The report, conducted by Trexler Climate and Energy Services (now part of EcoSecurities), rated offset providers for their transparency in providing information about their offset projects and understanding of the requirements of generating quality offsets. Just 8 of 30 offset providers surveyed (see the list here) scored 5 points or higher out of 10, according to the report. The report noted that many sellers failed to provide "basic information and transparency" and offered "insufficient information about the projects used to generate offsets."

Without government regulation or an independent standards body to oversee the offset market, consumers are left to base their decisions about quality on what they learn from the companies themselves. "The quality (of an offset) depends on how they are represented, guaranteed and defined" by the selling agencies, according to Broekhoff.

Some offset sellers either self-regulate or hire independent organizations such as the Center for Resource Solutions. The most respected international offset certification program is the voluntary "Gold Standard" Clean Development Mechanism that was created by the designers of the Kyoto Protocol.

The upcomingVoluntary Carbon Standard, which is being co-developed by four international non-profit organizations, will increase consumer confidence, but government regulation is necessary, Broekhoff says. He compares today's carbon offset market to the early days of organic food production. "It didn't get sorted out until the Department of Agriculture came in and put their stamp on it."

Further confusing the carbon offset market are alternative mechanisms for reducing carbon emissions called carbon credits (also known as carbon financial instruments) and renewable energy credits.

LiveNeutral is a San Francisco-based non-profit that purchases "carbon credits"(also known as carbon financial instruments or CFIs) from the Chicago Climate Exchange (CCX), a market that sells voluntary emissions reductions. CCX member Ford has pledged to reduce emissions over a baseline amount in the coming years. If the company exceeds that pledge, than it can sell the credits, or if it does not meet the obligation, then Ford is legally required to purchase credits.

Individuals are not able to trade on the CCX directly, so LiveNeutral provides people with an opportunity to participate, according to director of marketing Jessica Williams. As carbon credit prices rise, companies will have greater incentive to reduce their emissions, Williams says. The goal was "to make it more profitable to be clean than dirty."

While some consumers might not want their carbon credit dollars to financially benefit large corporations that are among the greatest contributors of greenhouse gases, "if you look at it purely from a climate change standpoint there is not a difference" in the markets, says the WRI's Broekhoff. Removing a ton of carbon will have the same benefit no matter who does it or benefits financially.

Mark Trexler, the managing director for global services of EcoSecurities, says carbon credits generated by organizations that voluntarily reduce their emissions shouldn't be considered the same as carbon offsets. Trexler, who co-authored the Consumer's Guide study, says the CCX credits do not have the characteristic of additionality, as they came from funding and actions by the organizations, and not derived from offset revenue.

LiveNeutral's Williams says her organization recognizes the distinction and therefore only uses the word offset as a verb, and not a noun.

Another option for reducing carbon emissions is the renewable energy credit, which also is known as a renewable energy certificate or REC. RECs are created when wind, solar, geothermal or hydro-electric power is used to generate electricity that is sold as "generic" electricity instead of the often higher-priced renewable energy. Several states have enacted market systems that entitled utilities to sell a credit for generating renewable energy as a REC. RECs are sold directly or traded through brokers such as NativeEnergy, which also sells carbon credits.

These similar sounding functions are adding to consumer confusion about carbon offests. "Moving CFIs and RECs into the retail offset market is likely to undercut the environmental integrity of the market and disrupt the ability of the market to deliver carbon neutrality," state the Consumer's Guide study.

Following the Money Trail

Carbon offsets vary greatly in price, but comparison shopping may say more about the seller than the quality of the offset. Carbon offsets sold at higher prices don't necessarily imply a better quality offset, nor do they correlate to the cost of creating the offset, according to EcoSecurities' Trexler.

The Climate Trust's Jorgensen says the cost to produce each offset varies depending on the project, but the organization charges a consistent price for offsets. "We don't just look at the most cost efficient way of producing an offset. We also look at the residual benefits," he says. Preventing trucks from idling not only reduces carbon emissions, but also removes particulates and nitrogen oxides, according to Jorgensen.

Purchasing a carbon offset will likely reduce greenhouse gas emissions, but it may not be the most cost-effective method of reducing your emissions. Reducing your carbon footprint should be the priority, (through aversion strategies or the purchase of energy-efficient appliances or light bulbs), then buying renewable energy, and then carbon offsets, according to WRI's Broekhoff.

Non-profits, who often acquire the offsets from commercial companies, tend to direct more money to the projects themselves than the for-profit companies. Some for-profit companies use as little as 15 percent of their sales to obtain offsets, according to a study by Tuft's Climate Initiative. How much of the revenue is dedicated to administrative overhead versus sales profit depends on the organization.

In some cases the majority of the cost of an offset coming from administrative overhead can be a good thing, EcoSecurities' Trexler says. If a company is thoroughly investigating the carbon reduction projects and closely monitoring the progress to ensure that the carbon reduction occurs, then a higher administrative cost is acceptable, he says.

Carbon offset vendors that try to compete primarily on price and whose customers can't judge the quality of their purchase have little incentive to create a quality product, according to Trexler. Without quality assessment "You inevitably wind up with a race to the bottom," he says. "It's a market failure waiting to happen."