Carbon offsets and emissions trading schemes are two ways in which business can make steps toward reducing their carbon footprint without investing considerable capital in new equipment or processes.

In order to take part in either scheme to improve environmental sustainability of business, the carbon footprint associated with production of the goods or service must be calculated.

Carbon Offsets

By purchasing carbon offsets, a business is investing in projects which reduce greenhouse gas emissions or otherwise remove carbon from the atmosphere. Carbon offsets can be considered to be a form of compensation to the environment for the environmental harm the business causes. The money raised by business purchasing carbon offsets is invested in environmentally friendly activities including renewable energy projects, reforestation and energy efficiency projects.

There is no limit to the amount of carbon offsets that a business can purchase – it may choose to offset all of its business activities or just offset the carbon used in specific activities such as air travel or pollution caused by manufacturing. Carbon offsets are sold by carbon offset providers and the United Nations through the United Nations Framework Convention on Climate Change has a database of carbon offset providers and buyers, known as CDM Bazaar.

Emissions Trading Schemes

Unlike carbon offsets, which are voluntary purchases by business, emissions trading schemes are government regulated schemes, predominately working on “cap and trade” systems.  Designed to reduce the greenhouse gas in the environment, emissions trading schemes target the largest contributors to environmental pollution. A cap is placed on the total amount of pollution allowed in business operations and businesses which will exceed this cap have the choice of increasing environmentally sustainable production methods or purchasing emissions allowances in an open market trade.

In an emissions trading scheme, each business is given an allowance, if the business’ greenhouse gas emissions over the whole year will total more than the allowance, the business has a choice of either adopting practices which will reduce emissions or purchasing unused allowances from another business which has reduced its emissions levels to below the allowance level. The aim is that regardless of whether a business reduces its own emissions or chooses to purchase unused allowances from other business, emission reductions will occur and they will be at the cheapest possible rate.

The largest emissions trading scheme in the world is the European Union’s Emissions Trading Scheme, which came into effect in 2005. Under this scheme, member countries of the European Union are required to allocate emissions allowances to companies in their country. Currently in the United Kingdom, one emission allowance is equivalent to a tonne of carbon dioxide. The aim of the European Union’s Emissions Trading Scheme is to business related emissions to the levels set out in the Kyoto Protocol.

Both carbon offsets and emission trading schemes aim to reduce the environmental impact of business and be good corporate citizens. However, the practice of using carbon offsets as a method of showing environmental sustainability concerns has been criticised by environmental organisations, as not going far enough to address the environmental damage caused by business operations.