As more and more people, small businesses and large companies become hip to carbon emission offsets and the carbon-neutral lifestyle, Ecobusinesslinks.com has done some homework for us and completed a comprehensive comparison of the nonprofit and for profit organizations providing carbon offsets. The survey found that most companies provide nearly identical service (offsetting carbon emissions) using a couple different means (tree-planting or investment in renewable energy, or both) but varying wildly in price. Carbonfund.org checked in with the lowest price, at $5.50 US per metric ton of carbon dioxide, while other companies like TerraPass (about $10/ton) and NativeEnergy (about $13/ton) charge more for their offsets that can be calculated for more specific activities, like traveling by car or airplane. The growing number of companies that offer such service seems to indicate a growing market for carbon credits, which, no matter how much you pay, is a good thing.
Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.
By way of example, consider a business that owns a factory putting out 100,000 tonnes of greenhouse gas emissions in a year. Its government then enacts a law that limits the emissions that the business can produce. So the factory is given a quota of say 80,000 tonnes per year. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess.
After costing up alternatives the business may decide that it is uneconomical or infeasible to invest in new machinery. Instead may choose to buy carbon credits on the open market from organizations that have been approved as being able to sell legitimate carbon credits.
* One seller might be a company that will offset emissions by planting a number of trees for every carbon credit you buy from them under an approved CDM project. So although the factory continues to emit gases, it would pay another group to go out and plant trees which will draw back 20,000 tonnes of carbon dioxide from the atmosphere each year.
* Another seller may have already invested in new low-emission machinery and have a surplus of allowances as a result. The factory could make up for its emissions by buying 20,000 tonnes of allowances from them. The cost of the seller’s new machinery would be subsidized by the sale of allowances. Both the buyer and the seller would submit accounts for their emissions to prove that their allowances were met correctly.
It’s a neat idea to pay for the planting of trees and to raise cash to invest in renewable energy, but does it give people the incentive to cut down on their energy usage? I don’t think so. It seems as much a white-wash as hybrid SUVs.
And what trees are these companies planting - and more importantly, where?
Environmental restrictions and activities have traditionally been imposed on businesses through regulation. Many people were, and still are, uneasy at the use of a novel market-based approach to managing emissions, although the concept of Cap and Trade eventually won the day in international negotiations.
The Kyoto mechanism is the only internationally-agreed mechanism for regulating carbon credit activities, and, crucially, includes checks for additionality and overall effectiveness. Its supporting organisation, the UNFCCC, is the only organisation with a global mandate on the overall effectiveness of emission control systems, although enforcement of decisions relies on national co-operation. The Kyoto trading period only applies for five years between 2008 and 2012. The first phase of the EU ETS system started before then, and is expected to continue in a third phase afterwards, and may co-ordinate with whatever is internationally-agreed at but there is general uncertainty as to what will be agreed in post-Kyoto negotiations on greenhouse gas emissions. As business investment often operates over decades, this adds risk and uncertainty to their plans. As several countries responsible for a large proportion of global emissions (notably USA, Australia, China and India) have avoided mandatory caps, this also means that businesses in capped countries may perceive themselves to be working at a competitive disadvantage against those in uncapped countries as they are now paying for their carbon costs directly.
A key concept behind the cap and trade system is that national quotas should be chosen to represent genuine and meaningful reductions in national output of emissions. Not only does this ensure that overall emissions are reduced but also that the costs of emissions trading are carried fairly across all parties to the trading system. However, governments of capped countries may seek to unilaterally weaken their commitments, as evidenced by the 2006 and 2007 National Allocation Plans for several countries in the EU ETS, which were submitted late and then were initially rejected by the European Commission for being too lax [8].
A question has been raised over the grandfathering of allowances. Countries within the EU ETS have granted their incumbent businesses most or all of their allowances for free. This can sometimes be perceived as a protectionist obstacle to new entrants into their markets. There have also been accusations of power generators getting a ‘windfall’ profit by passing on these emissions ‘charges’ to their customers[9]. As the EU ETS moves into its second phase and joins up with Kyoto, it seems likely that these problems will be reduced as more allowances will be auctioned.
