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Carbon offsets are reductions in emissions of carbon or greenhouse gases made in order to compensate for or to offset an emission made elsewhere. Carbon offsets are measured in metric tons of carbon dioxide (CO2e) and may represent six primary categories of greenhouse gases. One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.
There are two markets for carbon offsets. In the larger, compliance market, companies, governments, or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. In 2006, about $5.5 billion of carbon offsets were purchased in the compliance market, representing about 1.6 billion metric tons of CO2e reductions.
In the smaller, voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. For example, an individual might purchase carbon offsets to compensate for the greenhouse gas emissions caused by personal air travel. Many companies (see list) offer carbon offsets as an up-sell during the sales process so that customers can mitigate the emissions related with their product or service purchase (such as offsetting emissions related to a vacation flight, car rental, hotel stay, consumer good, etc.). In 2008, about $705 million of carbon offsets were purchased in the voluntary market, representing about 123.4 million metric tons of CO2e reductions.
Offsets are typically achieved through financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the mitigation of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects. According to a ClimateBiz trends survey, some of the most popular carbon offset projects from a corporate perspective are energy efficiency and wind turbine projects.
The Kyoto Protocol has sanctioned offsets as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established the Clean Development Mechanism (CDM). Organizations that are unable to meet their emissions quota can offset their emissions by buying CDM-approved Certified Emissions Reductions. The CDM is the world's largest carbon offset market. In 2007, the value of the CDM market totaled €12 billion, more than triple the previous year's figure.
Offsets may be cheaper or more convenient alternatives to reducing one's own fossil-fuel consumption. However, some critics object to carbon offsets, and question the benefits or authenticity of certain types of offsets. The actual amount of carbon reduction from an offset project can often be difficult to measure, largely unregulated, and vulnerable to misrepresentation.  In the UN's Clean Development Mechanism, funding "efficient" coal plants (like IGCC and carbon capture) in developing countries is being used by developed countries for "right to pollute" credits.
UN questions validity of approved carbon offsets
In March 2010, the difficulty of measuring the veracity of carbon offsets within the UN's Clean Development Mechanism was highlighted again when the UN suspended the firm TuvSud, a German company the UN has permitted to act as a 'validator' of the offset system. TuvSud is one of 26 validators, and responsible for nearly one quarter of the carbon offsets on the market. validators are charged with affirming that promises to reduce emissions in a developing country project--wind power, solar energy, methane reduction, etc--actually deliver the promised reductions. On March 26, the UN's Executive Board removed the company's ability to continue validating those projects, citing the company's willingness to approve projects despite concerns over their actual emission reduction potential--known as additionality--and the lack of technical experience of personnel assigned to the task. Some of the company's approved projects have been highly controversial, such as the Xioxai dam in China, which has led to the eviction of 7,500 people from their homes, according to the International Rivers Network. Credits from that project have been used by major European companies such as the giant German utility RWE.
Such offsets based in developing countries are expected to account for at least a third of Europe's anticipated emission reductions by 2012, according to recent estimates by the European Environment Agency. At the time of its suspension, TuvSud was the second biggest validator in the world, responsible for more than 1,200 projects over the past eight years. The action comes on the heels of two other suspensions of validation firms for similar reasons. Those two validators, the Norwegian company DNV and the Swiss company SGS, have since been reinstated. But the latest suspension means that two-thirds of the offset projects now available to industries operating under the emission reduction requirements of the Kyoto Protocol were, according to a database compiled by the UN Environment Program, validated by firms who's methodologies, skill levels and measurements have been called into question. Yet the UN does not have the power to pull those questionable credits off the market, which means that European industries are still using them to meet their emission limits. The credits bearing TuvSud's stamp of approval prior to its suspension, like those of DNV and SGS prior to their suspension, are still available for purchase by industries seeking to use offsets to continue emitting greenhouse gases at home, and therefore may leave the mistaken impression, due to faulty measurements, of more emission reductions than have actually occurred.
Opposition by EPA lawyers
On July 22, 2010, Laurie Williams and Allan Zabel issued a whistleblower paper Disclosure of Unfixable Flaws of Greenhouse Gas Offsets in Proposed U.S. Climate Legislation arguing that the major bills before Congress to regulate greenhouse gases to combat global climate change - the Waxman-Markey Climate Bill (HR 2454) and the Clean Energy Jobs and American Power Act (S. 1733) - suffer from “multiple unfixable flaws” that undermine their effectiveness. Williams and Zabel, speaking as private citizens, contend that the integrity failings of greenhouse gas carbon offsets, the lynchpin for major climate bills before Congress, ensure that such legislation will be an ineffective – and deceptive – waste of funds.
Specifically, they argue that:
- The complexity and subjectivity of carbon offsets renders them impossible to certify, regulate or enforce;
- There is no reliable way to distinguish offset projects which will occur because of the offset incentive from those which would have happened anyway;
- In some cases, such as in the context of forestry projects, the offsets will fail to appreciably mitigate demand and the polluting activity (such as logging) will simply shift elsewhere; and
- The offsets will create perverse incentives to keep polluting activities legal so they can keep being sold as offsets.
Williams and Zabel assert that these offsets, in essence, are a new “creative financial instrument” which carries the same deceptive potential to bankrupt markets as did the creative instruments peddled on Wall Street. The two ask for a congressional probe into the reliability of any offset program before enactment.
