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A carbon offset represents a reduction or removal of one metric tonne of carbon dioxide (CO2) from the atmosphere that is used to compensate for emissions that occur elsewhere.
Carbon offsets can be generated by the reduction or removal of any greenhouse gas (GHG) known to cause climate change, but carbon dioxide is used as the point of reference because it is the most common GHG in the atmosphere and remains in the climate system for a very long time.
Carbon offsets play an important role in minimizing the carbon footprint of organizations and individuals and should be used to counterbalance emissions that cannot be directly reduced, removed, or avoided.
The first step towards generating a carbon offset is to produce an emission reduction or removal (ERR). Once an ERR has been certified under a reputable standard, it can be issued as a tradable unit and is called a “carbon credit”. When a carbon credit is used to compensate for emissions elsewhere, it is “retired”, i.e., taken out of circulation and can no longer be sold; at this point, a carbon credit becomes a carbon offset.
The carbon credits generated under Verra’s Verified Carbon Standard (VCS) Program are called Verified Carbon Units (VCUs).
Why do we need carbon offsets?
The current climate crisis requires urgent action to reduce greenhouse gas (GHG) emissions, which, by 2030, need to fall by about half from 2010 levels. To achieve this, we need to follow a hierarchy of climate actions:
- Measure – The first step in managing one’s carbon footprint is to measure it.
- Reduce – Companies and individuals then need to reduce their carbon footprint wherever possible, for example by investing in energy efficiency measures, purchasing renewable energy, minimizing air travel, and reducing meat consumption.
- Offset – To counterbalance emissions that cannot, at this point in time, be directly reduced, removed, or avoided, organizations and individuals can purchase carbon offsets to further mitigate their climate impacts.
For example, until it is technically and financially feasible to decarbonize the aviation sector, airlines should minimize emissions as much as possible (e.g., by purchasing sustainable biofuels) and then further reduce their footprint by purchasing carbon offsets.
Offsetting carbon is not the single long-term solution to the climate crisis, but is one of the few and invaluable tools that we have right now to drive real GHG emission reductions and removals as quickly as possible.
Research has shown that companies which buy offsets are generally much more likely to be making internal reductions as well. This indicates that companies using offsets also tend to do the most overall to reduce emissions.
What are carbon markets?
Carbon markets allow entities to trade emissions. Carbon markets exist as 1) compliance markets and 2) as voluntary markets.
- In compliance markets, entities participate to fulfill regulatory requirements. For example, in cap-and-trade systems, entities may only be permitted to produce a certain level of emissions; if they generate more emissions, they may be taxed on the overage or have the option of offsetting it through the purchase of carbon offsets.
- Voluntary markets offer a place for companies, NGOs, and individuals to purchase offsets who wish to minimize their carbon footprint.
Is the voluntary carbon market regulated?
By definition, the voluntary carbon market is not regulated because it occurs outside of government regulation. However, the voluntary carbon market has undergone a significant amount of self-regulation, which has resulted in robust accounting methods and requirements. For example, today all credible greenhouse gas (GHG) programs (such as the VCS Program) are managed by non-profit organizations and require that projects issuing carbon offsets (1) use a robust accounting methodology that is backed up by scientific literature, (2) are evaluated by independent third-party auditors, and (3) list all project documentation on a registry.
The self-regulation in the early 2000s when carbon offsets did not have to meet many requirements, were often not reviewed by independent third-party auditors, were issued on an ex-ante basis (i.e., based on forecasts; for example, a tree planting project would assume all its trees would grow to maturity and claim credits for all the carbon that would be stored in the trees in the future), and when the data and information behind these projects was not accessible. At the time, there were more than 10 “standards” in the market.
Nevertheless, several companies and organizations saw the potential behind the voluntary carbon market and worked to ensure the credibility of the market. For instance, several non-profits launched the Offsets Quality Initiative to address some of the early concerns. In 2008 a number of companies came together to create the International Carbon Reduction and Offsetting Alliance (ICROA), whose goal is to deliver quality assurance in carbon management and offsetting through their member’s adherence to the ICROA Code of Best Practice. These, and other, efforts served to inform what today is broadly accepted as a credible carbon offset.
Today, the voluntary carbon market consists of several credible GHG programs that issue real emission reductions, and buyers can trust the qualities of credits issued by these GHG programs.
The robustness of several GHG programs operating in the voluntary carbon market have also served as models for certain climate change regulations. California’s offset program, which forms part of its cap-and-trade system, is largely modeled off of work done by the Climate Action Reserve. And the governments of Colombia and South Africa allow companies that have carbon tax liabilities to surrender carbon offsets issued by the VCS Program, the Gold Standard, or the Clean Development Mechanism (of the United Nations).
Who are the key players in carbon markets?
Between the conception of a carbon offset project to the retirement of the credit, multiple players interact to ensure greenhouse gasses are reduced or removed from the atmosphere.
Standards issue the rules and requirements for greenhouse gas crediting programs. They review and run public consultations for these rules and methodologies and ultimately approve them. They also review initial project design documents and review and approve the verification of carbon credits.
Project Developers are entities that manage a project which reduces GHG emissions. They select a methodology, or protocol, and draft a Project Design Document.
