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.

Companies that use project reductions as offsets are advised to quantify them by using a project-based quantification method (e.g., the one provided for under the Project Protocol). Such a project-based quantification method encourages transparency and includes minimum reporting requirements to allow third-party users to evaluate the quantification of the GHG reductions. The total GHG reductions as a result of certain project activities are calculated as the sum of primary effects (intentional changes in GHG emissions as a result of the activities) and significant secondary effects (unintentional changes in GHG emissions as a result of the activities).

For additional details, refer to the Project Protocol on the GHG Protocol organization’s Web site.