Over 600 organizations develop, market, or sell offsets in the United States, and the market involves a wide range of participants, prices, transaction types, and projects. While the exact scope of the U.S. voluntary market is uncertain because of a lack of complete data, available information shows that the supply of offsets generated in the United States has increased by about 66 percent over the last 3 years, from about 6.2 million tons in 2004 to about 10.2 million tons in 2007. The federal government plays a small role in the U.S. market. While no single regulatory body oversees the market, FTC and EPA, among others, have undertaken some consumer protection and technical assistance efforts. In addition, certain federal entities participate in the market as providers and consumers. For example, the Forest Service works with a nonprofit partner that solicits donations to support forestry projects. A wide range of participants are involved in the U.S. 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. According to available data, more than 600 entities are involved in the supply of offsets in the United States, including companies, governments, colleges and universities, and other organizations. Offset providers include project developers and intermediaries. We identified 210 offset providers of various types, including 87 U.S.-based providers. Project developers implement individual projects and may sell offsets directly to consumers or to intermediaries. Intermediaries are further subdivided into retailers, aggregators, and brokers, among other categories. Retailers generally sell smaller quantities of offsets to individuals or organizations. Aggregators, also known as wholesalers, sell in bulk and often own a portfolio of offsets. Brokers facilitate transactions between sellers and buyers. Providers obtain the rights to the offsets they sell in a number of ways, including developing their own projects or purchasing directly from project developers, sometimes through brokers. Other providers purchase and retire offsets through CCX on behalf of customers. Providers may also play multiple roles in the offset market. For example, a single company may develop projects, aggregate offsets from other projects or providers for resale, and sell offsets directly to consumers. In addition, other entities, including investment banks and other financial institutions, support the development of projects through financing. Quality assurance providers include those involved in activities such as verification and monitoring of offset projects, and the development of quality assurance mechanisms such as accounting standards for calculating offsets. Project developers may use a third party verifier to confirm that offsets generated by a project were accurately calculated. Once verified, the offset might then be recorded by another independent party in a registry to track its sale and ownership. Multiple registries operate in the United States to help market participants track the ownership and retirement of offsets, although not all offsets are listed on registries. A wide variety of consumers buy offsets, including individuals, businesses, nonprofits, governments, research institutions, universities, religious congregations, utilities, and other organizations. Consumers’ motivations for purchasing offsets may include corporate responsibility and public relations, among others. Consumers may purchase offsets to compensate for emissions that result from a variety of activities including flying, driving, and purchasing consumer products. Offsets sell on the market at a wide range of prices. In 2007, prices on the global voluntary market ranged from $1.83 per ton to about $306 per ton, with an average of about $6 per ton, according to one recent market study. We purchased offsets from 33 retail providers, both domestic and international, and prices ranged from about $5 per ton to about $31 per ton. CCX prices were at their lowest in 2004, at $0.79 per ton, but recently peaked at $7.40 per ton in June 2008. There are also different types of carbon offset transactions, including direct purchase and payment or donation in support of a service. The difference between these transactions is whether the offsets are sold as a commodity. In a direct purchase, consumers pay for the delivery of offsets as a commoditized economic good. Direct purchases may allow the consumer to evaluate the parameters of the offset project, including how verification and monitoring methodologies were employed to create the offset. When the transaction does not involve the exchange of a commodity, consumers pay or donate money to a provider to support the retirement of offsets or the development of new offset projects, but the consumer does not own an asset after the transaction has been completed. In this case, the payment or donation amounts to a promise by the provider to supply the service of purchasing offsets or supporting offset projects. Donations may be tax deductible, effectively reducing the cost of the carbon offset. Another key distinction involves the timing of an offset’s creation. In cases where offsets are sold before they are produced, the quantity of offsets generated from projects can be calculated using what is known as ex-ante (or future value) accounting. On the other hand, when