Validation/Verification Bodies (VVBs) undertake validation of the project design document, i.e., assesses whether the project design meets the standard’s criteria and is designed according to the methodology. VVBs are critical to ensuring the integrity of the projects registered with the standard’s program. After a project implements its activities and monitors progress – documented in monitoring reports – a VVB undertakes verification, i.e., confirms that all emission reductions or removals are quantified according to the standard’s requirements. The emission reductions and removals are then issued as carbon credits and released for trading. Each credit is assigned a serial number in a registry.
Buyers or intermediaries (brokers or retailers) buy credits from projects. When a buyer uses credit as an offset, it is removed from the market and retired.
What is additionality?
Additionality means that the reduction or removal of a greenhouse gas (GHG) emission arises from an activity that would not have occurred without the revenue from the sale of carbon credits. A first and critical step in this context is to determine that a project activity is not required by law or regulation.
All VCS-approved methodologies must include a detailed approach for determining the additionality of a specific project activity. The independent validation/verification body (VVB) audits the demonstration of additionality to conclude whether the project meets VCS rules and requirements.
Who audits Verra projects?
All VCS projects are audited by independent third-party auditors, whose work is overseen by Verra, and then by Verra itself. These third-party auditors (referred to as validation/verification body, or VVBs).
- validate the project design (i.e., assess if the project description meets the requirements of the VCS Program), and
- verify the emission reductions or removals achieved (i.e., audit a project’s monitoring report to determine whether the emission reductions and/or removals have been quantified according to the respective requirements).
The reports produced by the VVBs are then reviewed by Verra and finalized when all outstanding issues have been resolved.
What are the standards?
Carbon standards assure the credibility and high quality of carbon credits issued for trading. Projects seeking to get certified in a reputable standard program follow a rigorous assessment process to generate carbon offsets that are additional, accurately calculated, permanent, not claimed by another entity, and have not caused any social or environmental harm. Standards ensure that the carbon reductions or removals claimed by projects actually happen.
Standards play a critical role in the voluntary carbon market, which is not regulated by any government agencies. It is worth noting that voluntary carbon standards are now operational in various compliance markets to help them achieve their climate goals (e.g., Colombian and South African domestic carbon markets).
The Verified Carbon Standard (VCS) Program is the world’s leading carbon standard. Verra periodically updates the rules and requirements for the Verified Carbon Standard (VCS) Program to expand the program’s scope and to ensure it continues to reflect the latest science and technology. For example, as of 2019 the VCS disallows large-scale grid-connected renewable energy projects in most cases.
What is the Vera Registry?
The Verra Registry is the cornerstone for the implementation of Verra’s standards and programs. It is the central repository for all information and documentation relating to Verra projects and units. The Verra Registry also ensures the uniqueness of projects and credits in the system.
Any entity wishing to register projects or issue, retire, or transfer credits must have an active Verra Registry account. Account applications may be submitted by clicking on the “Open New Account” button (top right corner of the Verra Registry site). Note that all registry account applicants will be subject to strict “Know-Your-Customer” background checks.
The Terms of Use (PDF) set out the terms on which Verra offers to make the Verra Registry (Registry) available to the user.
The VCS under Corsia
Verified Carbon Units (VCUs) are eligible credits for compliance with obligations under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
The International Civil Aviation Organization (ICAO) implemented CORSIA to keep global net CO2 emissions from international aviation at 2020 levels (so-called “carbon neutral growth from 2020”). This is achieved by offsetting any emissions above 2020 levels that remain after the use of sustainable aviation fuels and implementation of technical and operational improvements in the sector. The CORSIA program has established rules for determining the sector’s requirements for offsetting and allocating the offsetting obligation to airlines.
Obligations under the CORSIA program are effective for 2021 to 2035. Over 100 countries are participating in the current, voluntary pilot phase and this participation is expected to grow until 2027 when participation becomes mandatory for most countries in the ICAO framework.
Most project types in the VCS Program are eligible to supply VCUs into CORSIA. As per the current scope of eligible VCS projects set by ICAO, the crediting period must have started on 1 January 2016 onwards and the mitigation must have occurred up until 31 December 2020. ICAO will further consider the eligibility of mitigation occurring from 2021 onwards through VCS projects.
Project proponents may request a CORSIA label be applied to eligible VCUs, either as part of the issuance process or by specific request thereafter. This CORSIA label will be displayed on the Verra Registry to indicate which VCUs may be retired for CORSIA purposes. CORSIA-labeled VCUs are searchable in the Verra Registry under the “Additional Certifications” field.
The VCS under Corsia
Projects have the option to generate SD VISta assets that represent specific sustainable development benefits. Projects that generate SD VISta assets must use an approved SD VISta asset methodology to quantify the specific social or environmental benefits that will be issued as assets.
SD VISta asset methodologies set out the assumptions, parameters, and procedures for measuring, monitoring, and reporting the specific sustainable development benefits. They also provide detailed procedures for quantifying the real environmental and/or social benefits of the project and provide guidance to help project developers determine project boundaries, set baseline scenarios, monitor the benefits, and ultimately quantify and issue the sustainable development benefits as SD VISta assets.
