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Carbon offset

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A carbon offset is a reduction or removal of emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. Offsets are measured in tonnes of carbon dioxide-equivalent (CO2e)[1]. One ton of carbon offset represents the reduction or removal of one ton of carbon dioxide or its equivalent in other greenhouse gases.

There are two types of markets for carbon offsets, compliance and voluntary. Compliance markets are those that are mandated by a regulatory body. They create legally binding caps on the total amount of carbon (or CO2e) that countries, companies, and other entities are legally permitted to emit. Offsets have historically been viewed as an important policy tool to support a transition to a lower emission market. The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) established a cap-and-trade system that imposes national caps on the greenhouse gas emissions of high-income countries that ratified the Protocol[2]. The European Union Emissions Trading Scheme is a regionally regulated trading scheme regulated by the European Commission[3].

Within the voluntary market, demand for carbon offset credits is generated by individuals, companies, organizations, and sub-national governments who purchase carbon offsets to mitigate their greenhouse gas emissions to meet carbon neutral, net-zero or other established emission reduction goals. The World Bank was a leading entity to develop the early voluntary carbon offset market and related certification methodology. There are several offset standards. The World Bank recommends Voluntary Carbon Standard (VCS), Gold Standard (GS), Community Climate Biodiversity Standard (CCB), ISO 14064-2 and W+ Standard. There are a multitude of smaller entities developing novel voluntary carbon offset concepts.

Carbon offsets typically try to match the offset in a similar timeframe as when the offset occurs (generally within 5 years).

Minimum characteristics

Quality carbon offsets need to meet several criteria.

Carbon offset minimum characteristics.png

Types of carbon offsets

Outlooks for voluntary carbon markets

Challenges in the carbon offset markets