Let’s start with the “what”. A carbon offset is a reduction in emissions of greenhouse gases made in order to compensate for emissions made elsewhere. There are currently two different carbon offsetting schemes: The EU compliance market, and the UN Clean Development Mechanism.

In the EU mandatory compliance market, governments and industries in the union have to buy carbon offsets to comply with the caps on the total amount of CO2 they are allowed to emit. The market has a fixed number of carbon offsets available. To reduce the total EU greenhouse gas emission, that number is gradually decreased every year. Less carbon offsets means that those available for purchase will become more expensive. In turn, this means that it will be increasingly more expensive to pollute within the EU. At some point it will then be sensible, not just from an environmentally friendly point of view, but also from an economical perspective, to replace polluting industrial processes with greener ones.

The other carbon offset market, the UN Clean Development Mechanism (CDM) is voluntary. Using the CDM, individuals, companies, and governments can purchase carbon offsets to mitigate their own greenhouse gas emissions. The money raised from the sale of carbon offsets is used to fund environmentally friendly projects around the world. As an example, if a German citizen purchases carbon offsets to compensate for greenhouse gas emissions caused by personal air travel, that money can potentially be used to build a solar power plant in India.

Does The EU Market Actually work?

Since the EU compliance market opened in 2005, its ability to reduce greenhouse gas emissions has been severely limited. In the first trading period, from 2005 to 2007, the number of available carbon offsets was much higher than the demand. Basic economic theory kicked into practice, and the result was that the carbon offset price plummeted, and the bottom fell out of the market. This has, to some degree, also been the case for the subsequent trading periods. The price of carbon offsets has decreased, which unfortunately defeats the purpose of the entire system.

Now, however, there are indications that this trend is changing. According to Carbon Tracker, the price of carbon offsets on the EU compliance market might double by 2021. Carbon Tracker is estimating that the average carbon offset price will reach €35-€40 per tonne in the 2019-2023 period. This could accelerate the closure of coal-fueled power plants across Europe, according to the report.

More than a decade after it was launched, it looks like the EU compliance market actually starts doing its job.

Does the UN CDM Actually Work?

The EU carbon offset compliance market might sound complicated. But it’s a walk in the park compared to the baffling chaos that is the UN Clean Development Mechanism.

Unlike the EU market, the CDM does not provide a limited number of carbon offsets. Instead, the CDM tries to facilitate the funding of environmentally friendly projects around the world, primarily in developing countries. It’s often cheaper to reduce greenhouse gas emissions in developing countries than in developed countries.

But how do someone that purchase a CDM carbon offset know that the money is actually being used as advertised? There are several ways to purchase CDM carbon offsets. The safest way is probably to do it directly from the UN. There is a UN website where you can browse certified projects - of which the number is surprisingly small - and buy carbon offsets.

CDM And The Risk of Scams

There is also a wide range of third party sites that acts as CDM agents. The problem with these sites is that it’s hard to verify that the money is used on sensible projects. The worst case scenario is that the site is a scam. The money goes straight into the trickster’s pockets. To prevent CDM scams, and to make sure that the projects that receive the money actually has a positive impact on greenhouse gas emissions, multiple mechanism exists.

One is The Gold Standard, which tries to quantify, certify and maximize impact toward climate security and sustainable development. If you support a project certified by Gold Standard through CDM carbon offsets, it’s more likely that your money has an impact, than if the project is not certified.

Many CDM agent sites put the Gold Standard certificates on their sites as proof that their projects are legitimate. They also post invoices on their sites, and claim “full transparency”. But how hard is it to fake an invoice? It’s not hard at all.

What the CDM needs is a central point to funnel all the CDM funds through. This will mean more administrative overhead. But it will enable the CDM to create reports showing which agents purchased carbon offsets funding particular projects. We’ll get actual full transparency, and CDM scamming would become much harder.

Part of the Solution?

The most efficient for you to reduce greenhouse gas emissions is not to purchase carbon offsets. Instead, you should reduce your own emission footprint: Fly less. Eat less meat. Use public transportation or a bike instead of your car. Choose environmental friendly products over the polluting alternative - or even better, simply buy less stuff that you probably don’t need.

But in addition to that, you can purchase carbon offsets. If you do, using the EU compliance market seems like the most efficient way. Because of the limited number of carbon offsets available, the ones you buy will be removed from the market. The price of the remaining carbon offsets increase, making it more expensive to pollute. This accelerates the speed of replacing polluting industry across the EU.

Now the question is; how do private individuals buy carbon offsets from the EU compliance market? After a bit of searching on the internet, I can’t really find any information about it.