Carbon Offsetting - A Rickety Bandwagon?

Carbon OffsettingWhile U.S. regulatory developments on greenhouse gas reduction programs sputter forward, corporations and individuals that wish to render their activities “carbon neutral,” are increasingly purchasing carbon offsets to mitigate emissions associated with their air travel, auto usage, electricity consumption, etc. Although their mitigation potential is hotly debated, voluntary offsets may be useful in encouraging innovation, funding reduction projects that would not proceed otherwise, and raising awareness of the climate change issue and need for regulation. Commitment to carbon neutrality may also have material publicity benefits for highly visible entities, events, individuals, and “climate neutral” or “green” products.

The voluntary carbon offset market is dynamic and includes diverse participants including experienced carbon traders that understand the technical issues, non-profit organizations focused on promoting action on climate change, and entrepreneurial organizations focused on profit generation. Although several protocols and certification processes exist, there is not a commonly accepted standard in the U.S. to ensure good quality offsets or adequately inform consumers. Hence, caveat emptor (let the buyer beware) applies—it is the buyer’s responsibility to assess available information to ensure that their purchases equate to the funding of legitimate, high quality offset projects.

Evaluating Offset Providers

To achieve some degree of clarity, consumers can focus on several relevant factors in evaluating the increasing number of offset providers.

  • Provider Profile - By ascertaining a provider’s location, offset project location, associations, and commercial/non-profit status, consumers may determine a preference based on these factors. The ratio of overhead to project funding can be an important criterion to distinguish between providers, however, projects that meet rigorous certification requirements can inherently cost more due to the program requirements, yet produce more reliable results.

  • Offset Quality - No universally accepted process exists for qualifying voluntary carbon offsets, however, the Gold Standard, which expands upon the Kyoto Protocol’s Clean Development Mechanism (CDM), is perhaps best regarded in the voluntary market. Regardless of whether a project is certified under the Gold Standard or other emerging standards such as the Voluntary Carbon Standard, consumers should ensure their funds go toward high quality offsets that adequately address technical issues such as:

    • Emissions baseline, monitoring, and measurement – establishing a relevant basis for comparison and subsequent reporting on the actual reductions achieved from the project
    • Additionality – ensuring that the emissions reductions exceed those that would occur absent the carbon offset project funding or those typically achieved by a similar project
    • Double counting – ensuring that the provider retires offsets once they are sold to prevent, for example, offsets from renewable energy projects being also sold as Renewable Energy Credits (RECs)
    • Bundling – by aggregating emissions reductions from a collection of projects, issues such as additionality and double counting become more difficult to evaluate for the portfolio
    • Permanence – particularly relevant for trees planted that may be subsequently harvested
    • Leakage – when reduction projects cause simultaneous emission increases outside the project boundary
    • Other Effects – potential associated consequences of an offset project to sustainability of the local environment and population should be evaluated. For example, an afforestation project that displaces a local population, or hiring local tree planters at unfair wages, for instance, contradicts the spirit of the reduction and undermines confidence in the offset market.


    AgCert/Driving Green™ (Ireland) -
      • Major supplier of CERs into the international carbon market, based largely on anaerobic digestion projects in Brazil, Mexico, Argentina, and Chile • Driving Green focused on GHG emissions from the U.S. transportation sector
    atmosfair (Germany) -
      • Sells emissions offsets for air travel; offset projects include electricity generated from waste at the University of Rio (Brazil), solar heaters for school kitchens and temples in India, and solar electricity and heating in South Africa • Offset projects approved through the CDM and meet the Gold Standard
    Carbon Neutral Co. (U.K.) -
      • Specializes in small-scale renewable energy projects, landfill gas collection, and energy efficiency • Emphasizes its understanding and commitment to additionality
    Climate Care (U.K.) -
      • Focuses on small-scale renewable energy and energy efficiency projects in developing countries with little access to capital • Emphasizes additionality; promotes transparency through annual reports
    Climate Trust (U.S.) -
      • Established to enable Oregon power plant developers to meet their GHG mitigation requirements; now offering their portfolio through the retail offset market • Able to provide extensive information on high quality offset projects due to its economies of scale
    co2balance (U.K.) -
      • Funds energy efficiency and forestry projects • Emphasizes additionality and only funds projects where 100% of the funding comes from offset clients
    NativeEnergy (U.S.) -
      • Focuses on new renewable energy projects that benefit Native Americans, family farmers, and municipalities • Differentiates between offset projects and RECs that do not make CO2 reduction claims
    Sustainable Travel International (U.S.) -
      • Exclusive North American distributor of retail and wholesale offsets for Zurich-based MyClimate; funds used to develop renewable and energy efficiency projects in developing countries • Claims projects comply with CDM documentation requirement
    Source: Clean Air-Cool Planet,A Consumer’s Guide to Retail Carbon Offset Providers, Dec. 2006
Types of Offset Projects

When evaluating offset providers, purchasers should familiarize themselves with the specific projects supported by their funds. Providers typically focus on specific types of offsets projects, each with inherent advantages and challenges. Some of the most common project types include:

  • Tree planting – an inexpensive method for carbon sequestration; most effective in tropical areas using indigenous species; increasingly criticized by NGOs
  • Renewable energy credits (RECs) – purchasing a unit of electricity generated from renewable sources encourages development of renewable energy yet lacks traceability with GHG market interaction and difficult to calculate CO2 tons reduced
  • Energy conservation – examples include cogeneration plants that generate electricity and heat, fuel efficiency projects, and energy efficient buildings
  • Methane collection and combustion – combusting methane through landfill gas to energy facilities or processing it using an anaerobic digester to reduce its global warming potential
  • Purchasing and retiring carbon emissions allowances – reducing the allowances associated with trading schemes such as the Chicago Climate Exchange.
Cautionary Note

Beyond the inherent difficulties associated with identifying high quality carbon offsets, a more profound caution is appropriate. In its February 2007 report, The Carbon Neutral Myth, Netherlands-based Transnational Institute questions the very nature of the offset mechanism, equating carbon “expiation” to “indulgences” marketed by the church in the Middle Ages that enabled individuals to buy pardons for their sins rather than repenting, thus exacerbating rather than reducing the problem. Airlines that enable consumers to easily buy offsets for their air travel shift the focus and the cost from themselves (the emitter) to the consumer. As a result, the low cost of offsetting travel-related emissions and the associated psychological benefit may result in the consumer actually traveling more rather than reducing air travel and the associated emissions.

Fortunately, organizations and individuals are increasingly realizing that carbon offsetting should be reserved to address only emissions that remain once all other emissions reductions efforts have been exploited, not as a substitute for GHG emissions reductions. Many companies are realizing efficiency and value from the preferable action of reducing carbon in their own operations.