Carbon Offset
A carbon offset is a reduction or removal of emissions of greenhouse gases made in order to compensate for emissions made elsewhere. Offsets are measured in tonnes of carbon dioxide-equivalent (CO2e). One ton of carbon offset represents the reduction or removal of one ton of carbon dioxide or its equivalent in other greenhouse gases.
Typical offset projects that reduce the emission of greenhouse gases are renewable energy, methane capture,energy efficiency and forestry.
There are two types of markets for carbon offsets: compliance and voluntary. In a compliance market like the European Union Emission Trading Scheme, companies, governments, or other entities buy carbon offsets in order to comply with mandatory and legally binding caps on the total amount of carbon dioxide they are allowed to emit per year.
Failure to comply with these mandatory caps within compliance markets results in fines or legal penalties.
Within the voluntary market, demand for carbon offset credits is generated by individuals, companies, organizations, and sub-national governments who purchase carbon offsets to mitigate their greenhouse gas emissions to meet carbon neutral, net-zero or other established emission reduction goals.