Summary: The phrase 'carbon offset' describes the process whereby individuals, businesses or governments purchase 'credits' generated from projects that claim to reduce greenhouse gas emissions. The idea is that the removal of greenhouse gases counterbalances emissions from other sources.

Consumers are being misled by claims that offset companies can make them 'carbon neutral'. The scope for dubious projects is compounded in Australia by the absence of a mandatory accreditation scheme. Overseas, standards are tighter. The Gold Standard, developed by 50 non-government organisations, is the most rigorous while the Federal Government's Greenhouse Friendly program and the NSW Government's Greenhouse Gas Abatement Scheme are much weaker.

The potential for carbon offsets to reduce greenhouse gas emissions is limited. In fact, the most popular type of carbon offset in Australia, tree planting, is also the least effective for dealing with climate change. The evidence indicates that offsets from renewable energy are the most effective, followed by those from energy efficiency projects, with forestry projects ranked last.

Forestry projects cannot guarantee the permanent reduction of greenhouse gas emissions because sooner or later the forest will be felled, burned or destroyed. This problem is likely to be exacerbated as the climate changes in response to global warming.

There are strong grounds for excluding forestry-based offsets from an emissions trading system in Australia, or at least placing restrictions on their use. Outside Australia, the Kyoto Protocol and the US Regional Greenhouse Gas Initiative have placed restrictions on forestry based offsets, and the European Union's scheme has excluded them entirely. If an Australian scheme is to be integrated with others abroad, similar restrictions will need to be put in place.

In short, while some types of offsets can act as an effective means to address greenhouse gas emissions, they should not be seen as a license to pollute or as a means to continue unsustainable practices. Too often, offsets are being used by governments and business as a smokescreen to distract people from the need to cut emissions. By diverting people's funds and attention to projects that are unlikely to reduce emissions significantly, some offset schemes could ultimately do more harm than good.