Establishing a meaningful offset project is complex: voluntary offsetting activities outside the CDM mechanism are effectively unregulated and there have been criticisms of offsetting in these unregulated activities. This particularly applies to some voluntary corporate schemes in uncapped countries and for some personal carbon offsetting schemes.
There have also been concerns raised over the validation of CDM credits. One concern has related to the accurate assessment of additionality. Others relate to the effort and time taken to get a project approved. Questions may also be raised about the validation of the effectiveness of some projects; it appears that many projects do not achieve the expected benefit after they have been audited, and the CDM board can only approve a lower amount of CER credits. For example, it may take longer to roll out a project than originally planned, or an afforestation project may be reduced by disease or fire. For these reasons some countries place additional restrictions on their local implementations and will not allow credits for some types of forestry or land use projects.
I can at least answer your last question. For carbonfund and terrapass’ tree-planting activities, they aren’t just planting trees willy-nilly or in monoculture tree plantations that will be shortly cut down. They are financing tree-planting in certified and protected forests, many of them tropical, or in the “great boreal forests” of Canada… there are independent organizations confirming the protected nature of the places where their tree-planting occurs. And these trees will then hold the carbon from their growth for about a century, which buys us quite a bit of time to solve climate change through other means (no more fossil fuels, sequestration, etc.). Finally, some organic matter (carbon) from the trees will likely be someday naturally buried, removing a tiny amount of carbon from the atmosphere semi-permanently.
But you’re right that carbon offsets do not “offset” non-climate-change-related environmental problems. We must deal with our guilt about acid rain and air pollution in other ways!
CO2 offsetting should never be a substitute for reducing emissions. There are only two roles for offsetting: taking care of your emissions until you are able to reduce your footprint, and taking care of your remaining emissions after you have reduced your footprint as much as you can.
After 5 years of providing offsets to individuals and most of the leading socially and environmentally responsible companies and organizations, and thousands of committed people, we know a great deal about who buys offsets. In general, people (and businesses) who don’t care enough to reduce their footprint don’t care enough to buy offsets either. In other words, the people who would even think of buying offsets are the ones who are already conserving.
NativeEnergy’s customers include: Ben & Jerry’s, Stonyfield Farm, Aveda, the (President Bill) Clinton Global Initiative, the Al Gore documentary ‘An Inconvenient Truth’, Clif Bar, Inc., Co-op America, Warner Bros. film ‘Syriana’, Dave Matthews Band, Guster, Jack Johnson, Circle of Life (Julia Butterfly Hill’s organization), Natural Resources Defense Council, Green Mountain Coffee Roasters, the United Nations Environmental Program Global Roundtable, World Wildlife Fund, Timberland, Seventh Generation, StopGlobalWarming.org, and CERES.
How offsets are sold is more of a problem than how they are used. The ecobusinesslinks survey, referred to above, seems to imply that certification and price are the only measures of value, and if there is certification, then only price is relevant. (An excellent article on price and value of offsets, written by Dr. Mark Trexler of Trexler Climate and Energy Services, was recently published in the Environment Forum of the Environmental Law Institute. As ELI is members only, we’ve posted the article at http://www.nativeenergy.com/news.html.)
There are other measures of value besides certification and price. For example, does your purchase help build a new renewable generator, or merely make an already successful one more profitable? If a renewable generator is already up and running, does it need offset revenues to continue running? If you help build a new wind farm that requires your purchase to get built, you help generate truly incremental offsets. And who developed or owns your renewable generator? Would you rather your offset purchase make a major corporation more profitable, or help Native Americans and family farmers build sustainable economies based on clean, renewable energy?
At NativeEnergy, we seek out new Native American and family farmer-owned renewable energy projects under development that truly need extra funding to get financed and built, and we buy their offsets on a long-term basis, up front, directly funding new construction. The amount we pay depends on what the project needs, which is frequently more than the current wholesale rates for renewable credits/offsets from existing projects. For the Rosebud Sioux Tribe wind project, our customers provided about 25% of the cost of the turbine, and actually helped make it possible for the tribe buy and build it.
