How Carbon Offsets Work

GHG emissions are a global problem. Carbon offsets operate on the idea that any emission reductions in any area is worthwhile. Yet it's much cheaper to reduce or absorb emissions in developing or transitional regions of the world. Currencies might be weaker or supplies less expensive. Logistically, it is easier to make changes in an area that does not already have a developed infrastructure.

Offsets, however, are somewhat of a luxury. You are, after all, paying for non-emissions -- something that doesn't even exist. Because of this, most people who purchase offsets live in developed nations where drastically lowering domestic emissions is difficult and expensive.

A business or household might find buying offsets more economical than retrofitting a building or eliminating auto emissions. With the planet as a whole producing about 25 billion tons of CO2 per year [source: Clean Air-Cool Planet], it doesn't really matter if a reforestation project in Ecuador gets its funding from an Ecuadorian banker or an American factory.

Carbon offsets fund tree planting projects, renewable energy conversions, or GHG collection and sequestration. Offsets support both large-scale and community emission reduction projects. A single company might restore a forest in Uganda and support the construction of efficient stoves in Honduran villages.

But can carbon neutrality really be bought? We'll learn all about retail carbon offsets and why people buy them in the next section.

As people and businesses become more aware of their own contributions to global warming, some turn to carbon offsets as a way to go neutral. Offset companies first estimate a customer's personal carbon output. Their Web sites include carbon calculators that determine the total GHG produced by a year's worth of electricity or driving, an event or even a round-trip flight. Offset companies then charge an amount based on their own GHG price per ton. The money funds programs that offset an equal amount of emissions. Some offset companies allow customers to choose their projects; others do not.

Aside from the physical benefits of offset projects, voluntary commercial offsets make customers look beyond the limits of their own households or businesses. Before buying offsets, people presumably first reduce their own emissions. They may limit travel, choose energy-efficient appliances or convert to renewable energy. After they cannot reduce any more, or if they find it uneconomical to do so, carbon offsets help make up for the rest.

Some purchasers, however, make no attempt to reduce their emissions before buying carbon offsets. Critics claim that offsets give people who are unwilling to change their lifestyle an easy, monetary way out of taking real responsibility.

Offsets do not provide carbon atonement for a trip by private jet or the construction of a sprawling mansion. When the average American car produces more CO2 in a year than the total annual production of an average global citizen, it's clear that monetary investments cannot replace actual GHG reductions in developed nations [source: New York Times].

Carbon offsets have also become the mode in corporate responsibility. Companies with green reputations attract a public increasingly concerned with the environment and global warming. Because carbon offsets are voluntary, generous purchases can help strengthen a company's environmental image. Some companies make real efforts to modify their operations, create fewer GHG emissions and offset the rest. But businesses can also conceal lax environmental standards with highly promoted carbon offsets. Environmentalists call this type of deception greenwashing.

There are hundreds of offset projects available; how do you decide what to buy? In the next section, we'll learn about the emerging standards for offset companies and projects.

Carbon offsets vary significantly in quality because they are intangible -- there is no product. It's easy for carbon cowboys -- offset businesses that are not credible -- to scam consumers with bad or nonexistent projects. But with interest in offsets growing, environmental and business organizations are trying to establish reliable standards for rating offset companies and projects. Several standards have recently emerged: the Voluntary Carbon Standard (VCS), the Gold Standard and the Climate, Community and Biodiversity Standard. While they focus on different types of offsets, all of the standards share the goal of bringing order to the booming carbon-offset business.

The nonprofit organization Clean Air-Cool Planet commissioned an evaluation of retail offset companies in December 2006. The report proposes standards that consumers should consider before they buy offsets. A quality offset funds only projects that would not have occurred without the extra support. This is called additionality, because all environmental benefits should be in addition to what would have happened anyway. A good offset must also have an accurate baseline, or estimate, of how much GHG a particular project sequesters or avoids. A baseline set too high makes the project's benefits look more impressive than they really are. The GHG reductions should be accurately quantified, and the projects should have permanence -- a low potential of releasing CO2­ back into the atmosphere in the near future. Offsets also need clear, registered ownership so the same offset cannot be resold again and again.

When a company warns consumers of the risks associated with projects, it is acting with transparency. Offset companies that fund forestry projects should be especially up-front about the projects' permanence. It takes years for trees to reach their full growing potential, and companies do not always disclose the likelihood of disease or fire. Coldplay bought 10,000 mango trees in India to offset an album, only to see many of them die several years later. For their next album, Coldplay decided to protect already established wooded areas in Mexico and Ecuador.

Despite questions of legitimacy, forestry offsets are popular because they represent real, visible improvements. People feel more comfortable buying 50 trees than sequestering a ton of methane.

The market for retail carbon offsets continues to grow, partly because of the absence or laxity of regulated carbon trading programs. There is no mandatory GHG market in the United States, but much of the developed world supports the Kyoto Protocol, an addition to the United Nations Framework Convention on Climate Change. The United States, despite being a member of the Convention, chose not to ratify the Protocol in 2001.

Carbon offsets encourage individuals and businesses to take responsibility for their part in global climate change. Offsets don't excuse excess, but if viewed as aid for people and the environment, they can be beneficial. Perhaps more importantly, the popularity of voluntary offsets could help promote a carbon market or a carbon tax backed by public policy.

For more information on carbon offsets, global warming and GHG emissions, please check out the links on the next page.