Carbon Offsets

Carbon offsets are an integral part in the regulation of greenhouse gas production and emission. A carbon offset is defined as the right to produce one metric ton of carbon dioxide (or carbon dioxide equivalent)...what is more commonly known as greenhouse gases. In a cap-and-trade regulatory environment, surplus offsets can be traded amongst emitters in much the same way as stocks, bonds, or commodities are traded in the open market.

Offsets can also be obtained by investing in "green" technology, and thus offset the production of greenhouse gases. In other words, if a company invests in technology to reduce or consume greenhouse gases, they are given offsets. Unfortunately, these offsets can then be used as a permit to actually increase greenhouse gas emissions, even though the company has, in effect, remained carbon neutral.

In some instances, the granting of offsets are clearly meant as a "carrot and stick" approach to end emission. For example, suppose an industry is involved in illegal creation of greenhouse gases. It then will put in a process to end the practice and claim that they are deserving of carbon credits because they have reduced emissions. They can then trade the offsets for cash, in essence, getting paid to stop the illegal emission... all in all, a form of high-tech bribery.

Other issues arise from such things as the issuance of worthless offsets (i.e. the seller or purchaser has no intent to change their emissions) or the granting of offsets where one technology is put in place at the sacrifice of another. The building of a factory to sequester greenhouse gases and in the process cutting down a forest and burning the trees for fuel would be one example.

The future of climate change and greenhouse gas regulation is clearly focused on a regulatory scheme by which all parties can profit and succeed. Despite its many flaws, the theory of carbon offset trading appears to a viable and effective method of maintaining economic prosperity while regulating greenhouse gases. However, it remains to be seen whether governments around the world can provide the oversight and regulation to make it happen.