While this approach increases our costs and our prices, it increases the value for our customers. That’s why we have such high-profile customers, and why they return to us to help build new projects each year. That’s also why certification and price are not all you need to know.
There’s been a plaque at the Rosebud wind turbine since its dedication in 2003 listing the name of every individual and business who, through their collective purchases from NativeEnergy, played a very real and valuable role in bringing into existence the first Native American owned and operated utility-scale wind turbine in the country. It’s something they can be proud of. We know we are.
The whole idea of purchasing carbon credits seems like a bogus premise to me…lots of people are using this means to fund their pet ideology, forming seemingly charitable organizations whose primary beneficiary is themselves and the people who surround them. It is not efficient to have many organizations purporting to do the same thing and duplicating all their various administrative expenses. Much more reasonable would be some effort to encourage folks to be more careful regarding environmental issues, along with some high-profile figures moving toward more responsible energy usage and leadership in this direction. The vast majority of the American people are smart enough to realize that this idea of “do as I say not as I do” is totally devoid of sincerity and earnestness, and basically is a crock. The “chicken little prophets” are playing on sentimentality, stirring up peoples’ emotions, and the hard science tells us that global warming may not even exist. It would be far more productive, and far less divisive, to pursue a sensible energy education policy, steer the dollars toward things that will work to improve the environment instead of improve the standard of living of the self-appointed guardians of the environment, and foster agreement on both sides of the issue for a progressive agenda, bringing under the tent people of good will who would be willing to discuss and decide on, and work to implement things to improve the environment that all of us could agree on. Take drinking water, for example. Where is there an effort underway to get both sides of these issues together so that they can sit down and have discussions about things they can possibly agree on, and then doing what can be done to make improvements in the drinking water situation. One thing is for sure. The problems in this country, whether they be drinking water, clean air, reducing dependence on petroleum, foreign or domestic, cannot be solved by only one half of us, with the other half in stark and active opposition to the first party. Briefly, what we need is leadership toward a progressive agenda where we start to ignore what we cannot agree on and start instead to do what we can ALL agree on to work for in the society, and that not only in the realm of environmentalism. There are many issues in the American experience that could stand to have a little work done on them where every single person involved is walking in lock-step, absolutely agreeing to commit to do what we are all agreeing on to make improvements in the world we live in. Our politics are bankrupt of any heart and soul and we have been so equally divided by the money-and-vote-driven politicians that we cannot do anything, frozen in 50/50 immobility, but time marches on and things get worse. How long will it be before we adopt a progressive agenda and get on with DOING SOMETHING GOOD FOR A CHANGE, rather than these bizarre emotionally-based schemes like selling carbon credits. ( I am available as a political consultant regarding the progressive agenda if anyone out there is interested.)
One of the primary solutions for climate change being touted by global warming alarmists is the purchase and sale of carbon credits. Put simply, companies, countries, and individuals could balance their CO2 output by purchasing credits from others that are emitting less greenhouse gases than prescribed maximums.
The concept is that this would give companies, countries, and individuals a financial incentive to produce less CO2. Readers might recall that during a debate on “Hannity’s America” this past Sunday evening, the two liberal guests firmly avowed that there wasn’t anything wrong with Al Gore’s use of private planes because he was offsetting his massive emission of CO2 with purchases of carbon credits.
Unfortunately, there’s a hitch in this scheme that threatens to totally derail it: carbon prices are plummeting due to an excess supply. I realize this might be a bit complex, but an article published in Green Business News wonderfully detailed the problems inherent in this scheme (emphasis mine throughout):
A leading economist this week warned that the world’s two leading carbon trading schemes are failing to deliver the expected benefits due to a collapse in the price of carbon credits - and the situation is likely to get far worse before it gets better.
Many politicians have identified carbon emissions trading schemes as the best means of tackling climate change, arguing that by putting a price on carbon emissions firms have a financial incentive to reduce their carbon footprint.