offsets are sold after they are produced, the quantity of offsets can be calculated using ex- post accounting. Using future value accounting, consumers may purchase an offset today, but it may take several years before the offset is generated. In addition to a range of participants, project developers generate offsets from different types of projects by either reducing emissions at the source or through sequestration. Emission reduction projects involve either fossil fuel projects based on changes in energy production and use practices— such as energy efficiency, fuel switching, power plant upgrades, and certain renewable energy projects—or greenhouse gas destruction projects, including projects that capture and destroy methane from coal mines, landfills, and agricultural operations. Sequestration projects include biological sequestration projects that pull carbon dioxide out of the air by, for example, planting trees or enhancing the management of agricultural soils, and geological sequestration projects that capture and store carbon dioxide in underground formations. See figure 3 for a diagram of common types of carbon offset projects, and see appendix II for descriptions of offset project types. The U.S. voluntary market is part of an expanding global market, with an estimated 65 million tons sold in 2007, valued at approximately $337.3 million. Complete data on the volume of offsets traded in the United States are not available, and the market’s transparency is limited. Efforts to quantify and report on the voluntary carbon market have focused on the global market and include limited information focused solely on the United States. It is also difficult to separate out the U.S. portion of the global market because U.S. market participants buy and sell across domestic and international boundaries and transactions are private. However, according to one study, an estimated 23 percent of the volume sold in 2007 on the global market came from U.S. providers. While the exact scope of the U.S. voluntary carbon offset market is uncertain because of a lack of complete data, available information shows that the supply of offsets based in the United States is growing rapidly. In the last 3 years, the supply of offsets from projects based in the United States increased approximately 66 percent, from about 6.2 million tons in 2004 to about 10.2 million tons in 2007. By comparison, EPA data show that U.S. greenhouse gas emissions have averaged about 7 billion tons annually since 2000. In addition, in 2007, at least 211 projects produced offsets in the United States, as compared to 93 projects in 2004, an increase of about 125 percent. See figure 4 for data on the U.S. supply of offsets. Of the total U.S. offset supply in 2007, about 85 percent was generated from three categories of projects: methane, carbon capture and geological storage (CCGS), and biological sequestration. About 49 percent of U.S. supply was produced from projects that capture and destroy methane from coal mines, agricultural operations, or landfills. An additional 19 percent was produced from CCGS projects that capture emissions from industrial and energy-related emissions sources and then store these emissions in geologic formations. Also, 17 percent was produced from biological sequestration projects, including agricultural soil projects such as no-till farming and forestry projects. Figure 5 illustrates U.S. offset supply by project type in 2007. One factor influencing the quantity of offsets generated from a particular project is the type of greenhouse gas involved. This is because most greenhouse gases, including methane, have greater heat-trapping ability relative to carbon dioxide. Thus, the global warming potential of these greenhouse gases influences the volume of offsets generated. For example, reducing one ton of methane emissions has the same effect as decreasing 25 tons of carbon dioxide. Accordingly, projects that decrease gases with high global warming potential may be attractive from a developer’s perspective. Available data show that in 2007, 93 of the 211 projects that produced offsets in the United States were methane projects. Of these, 5 coal mine projects—2 percent of the total—accounted for 24 percent of the total volume generated in 2007. On the other hand, 62 biological sequestration projects (about 29 percent of the total) produced 17 percent of the supply. This includes 52 forestry projects that produced about 7 percent of total supply from U.S.-based projects. Table 1 presents U.S. project types by number, volume, and percentage of total supply in 2007. In the United States, projects are located in 40 states, but 34 percent of the supply in 2007 was produced by 14 projects in Texas and Virginia. Projects in these states include high-yielding projects such as coal mine methane projects. While California had the greatest number of projects in 2007, these 31 projects accounted for about 4 percent of the total supply. Figure 6 presents the volume and number of offset projects by state, and detailed data are provided in appendix III. While no single regulatory body has oversight of the U.S. voluntary carbon offset market as a whole, offset transactions are subject to applicable state fraud and consumer protection laws, which are generally enforced by each state’s attorney general.