A variety of efforts to address climate change are currently underway or being developed on the international, national, and sub-national levels (e.g., individual state actions or regional partnerships). These efforts cover a wide spectrum, from climate change research to mandatory greenhouse gas (GHG) emissions reduction programs. In the 110 th Congress, Members have introduced a number of proposals that would establish a national GHG emissions reduction regime. GHG emissions reduction programs, both ongoing and proposed, vary considerably. The primary variables are scope and stringency: which emission sources are covered by the program and how much emission reduction is required. These factors largely determine the impacts of an emissions reduction program, but other design details can have substantive effects. One such design element is the treatment of offsets. An offset is a measurable reduction, avoidance, or sequestration of GHG emissions from a source not covered by an emission reduction program. If a cap-and-trade program includes offsets, regulated entities have the opportunity to purchase them to help meet compliance obligations. Offsets have generated debate and controversy in climate change policy. If Congress establishes a federal program to manage or reduce GHG emissions, whether and how to address offsets would likely be an important issue. Because most current and proposed programs allow offsets (see tables at the end of the report), offset projects will probably play some part in an emissions reduction program. The first section of this report provides an overview of offsets by discussing different types of offset projects and describing how the offsets would likely be used in an emission reduction program. The next section discusses the supply of offsets that might be available in an emission trading program. The subsequent sections examine the potential offset benefits and the potential concerns associated with offsets. The final section offers considerations for Congress. In addition, the report includes a table comparing the role of offsets in selected emission reduction programs: proposals in the 111 th and 110 th Congresses, U.S. state initiatives, and international programs. Offsets are sometimes described as project-based because they typically involve specific projects or activities whose primary objective is to reduce, avoid, or sequester emissions. Because offset projects can involve different GHGs, they are quantified and described with a standard form of measure: either metric tons of carbon-equivalents (mtC-e) or metric tons of CO 2 -equivalents (mtCO 2 -e). To be credible as offsets, the emissions reduced, avoided, or sequestered must be additional to business-as-usual (i.e., what would have happened anyway). This concept is often called "additionality." If Congress establishes a GHG emission cap-and-trade program, only sources not covered by the cap could generate offsets. Emission reductions from regulated sources (e.g., coal-fired power plants) would either be required or spurred by the emissions cap. In contrast, if agricultural operations were not covered under an emissions cap, a project that collects methane emissions from a manure digester would likely be an additional GHG emission reduction. If offsets are allowed as a compliance option in an emissions trading program, eligible offset projects could generate "emission credits," which could be sold and then used by a regulated entity to comply with its reduction requirement. This approach is part of the European Union's (EU) Emission Trading Scheme (ETS), which EU members use to help meet their Kyoto Protocol commitments. Under the EU ETS, regulated entities can purchase emission credits that are created from approved offset projects. Regulated entities can then apply the credits towards their individual emission allowance obligations. For example, a regulated entity may consider purchasing offsets if the offsets are less expensive than making direct, onsite emission reductions. Assuming the offset is legitimate—i.e., a ton of carbon reduced, avoided, or sequestered through an offset project equates to a ton reduced at a regulated source—the objective to reduce GHG emissions is met. From a global climate change perspective, it does not matter where or from what source the reduction occurs: the effect on the atmospheric concentration of GHGs would be the same. Offsets increase emission reduction opportunities. When offsets are not allowed, incentives to reduce emissions or sequester carbon are limited to the covered sources, and there is little motivation to improve mitigation technologies for non-covered sources. Including offsets in a cap-and-trade program would expand these incentives Offsets could potentially be generated from an activity that emits GHGs or that would remove or sequester GHGs from the atmosphere. This section discusses offsets in four categories. Each category is discussed below with project examples for each group. Some of the categories and examples listed below may be limited by location. If a U.S. law or regulation (other than an emissions cap) governs a specific emission source (e.g., methane from coal mines), that source's emission reductions would not qualify as domestic offsets, unless the reductions made went further than the regulations required. For example, if the source is required by law or regulation to reduce methane emissions by 50%, reductions up to this threshold would not qualify as offsets, but reductions in excess of 50% might