Carbon Offset

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Carbon offset is a method of controlling carbon dioxide emissions by counteracting emissions with another action that reduces carbon dioxide in the atmosphere. There are a variety of means to reduce carbon dioxide in the atmosphere such as planting trees or using carbon capture alternatives. Organizations decide to buy carbon offsets when reducing emissions from their respective ventures are more expensive and difficult than paying to reduce carbon dioxide in the atmosphere elsewhere.

Carbon offsets emerge from government regulations usually in the form of cap-and-trade schemes or as a voluntary system. A voluntary system develops when carbon emitters in a market begin standardizing the use of carbon offsets out of corporate responsibility and pressure from consumers.

In the United States, the majority of carbon offsets are voluntary, but there are some cap-and-trade systems for different sectors. Congress has considered a broad national cap-and-trade for all emissions in the past, but currently, the Congress has only enacted cap-and-trade systems for a few specific areas such as sulfur dioxide. Many states also have similar systems for specific sectors such as energy. California has an economy-wide cap-and-trade system that applies to 85% of emission generating activities within the state, and this system gradually reduces the emissions cap until being 80% below 1990 emission levels by 2050. 

Globally, most governments use cap-and-trade systems such as the EU cap-and-trade system (EU ETS) which limits the emissions on 45% of emission generating activities across the whole EU.

[Last updated in June of 2021 by the Wex Definitions Team