A carbon offset is a financial instrument representing a reduction in greenhouse gas emissions. It is measured in metric tons of carbon dioxide-equivalent (CO2e).
The global carbon market is growing rapidly as people around the world use the power of the “market” to control greenhouse gas emissions. Carbon offset and renewable energy credits typically represent investments in alternative energy enterprises, energy efficiency technology development and forestry- or agricultural-related projects.
Carbon market refers to the buying and selling of emissions permits that have been either distributed by a regulatory body or generated by greenhouse gas emission reductions projects. The greenhouse gas emission reductions are traded in the carbon market as carbon credits, representing the reduction of greenhouse gases to on metric ton of CO2e.
Carbon markets enable units of pollution to be converted into units of property, making it possible to exchange pollution from one place in the world with somewhere else. This leads to polluters having to decide between accepting the cost of added pollution, changing of fuel mixes, or conserving of energy. This is the main advantage of offsets, the ability for each company to find the least costly method of reducing their emissions .
There are two major markets for carbon offsets, the larger compliance market where companies, governments, or other entities buy offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit and the smaller voluntary market where individuals or the above mentioned entities purchase carbon offsets to neutralize their personal emissions from travel, electricity use, etc.