Carbon offsets and credits

A carbon credit or offset credit is a transferable financial instrument (i.e. a derivative of an underlying commodity) certified by governments or independent certification bodies to represent an emission reduction that can then be bought or sold.

Both offsets and credits are measured in tonnes of carbon dioxide-equivalent (CO2e).

One carbon offset or credit represents the reduction or removal of one ton of carbon dioxide or its equivalent in other greenhouse gases.

Carbon credits are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs).

In these programs greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.

The goal is to allow market mechanisms to drive these sources towards lower GHG emissions.

Since GHG reduction projects generate offset credits, this approach can be used to finance carbon reduction schemes between trading partners around the world.

Within the voluntary market, demand for carbon offsets 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 GHG reduction goals.

This market is aided by certification programs that provide standards and other guidance for project developers to follow in order to generate carbon offsets.

A variety of greenhouse gas reduction projects can be used to create offsets and credits. Forestry projects are becoming the fastest growing category.

Renewable energy is another common type, and includes wind farms, biomass energy, biogas digesters, or hydroelectric dams.

Other types include energy efficiency projects (such as efficient cookstoves), and destruction of landfill methane.

Some include methods that use negative emission technologies, such as biochar, carbonated building elements and geologically stored carbon.

Offset and credit programs have been identified as way for countries to meet their NDC commitments and achieve the goals of the Paris agreement at a lower cost.

However, there have been a number of news media stories in recent years criticizing these programs on the grounds that carbon reduction claims are often exaggerated or misleading.

Organizations can take a variety of due diligence actions to identify "good quality" offsets, ensure that offsetting provides the desired environmental benefits, and avoid reputation risk associated with poor quality offsets.