Carbon offsets are reductions of greenhouse gas emissions or increase carbon storage via afforestation or land restoration that a company can use to offset emissions created in other locations.
A carbon offset starts its life with an emission reduction and not all reductions qualify as an offset. It needs to meet a specific quality criterion based on the methodology used related to the kind of carbon project like energy, forests, and livestock wherever reduction takes place. Methodologies help to quantify the impact of carbon reduction.
In 1992, the Kyoto Protocol outlined the first offset provision under the Clean Development Mechanism (CDM) which allowed companies to offset their emissions by investing in environmentally positive projects. This led to the establishment of “ Compliance Markets” for carbon credits.
These methodologies are complex as carbon projects differ with a number of variables that need to be accounted for along with accuracy. There is a need to evaluate the impact using the methodology after which a project can be developed.
These developers apply standards to review the project against the methodology which involves gathering scientific data that needs to be validated. Using the methodologies, the project activities are outlined, and a baseline is established for the reduction of emissions. These efforts then need to be reviewed and certified by an independent third-party validator who acts on behalf of the standard. All offset programs require a third-party auditor to validate a project’s baseline and the projected and achieved emission reductions.
Once a project is validated, it is ready to be officially registered and approved with a carbon offset program. It is now ready to start generating carbon offsets.
Verification is key in these projects. Firstly they need to meet the program’s eligibility criteria and secondly validate that data was collected in accordance with the program requirements and that the calculations were estimated according to the approved methodology and protocol. Projects are verified to ensure the integrity and quality of data and there is transparency and accountability in the carbon market.
As these offsets travel through the journey of methods, validation, and verification it enters the next phase of trading ie. buying and selling of offsets. This is where Carbon markets come into play.
A carbon credit is worth one tonne of CO2e (tCO2e) emissions which is equivalent to 556.2 cubic meters of volume.
Some examples of carbon-offsetting projects are the following: