What is a carbon offset?

A carbon offset is a credit for greenhouse gas reductions achieved by one party that can be purchased and used to compensate (offset) the emissions of another party. Carbon offsets are typically measured in tonnes of CO2-equivalents (or CO2e) and are bought and sold through a number of international brokers, online retailers and trading platforms.

For example, wind energy companies often sell carbon offsets. The wind energy company benefits because the carbon offsets it sells make such projects more economically viable. The buyers of the offsets benefit because they can claim that their purchase resulted in new non-polluting energy, which they can use to mitigate their own greenhouse gas emissions. The buyers may also save money as it may be less expensive for them to purchase offsets than to eliminate their own emissions.

Many types of activities can generate carbon offsets. Renewable energy such as the wind farm example above, or installations of solar, small hydro, geothermal and biomass energy can all create carbon offsets by displacing fossil fuels. Other types of offsets available for sale on the market include those resulting from energy-efficiency projects, methane capture from landfills or livestock, destruction of potent greenhouse gases such as halocarbons, and carbon-sequestration projects (through reforestation, or agriculture) that absorb carbon dioxide from the atmosphere.

Why some carbon offsets are better than others

As with any purchase, buyers need to choose their offsets carefully, particularly as the voluntary offset market is largely unregulated.