Glossary of Carbon Market Terms

Carbon Offsets

Carbon offsets are any activity that compensates for the emission of greenhouse gases (GHGs). Forestry activities can include forest conservation, reforestation or afforestation, and improving forest management (see eligible activities section below). These activities represent natural climate solutions that may be eligible for carbon credits. Carbon offset projects are issued carbon credits for the amount of carbon dioxide equivalent (CO2e) the project provides. Typically, one carbon credit is issued for one metric ton of CO2e.

Regulatory vs. Voluntary Markets

There are two distinct types of carbon markets; voluntary and regulatory markets.  In the infancy of forest carbon market discussion decades ago it was envisioned that a national regulated marketplace would eventually come into existence that would serve as the go-to for project inclusion.  This never materialized, and an increasingly confusing array of both regulatory and voluntary market options exist for landowners.  Regulatory (aka compliance) markets exist where laws or regulations are enacted that limit or cap the quantity of GHG emissions people and firms can emit.  In the United States, these are limited to the California Cap and Trade Program, and the Regional Greenhouse Gas Initiative (RGGI) which includes a number of states in the east.  There are additional international compliance markets that recognize offsets generated in the United States.

In the place of a solid national regulatory market, there has been significant growth in voluntary markets which are populated by individuals or companies interested in purchasing offsets for their emissions or to demonstrate corporate social responsibility.  Due to being external to any regulated marketplace, voluntary contracts have much more variability in price, conditions, duration, and other aspects.  Increased focus on corporate environmental and social responsibility around climate change will only lead to increased voluntary market opportunities in the future.

Protocols and Standards

Protocols and standards define the “nuts and bolts” of how forest carbon offset projects must be developed in order to be transacted on an exchange. These “rules of the game” help provide consistency and credibility for carbon projects by addressing many