Carbon Offset Program

What Is It?
A carbon offset is a financial instrument representing a reduction in greenhouse gas emissions. Carbon offsets are typically measured in metric tons of carbon dioxide-equivalents. One carbon offset represents the reduction of one metric ton of carbon dioxide, or its equivalent in other greenhouse gases.

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. For perspective, in 2006, about $5.5 billion of carbon offsets were purchased in the compliance market, representing about 1.6 billion metric tons of carbon dioxide-offset reductions.

In 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. In 2006, about $91 million of carbon offsets were purchased in the voluntary market, representing about 24 million metric tons of carbon dioxide-offset reductions.
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 "carbon neutral" lifestyle has gained some appeal and momentum mainly among consumers in western countries 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 that can be traded on a marketplace. There is an emerging popularity of voluntary offsets among private individuals, companies, and organizations as well as investment in clean technologies/energy and reforestation projects around the world.