What is a Carbon Offset?

In a nutshell, a carbon offset or credit is a unit (tonne) of carbon that is saved or sequestered by a project that is then sold to an emitter of carbon to balance out a tonne of their emissions.

There are two primary markets for carbon offsets. In the larger compliance market, companies, governments or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit.

The much smaller voluntary market individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. For example, an individual might purchase carbon offsets to compensate for the greenhouse gas emissions caused by personal air travel.

Offsets are typically generated from emissions-reducing projects. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Other common project types include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects.

Carbon offsetting as part of a "CarbonZero" lifestyle has gained some appeal and momentum among consumers who have become aware and concerned about the potentially negative environmental effects of energy-intensive lifestyles and economies. The Kyoto protocol has sanctioned offsets as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established the Clean Development Mechanism (CDM), which validates and measures projects to ensure they produce authentic benefits and are genuinely "additional" activities that would not otherwise have been undertaken. Organisations that have difficulty meeting their emissions quota are able to offset by buying CDM-approved Certified Emissions Reductions. The CDM encourages projects that involve, for example, sustainable power generation, changes in land use, and forestry, although not all trading countries allow their companies to buy all types of credit.