Carbon offsetting is the act of mitigating ("offsetting") greenhouse gas emissions. A well-known example is the purchasing of offsets to compensate for the greenhouse gas emissions from personal air travel.

The idea of paying for emission reductions elsewhere instead of reducing one's own emissions is known from the closely related concept of emissions trading. However, in contrast to emissions trading, which is regulated by a strict formal and legal framework, carbon offsets generally refer to voluntary acts by individuals or companies that are arranged by commercial or not-for-profit carbon-offset providers. Nonetheless some formal standards for voluntary carbon offsets are emerging.

A wide variety of offset methods are in use — while tree planting was initially a mainstay of carbon offsetting, renewable energy, energy conservation and methane capture offsets have now become increasingly popular. Purchase and withdrawal of emissions trading credits is also seen, creating a connection between the voluntary and regulated carbon markets.

Carbon offsetting as part of a "carbon neutral" lifestyle has gained some appeal and momentum mainly among consumers in western countries who have become aware and concerned about the potentially negative effects of energy-intensive lifestyles and economies on the environment. The Kyoto Protocol has sanctioned offsets as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established a Clean Development Mechanism (CDM) which validates and measures projects to ensure they produce authentic benefits and are genuinely "additional" activities that would not be otherwise undertaken. Organisations that have difficulties in meeting their emissions quota are able to offset by buying CDM-approved Certified Emissions Reductions. The CDM encourages projects that involve, for example, sustainable power generation, changes in land use, and forestry, although not all trading countries allow their companies to buy all types of credit.

The commercial system has contributed to the increasing popularity of voluntary offsets among private individuals and also companies. Offsets may be cheaper or more convenient alternatives to reducing one's own fossil-fuel consumption. However, some critics object to carbon offsets, and many have questioned the benefits of certain types of offsets, such as tree planting.

Types of offset

Tree planting

Tree planting includes not only recreating natural forests (reforestation) and avoiding deforestation, but also monoculture tree farming on plantations for logging, biodiesel production, or other commercial purposes. The term "reforestation" is nevertheless often applied in this context to monculture tree farming as well as recreating natural forests. There is also afforestation, which means establishing forests particularly on land not previously forested. This can produce higher carbon sequestration rates because the level of carbon in such land is comparatively low. Trees provide other benefits in addition to capture of carbon dioxide, such as providing organismal habitats, providing renewable resources, such as building materials, and preventing soil erosion.

Many forestry offset projects have been conceived or conducted in ways that are vulnerable to criticism, drawing their net benefits into question. Significant concern also arises over the permanence of carbon storage in trees and forests, as potential future clearing or burning of the forest would return the stored carbon to the atmosphere. In addition, a recent study has claimed that plants are a significant source of methane, a potent greenhouse gas, raising the possibility that trees and other terrestrial plants may be significant contributors to global methane levels in the atmosphere. However, this claim has recently been disputed by findings in another study, which has cast some doubt over whether plants are significant emitters of methane. The source of methane plumes found above, for example, tropical forests is therefore still unknown.

In July, 2007, Vatican City accepted an offer that will make it the only carbon neutral state for the year, due to the donation of the Vatican Climate Forest in Hungary. The forest is to be sized to offset the year's carbon dioxide emissions.

Climate impacts

Trees sequester carbon through photosynthesis, converting carbon dioxide and water into molecular dioxygen (O₂) and plant organic matter, such as carbohydrates (e.g., cellulose). Hence, forests that grow in area or density and thus increase in organic biomass will reduce atmospheric CO₂ levels. (Carbon is released as CO₂ if a tree or its lumber burns or decays, but as long as the forest is able to grow back at the same rate as its biomass is lost due to oxidation of organic carbon, the net result is carbon neutral.) In their 2001 assessment, the IPCC estimated the potential of biological mitigation options (mainly tree planting) is on the order of 100 Gigatonnes of carbon (cumulative) by 2050, equivalent to about 10% to 20% of projected fossil fuel emissions during that period.

However, the global cooling effect of forests from carbon sequestration is not the only factor to be considered. For example, the planting of new forests may initially release some of the area's existing carbon stores into the atmosphere. Specifically, the conversion of peat bogs into oil palm plantations has made Indonesia the world's third largest producer of greenhouse gases. Compared to less vegetated lands, forests affect climate in three main ways:

1. Cooling the Earth by functioning as carbon sinks.
2. Cooling the Earth by adding water vapor, a greenhouse gas, to the atmosphere and thereby increasing cloudiness.
3. Warming the Earth by absorbing a high percentage of sunlight due to the low reflectivity of a forest's dark surfaces. This warming effect, or reduced albedo, is large where evergreen forests, which have very low reflectivity, shade snow cover, which is highly reflective.

