This is the balancing out, canceling, or reduction of the amount of greenhouse gas (GHG) an entity releases into the atmosphere from its activities (for example, electricity generation or consumption or the production of liquefied natural gas) in one location by purchasing offset credits from companies that invest in carbon reduction or sustainable projects in another location. For example, a US oil and gas company may offset its GHG emissions by purchasing carbon offset credits from a carbon reduction project in Asia. Examples of a qualifying carbon reduction project include:

To be valid, carbon offset credits must be verified and certified by an independent third party. Once verified and certified, these credits can be purchased and traded. Individuals, businesses, and other organizations may purchase carbon offset credits to meet mandatory or voluntary GHG emission reduction targets or to reduce their carbon footprint.

For more information on carbon offsets and how they are used, see Practice Notes, Lower-Carbon, Carbon-Neutral, and "Green" LNG and Green Marketing in the US.