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CO2 Offsets & Carbon Markets

What is a carbon offset or carbon credit?

When you make a decision to purchase a ClearSky carbon offset, you’re saying that there are unavoidable GHG emissions from your company, your lifestyle, or your event that you would like to “balance” by paying for an equivalent reduction in GHG emissions from somewhere else. According to the nonprofit group Clear Air-Cool Planet, carbon offsets work because:

Unlike most conventional pollutants, GHGs mix well in the atmosphere and can travel around the planet quickly. As a result, it doesn’t matter from the standpoint of global warming mitigation where a reduction takes place. Carbon offsets are intended to take advantage of the radically different costs and practicalities of achieving GHG emissions reductions by sector and geography.

With respect to climate change, the atmosphere is essentially a shared global resource because the overall concentration of greenhouse gases is what drives climate fluctuations. This basic idea justifies carbon offsets as an appropriate solution to mitigating global warming, because the actual location of emissions reductions is not terribly important.  Capturing 400 tons of methane in Iowa has the same effect on the climate as capturing 400 tons of methane in India, in other words.  It's easier and sometimes more beneficial to implement emissions reduction project in some places and situations (restoring a forest in Panama might also protect rainforest species and boost local livelihoods, for example), so offsets allow emissions reduction projects to occur in one place and mitigate actions in another place. 

How do carbon offsets work?

An offset is essentially a guarantee that a given amount of greenhouse gas (GHG) emissions will be avoided or actively removed from the atmosphere in one location in order to balance or compensate for unavoidable emissions occurring somewhere else.  When an offset provider sells offsets, they are promising that action has been taken to prevent a certain quantity of GHGs from being released or sequester this quantity.  This action is taken on behalf of the offset buyer, who may be acting for compliance with a regulatory framework or through voluntary action and personal responsibility. 

Offsets are created through a formal process to guarantee reliability for buyers and sellers.  Projects claiming to reduce or avoid GHG emissions must be certified under a quality standard that examines the calculations and methods used to generate the claimed amount of offsets, and these components are verified by an independent auditor as part of the certification process.  Offsets are sold and traded under binding contracts and purchase agreements that stipulate the amount of emissions credits to be delivered and the schedule for delivery.  Offsets are often tracked in an independent registry to ensure they aren't double-sold or used beyond their valid lifetime.  

CO2 offsets are commonly quantified in units called carbon credits, defined as 1 metric ton of CO2 equivalent.  The “equivalent” is included because other GHGs, such as methane (CH4), may have a much stronger ability to trap the sun’s heat as the same volume of CO2 (called the Global Warming Potential (GWP).  Based on this GWP, other gases can be converted to an equivalent amount of CO2, which is much more prevalent and used as a common currency in GHG calculations.

What do I need to know about carbon credits? 
What should I look for in carbon offset? Are there good offsets and bad ones?
How are offsets and carbon markets related? 
What is the disagreement surrounding carbon credits?
What is the future for carbon markets in the USA?
What is the difference between a carbon offset and a renewable energy certificate (REC)?

It’s absolutely true that some carbon offsets are more legitimate than others, depending on how carefully the offset project is designed. It may be difficult at first to discriminate between one project and another, but there are a few key criteria that you should look for before purchasing offsets:

Real GHG emissions reduction – carbon offset projects should depend on tested and transparent methods for establishing a baseline and calculating the GHG reductions due to the project activity. Also, offsets should be sold based on documented emissions reductions – that is, emissions reductions should have already happened, and you should not be paying for promises of future action.

• Additionality – any carbon offset project should generate emissions reductions that are above and beyond business as usual, meaning they should be “additional.” Finace from carbon credits needs to catalyze action that wouldn’t have happened otherwise in order to meet this test.

• Permanence – if there is the potential for a reversal, in which emission reductions are returned to the atmosphere in the future, insurance must be held to protect against those scenarios. For example, a forestry project can insure against the risk of a forest fire by maintaining extra forested acreage not included in emissions reduction calculations. This reserve can then be allocated in the event of a problem.

 Leakage – the project activity should not simply shift emissions from one location to another, i.e. halting logging in one area but spreading logging to other areas.

• Certification – certification standards exist for both the voluntary and regulatory carbon markets, so all offset projects should be certified to a high-quality standard. The certifying body is an outside perspective that will critically evaluate a project’s merits. Never purchase uncertified offsets, or offsets certified by the same agency that developed the project.

