking steps to reduce their emissions directly. A report from Britain's National Consumer Council and Sustainable Development Commission agreed with this perspective: "a positive approach to offsetting could have public resonance well beyond the CO 2 offset, and would help to build awareness of the need for other measures."

Ultimately, the question of whether the concept of offsetting is valid must come down to the individual. If you offset to assuage guilt and to make yourself feel better about high-carbon activities such as flying, that can't be good. If you offset as part of cutting your footprint, or as an incentive to be greener (after all, the less you emit, the less it will cost you to go carbon neutral) then that can't be bad – especially if the offset projects offer extra benefits such as poverty reduction in the developing world.

Do offset projects actually deliver the carbon benefits they promise?

Arguments about guilty consciences aside, the key issue for anyone who does want to offset is whether the scheme you're funding actually achieves the carbon savings promised. This boils down not just to the effectiveness of the project at soaking up CO 2 or avoiding future emissions. Effectiveness is important but not enough. You also need to be sure that the carbon savings are additional to any savings which might have happened anyway.

Take the example of an offset project that distributes low-energy lightbulbs in a developing country, thereby reducing energy consumption over the coming years. The carbon savings would only be classified as additional if the project managers could demonstrate that, for the period in which the carbon savings of the new lightbulbs were being counted, the recipients wouldn't have acquired low-energy bulbs by some other means.

The problem is that it's almost impossible to prove additionality with absolute certainly, as no one can be sure what will happen in the future, or what would have happened if the project had never existed. For instance, in the case of the lightbulb project, the local government might start distributing low-energy bulbs to help reduce pressure on the electricity grid. If that happened, the bulbs distributed by the offset company would cease to be additional, since the energy savings would have happened even if the offset project had never happened.

Partly because of the difficulty of ensuring additionality, many offset providers guarantee their emissions savings. This way, if the emissions savings don't come through or they turn out to be "non-additional", the provider promises to make up the loss via another project.

As the offset market grows, some offset companies have enough capital to invest in projects speculatively: they fund an offset project and then sell the carbon savings once the cuts have actually been made. This avoids the difficulty of predicting the future – and also avoids the claim that a carbon cut made some years in the future is worth less than a cut made now.

These kinds of guarantees and policies provide some reassurances, but do they mean anything in the real world? Without actually visiting the offset projects ourselves, how can individuals be sure that the projects are functioning as they should?

To try and answer these questions, the voluntary offset market has developed various standards, which are a bit like the certification systems used for fairly traded or organic food. These include the Voluntary Gold Standard (VGS) and the Voluntary Carbon Standard (VCS). VGS-certified offsets are audited according to the rules laid out in the Kyoto protocol and must also show social benefits for local communities. The VCS, meanwhile, aims to be just as rigorous but without being as expensive or bureaucratic to set up, thereby allowing a greater range of innovative small-scale projects.

Offsets with these standards offer extra credibility, but that still doesn't make them watertight. Heather Rogers, author of Green Gone Wrong, visited a number of offset schemes in India and found all kinds of irregularities. One VGS-certified biomass power plant refused to allow her around, though staff there reported a number of concerns such as trees being chopped down and sold to the plant, which was designed to run on agricultural wastes.

Even if offset projects do work as advertised, some environmentalists argue that they're still a bad idea. If we're to tackle climate change, they argue, the projects being rolled out by offset companies should be happening anyway, funded by governments around the world, while companies and individuals reduce their carbon footprints directly. Only in this way – by doing everything possible to make reductions everywhere, rather than polluting in one place and offsetting in another – does the world have a good chance of avoiding runaway climate change, such critics claim.

On the other hand, some carbon-neutrality advocates suggest offsetting carbon-intensive activities such as flights two or three or even ten times over. This, they argue, allows individuals not just to stop their total carbon footprint from going up, but actually to make it fall.

The price of offsetting

Many people are confused by the low prices of carbon offsets. If it's so bad for the environment to fly, can a few pounds really be enough to counteract the impact? The answer is that, at present, there are all kinds of ways to reduce emissions very inexpensively. After all, a single low-energy lightbulb, available for just £1 or so, can over the space of six years save 250kg of CO 2 – equivalent to a short flight. That's not to say that offsetting is necessarily valid, or that plugging in a low-energy lightbulb makes up for flying. The point is simply that the world is full of inexpensive ways to reduce emissions. In theory, if enough people started offsetting, or if governments started acting seriously to tackle global warming, then the price of offsets would gradually rise, as the low-hanging fruit of emissions savings – the easiest and cheapest "quick wins" – would get used up.

Another frequent point of confusion about the cost of offsetting is that different offset companies quote different prices for offsetting the same activity. There are two reasons for this. First, there are various ways of estimating the precise impact on climate change of certain types of activity – including flying, which affects global temperature in various different ways. Second, different types of offset project will inevitably have different costs – especially given that projects may be chosen not just for the CO2 impacts but for their broader social benefits.

• This article is adapted from The Rough Guide to Green Living by Duncan Clark.