Carbon Offset


No matter what type of living organism you are, you need to expend energy to survive. The emissions from this expenditure of energy are released into the atmosphere as greenhouse gases. Humans are the number one emitters of these gases due to are organized activities of commerce and government.

The organizations that humans have come together and assembled have often been the contributing factors to progress and civilization. This is why ceasing all of these activities seems improbable, if not totally destructive to the human race. What then can we do to curtail our excessive emissions without totally dismantling civilization?

Carbon offsets are a proposed solution to this conundrum in which we currently find ourselves. Initially created under the Kyoto Protocol, a carbon offset is an element of the Emissions Trading Scheme.

Under this scheme, carbon offsets are purchased by companies to compensate for the emissions produced by their overall activity. Companies can buy offsets in order to remain under the cap that is set for their emissions under the Kyoto Protocol. A carbon offset is basically a tax on the emissions of greenhouse gases beyond the cap.


A carbon offset is purchased by a company that has either exceeded its allotted amount of emissions for a period of time or is planning to in some future project. The offset represents the total amount of emissions

Each offset consists of three features. These features are the vintage, the source, and the certification regime.

The year that the offset applies to is what is known as the vintage. Companies may purchase offsets ahead of time-based on a projection of their activities.

The particulars of what the offset will be used for is what is known as the source. A source of a carbon offset basically describes how it will be used to reduce emissions.

The way in which offsets are verified is known as the certification regime. There are several entities that can verify offsets based on the legitimacy of their sources. Some examples of these forms of verification are:

These verification processes are separated by the Kyoto Protocol’s classification of markets for the Emissions Trading Scheme. The two market types set up by the scheme are the mandatory market and the voluntary market.


The market structure that was enacted by the Kyoto Protocol has led to a fairly intricate structure. The mandatory market, although seemingly contradictory in name, consists of the countries whose leaders signed the agreement. The voluntary market consists of the remainder of the participants in the emissions trading scheme.

1.Global Market

The global market in emissions trading is a composite of all of the participants in the buying and selling of carbon offsets. In 2010 the value in the marketplace was reported to be around $144 billion.

2.E.U. Market

The European Union consists of a majority of the countries whose leaders agreed to participate in the emissions scheme. In 2008 the value contributed to the market by the EU was $135 billion.

3.U.S. Market

Based on the level of emissions coming out of the United States and the levels that the agreement would have set, the United States did not sign the Kyoto Protocol. Most of the participants within the United States is therefore classified as voluntary participation. Although the term used by Kyoto is voluntary, a lot of the participation from the United States is either incentivized or enforced by government intervention.

4.Voluntary Market

The voluntary market for carbon offsets consists of the participants that are not bound under the mandatory market. These participants often have separate motivations to participate, ranging from goodwill to government intervention.

The voluntary market also allows smaller entities than countries to participate in the emissions trading scheme willingly. This allows for individuals to even contribute to offset their personal carbon footprint.

Many companies receive praise and good public relations for the purchase of carbon offsets. The contribution to the reduction of humanity’s overall carbon footprint is often held in a good light by a concerned public.

Another benefit of the voluntary market is that it allows individuals and companies to discover the benefits of trading carbon offsets in the absence of any coercion. Unlike the mandatory market, in which a leader made a unanimous decision for the good of the planet, a company can freely choose to help the environment by participating in the voluntary market.

Types of Offset Projects

There are hundreds of carbon offset projects that are sanctioned by the Clean Development Mechanism component of the mandatory market. Some of these projects include:

  • Renewable energy
  • Methane collection and combustion
  • Energy Efficiency
  • Destruction of industrial pollutants
  • Land use and forestry
  • Alternative fuels

1.Renewable Energy

There have been several discoveries of renewable energy sources since we became more aware of man’s effect on the environment. Carbon offsets support many projects that enact the production and use of these sources.

Renewable energy sources consist of wind, solar, geothermal, biofuel, hydroelectric and other forms of sustainable energy. The use of these types of energy can result in the rewarding of Renewable Energy Credits.

There is then a process to turn Renewable Energy Credits into carbon offsets. This intricate process involves measuring the amount of carbon reduction resulting from the use of these more sustainable sources of energy.

2.Methane Collection and Combustion

A greenhouse gas that has been found to be extremely harmful to the planet is Methane. Methane is said to have 23 times the potency of carbon dioxide, leading to a huge impact from farms with livestock on the overall environment.

A way to curtail this impact by livestock is for farms to enact a way to either convert this methane into carbon-dioxide or contain these gases. A mechanism known as an anaerobic digester is used to convert methane into carbon dioxide. This process greatly reduces the carbon footprint of the farm.