To date, most tree-planting offset strategies have taken only the first effect into account. A study published in December 2005 combined all these effects and found that tropical forestation has a large net cooling effect, because of increased cloudiness and because of high tropical growth and carbon sequestration rates. Trees grow three times faster in the tropics than in temperate zones; each tree in the rainy tropics removes about 22 kilograms (50 pounds) of carbon dioxide from the atmosphere each year. However, this study found little to no net global cooling from tree planting in temperate climates, where warming due to sunlight absorption by trees counteracts the global cooling effect of carbon sequestration. Furthermore, this study confirmed earlier findings that reforestation of colder regions — where long periods of snow cover, evergreen trees, and slow sequestration rates prevail — probably results in global warming.

According to Ken Caldeira, a study co-author from the Carnegie Institution, "To plant forests outside of the tropics to mitigate climate change is a waste of time".  "To prevent climate change, we need to transform our energy system. It is only by transforming our energy system and preserving natural habitat, such as forests, that we can maintain a healthy environment. To prevent climate change, we must focus on effective strategies and not just ‘feel-good’ strategies."

His premise that grassland reflects more sun, keeping temperatures lower is only applicable in arid regions, however. A well-watered lawn for example is as green as a tree but absorbs far less CO₂.  Deciduous trees also have the advantage of providing shade in the summer and sunlight in the winter; so these trees, when planted close to houses, can be utilized to help increase energy efficiency of these houses.

Costs

While the benefits of tree-planting are subject to debate, the costs are low compared to many other mitigation options. The IPCC has concluded that "The mitigation costs through forestry can be quite modest (US$0.1–US$20 / metric ton carbon dioxide) in some tropical developing countries.... The costs of biological mitigation, therefore, are low compared to those of many other alternative measures". The cost effectiveness of tropical reforestation is due not only to growth rate, but also to farmers from tropical developing countries who voluntarily plant and nurture tree species which can improve the productivity of their lands.  As little as US$90 will plant 900 trees, enough to annually remove as much carbon dioxide as is annually generated by the fossil-fuel usage of an average United States resident.

Types of trees planted

The type of tree planted may have great influence on the environmental outcomes. Planting the wrong kind of trees, such as monocultures of eucalyptus where they are not native species, can devastate the lands of the local people. However, it is often much more profitable to outside interests to plant non-native fast-growing trees, such as eucalyptus or pine (e.g., Pinus radiata or Pinus caribaea), even though the environmental and biodiversity benefits of such monoculture plantations are not comparable to native forest, and such offset projects are frequently objects of controversy (see below).

To promote the growth of native ecosystems, many environmentalists advocate only indigenous trees be planted. A practical solution is to plant tough, fast-growing native tree species which begin rebuilding the land. Planting non-invasive trees that assist in the natural return of indigenous species is called "assisted natural regeneration." There are many such species that can be planted, of which about 12 are in widespread use, such as Leucaena leucocephala.

Avoided deforestation

Some offsets aim at carbon benefits from avoided deforestation. It may involve training developing-world communities in the production, sale, and use of fuel-efficient stoves. As almost half of the world's people burn wood (or fiber or dung) for their cooking and heating needs, fuel-efficient cook stoves can reduce fuel wood consumption by 30 to 50%, though the warming of the earth due to decreases in particulate matter (i.e. smoke) from such fuel-efficient stoves has not been addressed.

Renewable energy

Renewable energy offsets commonly include wind power, solar power, hydroelectric power and biofuel. Some of these offsets are used to reduce the cost differential between renewable and conventional energy production, increasing the commercial viability of a choice to use renewable energy sources. Others operate in developing countries, for example by training local communities to produce biodiesel from jatropha oil.

Some renewable energy offset projects are sold in multiple markets, such as the Te Apiti Wind Farm in New Zealand, a project certified to the privately operated CDM Gold Standard which supplies offsets to the Dutch Government, British bank HSBC, and private citizens. A connection is also sometimes made between carbon offsets and renewable energy certificates (RECs), also known as Green Tags. An REC represents a certain quantity of electricity which was generated from renewable sources. By purchasing an REC, the customer helps fund a renewable energy project (albeit usually in retrospect), which leads to lower carbon emissions.

Energy conservation

While carbon offsets which fund renewable energy projects help lower the carbon intensity of energy supply, energy conservation projects seek to reduce the overall demand for energy. Carbon offsets in this category fund projects of several types:

1. Cogeneration plants generate both electricity and heat from the same power source, thus improving upon the energy efficiency of most power plants which waste the energy generated as heat.
2. Fuel efficiency projects replace a combustion device with one which uses less fuel per unit of energy provided. Assuming energy demand does not change, this reduces the carbon dioxide emitted.
3. Energy-efficient buildings reduce the amount of energy wasted in buildings through inefficient heating, cooling or lighting systems. In particular, the replacement of incandescent light bulbs with compact fluorescent lamps can have a drastic effect on energy consumption. New buildings can also be constructed using less carbon-intensive input materials.

