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Home » All About Carbon Credits, Exchange and Offsets

All About Carbon Credits, Exchange and Offsets

A frequent announcements that companies make seeking to reduce their environmental footprint is that they are aiming to be carbon-neutral, typically by means of carbon offsets. It’s a great idea, however it’s extremely complicated and costly, as any company that has been through this procedure can attest.

If your business is paying to offset its greenhouse gas emissions each year You may believe that the funds will allow immediate reduction in greenhouse gases that is equal to the emissions you generate. In other words, your business has been declared “carbon neutral” in the sense that the actions of your company do not have a direct impact on the carbon content of the atmosphere. However, based on how offsets are arranged, it is likely that, even after purchasing offsets, your business is in the end contributing carbon to the atmosphere.

What happens to the money you invest in offsets?

The majority of media discussions concerning offsets has focused on offsets as a type of greenwashing, the way in which the carbon reductions provided for sale are rated and whether offset companies actually perform what they claim they are doing. All of these are important issues however, there are more fundamental concerns about what the carbon offsets do for.

A metaphor can be useful in this case. Imagine a bathtub. each gallon of water that is in the tub represents one ton of carbon in the atmosphere. A typical American has to be responsible for around 20 tonnes of carbon emissions per year. In the analogy of a bathtub, the carbon emissions would be expressed in 20 gal water. Quantity of carbon that is in the atmosphere is determined by the quantity of water used that is in the bathtubs around the world.

Without offsets, the volume of your tub increases by 20 gallons per year. If you purchase offsets, you might believe that the purchase will take 20 Gallons of water from the tub, so that the water level in the tub is exactly the same as the previous year. This is what people think of as they consider “carbon neutrality.”

The reality isn’t so straightforward. You could be purchasing credits that have been created from past actions. Perhaps someone else has taken water from their tub, and you’re able to compensate them for the actions they’ve made. In a way it’s like paying them to remove some of the water from your tub, but the water doesn’t go away. Instead, it is poured into the bathtub of someone else.

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Or, you could provide funds for greenhouse gas reductions that are likely to be coming in the near future. If all goes according to plan, offsets can reduce the volume of water in your tub by 20 gallons however it will take a long time and you’re adding water at the daily rate of 20 gallons each year.

The cause of the confusion isn’t because offset companies are morally confronted. The majority of carbon-reducing projects have large initial expenses and reduce greenhouse gas emissions for ten to twenty, or even fifty years or more. The majority of the reductions in greenhouse gases which are happening this year are the result of investments earlier in the year. The actions that are taken now to lower greenhouse gases will decrease greenhouse gases for a long time into the future.

A variety of “products” are available to customers as offsets with various offset retailers with different mix of products. Certain offset providers let customers to select the type of offsets you purchase. To know what you will get (and what you do not get) when purchasing offsets, it is helpful to examine the various kinds of offsets available on the market.

Carbon Reductions as a result of past actions

Certain carbon credits are traded on what is basically an exchange for financial assets. The U.S. there are two kinds of carbon credits that are traded, Renewable Energy Certificates (RECs or “Green Tags”) and credits that are traded on the Chicago Climate Exchange (CCX). Companies earn these credits by cutting their carbon emissions above set goals (see the sidebar). Once the credits are acquired, they can be traded to companies that haven’t reached their carbon reduction targets or in order to compensate buyers.

What the purchase does If you purchase CCX credit or RECs through an offset service this reduces the amount of credits available to businesses who haven’t met their carbon-reduction requirements and raises their cost. The higher cost offers a greater reward for companies that exceed their requirements, as well as increasing the costs of those who do not meet their obligations. So, your offset purchase will increase the incentive offered to companies that participate with markets like the CCX or REC markets to cut down on emission of carbon. This incentive is an important element in companies that decide for investing in green technology and many companies that participate in these markets depend on the sale of credits to ensure that their investment pays off.

Carbon Reductions in the Future

Certain offset companies use your money to fund projects that lower greenhouse gas emissions in the near future. Projects differ widely however, they include solar and wind power and methane capture as well as trees, and biomass.

What you pay for It will be used to fund projects that, once completed, decrease the quantity of greenhouse gases in the atmosphere. Because many projects to reduce greenhouse gas emissions require substantial upfront expenses, financing can be an obstacle. Offset sales of funds can help clean-energy projects enter the pipeline faster. Forests can be considered “carbon sinks” which reduce the carbon that humans emit into the atmosphere. So should your money be used to fund the planting of trees, it could rid carbon dioxide out of the atmosphere over long durations of time.

If you buy twenty tons of offsets there isn’t an immediate reduction of 20 tons in greenhouse gas emissions. If you are working on a renewable energy venture that has a projected life of 20 years then the twenty tons worth of savings in carbon will typically be spread across the course of the project, so the carbon reduction will be one ton each year for 20 years. Furthermore, the reduction won’t start until the project has been completed, which may be up to a year following the purchase.

If the money is used in the planting of trees the purchase won’t help reduce greenhouse gas emissions immediately since the amount carbon the trees absorb is linked the size of their trees. Small saplings do not have a significant impact on greenhouse gases, but their impact grows with the size of the tree. If you purchase the equivalent of 20 tonnes of offsets to are used to fund a tree planting project It’s likely that atmospheric carbon will fall to less than five tonnes in the first 25 years of trees’ existence.

If you are purchasing offsets towards projects that aim to reduce greenhouse gas emissions in the future, it may be difficult to know if these projects actually result in the greenhouse gas emissions reductions they claim to reduce greenhouse gas emissions. A lot of offset companies provide details on their websites on the projects they fund, and many include a third-party auditing or verification procedures. However, the type of information they provide along with the verification and auditing processes differ significantly from one offset company to another. Furthermore, the calculations of carbon reductions are based on the amount of carbon that could have been released without the project. Moreover, there is no established procedure to determine the baseline emissions or carbon reductions. In the case of tree-planting projects there is also the possibility that trees could be afflicted by disease or that the forest might become burned. Carbon impacts calculations of the forest must take into account these risks.

What’s happening with your bathtub? The money you invest in removing the water from the tub However, the amount of water that is in the bathtub increases. It’s because you’ve invested only a tiny amount of water over a prolonged duration of. Through the time of the year you’ll are able to add more water into the bathtub (through your usual business activities) than the offset investment takes away.


Many offset buyers would like their money to be the difference as to the possibility of a carbon reduction project happening or not. In the context that carbon offsets are based on, the aspect is referred to in the context of “additionality.” The process of determining if a plan is “additional” is not easy. The investments in renewable energy such as energy efficiency, reforestation, and energy efficiency might be added but it’s difficult to discern. Projects are initiated to satisfy a variety of motives and project managers have the incentive to make their projects appear “additional” to ensure that they can draw offset investors. If the concept of additionality is important to you, you should read the details carefully. Some claims are more persuasive than others.

What is a business to do?

If your business is looking to spend money on cutting down on carbon emissions in the air start by making changes to reduce your own carbon footprint. Most of the time, these investments are not just good for the environment, but they can also help you save cash over the course of time. The replacement of incandescent light bulbs by compact fluorescents, utilizing hybrid vehicles to power the fleet of your company and installing buildings control systems to cut down on energy consumption can help reduce the carbon footprint of your business and increase your overall bottom line.

If you’re looking to do more offset purchases are something you should be looking into. Profits from offset purchases will be crucial for funding many projects that cut greenhouse gases. If you decide to purchase offsets, make sure you be sure to study the various offset suppliers. Find out more information on their websites. More transparent and open they’re willing be the more likely their plans and calculations will be viewed with confidence.