The calculation is pretty exact if you want it to be- you can go in with your own MPG and miles, and use that. Or just calculate it youself, and buy at the appropriate level. The calculator they provide is simply based on the EPA figures, since not many people know their mpg or how much fuel they've bought. If I know I used 333 gallons and drove 10000 miles, I emitted 6500lb of CO2, period. Their calculator gives the same number.

CO2 is 100% in proportion to the amount of gas you use. 1 gallon of gasoline produces 19.5lb of C02. Then you round to the closest level they have set up.

If you use E85 or diesel or biodiesel, then calculate your own, at 11.5lb/gal for E85, and (lookup somewhere) for diesel.

CO2 is by far the dominant factor coming form our tailpipes. All they claim is to be shooting to equate out the CO2, not the other CO, SO2, NOx, etc. So clean burning and emissions controls do not factor in. 1 gallon of gas burned means 19.5 new pounds of CO2 in teh atmosphere.

They then use your purchase to buy credits and/or invest in projects that will prevent ~that amount of CO2 from being put in the air...thus CO2 neutrality of a sort.

They are taking advantage of the "small signal" effect of low demand/high supply regimes: their purchasing of carbon credits at present levels will not have a large effect on the overall supply/demand of carbon credits, and so they can bet that the price will remain low for the forseeable term. Credits are something like $3.50/ton in the US, I think. There is barely even a market for them, since we blew off Kyoto. Thus Terrapass can live and thrive.