The Government will give a stamp of approval to schemes that offer carbon offsetting to businesses and consumers by the end of the year, the Department of the Environment and Rural Affairs (Defra) announced today.

But the plan was criticised for focusing solely on large-scale enterprises involved in the UN and EU's carbon-reduction regime, and excluding smaller, voluntary projects that seek to reduce carbon emissions on a grassroots level.

Launching a consultation paper on the new standards, ministers said that people should be certain that the money they spend to compensate for their carbon emissions is really being invested in projects that improve the environment.

Carbon offsetting is the practice whereby individuals and companies seek to make up for the pollution they produce, whether through travel, heating or manufacturing, by investing in green projects such as alternative energy plants, reforestation or environmental clean-up, often in the developing world.

But it is regarded as a last resort by many environmentalists, who say it is just a way round the underlying and more awkward challenge of changing people's behaviour and reducing emissions at their source.

David Miliband, the Environment Secretary, acknowledged some of those concerns today, saying: "Offsetting isn’t the answer to climate change. The first step should always be to see how we can avoid and reduce emissions — through thinking about how we use energy in our homes and businesses and the way we travel."

"However, some emissions can’t or won’t be avoided. That’s where offsetting has a role to play. It’s a way of compensating for the emissions produced with an equivalent carbon saving."

The Government expects the consultation launched today to conclude in April, with the new standard coming into force in the autumn. Organisations offering carbon offsetting will then be able to apply for approval from Defra to show that the carbon credits they sell are genuine.

Offsetting companies such Pure, the Clean Planet Trust, Global Cool, Equiclimate and Carbon Offsets Ltd have all offered their support for quality mark, the Government said, while travel companies such as First Choice and lastminute.com have promised to point their customers in the direction of companies that have approval.

But today's 56-page consultation document confirmed that the Government will only approve of schemes using carbon credits as devised by the UN's Kyoto Protocols and the EU Emissions Trading Scheme, known as Certified Emission Reductions (CERs) rather a form of carbon credit called Verified Emissions Reductions (VERs).

Both credits claim to represent 1 tonne of carbon dioxide emissions, but VERs are not traded between governments and typically offer consumers the chance to invest in smaller, green initiatives rather than the power stations and refrigerator dismantling plants that currently dominate the CER market.

Some carbon trading companies warned today that if VER schemes do not have government approval, then consumers could be driven away from the voluntary sector and inspiring environmental projects in some of the world's poorest countries, and into the arms of the international carbon trade.

While welcoming the idea of clear standards for consumers, Jonathan Shopley, the chief executive of the CarbonNeutral Company, said that it was vital to bring VERs into the fold of the new regulations. "Like most of the leading companies and organisations involved in carbon offset, we would like to encourage Defra to commit to the development of equally acceptable standards for VERs," he said.

"CERs were designed to help nation states meet their emissions targets and now the Government seems to think they are appropriate for individuals. It's rather like you or me opening a current account with the IMF, it's not really on our level."

"VERs have a greater pulling power for the public and right now they are being excluded for reasons that I don't think are right."

Jamal Gore, a director of Carbon Clear, a London-based offsetting company agreed, saying that only 1 to 2 per cent of people in Britain currently sought to compensate for their carbon emissions and they needed to feel that they were doing social and environmental good, rather than just contributing to international emissions targets. "You have to give consumers what they are looking for," he said.

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