• Verification – as a part of the certification process, a 3rd party verifier is required to examine the project and perform an audit of the stated emissions reductions. Verifiers are trained to work in particular sectors and they provide another layer of scrutiny for offset reliability.

• Environmental and social benefits – offset projects should have a demonstrated positive impact on the local environment and on human communities in the project area. These ancillary benefits could include protecting habitat for endangered species, creating green-collar jobs, or providing a clean water source.

For a complete discussion of how offsets should be judged and definitions of these increasingly common terms, we recommend reading A Consumer’s Guide to Retail Carbon Offset Providers, a report by Clean Air/Cool Planet. Another great resource, newly published in 2009, is the Responsible Purchasing Guide for Carbon Offsets, published by the Center for a New American Dream. 

Pushed by selective buyers and market competition, CO2 offset providers are striving to demonstrate that their emissions reduction projects meet the high expectations for quality and effectiveness.  Being such a new commodity, until recently there was no benchmark or standard by which to judge a particular CO2 offset (Consumer Reports hasn’t tackled this topic, yet).  What was once a shortage has quickly turned into an overabundance, as over 20 standards have been developed and promoted to evaluate CO2offsets.  These standards have been established by international bodies like the United Nations, conservation organizations like the World Wildlife Fund (WWF), and some have even taken input from large corporations like Weyerhauser and BP.  Some of these standards apply only to the regulatory markets, while some are strictly for voluntary markets.  For a thorough description and comparison of several common standards, as well as more explanation of CO2 offset terms, we recommend reading Making Sense of the Voluntary Carbon Market: A Comparison of Carbon Offset Standards by WWF.

While carbon taxes are seen by some supporters as a better way to reduce GHG emissions, most carbon markets in operation today operate in a baseline-and-credit or cap-and-trade fashion.  Technically, CO2 offsets can only be generated in a baseline-and-credit system, where individual projects create offsets for removing GHG emissions (or preventing the release of GHG emissions) in a manner that would not have occurred under status-quo action.  This last piece, referred to as “additionality” is the crucial element in creating CO2 offsets.  Establishing an agreed-upon status-quo situation sets the baseline for a project, and action above and beyond this baseline generates credits.  

In a cap-and-trade framework, a finite number of carbon allowances (not the same as offsets) are distributed to market participants, and they are allowed to trade these credits among themselves.  The number of credits is determined by emissions reductions goals and political negotiations, and set low enough to drive market demand.  Parties are therefore encouraged to reduce their emissions to the level of allowances they possess, or purchase additional credits from members that are below-target.  Cap-and-trade systems often allow members to purchase a small proportion of offsets to meet allowance assignments, however. 

Several markets have developed to meet the mandates imposed by the Kyoto Protocol, most notably the European Union Emissions Trading Scheme (EU-ETS).  This is an example of a regulatory market, in which participants are legally required to meet certain standards for GHG emissions.  As an alternative to regulatory markets, voluntary markets have also developed to meet the growing demand for GHG emissions reduction credits and trading in the United States (the Chicago Climate Exchange is the most well-known of these).   Regulatory and voluntary carbon markets trade slightly different offset products (Certified Emissions Reductions (CER) for regulatory, Verified or Voluntary Emissions Reductions (VER) for voluntary markets).  The World Bank report State and Trends of the Carbon Market 2008 is an up-to-date resource about regulatory and voluntary markets.

Carbon offsets are sometimes critiqued as a way for wealthy nations or corporations to easily (and cheaply) pay for their pollution rather than actually changing the way they do business.  This is often compared to buying papal indulgences, or argued against in even stronger terms (see http://www.carbontradewatch.org) for a look at these criticisms). 

In most cases, these are honest arguments that boil down to a central idea: if CO2offsets are used irresponsibly without simultaneously reducing GHG emissions, ending our global addiction to fossil-fuel consumption, and correcting the injustices in our systems of production and resource extraction, then they might actually do more harm than good. 

At ClearSky Climate Solutions, we sincerely agree with this concept.  We do need to re-engineer our energy generation systems around the globe and commit to leaving fossil fuels in the ground, and we need to be attentive to past and current injustices that harm livelihoods of human and natural communities.  
 