3.Energy Efficiency

Another way to reduce your carbon footprint and therefore earn some carbon offsets is to conserve energy. The more efficiently you or your company can use energy the smaller your footprint will be.

There has been an influx in the last couple of decades in cleaner technology for the construction of residences, office buildings, and other structures designed to save energy. The usage of these items to reduce the energy usage of a structure is an effective project in reducing emissions.

4.Destruction of Industrial Pollutants

The attempted destruction of industrial pollutants has been underway since the introduction of the clean air and clean water movement. Inventions like scrubbers in the exhaust systems of power plants and water reclamation facilities have greatly contributed to progress in this area.

In the 1990s the banning of different aerosols and refrigerants that contained chlorofluorocarbons was a further attempt and cleaning up the air. The difference between the visible pollution in the skylines of cities decades ago versus the much cleaner air today is physical proof of the success of these movements.

Under the Clean Development Mechanism the destruction of the following pollutants is recognized as a beneficial offset project:

– HFCs

– PFCs

– N2O    

5.Land Use, Land-Use Change and Forestry

Deforestation makes a huge contribution to our carbon footprint. Not just because of the emissions being released by the act of removing the forest and processing the wood for products, but the trees are also no longer absorbing carbon dioxide, which is released by other areas of human activity.

Reforestation is a key project encouraged by carbon offsets. The managing of forests is vital for the overall care of the planet, and to maintain a valuable resource for civilization.

The usefulness of wood from trees as both a building material and a fuel was realized by early man. Wood is still a valuable resource today which is why it needs to be maintained carefully.

Outside of just replacing forests that have been harvested for their materials, projects that involve planting new forests and preserving old forests are also encouraged. Forest management is a good source project for carbon offsets.

Links with Emission Trading Schemes

The way that all of these projects are then linked to carbon offsets is through the Emissions Trading Scheme. The scheme allows you to use the carbon reduction resulting from a project and trade it through an exchange for carbon offsets.

The European Union Emission Trading Scheme and the Chicago Climate Exchange are examples of places that you can go to receive and trade carbon offsets. The offsets that result from the projects above can then be traded with or sold to companies or individuals that are outside of their allotted amount of emissions for the year or a set project.

Carbon Retirement

A way to reduce the overall carbon footprint of man is to retire carbon credits or offsets. Offsets can be purchased from the holders and then traded in instead of using them to offset emissions.

This theoretically reduces the overall emission of greenhouse gases into the atmosphere. The only issue with this plan is that not all individuals that are emitting greenhouse gases are participating in a cap-and-trade program. This leaves a lot of activities and potential emissions unaccounted for.

Small-scale Schemes

Some projects directed toward the reduction of greenhouse gas emission may be too small to register on the scale of the larger exchange markets. These projects are supported, however, by several smaller exchanges.


Not all attempts at carbon offsetting projects are successful. A company from England attempted to create a man-powered pump for wells in Africa to reduce the emissions of diesel-powered pumps. This was an ineffective endeavor as man is simply not as strong as a diesel engine.

The notion that individuals are coming up with new ideas for projects, however, is encouraging. This should make us hopeful that these schemes may actually result in the development of affordable and more sustainable energy.

Accounting For and Verifying Reductions

Aside from projects that have been deemed unsuccessful, there have also been attempts to pass through fraudulent projects in exchange for offsets. This has led to the establishment of different verification processes.

Criteria for Quality Offsets

The main way to verify a project is to actually measure the resultant reduction in carbon emissions. Like most measurements in change there has to be an established baseline of emissions and a recorded difference that correlates to the project.

Another thing to consider in the verification process is the lasting effects of the project. If the project results in only a temporary reduction in emissions than its verification could be denied.

The project’s effect on the surrounding environment is also considered. If the project results in lower emissions in the direct area it is implemented but then somehow causes higher emissions elsewhere it can be rejected.

On the flip-side of this standard is whether your project is beneficial to the surrounding environment or entities. If there are several businesses that end up sharing in the reduction of emissions because of your project then you can be well on your way to verification.


The sharing of benefits from a project is not only good criteria for the verification of the project but is good for environmental progress as a whole. When initiating a project in an attempt to achieve carbon offsets, you should also consider the good of the surrounding community.

Sustainable projects that improve air and water quality are a good example of co-beneficiary results. When you improve the lives of those in your community and also create a cleaner environment and atmosphere you are fully embracing the intended spirit of carbon offsets.

Quality Assurance Schemes

Quality Assurance Standard for Carbon Offsetting (QAS)

In order to make sure that carbon offsets maintain their legitimacy, quality assurance schemes have been enacted. These schemes are set in place to encourage transparency and consistency among the market places.