However, speaking to an audience of academics and business leaders at this week’s Tyndall Centre conference on investments in low carbon technologies, Professor Catrinus Jepma of the University of Amsterdam warned that both the EU’s Emissions Trading Scheme and the UN’s Clean Development Mechanism were in danger of failing with prices for the carbon credits used under both schemes predicted to reach just a few cents.
Stick with this, folks, because the entire concept of carbon credits could totally implode:
“The Stern Report suggests we need a price for a tonne of carbon emissions of $20, rising to $30, $40 or even $50 to stabilise [the level of CO2 in the atmosphere] at manageable levels,” he said. “But there is a good chance that the carbon credits that are meant to provide incentives for reducing emissions will be available for next to nothing.”
How delicious. The article marvelously continued:
The problems with the European Trading Scheme are well documented with the collapse in the price of a tonne of carbon dating back to May last year when it emerged that most countries in the scheme had set their carbon caps far too high, resulting in fewer firms than expected having to buy credits and causing the price of a tonne of carbon to plummet from over €30 to less than €10.
Everybody still with me? Good:
As one delegate observed “with some firms having carbon emissions capped at 110 percent of what they actually required it was always going to fail“.
The EU is seeking to rectify the problem ahead of the second phase of the scheme, which starts next year, and recently rejected many member countries proposed emission allowances for the next phase as too high, ordering them to go away and come back with lower caps that will force more firms to cut emissions or buy credits.
However, Jepma argued that with no link existing between the first and second phase of the scheme the cost of carbon credits will drop to almost nothing by the end of the year. Currently the price is already below one euro meaning there is little incentive for firms to cut emissions as it is cheaper to just buy in credits to offset their pollution.
The net effect here, folks, is that all incentive to cut emissions completely disappears if there is no value to these credits. The article continued:
He also warned that something similar was in danger of happening with the Kyoto Protocol’s Clean Development Mechanism (CDM), which is designed to allow signatories to the agreement to meet their carbon emission reduction targets by buying in Certified Emission Reductions (CERs) or carbon credits from CDM-approved carbon reduction projects in the developing world.
Jepma said the scheme was in danger of becoming a victim of its own success with over 500 projects already approved by CDM and a further 1,000 projects in the pipeline awaiting approval. He predicted that as a result over 2.4bn CERs will be available by 2012.
Meanwhile, Jepma warned that Russia and many of the Central European States are on track to be well below their Kyoto emission targets for 2012 meaning they will generate 2.8bn credits or Assigned Amount Units that they can sell to those countries unable to meet their Kyoto obligations.
This means that there will be a supply of 5.2bn tonnes worth of assorted carbon credits available under the various Kyoto carbon trading mechanisms by 2012, but the biggest polluters in the scheme – the EU, Canada and Japan – are expected to exceed their targets by just 3.6bn tonnes.
“Under the Kyoto targets the supply of credits will outstrip the demand,” said Jepma. “We are going to see the same scenario as with the ETS whereby the price for a tonne of carbon starts high and then collapses to close to zero by the end of the scheme… which is precisely the wrong message.”
And here’s the payoff, folks:
He added that such a scenario would not only remove the financial incentive for countries to invest in clean technologies that help them stick to their emissions targets - as it would be cheaper to continue polluting and just buy credits - but it would also discourage investment in carbon reduction projects in developing countries as they would have to pay for CDM approval only to find they could not get a good price for the carbon credits they generate.
As liberals and the media carp and whine about America’s lack of involvement in Kyoto, they completely ignore all the inherent flaws. As a result, it seems that the Senate in 1997 was quite wise to recommend – in a 95 to 0 vote – that the Clinton administration not participate in this farce.
Of course, this is a fact that all in the media have completely forgotten as they blame America’s lack of involvement in these protocols on George W. Bush.
Regardless, don’t expect to see any of this reported by major American media outlets. After all, we certainly wouldn’t want the public to know how this whole scheme is failing in Europe.
—Noel Sheppard is an economist