qualify as offsets. As more nations establish mandatory caps or require specific technological controls or practices at emission sources, the universe of potential offsets would shrink. Trees, plants, and soils sequester carbon, removing it from the earth's atmosphere. Biological sequestration projects generally involve activities that either increase existing sequestration; or maintain the existing sequestration on land that might otherwise be disturbed and release some or all of the sequestered carbon. This offset category includes sequestration that results from agriculture and forestry activities, and is sometimes referred to as land use, land use change and forestry (LULUCF) projects. Examples of these projects include planting trees on previously non-forested land (i.e., afforestation); planting trees on formerly forested land (i.e., reforestation); limiting deforestation by purchasing forested property and preserving the forests with legal and enforcement mechanisms; setting aside croplands from agricultural production to rebuild carbon in the soil and vegetation; and promoting practices that reduce soil disruption: e.g., conservation tillage and erosion control. Compared to the other offset categories discussed here, biological sequestration projects, particularly forestry projects, offer the most potential in terms of volume. However, this category is arguably the most controversial because several integrity issues are typically (or perceived to be) associated with biological sequestration projects. These issues are discussed in more detail in later sections of this report. Historically, renewable energy—e.g., wind, solar, biomass—has been a more expensive source of energy than fossil fuels. A renewable energy offset project could provide the financial support to make renewable energy sources more economically competitive with fossil fuels. Renewable energy sources generate fewer GHG emissions than fossil fuels, particularly coal. Wind and solar energy produce zero direct emissions. Use of renewable sources would avoid emissions that would have been generated by fossil fuel combustion. These avoided emissions could be sold as offsets. Potential renewable energy offset projects may include constructing wind farms to generate electricity; adding solar panels; retrofitting boilers to accommodate biomass fuels; and installing methane digesters at livestock operations. Domestic renewable energy projects are not likely to qualify as offsets in a national emissions reduction program. In a carbon-constrained context, project developers would be hard-pressed to demonstrate that a renewable energy project would not have happened anyway. In an "economy-wide" cap-and-trade emissions program, energy sector emissions would likely be capped. The cap would make fossil fuels more expensive and renewable energy sources more attractive. However, renewable energy projects may still create credible offsets in nations without GHG emission controls on their energy sectors. A more energy efficient product or system requires less energy to generate the same output. Improvements in energy efficiency generally require a financial investment in a new product or system. These capital investments likely pay off in the long run, but the payback period may be too long or capital financing may be constrained, particularly for small businesses or in developing nations. Examples of possible energy efficiency offset projects include upgrading to more efficient machines or appliances; supporting construction of more energy efficient buildings; replacing incandescent light bulbs with fluorescent bulbs. Similar to renewable energy offsets, domestic energy efficiency offset projects would likely face substantial hurdles in proving their additionality in a carbon-constrained regime. As the price of carbon increases and raises energy prices—both outcomes expected with an emissions cap—the incentive to reduce energy use through energy efficiency improvements will increase. Offset ownership is another potential challenge regarding some energy efficiency offsets. Energy efficiency improvements may occur at a different location than the actual reduction in emissions. For example, a business that runs its operations with purchased electricity will use less electricity if energy efficiency improvements are made, but the actual emission reductions will be seen at a power plant. Thus, the reductions may be counted twice: first as an energy efficiency offset and second as a direct reduction at the power plant. One way to address this potential dilemma is to restrict energy efficiency projects to only those that reduce or avoid on-site combustion of fossil fuels. This approach is used in the few congressional proposals that specifically allow energy efficiency offsets. As with renewable energy projects, there could be energy efficiency projects in nations that do not limit GHG emissions. Multiple sources emit non-CO 2 greenhouse gases. These emissions are often not controlled through law or regulation. These sources—primarily, agricultural, industrial, and waste management facilities—emit GHGs as by-products during normal operations. In many cases, the individual sources emit relatively small volumes of gases. However, there are a large number of individual sources worldwide, and many of the gases emitted have greater global warming potential (GWP) than carbon dioxide. Offset projects in this category would generally provide funding for emission control technology to reduce these GHG emissions.