8.4 Project-Based Reductions and Offsets/Credits

An entity may use GHG mitigation projects to compensate for GHG emissions elsewhere (e.g., to meet a GHG target or cap). GHG reductions that result from mitigation projects include credits as well as offsets. Carbon offsets are created by a reporting company’s removal of carbon from the atmosphere as part of its operations, and carbon credits are transferable instruments (usually certified by a government or an independent certification body) that a reporting company can purchase to offset its own GHG emissions. An example of a credit is when a reporting company buys a carbon credit (often from the government or another third party) and uses that credit to obtain permission to generate additional CO2 emissions. Offsets are also created when a reporting company decreases GHG emissions to make up for, or “offset,” GHG emissions that occur elsewhere. For example, a reporting company may switch one of its power sources to a form of renewable energy (e.g., solar energy), which would reduce the reporting company’s GHG emissions. These offsets can also be turned into credits and sold between companies to offset other GHG emissions, and they are often used to help reporting companies meet GHG targets. Under the Corporate Standard, these credits and offsets affect the calculation of GHG emissions and help counter the inventory of GHG emissions relative to a base year.