A carbon offset is a financial instrument that represents the reduction in greenhouse gas emissions. Carbon offsets are measured in metric tons of carbon dioxide equivalent. One carbon offset is equal to the reduction of one metric ton of carbon dioxide, or its equivalent in some other six primary categories of greenhouse gases.
Most carbon offsets are purchased by a company or a government to comply with limits on the total amount of carbon dioxide they are allowed to emit. Another reason carbon offsets are purchased is for individuals, companies, or governments to mitigate their own greenhouse gas emissions from electricity use, transportation, and other sources.
Offsets are typically generated from emission-reducing projects. Of these types of projects, the most common type is renewable energy, such as hydro-powered dams, windmills, or geothermal land sites. Other notable projects for energy efficiency are the destruction of agricultural byproducts and the destruction of landfill methane, both of which directly improve the quality of the air that we breathe.