A carbon offset is a reduction in carbon dioxide emissions from a third party, aimed at cancelling out (offsetting) the emissions arising from a particular activity. The aim is to reduce greenhouse gas emissions and thereby combat global warming. Proponents claim that all emissions can be offset and made "carbon neutral".
Carbon offsets can be purchased by individuals, businesses and governments from a variety of commercial and non-commercial organizations.
There are three main types of projects that produce offsets: projects that prevent the release of CO2, projects that reduce non-CO2 greenhouse gases, and projects that sequester carbon in vegetation or soil. A company could achieve the first two goals by purchasing an energy-efficient heating system for a school, for example, thus reducing the school’s CO2 emissions. A company could accomplish the third goal by reforesting an area, sequestering carbon in trees and soil.
More on Carbon offsets:
Carbon Emission Offset Directory via ecobusiness links
more info via Climate Biz