Most credits are generated through investment in specific emission reduction projects. Although not an exhaustive list, the most common projects to invest in are bio energy and clean non-emitting electricity generation (for example, harnessing wind, solar, and hydro power). These projects not only generate credits but provide investment in renewable sources that reduce our long-term reliance on fossil fuels. As well as new technologies, maintaining the planet’s ability to absorb CO2 through nature is also important. For this reason forest-based carbon sequestration projects are also common and play an important role in tackling climate change, although some have doubts about the permanent carbon storage of such projects. Where a sequestration project is offered, look for information on how the forest is managed and risks are addressed. As a general rule, look for projects that provide evidence on how they contribute to sustainable development and whether they provide a genuine “additional” benefit (in other words, they finance projects that would otherwise have not taken place). This task is usually carried out for you where a project complies with a recognised standard. Also, you can also check to see whether any advice or information is provided by from local/national government.
Some companies and sectors have their emissions regulated and can be subject to a cap. Each regulated entity has a carbon allowance equivalent to the cap. Some offset providers offer the consumer the ability to purchase and cancel these allowances, forcing the regulated entity to make additional emission reductions to meet their cap.
[Ref. 1] Clean Development Mechanism allows emission-reduction (or emission removal) projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.
The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets. The projects must qualify through a rigorous and public registration and issuance process designed to ensure real, measurable and verifiable emission reductions that are additional to what would have occurred without the project. The mechanism is overseen by the CDM Executive Board, answerable ultimately to the countries that have ratified the Kyoto Protocol. UNFCCC website http://cdm.unfccc.int/about/index.html
Joint Implementation allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target.
In general, the price of an offset credit is no guarantee of its quality. The price of a project credit is determined by the investment required to generate a carbon saving, and the administration cost. Project investment will vary by location and the nature of the project, even if the quality is the same. Administration costs also vary. Some projects claim to invest 100% of your money directly in projects, but somewhere between 80-90% is typical. In practice, there may be little difference as some schemes attribute overheads and verification costs directly to the project.
Like the carbon markets generally, prices can and do fluctuate. This makes it difficult to provide accurate information on the average price of carbon offset credits at any moment in time. Some indicative information can be found by looking at the trends in the carbon markets. Various carbon markets are in operation, some are mandatory like the European Union (EU) emissions trading scheme and others are on a voluntary basis.