07/25/2023
How does a Carbon Offset work? Like any market, the carbon market is based on supply and demand. Households and businesses want to donate money to reduce carbon emissions. This is measured in tons, so you could say they want to buy negative tons of carbon.
Step 1
Creating a carbon offset requires a lot of technical knowledge and expertise. The Project Developer uses this knowledge and expertise to write a detailed project description document - sometimes over 100 pages long - detailing the science behind the carbon project. The Project Developer is often a consultant brought in by the Project Owner to complete the carbon project.
Step 2
The Project Owner is often someone like a landowner that takes responsibility for the project over decades or even a century. They work with the Project Developer to implement a project, like planting trees, and submit the project description document to the Registry.
Step 3
The registry is often an international nonprofit - like Verra, Gold Standard, or American Carbon Registry - that maintains trust in the entire carbon market. How? They develop methodologies with input from the public describing how to implement carbon projects.
They evaluate specific project description documents and determine whether or not the project meets their criteria. They also maintain a public registry of all the carbon offsets issued. If the project meets their criteria then they issue carbon offsets to the Project Owner and Project Developer. Each offset represents one ton of CO2e avoided or removed from the atmosphere.
Step 4
The Project Owner and Project Developer often work with a Broker. This is an organization that has relationships with Buyers like large companies, small businesses, or households. The Broker reduces risk for the project and secures financing to make the whole process work.
Step 5
Finally, the Buyer purchases an offset. Some purchase offsets to trade like stocks, but many purchase them to make an environmental claim like being carbon positive. To make such a claim, the Buyer purchases carbon offsets and retires them from circulation. This way, those particular offsets can’t be used by others.