From Open Sustainability
A carbon offset is a financial instrument aimed at a reduction in greenhouse gas emissions. Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may represent six primary greenhouse gases.  One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases. Some examples of how a carbon credit is generated are through the installation of renewable energy displacing fossil fuel based energy, energy efficiency projects and through planting trees to capture the carbon.
Carbon offset markets
There are two main markets for carbon offsets, the regulatory (compliance), driven in large part by the Kyoto Protocol, and the voluntary market driven in large part by company's climate change policy commitments and individuals offsetting personal air travel.
The regulatory carbon market traded USD $119,483 million in 2008 in comparison with the voluntary market of USD $704 million. 
The Kyoto Protocol established legally binding commitments for the reduction of greenhouse gases produced by industrialized nations, as well as general commitments for all member countries. Organizations that are unable to meet their emissions quota can offset their emissions by buying approved Certified Emissions Reductions (CERs). 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.
The CDM is part of the United Nations Framework Convention on Climate Change (UNFCCC). As the largest regulatory project-based mechanism, the CDM offers the public or private sector in developed nations the opportunity to purchase carbon credits from offset projects in developing nations. CDM is involved in setting standards and verifying projects. CDM standards are stringent and robust yet have high transaction costs so that usually only large projects are registered.
The voluntary market for carbon offsets is driven by companies and individuals desire to help combat climate change. A common activity that people offset is airline travel. Such as the scheme driven by British Airways.
A voluntary emission reduction (VER) is an emission reduction that has been achieved outside of the compliance market. Unlike under CDM, there are no unified rules and regulations for the voluntary carbon market. Though the voluntary markets does allow for experimentation and innovation as projects can be implemented with fewer transaction costs than CDM or other compliance market projects. To address quality concerns, several voluntary offset standards have been developed.
The Chicago Climate Exchange is a key voluntary scheme, though it does differs from other voluntary ones as member organizations are legally bound to reduce emissions.
Other voluntary offest standards available are:
- ↑ 2001 report, Intergovernmental Panel on Climate Change
- ↑ http://ecosystemmarketplace.com/documents/cms_documents/StateOfTheVoluntaryCarbonMarkets_2009.pdf
- ↑ http://www.co2offsetresearch.org/consumer/Standards.html#WRI
- ↑ http://www.co2offsetresearch.org/consumer/Standards.html