Carbon Offset Definition

A carbon offset is a financial instrument aimed at reducing greenhouse gas emissions. Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e). One carbon offset represents the reduction of one metric ton of carbon dioxide, or its equivalent in other greenhouse gases.

A CO2e carbon offset represents a combination of 6 primary greenhouse gases (GHGs) caused by human activity and subject to international regulation (reference:

  1. Carbon Dioxide (CO2) is the main contributor to climate change through burning of fossil fuels like coal, oil and gas, and as a result of deforestation and other land-use changes. 
  2. Methane (CH4) is produced naturally when vegetation burns or rots in the absence of oxygen, and is released by cattle farming, landfills, and the production of oil and gas. 
  3. Nitrous Oxide (N2O) is released by chemical fertilizers and burning fossil fuels. 
  4. Hydrofluorocarbons (HFCs) are chemical by-products, and are also used in some types of refrigeration equipment. 
  5. Perfluorocarbons (PFCs) are manufactured chemical compounds used for a variety of medical and other applications. 
  6. Sulphur Hexafluoride (SF6) is a manufactured compound used in some specialized applications, like insulation for high-voltage electrical equipment.

How Do Carbon Offsets Work?

Carbon offsets are an innovative, market-based way to take responsibility for the carbon footprint of an individual or organization after efforts have been made to reduce emissions. Carbon offsets are simply credits for reductions made at another location, such as wind farms that create renewable energy and reduce the need for conventional sources of electricity like coal-burning generators. They are also referred to as “carbon credits”.

Any individual or organization can purchase carbon offsets and use them to balance their own emissions. If you purchase enough offsets to balance all of your emissions remaining after reduction efforts, your net emissions will be zero. This is often referred to as becoming carbon neutral.

Carbon offsets are quantified and sold in metric tonnes of carbon dioxide equivalent (CO2e). Buying one tonne of carbon offsets means that if the carbon offset is high quality, there will be one less tonne of carbon dioxide (or an amount of other greenhouse gases that would produce an equivalent effect) in the atmosphere than there otherwise would have been. Here are some examples of typical offset projects (reference: “Purchasing Carbon Offsets: A Guide for Canadian Consumers, Businesses, and Organizations”, David Suzuki Foundation & Pembina Institute, 2009).

Typical Carbon Offsets Quantities

  • 1.2 MW wind farm in Madagascar = 1,790 tonnes of CO2e reduced/year
  • 4.5 MW biomass energy plant in India = 10,550 tonnes of CO2e reduced/year
  • Switching fuels to heat a commercial greenhouse in BC = 1,600 tonnes of CO2e reduced/year

The most common offset projects are renewable energy such as wind farms, biomass energy, and hydroelectric dams. Others include energy efficiency, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry. The most popular carbon offset projects from a corporate perspective are energy efficiency and wind turbine projects.