Carbon Offsets 101: A Simple Guide to Buying Quality

Carbon offsets used to be maligned as a way for individuals to assuage their eco-guilt or for companies to falsely promote a green image without changing their behavior – a system no better than the Catholic Church’s sale of indulgences during the Middle Ages. But the market for carbon offsets has come a long way in recent years, and now, with more regulation and oversight, carbon offsets are a valid way to reduce your individual or company’s carbon footprint, as long as they’re accompanied, of course, with measures to green your personal lifestyle or business operations.

As TriplePundit launches its new series this week – a business buyer’s guide to carbon offsets – we thought we’d start with the basics, reviewing what exactly a carbon offset is, how the market works and how companies can go about purchasing offsets.

The basics: Carbon offsets and markets

At the simplest level, a carbon offset represents a reduction of greenhouse gas emissions that compensates for an emission produced somewhere else. There are two major markets for carbon offsets; the first is the compliance, or “cap-and-trade,” market, where a government agency places a limit on greenhouse gas emissions from certain businesses. Businesses comply with the greenhouse gas cap by reducing emissions from their operations -- retrofitting their facilities or replacing their fleets with cleaner-burning vehicles, for example. If a company slashes its emissions below what the law requires, it can sell credits, or “allowances,” for these additional reductions to businesses that find it challenging to cut their own emissions to meet the regulations. California currently operates its own cap-and-trade program that regulates greenhouse gases from 350 businesses in the Golden State, and nine Northeastern and Mid-Atlantic states joined together to form a multi-state cap-and-trade system, the Regional Greenhouse Gas Initiative.

The second type of market for carbon offsets is a voluntary one and allows any individual or business the opportunity to balance out their carbon footprint by funding projects that reduce greenhouse gases. A carbon offset project might capture and store greenhouses gases, preventing their release into the atmosphere – by planting or maintaining forests, for example – or it can generate clean, renewable energy, eliminating the need to produce that energy from fossil fuels – such as establishing a new wind farm or solar array. Or an offset project might capture and destroy a greenhouse gas that would have been released into the atmosphere – by capturing methane gas at a landfill, for instance.

How can a business purchase a carbon offset?

There are three ways for a company to purchase a carbon offset, says Gary Gero, president of the largest voluntary offset registry in the U.S., the Climate Action Reserve. The business can have a direct relationship with the individuals coordinating the offset project: perhaps a dairy farmer considering installing an anaerobic digester to capture and destroy methane released from cow manure or the owner of a forest that needs restoration or ongoing maintenance. The company looking to offset its emissions can enter into an agreement with the project owner and directly fund the project’s startup costs, Gero says.

Because carbon offsets operate in a market exchange, the second way that companies can buy offsets is through market traders and brokers, Gero says. A business can approach a broker, let him or her know the amount of credits the company wishes to buy and for what price, and the broker will locate offset credits accordingly.

The third – and most typical – avenue for a business to purchase carbon offsets is to go through a company that develops the offset projects and sells the emissions credits to companies and individuals, Gero continues. These project development firms, including companies like Carbonfund.org and TerraPass, make things easier by offering a portfolio of greenhouse gas-reducing projects that allow businesses seeking offsets to choose projects based on cost, type of project and amount of emissions.

Tips for businesses considering purchasing offsets

One criticism of early carbon offset schemes was that they didn’t achieve the greenhouse gas emissions reductions they promised. To make sure your business is funding a successful offset project, Gero recommends taking “extra due diligence” when researching credits – especially if you are entering the voluntary market.

Make sure offset credits are enrolled in registries that have a long-standing reputation for allotting reliable emissions credits, he advises, such as the Climate Action Reserve, which has been approved by the state of California to participate in its cap-and-trade program.

“Companies need to know that there is an expert body overseeing the issuance of the credits -- and that those credits haven’t been sold to anyone else,” he says.

And there are other registries out there, including the Verified Carbon Standard and American Carbon Registry – both of which the Golden State has also endorsed for its cap-and-trade program.

Businesses should also scrutinize the standards on which the offset credits are based, Gero advises. Look for standards or certification programs that have a long history and have been recognized by regulatory bodies or the marketplace, he says. The Climate Action Reserve, for example, has developed a unique standard to ensure offset projects achieve 'additionality' – that is, to make sure the emissions that the project reduced wouldn’t have happened if the project hadn’t been implemented. The Reserve itself doesn’t carry out the validation process, Gero says, but oversees independent, third-party verifiers.

But before considering purchasing voluntary carbon offset credits, Gero urges businesses to inventory their greenhouse gas emissions and see how much they can reduce by implementing simple sustainability programs.

“First, take a look at yourself, see where your emissions are coming from and then reduce all of the emissions you can reasonably and cost-effectively,” he says. “Once you’ve done that, you can legitimately go into the voluntary carbon offset market to further reduce your carbon footprint.”

Image courtesy Terrapass

Passionate about both writing and sustainability, Alexis Petru is freelance journalist based in the San Francisco Bay Area whose work has appeared on Earth911, Huffington Post and Patch.com. Prior to working as a writer, she coordinated environmental programs for Bay Area cities and counties. Connect with Alexis on Twitter at @alexispetru