Opposition by James Hansen
In a June 2011 speech to New Zealand Prime Minister Key, NASA scientist James Hansen said that "We scientists deserve some blame for government efforts to use [carbon] 'offsets' to avoid fossil fuel limits. Fossil fuel CO2 stays in surface reservoirs for millennia. We are nearing the limit for how much carbon can be put there. We should not have acquiesced to the 'CO2 equivalence' concept that was adopted in the Kyoto Protocol. There is no equivalence to fossil fuel CO2."
Offsets for forests
Credits generated from "avoided deforestation" projects were ultimately excluded by the UN from the international carbon market launched by the Kyoto Protocol. Manyu Chang, a forest scientist who is the coordinator for climate policy for the state of Paraná in Brazil, said the problem with avoided-deforestation credits is that 1.) trees are far less predictable than clean energy projects, as they are subject to the vagaries of fires and disease, both of which are increasing due to climate change; 2.) each species absorbs carbon at different rates depending on factors like the altitude, soil, and weather; 3.) there's the problem of "leakage"—when deforestation simply shifts from protected zones to unprotected ones, creating no overall emissions reduction; 4.) the UN did not want to open the door to a perverse sort of extortion: A country could threaten to open its lands to logging unless it was paid to not do so; and 5.) when companies create reserves on already forested lands, their contribution to the fight against climate change is limited: "Do they get the credit for simply enhancing what was there already?"
Such offsets can be sold, however, in the United States, where the $700 million domestic carbon offset market is unregulated, and where prices are generally half those of Kyoto-regulated offsets. This can create tensions with indigenous people who live in forest land bought up by companies and large environmental organizations like the Nature Conservancy: suddenly people who lived in harmony with the land for centuries can be prevented by law from basic survival practices like hunting, fishing, and removal of vegetation.
In March 2010, the World Bank presented Africa's first large-scale forestry project to be registered under the Kyoto Protocol's Clean Development Mechanism (CDM). The announcement was made on the margins on the annual Africa Carbon Forum, which is took place in Nairobi, Kenya. The Humbo Assisted Natural Regeneration Project is "expected to cut an estimated 880,000 metric tons of carbon dioxide from the atmosphere over the next 30 years." Through reforestation, the project will also build the communities' resilience against climate impacts. The project is designed to restore degraded land.
Through the duration of the project, the World Bank’s BioCarbonFund will purchase 165,000 tons worth of carbon credits. The sale of carbon credits under the BioCarbon Fund "will provide an income stream of US$700,000 to the local communities over a minimum of ten years. Further revenue will be available to the community from the sale of carbon credits not purchased by the World Bank, as well as from the sale of timber products from designated woodlots in the project."
- Michael Lazarus and Chelsea Chandler, "Coal Power in the CDM: Issues and Options" Stockholm Environment Institute, 2011
- Carbon Trade Watch, "The Carbon Neutral Myth – Offset Indulgences for your Climate", Transnational Institute (Web; Wiki), February, 2007. (Pdf)
Articles and resources
Related SourceWatch Resources
- BP's targetneutral
- Clean Development Mechanism
- Clean Development Mechanism and Carbon Capture and Storage
- Clean Development Mechanism and Nuclear Power
- Chilling and Gassing with the Environmental Defense Fund
- Climate Care
- Carbon Neutral Company
- Working Group I: The Scientific Basis. Intergovernmental Panel on Climate Change (2001). Retrieved on 2010-02-22.
- State and Trends of the Carbon Market. World Bank (2007).
- "Brands and Carbon Offsets", Carbon Offsets Daily (2008-08-01).
- Ecosystem Marketplace, New Energy Finance State, of the Voluntary Carbon Markets 2009
- UNEP Risoe CDM/JI Pipeline Analysis and Database. UNEP Risoe Centre (2010-02-01). Retrieved on 2010-02-22.
- EcoSecurities, ClimateBiz, Carbon Offsetting Trends Survey 2008
- Michael W. Wara and David G. Victor, "A Realistic Policy on International Carbon Offsets (pdf)," Stanford University Program on Energy and Sustainable Development, Working Paper #74, April 2008.
- Gillenwater, Michael; Derik Broekhoff, Mark Trexler, Jasmine Hyman, Rob Fowler (2007). "Policing the voluntary carbon market". Nature Reports Climate Change 6 (0711): 85–87. doi:10.1038/climate.2007.58.
- Laurie Williams and Allan Zabel, Disclosure of Unfixable Flaws of Greenhouse Gas Offsets in Proposed U.S. Climate Legislation Independent report, July 2010.
- John Vidal, "Rich countries to pay energy giants to build new coal-fired power plants" The Guardian, July 14, 2010.
- "Japan seeking to export low-carbon technologies" Google News, August 8, 2010.
- Mark Schapiro, "Miscounting Carbon" Frontline, April 12, 2010.
- "Agency Specialists Say Greenhouse Gas Offsets Unenforceable and Demand Probe" Peer, July 22, 2010.
- Mark Schapiro, "GM's Money Trees" Mother Jones, November/December 2009.
- "World Bank Announces First Large-Scale Forest CDM Project Registered in Africa" Climate-L.org, March 3, 2010.
- David Suzuki Foundation, "What is a carbon offset?", accessed February 2007.
- Adam Ma’anit and Jutta Kill, et al. "CO2nned: The carbon offsets scam exposed", New Internationalist, Issue No 391, July 2006.
- Sophie Black, "Some companies can't see the environment for the trees", Crikey.com.au (Australia), March 1, 2007.
- Fiona Harvey and Stephen Fidler, "Industry caught in carbon ‘smokescreen’", Financial Times, April 25, 2007.
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