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To help comprehend this topic, it's suggested consulting information collected at Carbon Central Network websites and Wikipedia... http://en.wikipedia.org/wiki/Carbon_offset; to wit:

A carbon offset is a reduction in emissions of carbon or greenhouse gases made in order to compensate for or to offset an emission made elsewhere.

Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may represent six primary categories of greenhouse gases. One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.

There are two markets for carbon offsets.

In the larger, compliance market, companies, governments, or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. In 2006, about $5.5 billion of carbon offsets were purchased in the compliance market, representing about 1.6 billion metric tons of CO2e reductions.

In the much smaller, voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. For example, an individual might purchase carbon offsets to compensate for the greenhouse gas emissions caused by personal air travel. Many companies offer carbon offsets as an up-sell during the sales process so that customers can mitigate the emissions related with their product or service purchase (such as offsetting emissions related to a vacation flight, car rental, hotel stay, consumer good, etc.). In 2008, about $705 million of carbon offsets were purchased in the voluntary market, representing about 123.4 million metric tons of CO2e reductions.

Offsets are typically achieved through financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects. Some of the most popular carbon offset projects from a corporate perspective are energy efficiency and wind turbine projects.

Carbon offsetting has gained some appeal and momentum mainly among consumers in western countries who have become aware and concerned about the potentially negative environmental effects of energy-intensive lifestyles and economies. The Kyoto Protocol has sanctioned offsets as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established the Clean Development Mechanism (CDM), which validates and measures projects to ensure they produce authentic benefits and are genuinely "additional" activities that would not otherwise have been undertaken. Organizations that are unable to meet their emissions quota can offset their emissions by buying CDM-approved Certified Emissions Reductions.

Offsets may be cheaper or more convenient alternatives to reducing one's own fossil-fuel consumption. However, some critics object to carbon offsets, and question the benefits of certain types of offsets.

Offsets are viewed as an important policy tool to maintain stable economies. One of the hidden dangers of climate change policy is unequal prices of carbon in the economy, which can cause economic collateral damage if production flows to regions or industries that have a lower price of carbon - unless carbon can be purchased from that area, which offsets effectively permit, equalizing the price.

Carbon offset markets

Global market

In 2009, 8.2 billion metric tons of carbon dioxide equivalent changed hands worldwide, up 68% from 2008, according to the study by carbon-market research firm Point Carbon, of Washington and Oslo. But at EUR94 billion, or about $135 billion, the market's value was nearly unchanged compared with 2008, with world carbon prices averaging EUR11.40 a ton, down about 40% from the previous year, according to the study. The World Bank's "State and Trends of the Carbon Market 2010"[20] put the overall value of the market at $144 billion, but found that a significant part of this figure resulted from manipulation of a VAT loophole.

E.U. market

The global carbon market is dominated by the European Union, where companies that emit greenhouse gases are required to cut their emissions or buy pollution allowances or carbon credits from the market, under the European Union Emission Trading Scheme (EU ETS). Europe, which has seen volatile carbon prices due to fluctuations in energy prices and supply and demand, will continue to dominate the global carbon market for another few years, as the U.S. and China—the world's top polluters—have yet to establish mandatory emission-reduction policies.

U.S. market

On the whole, the U.S. market remains primarily a voluntary market, but multiple cap and trade regimes are either fully implemented or near-imminent at the regional level. The first mandatory, market-based cap-and-trade program to cut CO2 in the U.S., called the Regional Greenhouse Gas Initiative (RGGI), kicked into gear in Northeastern states in 2009, growing nearly tenfold to $2.5 billion, according to Point Carbon. Western Climate Initiative (WCI) -- a regional cap-and-trade program including seven western states (California notably among them) and four Canadian provinces — has established a regional target for reducing heat-trapping emissions of 15 percent below 2005 levels by 2020.

Voluntary market

Participants

A wide range of participants are involved in the voluntary market, including providers of different types of offsets, developers of quality assurance mechanisms, third party verifiers, and consumers who purchase offsets from domestic or international providers. Suppliers include for-profit companies, governments, colleges and universities, and other organizations.

Motivations

According to industry analyst Ecosystem Marketplace, the voluntary markets present the opportunity for citizen consumer action, as well as an alternative source of carbon finance and an incubator for carbon market innovation. In their survey of voluntary markets, data has shown that “Corporate Social Responsibility” and “Public Relations/Branding” are clearly in first place among motivations for voluntary offset purchases, with evidence indicating that companies seek to offset emissions "for goodwill, both of the general public and their investors." In addition, regarding market composition, research indicates: "Though many analysts perceive pre-compliance buying as a dominant driving force in the voluntary market, the results of our survey have repeatedly indicated that precompliance motives (as indicated by “investment/resale” and “anticipation of regulation”) remain secondary to those of the pure voluntary market (companies/individuals offsetting their emissions)."

Pre-compliance & trading

The other main category of buyers on the voluntary markets are those engaged in pre-compliance and/or trading. Those purchasing offsets for pre-compliance purposes are doing so with the expectation, or as a hedge against the possibility, of future mandatory cap and trade regulations. As a mandatory cap would sharply increase the price of offsets, firms—especially those with large carbon footprints and the corresponding financial exposure to regulation—make the decision to acquire offsets in advance at what are expected to be lower prices. The trading market in offsets in general resembles the trade in other commodities markets, with financial professionals including hedge funds and desks at major investment banks, taking positions in the hopes of buying cheap and selling dear, with their motivation typically short or medium term financial gain.

Retail

Multiple players in the retail market have offerings that enable consumers and businesses to calculate their carbon footprint, most commonly through a web-based interface including a calculator or questionnaire, and sell them offsets in the amount of that footprint. In addition many companies selling products and services, especially carbon-intensive ones such as airline travel, offer options to bundle a proportional offsetting amount of carbon credits with each transaction.

Suppliers of voluntary offsets operate under both nonprofit and social enterprise models, or a blended approach sometimes referred to as triple bottom line. Other suppliers include broader environmentally focused organizations with website subsections or initiatives that enable retail voluntary offset purchases by members, and government created projects.

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Definitions:

The World Resources Institute defines a carbon offset as "a unit of carbon dioxide-equivalent (CO2e) that is reduced, avoided, or sequestered to compensate for emissions occurring elsewhere".

The Collins English Dictionary defines a carbon offset as "a compensatory measure made by an individual or company for carbon emissions, usually through sponsoring activities or projects which increase carbon dioxide absorption, such as tree planting."

The Environment Protection Authority of Victoria (Australia) defines a carbon offset as: "a monetary investment in a project or activity elsewhere that abates greenhouse gas (GHG) emissions or sequesters carbon from the atmosphere that is used to compensate for GHG emissions from your own activities. Offsets can be bought by a business or individual in the voluntary market (or within a trading scheme), a carbon offset usually represents one tonne of CO2-e".

The Stockholm Environment Institute defines a carbon offset as "a credit for negating or diminishing the impact of emitting a ton of carbon dioxide by paying someone else to absorb or avoid the release of a ton of CO2 elsewhere".

The University of Oxford Environmental Change Institute defines a carbon offset as "mechanism whereby individuals and corporations pay for reductions elsewhere in order to offset their own emissions."

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Helpful links about Carbon Offset Credits....

Environmental Journal 8-3-2009