Carbon offsets working is when they make it so that producing carbon is expensive enough to change how companies behave. Of course, that could be done better with a number of other schemes like a carbon tax (with or without rebate)
I mean, it works by your logic. Carbon caps are very easy to game and continue to fail to change behavior, as shell companies simply "sell" their credits to others. Meanwhile, sabotage materially - as in not on paper, but physically in rhe flesh and blood world - makes polluting more expensive, because equipment gets damaged, needs repaired, and might not get repaired. Even supressing it isn't free, because cops and bribes lobbying costs money and as we saw in the 2020 uprisings the cops cannot be everywhere at once.
Were there a protacted, popular campaign of sabotage that called the state's bluff, there simply wouldn't be enough police or resources to actually make any of this profitable. Actual concessions would have to be made by governments and corporations. This is why the state has been so spectacularly violent against climate acticists despite even green scare "ecoterrorists" simply tying themselves to trees - it actually works. The state belongs to corporations and corporations aren't going to just let us do shit that meaningfully undermines them, if they are actively suggesting the solutions themselves then it's because they know it won't require them to do something they don't want.
When we no longer have an irrational need to increase profits, it becomes much easier to change production lines to emit less and less carbon.
China, by the way, is the leader in clean energy, despite being the country with the most emissions, which is simply explained by the fact that it was until recently also the country with the largest population in the world.
Carbon offsets fund subsidies to make companies that do choose to use cost-innefective tech able to do so.
The idea is that once people are actually using the tech, it will allow those industries to get more efficient, letting them close the gap in deployment costs. Eventually making it so it isn't cost prohibitive anymore with or without the subsidies.
It's a carrot and stick system, instead of simply a stick system as you describe.
The advantage with a carbon tax with rebate is that the tax comes from the entities that pollute, but the rebate goes back to everyone equally since everyone is harmed equally. Politically, it also means that there is a large group that is invested in that rebate remaining in place. Efforts to lower the tax or introduce loopholes must contend with widespread opposition. Unfortunately, uptake has been slow.
I disagree that providing the rebate to everyone equally is ideal if the intention is to incentivize development and uptake of otherwise cost-innefective systems.
I speak from experience. I live in Canada, and I get carbon rebate cheques. They just show up. They don't incentivize me to do anything at all.
However we also have carbon credits. I'm in the process of installing rooftop solar on my home. The carbon credits I can sell to subsidize the cost of the solar system.
So, in an environment with both, the tax didn't change my behavior at all. The credits however were a meaningful part of my calculus to "put my money where my mouth is" and invest my own money and choices into green tech.
So, I acknowledge that it's anecdotal, but the carrot helped drive my behaviour into a more eco-friendly direction