The principle behind offsetting is that the carbon emissions generated through one
activity, such as driving or flying, are calculated and then a third party is paid
for an initiative that reduces CO2 in the atmosphere by a similar amount.
For any offset project to have a balancing value it must be originated for the purposes
of creating additional carbon savings or storage. It cannot be a saving or storage
of emissions created in a business as usual activity and sold retrospectively. This
means that existing savings being created by a project that would have been created
by an individual or organization in the course of their every day activities cannot
be sold retrospectively as an offset. Funds for offset projects must be channelled
into additional/new projects that will save or store carbon dioxide. They must be
able to demonstrate that their activity is an additional carbon benefit..
As trees and plants grow, they absorb CO2 from the atmosphere - in many places
around the world this biomass is burnt to provide energy. If the biomass is cut
and cannot or does not re-grow, then it is being harvested unsustainably and may
be described as non-renewable. If this is the case the CO2 released in combustion
makes a net addition to concentrations in the atmosphere. If, however, the plants
grown for energy are replanted, then the process is carbon neutral - the plants
absorb CO2 one year, it is released again when it is burnt, absorbed again the following
year and so on. Under this scenario the biomass is renewable energy.
Is where an investor pays a project developer in return for ownership of the emissions
reductions achieved by that project over a certain time period. Funding may be provided
as capital at the start of a project, as income over its life or as a mixture of
Certified Emissions Reductions (CERs)
CERs are issued by the CDM Executive Board once a project has been validated and
the emissions reductions themselves have been verified. They can then be used by
governments towards reaching their Kyoto targets or by companies to trade in the
EU Emissions Trading Scheme. The purchasing company surrenders the CERs to government
as part of the company's emissions target.
Clean Development Mechanism (CDM)
The CDM allows Annex 1 countries that have targets under the Kyoto Protocol to make
emissions reductions overseas in non Kyoto countries and count those reductions
towards their own legal commitments. A CDM project is issued with Certified Emissions
Reductions, which may then be traded.
Climate Change Levy
This is a business tax on the use of energy which was introduced in 2001. It applies
to electricity, gas, coal and LPG but not to fuels such as oil, diesel and petrol,
which are already taxed under the Hydrocarbon Fuels Act. Large users of energy are
given an 80% reduction in their Climate Change Levy bill, see Climate Change Levy
EU Emissions Trading Scheme
The EUETS started in January 2005. The main participants in the scheme are large
industrial users of energy who are allocated a number of permits by the government.
Companies that reduce emissions below this cap may sell emissions reductions to
those who have exceeded their targets thereby ensuring that emissions reductions
are made in a cost effective manner across the economy.
The term global warming refers to the rise of global temperatures caused by increased
amounts of greenhouse gases in the atmosphere. As the sun’s energy enters
the Earth’s atmosphere, these greenhouse gases block heat reflected from the
Earth’s surface, which would normally travel back into space. The result is
an increase in global temperatures. As the amount of greenhouse gases increase in
the atmosphere, the Earth’s surface becomes warmer.
There are many greenhouse gases and the most abundant is carbon dioxide, which accounts
for approximately 85% of all greenhouse gases. Carbon dioxide is formed when fossil
fuels, like gasoline or diesel are burned. The continued accumulation of carbon
dioxide in the atmosphere will result in a warmer atmosphere resulting in warmer
winters, inundated coastal areas, droughts in arid areas, flooding in wet areas,
lost habitat and species extinction, increased intensities of extreme weather events
such as hurricanes, decreased productivity of agricultural land and more CO2
This is awarded to CDM and voluntary projects that have higher sustainable
development credentials than required by the CDM rules. The Gold Standard was set
up by a group of environmental NGOs who wanted to encourage developers to run high
Greenhouse gases (GHGs) are those that contribute to the 'greenhouse effect', trapping
heat from the sun in the earth's atmosphere. Carbon dioxide is the main greenhouse
gas, but there are a number of others including methane (CH4) and Nitrous Oxide
Following the original Earth Summit in Rio de Janeiro in 1992 the United Nations
Framework Convention on Climate Change (UNFCCC) was introduced and has now been
ratified by over 140 countries. In 1997, at the fourth Conference of the Parties
to the Convention, (often referred to as 'COP 4'), the Kyoto Protocol was signed.
This laid out the targets for the industrialised countries to reduce their greenhouse
The Kyoto Protocol was ratified by the required number of countries in February
2005 and came into force. This means that in the five years between 2008 and 2012
the UK has to reduce its greenhouse gas emissions, on average, to 12.5% below what
they were in 1990. Each country has a different target, but the total emissions
reductions amount to 5.7% below 1990 levels.
UK Emissions Trading Scheme
In 2002 33 companies voluntarily took on a legally binding obligation to reduce
their emissions and began trading under this DEFRA scheme. Companies with Climate
Change Levy Agreements can also buy and sell credits in the scheme to help them
achieve their targets.
These offsets range from well audited to poorly defined emissions savings/storage.
At the most regulated end of the market VERs are certified offsets in waiting, at
the least regulated end of the market they can be theatrical and fail to fully offset
the emissions they have been designed to balance. To ensure that the future carbon
savings are realized all offset projects need to be verifiable and have long-term
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