Voluntary Carbon Offsets: Boon or Boondoggle?

The voluntary carbon market, which lets people and companies pay to offset the greenhouse gases they create, is growing exponentially every year. But with no standards and no regulation, many environmentalists fear it’s all talk and no action, Alice Kenny writes for Ecosystem Marketplace.

The ads sure sound enticing: By writing a $100 check each year, we can each offset our 10-ton carbon footprints without changing our lifestyles. No more worrying about how our air travel or SUVs spew carbon dioxide into the atmosphere and increase global warming.

More than three-dozen companies now offer to trade our cash to underwrite projects that reduce the amount of greenhouse gases circulating in the atmosphere. According to industry figures, this voluntary carbon market has already prevented or sequestered hundreds of millions of pounds of carbon dioxide emissions. And the field is exploding. Two of the world’s largest power companies, General Electric and AES Corporation, just announced plans to create 10 million tons of greenhouse gas offsets by 2010 to sell to commercial and industrial customers.

But with battling experts, evolving scientific knowledge and no Better Business Bureau to police this new green field, what guarantees that the carbon offsets being sold effectively protect the environment?

The bad news, says Derek Broekhoff, a senior associate at the World Resources Institute, is that “the vast majority of providers have a long way to go before they are up to speed and maintaining consistent levels of quality.”

“I would definitely say it’s a buyer beware market,” he concludes.

Now, with real money at stake, consumers, suppliers, scientists and investors have begun assessing the voluntary carbon market’s ability to ensure consumer confidence, the key to the market’s future.

A Dog’s Dinner

The voluntary carbon market surged 1000 percent over the past two years, according to recent reports. It racked in sales of over $100 million last year and is set to double again by next year. Yet no single standard exists to appraise the quality of marketed carbon offsets, forcing consumers to rely on advertisements for much of their education. In the short term, this could prove a bonanza for businesses marketing carbon offsets. But in the long term, it could compromise this consumer-driven market’s credibility, threatening inroads made in the battle against global warming.

Now, says Jeff Reamer, assistant vice president for renewable energy at GE Energy Financial Services, “just about anyone can hang out a shingle and say I’m selling a ton of carbon.”

Confronting this lapse, United Kingdom regulators announced last month that all future voluntary carbon credits undergo the same scrutiny as carbon credits sold on the mandatory European carbon market for factories and large institutions. The move has come under heavy criticism from many in the industry who argue that such regulation will strangle the innovative side of the market that keeps transaction costs low and contributes to sustainable development. Whether they are for or against the government approach, however, nearly everyone agrees with UK Environment Secretary David Miliband: “People need to be sure that the way they offset is actually making a difference.”

Since the United States has neither a federally mandated carbon market nor established standards, it could not follow Britain’s lead even if it wanted to do so. Instead, a potpourri of unofficial groups proposed their own standards. The CDM Gold Standard recently released what it calls a voluntary market standard and the Climate Group, the International Emissions Trading Association and the World Economic Forum Global Greenhouse Register are in the midst of developing their Voluntary Carbon Standard.

The Center for Resource Solutions offers it’s Green-E logo for vetted renewable energy certificates and is creating similar criteria to certify carbon reductions (for more on these standards see Comparing Apples & Oranges: In Search of a Standard for the Voluntary Carbon Market and The Missing Link? Green-e Attempts to Join the Voluntary Markets for RECs and Carbon Offsets in U.S.). Meanwhile GE, in its new carbon-offset partnership with AES, plans to create its own standard to ensure that what is sold as a ton of sequestered CO2 actually represents a ton of CO2, says Reamer.

Many applaud these various yardsticks, saying they provide effective ways to guarantee that carbon reductions are delivered and not double sold. But with so many standards out there and none universally accepted, “it’s a bit of a dogs’ dinner right now,” says Sean Clark, offset portfolio manager for Climate Trust, a nonprofit carbon-offset provider based in Oregon. “It’s a mess.”

Messier still is where this leaves consumers. With no universal standards, even bottom-line information on how many voluntary offsets have been sold remains unknown. In a recently published report commissioned by Clean Air, Cool Planet, Mark Trexler, president of the energy and environmental policy consulting firm Trexler Climate + Energy Services, determined that nearly 75 percent of the 30 retail voluntary carbon-offset providers existing at the time of his study provided insufficient information on how their offsets combat global warming, limiting consumers’ ability to make educated purchasing decisions.

“We were surprised by how little information consumers had on the web about what they were buying,” Trexler said. “We were also surprised by how many providers provided no indication that they understood the tricky issues of offset quality.”

Shooting the Dog

Remember the National Lampoon magazine cover that threatens, “If you don’t buy this magazine we’ll shoot this dog”? The voluntary carbon market also suffers from this type of “counterfactual hypothetical,” says Steve Calderia, a scientist at Carnegie Institution’s department of global ecology. Just as the dog would not be shot whether or not the magazine was purchased, a rainforest sequestering carbon may or may not have been preserved regardless of funding received from the voluntary carbon market. Factories updated in exchange for permission to spew carbon from another site may have found it financially profitable to modernize regardless of newly available carbon finance. By trading against hypothetical situations, Calderia says, “a great deal of room is left for gaming the system.”

Folks in the carbon-trading business refer to this thorny issue as additionality. And when assessing the quality of the carbon market, additionality, most agree, presents the biggest hurdle.

Experts from various perspectives bring up additionality even when discussing the most basic issue surrounding offsets: promoting renewable energy verses relying on direct emissions reduction activities. Jasmine Hyman, marketing director of the Gold Standard, says that promoting renewable energy projects through the voluntary offset market provides a key way to shift from a fossil-fuel-based economy. Meanwhile, Hyman adds, carbon offset projects that prevent carbon emissions rather than create energy offer less permanence and therefore provide less quality.

Conversely, Trexler argues that intermingling renewable energy certificates in the carbon-offset market could add green energy to the grid without achieving cuts in CO2 emissions. Because of this perspective, he gave low marks in his study to voluntary-carbon-offset providers that included sizeable percentages of renewable energy certificates in their portfolios.

Without clear standards, consumers must come up with their own criteria and may wind up paying for phantom reductions. Flabby oversight that forfeits consumer safeguards comes with high stakes. “We know that selling offsets as absolution would be a disaster for the environment. We need to raise awareness so that consumers know that pressing the buy button is only the first step,” says Tom Arnold, chief environmental officer of the carbon-offset seller Terrapass.

Baby Steps

The voluntary carbon market is not only just a first step; it is also a baby step. Voluntary offsets can lead the market but cannot solve the problem of global warming. Most scientists agree that seven billion tons of carbon emissions must be prevented from entering the atmosphere over the next 50 years to make a dent in global warming. The voluntary market can only deliver about 1/10,000 of these emissions cuts, Trexler estimates. Its strength, then, lies in its potential to spur massive government efforts to limit carbon emissions from large-scale emitters. If consumers lose confidence in their ability to fight global warming, they may be less likely to agitate for these reductions.

Critics claim that some fraudulent greenhouse gas reduction projects sell more carbon credits than they actually reduce, exploiting the lack of an international standard and leaving consumers mistakenly believing that they offset their carbon emissions. Others say that most carbon-reduction providers do their best to provide high-quality carbon offsets. But without accepted standards to vet these offsets and verify that they are sold only once, the voluntary market’s reputation can rise or fall on anecdotes.

Alice Kenny is a prize-winning science writer and a regular contributor to the Ecosystem Marketplace.

You can return to the main Market News page, or press the Back button on your browser.