Using carbon markets and carbon offsets to combat global warming is compatible with these ideas, however.  Offsets can allow individuals and companies to take action beyond what is required by law (often necessary in the absence of strong political leadership), by acting immediately to compensate for unavoidable emissions.  Also, including offsets in regulatory markets can encourage helpful investment in poor nations.  Carbon offset projects are increasingly under scrutiny to advance the objectives of sustainable, equitable development and biodiversity conservation, and standards that emphasize these ancillary benefits are one way that offset buyers can dictate their preference for multiple-benefit projects.  The CCBA standards, which have certified ClearSky’s work in Panama, are one such example of a standard that demands action beyond simple carbon sequestration (http://www.climate-standards.org). 

With 13 years of experience developing climate change mitigation projects internationally and in the United States, ClearSky is skilled at designing carbon offset projects that meet certification criteria in both voluntary and regulatory markets.  We’re well aware of the need for transparency and quality in this market, which is why we represent only projects that meet our standards. Also, all of our project information is publicly available to interested partners on our website, where certification and verification information can be reviewed.

The ClearSky philosophy is that purchasing offsets is only the final step in going climate-neutral. The two previous steps are equally important: assessing your GHG footprint and reducing your emissions where possible. That’s why our services also include assessment of GHG footprints for companies, organizations, individuals, and special events, as well as consulting to reduce GHG emissions.

By offering our clients high-quality offsets and the total package of services to go climate-neutral, we’re confident that ClearSky Climate Solutions is a superior partner in the effort to halt global climate change. We think you’ll feel the same way.

The Environmental Defense Fund offers the following comments on this difference:

Carbon offsets are verified tools to achieve greenhouse gas emission reductions. Buying a carbon offset allows you or your company to claim a reduction of your carbon footprint.

A renewable energy certificate, or REC, is proof that a megawatt hour (MWh) of renewable energy has been supplied to the market. Purchasing RECs helps develop the renewable energy supply by subsidizing the higher cost of renewable energy. While RECs provide proof that renewable energy has been supplied, they do not offer verified proof that greenhouse gas emissions are reduced.

Purchase offsets when you want to by an emission reduction to reduce your net carbon footprint. Purchase RECs when you want to buy “green power.”

While both products are ways to stimulate change toward a green economy, only certified carbon offsets can result in fully accountable benefits in the effort against global warming. This is why ClearSky develops carbon offset projects, and offers these offsets to our partners who desire to be climate-neutral.

Although there has been a painful lack of meaningful action regarding climate change in the United States, several signs suggest that we may soon join the rest of the industrialized world on this issue.  Some recent developments include:

  • The USA formally submitted a voluntary climate action pledge, in accordance with the Copenhagen Accord provisions agreed upon in December 2009. Currently, the USA's stated goal is to reduce emissions 17% from 2005 levels by 2020, and 83% by 2050. You can keep track of all of the national pledges at the Climate Action Tracker website. 
     

  • State governments are charging ahead of the federal government to adopt binding agreements for GHG reduction (see the Pew Center on Global Climate Change, the Western Climate Initiative, and the California Climate Action Reserve, among other sites)
     

  •  The USA broke records by installing over 10,000 MW of wind energy capacity in 2009, boosting our nation's overall wind capacity to over 35,000 MW. See more figures from the US Department of Energy.

CO2 offsets can be generated from a wide range of project types: replacing coal-fired power plants with wind farms, capturing methane released by landfills, increasing energy efficiency of manufacturing processes, and so on.  A large category of offset projects includes land use, land use change, and forestry (LULUCF) activities.  LULUCF projects might generate offset projects by encouraging farmers to adopt no-till agricultural practices, protecting peat wetlands from being drained, or re-foresting an old clear-cut. 

Forestry projects are the leading LULUCF project type for a number of reasons: growing trees provides an intuitive, measurable link to carbon sequestration; tree-planting or forest protection projects are often easier to implement; and healthy forests can provide numerous additional benefits besides carbon sequestration, including soil stabilization and enrichment, watershed protection, biodiversity habitat and corridors, and resource access for local people.  

Forestry offset projects sometimes come under criticism because of concerns surrounding additionality, resource access and livelihoods, or permanence.  As mentioned earlier, proving “additionality” (that the project goes above and beyond the status quo to reduce GHG emissions) is vital for a project that aims to generate carbon credits in a baseline-and-credit carbon market.  If forest access is denied to local people on the basis of protecting the carbon resource, the project may indeed be harming local livelihoods. And if the threat of wildfire, pest attack, or insecure land tenure is quite high for a project, there are chances the trees might not live long enough to provide the promised GHG sequestration.  
 

Are land use, land use change, and forestry projects suitable for offsets?
Why should I buy ClearSky carbon offsets?