Methane collection and combustion

Some offset projects consist of combusting or containing methane generated by farm animals , landfills or other industrial waste. Methane has a Global warming potential (GWP) 23 times that of CO₂; when combusted, each molecule of methane is converted to one molecule of CO₂, thus reducing the global warming effect by 96%. Methane can also be processed using an anaerobic digester which generates electricity or heat.

Links with emission trading schemes

Carbon offsets can also be linked with official emission trading schemes, such as the European Union Emission Trading Scheme, the voluntary Chicago Climate Exchange, and may be incorporated in proposed schemes such as the Australian Carbon Exchange. By purchasing emissions allowances and subsequently withdrawing the allowances from the markets, a reduction of allowable emissions is forced (assuming the trading scheme works as intended). In the case of the European Union Emission Trading Scheme it is widely believed that allowable emissions (during the first phase of the system) exceed physical emissions, in which case there is no physical effect from doing so. EU emissions allowances sell for 0.08 Euro per metric ton of CO₂, as of September 2007. EU emission allowances for the 2008-2012 second phase sell for between 21 and 24Euro per metric ton CO₂ as of July 2007. The Chicago Climate Exchange tons trade for about $3.25 per metric ton of CO₂, also as of July 2007.

Other

A UK offset provider set up a carbon offsetting scheme which set up a secondary market for treadle pumps in developing countries. These pumps are used by farmers, using human power, in place of diesel pumps.  However, given that treadle pumps are best suited to pumping shallow water, while diesel pumps are usually used to pump water from deep boreholes, it is not clear that the treadle pumps are actually achieving real emissions reductions. Other companies have explored and rejected treadle pumps as a viable carbon offsetting approach due to these concerns.

Accounting for and verifying reductions

Due to their indirect nature, many types of offset are difficult to verify. Some providers obtain independent certification that their offsets are accurately measured, to distance themselves from potentially fraudulent competitors. The credibility of the various certification providers is often questioned. Certified offsets may be purchased from commercial or non-profit organizations for US$1–30 per ton of CO₂, due to constant fluctuations with the current market price. Annual carbon dioxide emissions in developed countries range from 6 to 23 tons per capita.

Accounting systems differ on what constitutes a valid offset for voluntary reduction systems and for mandatory reduction systems. However formal standards for quantification of offsets are now being developed based on collaboration between emitters, regulators, environmentalists and project developers. These standards include the Voluntary Carbon Standard and the CDM Gold Standard, the latter of which expands upon the requirements for the Clean Development Mechanism of the Kyoto Protocol.

Accounting of offsets may address the following basic areas:

• Baseline and Measurement - What emissions would occur in the absence of a proposed project? And how are the emissions which occur after the project is performed going to be measured?
• Additionality - Would the project occur anyway without the investment raised by selling carbon offset credits? There are two common reasons why a project may lack additionality: (a) if it is intrinsically financially worthwhile due to energy cost savings, and (b) if it had to be performed due to environmental laws or regulations.
• Permanence - Are some benefits of the reductions reversible? (for example, trees may be harvested to burn the wood; many trees, in geological terms, have relatively short life spans, making them unsuitable for long-term carbon sequestration; and does growing trees for fuel wood decrease the need for fossil fuel?) If woodlands are increasing in area or density, then carbon is being sequestered. After roughly 50 years, newly planted forests will reach maturity and remove carbon dioxide more slowly.
• Leakage - Does implementing the project cause higher emissions outside the project boundary?

Co-benefits

While the primary goal of carbon offsets is to reduce global carbon emissions, many offset projects also claim to lead to improvements in the quality of life for a local population. These additional improvements are termed co-benefits, and may be considered when evaluating and comparing carbon offset projects. Some possible cobenefits from a project which replaces wood burning stoves with ovens which use a less carbon-intensive fuel include:

• Lower non greenhouse gas pollution, which improves health in the home.
• Improved safety for women who used to traipse alone into the forest to collect firewood, and were thus exposed to violent acts.
• Better education for children who need no longer spend so much time collecting wood fuel.
• Better preservation of forests, which are an important habitat for wildlife.

Carbon offset projects can also negatively affect quality of life. For example, people who earn their livelihoods from collecting firewood and selling it to households could become unemployed if firewood is no longer used. A paper from the Overseas Development Institute offers some indicators to be used in assessing the potential developmental impacts of voluntary carbon offset schemes:

• What potential does the project have for income generation?
• What effects might a project have on future changes in land use and could conflicts arise from this?
• Can small-scale producers engage in the scheme?
• What are the 'add on' benefits to the country - for example, will it assist capacity-building in local institutions?