Quality assurance is a good way for you to hedge against risk such as fraud and other nefarious actions. In order to maintain a base of confidence and dependence quality control is vital. The value of carbon offsets, like other traded commodities, must be safeguarded.

Because carbon offsets are an internationally recognized commodity and the implications of their value are so serious, the complexities behind these safeguards are vast. This means that those charged with quality control must be vigilant to enforce these fundamental controls.

Australian Government Emissions Reduction Fund

An example of carbon offset retirement is the Australian Government Emissions, Reduction Fund. The fund was set up to purchase carbon offsets to lower overall emissions. They have sunk a substantial amount of taxpayer money into this fund.

The intended result of the fund is to make Australia a more eco-friendly nation. This fund is an attempt to lead by example within the Kyoto compliant community.


There are very few political ideas without controversy. The biggest controversy faced by the idea of carbon offsets is that there are a substantial amount of people on the planet that disagree with their intended purpose. A lot of these individuals feel that the extreme reduction of emissions called for by the Kyoto Protocol is unnecessary.

There are actually several different grounds on which people disagree with cap-and-trade policies. Some people do not agree with the implications of the measured amount of greenhouse gases in the atmosphere. Others believe that governments may be overplaying the potential harm of a larger carbon footprint in order to exert more control over the citizenry.

The Efficiency of Funding Carbon Offset Projects

Another issue is the efficiency of funding a lot of these carbon offsetting projects. The return just is not apparent to some businesses.

You may feel that a smaller carbon footprint is beneficial to society as a whole, but some businesses might not be willing to expend the resources to enact such measures. This is especially the case for smaller businesses where the cost of a carbon offset could mean not being able to support their employees or even afford to stay in business.

In order to combat these circumstances, the overall return and benefits of these projects need to be professed by its supporters. As a potential investor in carbon offsets you need to be convinced how they can be more beneficial than harmful to your business.

Indulgence Controversy

There has been a comparison between carbon offsets and the indulgences that were offered by the catholic church in medieval times. This stems from the criticism that support of reducing carbon emissions is similar to a religion.

There are several aspects of investing in carbon offsets that may seem similar to religious practice. Companies paying for the emissions they create can be seen as atoning for their sins against the environment.

The purchasing of indulgences as a practice was discontinued by the church as it was a result of the corruption of church officials. Just as the church and other religions mean well, outside of individual corrupt members, not all carbon offset supporters are just after money and control.

If there is a real and present danger caused by the large carbon footprint of man, then the concern of those who support offsets is legitimized. This makes investments into a potential solution seem rational.

Effectiveness of Tree-planting Offsets

Some supporters of offsets believe that the effectiveness of planting trees in reforestation or afforestation efforts are overstated. Trees take a long time to grow and seedlings do not serve the same purposes as fully grown forests.

Indigenous Land Rights Issues

The displacement of indigenous peoples is a consideration that some projects do not take into consideration. Planting new forests, for example, could interfere with the rights of people who use the land for other purposes. This is also the case for the construction of wind and solar farms.

Additionality and Lack of Regulation in the Voluntary Market

The problem with having voluntary markets within a cap-and-trade system is the lack of oversight. These markets may place carbon restrictions on the participants that are simply ineffective or unsatisfactory. Also due to the arbitrary nature of pricing for these credits, voluntary markets could set competitive prices to their mandatory counterparts.

Perverse Incentives

The intentions of those participating in the carbon offset programs may not always be above-board. As mentioned earlier, companies may just be participating in order to receive good press or for other public relations purposes.

There is also the risk of individuals trying to grossly profit from the buying and selling of carbon credits. Some might even say that the individuals behind the creation of this structure in the first place how enriched themselves beyond their wildest dreams. These inconvenient criticisms can undermine the true altruistic intention of a cap and trade system.

Other Negative Impacts from Offset Projects

There are other negative impacts of offset projects as well. One of the more apparent problems of this type of international system is its detrimental effects on developing nations.

Pollution is the byproduct of a lot of industries, and unfortunately, industrialization seems to be a necessary step in a developed economy. Countries that are still in the process of creating industry are often hit the hardest by these policies.

Poorer countries that rely on their industries to succeed often cannot afford to resort to more expensive clean technologies. The reduction in progress that some of these offset projects could cause in these areas might mean that larges groups of people could go without the means to support themselves and starve.

Carbon offsets are a well-intentioned idea to reduce the overall carbon footprint of the planet. What supporters must remember is that some people may need to leave a larger footprint just to feed their families. If you want to encourage the implementation of these policies then the reconciliation of poverty reduction and care of the environment should be highly considered.

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