What is a carbon offset?
A carbon offset is a tradable commodity generated by a voluntary action that avoids or reduces the emission of one metric ton of carbon dioxide (CO2) gas into the Earth’s atmosphere.
What is a “cap-and-trade” system?
A cap-and-trade system is a market-based solution designed to mitigate global climate change. Economy-wide CO2 emissions are capped and a target is set to reduce CO2 to a specified level by a certain date in the future. CO2 pollution permits, known as emission allowances, are then created by the government and are sold or given to industries, such as power plants and oil refineries, that are regulated by the cap. Since current emissions generally exceed the cap, industries must reduce annual emissions to meet the target.
How long does it take before a project is registered and approved?
Finite Carbon estimates a six- to eight-month process from initiation to the sale of offsets, depending on the season in which the process is initiated.
What happens if the forest is destroyed because of an unforeseen issue, such as fire or disease?
As offsets are issued to a landowner, a percentage is placed into a mandatory buffer pool. If a property is subject to a natural disaster, such as fire or disease, offsets previously sold are replaced by the buffer pool. In this way, landowners are insured against loss and, thus, not responsible for replacing these offsets.
What happens if the landowner wants to voluntarily terminate the project?
The landowner may terminate the project at any time but would be required to replace the offsets that were already sold. Offsets are replaced at a ratio determined by the length of the project between 1.4 to 1.0 and 1.0 to 1.0.
What determines if a property will qualify as a carbon project?
Among the criteria are number of acres, geographic location, management approach, growth rates, topography, local statutes, timber species, local climate, ownership structure, and carbon stocks.
Who buys carbon offsets?
Many financial companies and industrial emitters are currently purchasing carbon offsets for future compliance in existing regional cap-and-trade systems and in anticipation of a federal cap-and-trade program. In addition, many corporations in the United States are also purchasing offsets as part of their corporate social responsibility (aka “CSR”) programs and “green” marketing.
To continue receiving forest carbon offsets the project requires ongoing monitoring and verification, as well as periodic re-inventory of the forest.
How large is the market for carbon offsets? How large is it expected to be?
The current voluntary market, including pre-compliance buyers, is already worth more than $300 million per year and is expected to experience significant growth during the next several decades. The California Air Resources Board is expected to need 230 million offsets between 2012 and 2020. Bloomberg, Barclays and Reuters all estimate that the value of a California Carbon Offset (CCO) will average approximately $30/CCO during this same period.