What is offsetting?
Carbon offsetting is a service: the purchaser pays someone else to create greenhouse gas reductions on his or her behalf. Buying a carbon offset means investing in projects that avoid, reduce, remove, or destroy harmful greenhouse gas emissions.
The idea behind carbon offsetting is that greenhouse gas emissions spread very quickly around the planet. As a consequence their impact on global warming does not depend from where they originated. So while the opportunities for reductions of emissions might be limited in one location for reasons of cost or technology, the next best option may be to pay for a reduction to be made in another location.
Compliance vs. Voluntary Carbon Market
The carbon market is divided into two segments. The first is the Compliance Carbon Market, which includes government-regulated programmes such as the Kyoto Protocol that require countries and large industries to reduce their emissions. The second is the Voluntary Carbon Market which covers carbon offset trading that is not required by government regulation. This market serves individuals, businesses, and organisations that chose to voluntarily take responsibility for their climate impact.
Carbon offsets can be created by different project types which either avoid, reduce, remove, or destroy greenhouse gas emissions. Here’s a sample of some project types:
- Renewable energy - These projects involve technology such as wind, solar, hydro and biomass energy generation technology.
- Energy efficiency - These projects include industrial energy efficiency and co-generation as well as switching to low-energy stove, appliances or lighting in smaller organisations.
- Fuel switching - These projects involve substituting a cleaner fuel that emits less carbon dioxide for another fuel, usually in energy generation or industrial or commercial processes.
- Forestation - These projects involve planting trees or preserving forests that would otherwise be degraded.
Offset quality criteria
There are many hundreds of offset vendors in the Voluntary Carbon Market globally. To ensure that carbon offsets represent real reductions in greenhouse gas emissions, only high-quality offsets should be purchased. It is therefore important to understand key offset quality criteria in the market.
- Additionality - To be additional, an offset project must not have happened without the incentives arising from the offset market. It is essential that the reductions are not reductions that would have happened in the "business as usual" scenario, otherwise, the offset has no net climate benefit.
- Unique ownership - Because offsets are an intangible commodity, it is important that clear ownership rights are established to the greenhouse gas reductions that the offset represents.
- Permanence - This criterion refers to the durability of the climate benefit from an offset project. Projects that rely on storing carbon like forestation can release some or all stored carbon back into the atmosphere at any time if the trees are burned for example.
- Leakage - This criterion refers to a situation where a greenhouse gas reduction in one region causes an increase in emissions somewhere else. For example the money saved through reduced energy consumption might be used to pay something else that will have corresponding greenhouse gas emissions.
- Sustainability considerations - This criterion evaluates the degree to which the the carbon offset projects create broader sustainability benefits, such as job creation and alleviation of poverty, enhancement of biodiversity and other benefits.
Voluntary Emission Reductions A voluntary emission reduction is an emission reduction that has been achieved outside of free choice, not because of legal responsibility. In other words, the person carrying out the activity was not obliged to do so but choose to do so voluntarily.
Certified Emission Reductions Carbon credits issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE under the rules of the Kyoto Protocol. Basically these are used where governments have legislated that emission reduction can be traded by corporation to achieve emission targets.