What is a Carbon Offset?

A carbon offset is a certificate that represents a reduction of greenhouse gas emissions.

So many things we do produce carbon, emit it into the atmosphere and add to global warming. They are things we don't think about, and things we take for granted like flying off on vacation, or driving our cars when it's too far, too wet, or too cold to walk. All of these activities, and others, add to global warming through their addition of carbon into the atmosphere.

A carbon offset is a real, and permanent, reduction of a greenhouse gas emission. Developed to compensate or "offset" an equivalent greenhouse gas emission from another source that cannot be easily eliminated by improved efficiency, conservation initiatives or changes in behaviour, carbon offsets help mitigate global warming.

Offsets are expressed in units of one tonne of carbon dioxide equivalent (tCO2e). For direct carbon dioxide emissions, this is straightforward, but other greenhouse gases (GHG) like methane and nitrous oxide have impact on the atmosphere many times more powerful than carbon dioxide, so each tonne of their emissions represents many tCO2e.

Offsets can be created when projects are undertaken to permanently reduce GHG emissions such as the retrofitting of a building, reduction of consumption of fossil fuels, or the displacement of non-renewable energy source by a wind turbine. If such projects are mandated by law or if they have a strong return on investment and would proceed in the normal course of business, they do not qualify as offsets. Offsets have to be "additional", which means that the project that created them would not have proceeded without the funding provided by the sale of the GHG reductions.

CarbonZero finds such projects. Carbonzero ensures that all the projects they source and fund meet stringent validation criteria. We then purchase the offsets from the project, selling them to individuals and organizations who want to offset the greenhouse gas emissions they produce but can't reduce.

Everyone, including organizations, large and small, and individuals can offset the emissions generated by their own activities by contributing to clean energy projects like wind, solar and biogas energy projects.

How does it work?

Using Carbonzero's Emissions Calculator or through Carbonzero's business services, an individual, or organization can measures their greenhouse gas emissions. Once the emissions have been calculated, you purchase an equivalent amount of carbon offsets, which in turn supports renewable energy projects. Without the revenue from the sale of offsets, many of these projects would not feel the wind power their mills, nor the sun heat their water.

By supporting clean energy, offsetters neutralize or "offset" their own greenhouse gas emissions, and help fund projects that actually displace fossil fuel use.

What to Offset?

Travel, Heating and Cooling of Buildings, Electricity, and Shipping are typical activities that are easily offset, because they use fossil fuels. The burning of fossil fuels, natural gas, coal, and petroleum products, releases the hydrocarbons that cause global warming; .

Background: The Kyoto Protocol

Offseting as a global method of reducing global warming began with the Kyoto Protocol, a legally-binding agreement under which 169 industrialized countries have agreed to reduce their collective greenhouse gas emissions (GHG) to a level that is 5.4% below their 1990 emission levels by 2012. It came into effect in 2005, and had been ratified by 169 countries as of late 2006. It is under the Kyoto regime that the world’s largest GHG market has evolved. This market is based on a cap-and-trade model with three major “flexibility mechanisms”; Emissions Trading, Joint Implementation and the Clean Development Mechanism. These mechanisms are the foundation of the regulated international Kyoto carbon market. Emissions Trading is an allowance-based transaction system that enables emitters of GHGs that have to emit more than their assigned allowance to purchase carbon credits on an open market. The sellers in this market are other companies that have reduced their emissions below their allowed level and thus have surplus credits. The mechanism has resulted in the European Union Emission Trading Scheme (EU ETS), which involves all EU member states and is the currently the world’s largest multi-national GHG emissions trading scheme. Credits traded under the system are called European Union Allowance (EUAs). In 2006, the EU ETS market traded 1,101 MtCO2e, and the market was valued at $US 24,357 million.

Joint Implementation (JI) allows emitters in developed countries (referred to as Annex 1 countries under the Kyoto Protocol) to purchase carbon credits via “project-based” transactions (meaning from greenhouse gas reduction projects) implemented in either another developed country or in a country with an economy in transition. Emissions from these JI projects are referred to as Emission Reduction Units (ERUs). In 2006, 16.3 MtCO2e of ERU credits were transacted at an average price of US$8.70.

The Clean Development Mechanism (CDM), like JI, is a project-based transaction system through which industrialized countries can accrue carbon credits. Unlike JI, however, CDM credits are acquired by financing carbon reduction projects in developing countries. Carbon offsets originating from registered and approved CDM projects are called Certified Emissions Reductions (CERs). This mechanism is the critical link between developed and developing countries under Kyoto and is the flexible mechanism participants in the voluntary market most often seek to emulate. Accepted CDM projects have become a major influence on ‘setting the bar’ for offset projects in developing countries. CERs and ERUs can also be sold on the voluntary markets. In 2006, the CDM transacted credits valued at around US$5 billion and representing reductions of 450 MtCO2e. Some of these credits were further sold into a burgeoning secondary market which traded 25 MtCO2e of secondary CDM credits, valued at US$ 444 million. The average CER price in 2006 was US$10.90.

UK Emissions Trading Scheme

Three years before the EU launched its trading scheme, the UK government launched the UK ETS in March 2002. This was a voluntary scheme and the world's first cap-and-trade GHG emissions trading scheme. The system ended in December, 2006, and final market reconciliation occurred in March 2007, five years after its launch. Over the lifetime of the scheme, thirty-three “direct participant” organizations achieved emissions reductions of over 7.2 MtCO2e. In 2006, about 11.9MtCO2e were traded.

Canada

Canada ratified the Kyoto Protocol; however, very little has been done to develop any kind of regulatory or trading scheme to move toward actual compliance with the Protocol, unlike Europe. The Federal government’s most recent Climate Change Plan, proposed by the Conservatives in early 2007, sets intensity-based targets for large industry starting in 2010.

The Voluntary Carbon Market

The voluntary carbon market developed to include all carbon offset trades that are not required by regulation. Voluntary market transactions include: the purchase of carbon credits by individuals or institutions at a retail level to offset their emissions; the purchase of credits directly from project developers for retirement or resale; and the donation to GHG reduction projects by corporations in exchange for credits. At the broadest level, the voluntary carbon markets can be divided into two main segments: the voluntary, but legally binding, cap-and-trade system that is the Chicago Climate Exchange (CCX); and the broader, non-binding, over the counter (OTC) offset market.