Carbon offsets and credits
Carbon offsetting is a trading mechanism that allows entities such as governments, individuals, or businesses to compensate for (i.e. “offset”) their greenhouse gas emissions by supporting projects that reduce, avoid, or remove emissions elsewhere. In other words, carbon offsets focus on offsetting emissions through investments in emission reduction projects. When an entity invests in a carbon offsetting program, it receives carbon credits, i.e "tokens" used to account for net climate benefits from one entity to another. A carbon credit or offset credit can be bought or sold after certification by a government or independent certification body. One carbon offset or credit represents a reduction, avoidance or removal of one tonne of carbon dioxide or its carbon dioxide-equivalent (CO2e).
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 and in turn receives 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 credible only if they were in addition to reductions that would have happened anyway.
A variety of greenhouse gas reduction projects can be used to create offsets and credits. These include forestry projects (avoidance of logging, sapling planting, etc.), renewable energy projects (wind farms, biomass energy, biogas digesters, hydroelectric dams, etc.), energy efficiency projects (more efficient cooking stoves, etc.), negative emission/carbon capture technologies (biochar, carbonated building elements, geologically stored carbon, etc.) 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. Article 6 of the Paris Agreement included 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, and referred to this as Internationally Transferred Mitigation Outcomes (ITMOs). 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 scientific and media scrutiny because their claimed emissions reductions may be inflated compared to the actual reductions achieved. To be credible, the reduction in emissions must (1) last indefinitely (e.g. the newly planted forest must not be logged or susceptible to wildfires), (2) be additional to emission reductions that were going to happen anyway, and (3) be measured and monitored to assure the that the amount of reduction promised has in fact been attained.