Carbon offsets and credits
Carbon offsetting is a carbon trading mechanism that allows entities such as governments or businesses to compensate for (i.e. “offset”) their greenhouse gas emissions. It works by supporting projects that reduce, avoid, or remove emissions elsewhere.[2][3][4] In other words, carbon offsets work by offsetting emissions through investments in emission reduction projects. When an entity invests in a carbon offsetting program, it receives carbon credits. These "tokens" are then used to account for net climate benefits from one entity to another.[5] A carbon credit or offset credit can be bought or sold after certification by a government or independent certification body.[6][7][8] One carbon offset or credit represents a reduction, avoidance or removal of one tonne of carbon dioxide or its carbon dioxide-equivalent (CO2e).
This article is about the use of carbon offsets and carbon credits for countries, corporations, and, in some cases, individuals. For more information on carbon credits for individuals, see personal carbon trading.
Offset projects that take place in the future can be considered to be a type of promissory note. The purchaser of the offset credit pays carbon market rates for the credits. In turn they receive a promise that the purchaser's greenhouse emissions generated in the present (e.g. a ten-hour international flight) will be offset by elimination of an equal amount at some point in the future (e.g. 10 to 20 years for planting 55 seedlings). Offsets that were generated in the past are legitimate only if they were in addition to reductions that would have happened anyway.[9]
A variety of greenhouse gas reduction projects can create offsets and credits. These include forestry projects (avoidance of logging, sapling planting, etc.),[1][10] renewable energy projects (wind farms, biomass energy, biogas digesters, hydroelectric dams, etc.), as well as energy efficiency projects. Further projects include carbon dioxide removal projects, carbon capture and storage projects, and the elimination of methane emissions in various settings such as landfills.
Carbon offset and credit programs provide a mechanism for countries to meet their Nationally Determined Contributions (NDC) commitments to achieve the goals of the Paris Agreement.[11] Article 6 of the Paris Agreement includes three mechanisms for “voluntary cooperation” between countries towards climate goals, including carbon markets. Article 6.2 enabled countries to directly trade carbon credits and other units such as gigawatts (GW) of renewable power with each other. Article 6.4 established a new international carbon market allowing countries or companies to use carbon credits generated in other countries to help meet their climate targets.
Carbon offset and credit programs are coming under increased scrutiny because their claimed emissions reductions may be inflated compared to the actual reductions achieved.[12][13][14] To be credible, the reduction in emissions must meet three criteria. Firstly, the must last indefinitely (e.g. the newly planted forest must not be logged or susceptible to wildfires). Secondly, they must be additional to emission reductions that were going to happen anyway. And thirdly, they must be measured and monitored to assure the that the amount of reduction promised has in fact been attained.[9]
Common features associated with carbon offset programs are listed below in alphabetical order.
Origins and general features[edit]
In 1977 major amendments to the US Clean Air Act created one of the first tradable emission offset mechanisms. This allowed a permitted facility to increase its emissions. In return it had to pay another company to reduce its emissions of the same pollutant by a greater amount at one or more of its facilities.[28] The 1990 amendments to that same law established the Acid Rain Trading Program. This introduced the concept of a cap and trade system, where limits on a pollutant would decrease over time. It allowed companies to buy and sell offsets created by other companies that invested in emission reduction projects.[29] Regulatory frameworks for the US Clean Water Act enabled wetlands offsetting and mitigation banking in the 1990s. Wetlands offsetting also set the procedural and conceptual precedent for carbon offsetting.[30] In 1997 the Clean Development Mechanism was created as part of the Kyoto Protocol. This program expanded the concept of carbon emissions trading to a global scale. It focused on the major greenhouse gases that cause climate change.[31] These include carbon dioxide (CO2), methane, nitrous oxide (N2O), perfluorocarbons, hydrofluorocarbons, and sulfur hexafluoride.[32]
Carbon credits are part of national and international efforts to mitigate growth in concentrations of greenhouse gases (GHGs). These programs cap greenhouse gas emissions. Markets then 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, the approach can finance carbon reduction projects from trading partners around the world. Within the voluntary market, demand for carbon offsets arise from individuals, companies, organizations, and sub-national governments. They do this to meet carbon-neutral, net-zero, or other GHG reduction goals. Certification programs offer project developers guidelines and other requirements necessary to produce carbon offsets. In this way they support this industry.
Effectiveness[edit]
Offset and credit programs have been identified as a way for countries to meet their NDC commitments and achieve the goals of the Paris agreement at a lower cost.[11] They may also help close the emissions gap identified in annual UNEP reports.[120]
These programs also have other positive effects. Experts call these co-benefits. Common environmental co-benefits include better air quality, increased biodiversity, and water and soil protection. There are also social benefits. These include community employment opportunities, energy access, and gender equality. Typical economic co-benefits include job creation, education opportunities, and technology transfer. Some certification programs have tools and research products to help quantify these benefits.[121][122]