Ranking the quality of carbon offsets

2009-07-21

in Canada, Economics, Politics, The environment

Red rain jacket

Carbon offsets have been a contentious subject on this and other environmental blogs. On one side, people argue that their sale produces better outcomes than would otherwise arise, since people voluntarily help to eliminate emissions where it is cheapest to do so. On the other, people argue that many offsets are of dubious quality, and that the very idea of offsetting perpetuates harmful behaviours and the false sense that climate change can be addressed without lifestyle changes. Not everyone can offset, after all.

In response to the former concern, about the quality of offsets, the Pembina Institute and David Suzuki Foundation has produced a survey of 20 Canadian vendors of offsets. According to Pembina, offsets from renewable energy and energy-efficiency projects are the most credible sort available. Others have pointed out that forestry-based offsets and those based on Kyoto Protocol CDM credits are among the most dubious.

In the end, I think buying offsets is a much less worthwhile exercise than reducing your own emissions or lobbying for political action on climate change. That being said, if there is going to be a market in offsets, it is good that the various firms providing them are being subjected to outside scrutiny.

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{ 26 comments… read them below or add one }

Hella Stella July 21, 2009 at 8:54 pm

Oooh, I like what you did with that picture. I guess I need to wear that jacket more. It’s so dramatic!

Oh, and carbon offsets? What you said.

Milan July 21, 2009 at 10:28 pm

I am glad you don’t mind having your features featured.

Gabe July 22, 2009 at 4:51 pm

Milan,

Reducing emissions / lobbying for political action and purchasing carbon offsets are not mutually exclusive as implied above. Regardless of how much one is able/willing to reduce his/her carbon footprint, surely it is better to purchase carbon offsets rather than choose not to do so?

Milan July 22, 2009 at 4:54 pm

In some cases, I think it is actively harmful. The Kyoto credits linked to old Soviet emissions are meaningless. Buying them quite possibly increases emissions, overall. Forestry offsets are also very dubious, given that you have no guarantee that future controllers of the forest will honour them.

In the end, I don’t see offsets as a core climate change solution.

. July 22, 2009 at 4:55 pm

The CDM: Rip-offsets or real reductions?
July 15, 2009

I have written a lot of posts critical of international and domestic offsets. And I’d love to see the climate bill sunset the rip-offsets. George Monbiot argues “large scale carbon offsets can’t work.” More recently, I have spent a lot of time talking to leading experts and analyzing the international market, which has led me to realize that large-scale, inexpensive international offsets don’t exist nor will they (see “Do the 2 billion offsets allowed in Waxman-Markey gut the emissions targets?“) — whereas large-scale inexpensive domestic emissions reductions strategies do (see “the 2020 Waxman-Markey target is so damn easy and cheap to meet“). Certainly, offsets haven’t gutted the Europe’s Kyoto targets under their trading system (see “Europe poised to meet Kyoto target: Does this mean the much-maligned European Trading System is a success?“). Since this is such an important subject, I asked Elizabeth Zelljadt, an analyst at Point Carbon, for her perspective on the subject. Point Carbon is a leading provider of information and analysis on the international carbon market.

. July 22, 2009 at 4:57 pm

Energy-Credit Buyers Beware
Auden Schendler

Companies are buying millions of dollars’ worth of renewable energy credits (RECs) to offset the carbon produced by the electricity they use. But RECs have little effect on the environment,

. July 22, 2009 at 4:58 pm

“Introduced at the beginning of the decade, RECs are supposed to marshal market forces behind wind and solar power. Developers of clean energy sell RECs, usually measured in megawatt hours of electricity, to buyers that want to counterbalance their pollution by funding environmentally friendly power. But often the REC trade seems like little more than the buying and selling of bragging rights, rather than incentives that lead to the construction of wind turbines or solar panels.

Schendler knew that RECs and similar financial transactions were swiftly growing in popularity, as more companies sought green credibility and REC brokers proliferated. He persuaded his superiors in 2006 to spend $42,000 a year, a 2% premium on the company’s energy costs, to buy RECs at roughly $2 a megawatt hour. According to commonly accepted REC principles, this investment, less than a third of what it took to build the hydro plant, permitted Aspen Skiing to claim that it had offset all of its use of coal-burning energy.

Colleagues heaped praise on Schendler. In a press release, Pat O’Donnell, then the company’s CEO, said: “This purchase represents our guiding principles in action.” Accolades arrived from the EPA; local newspapers reported the feat. “It was seen as one of my biggest wins ever,” Schendler says.

He spent hours thinking about how to describe the purchase of RECs for marketing purposes. The formulation he came up with was that Aspen Skiing had offset “100% of our electricity use with wind energy credits, keeping a million pounds of pollution out of the air.” This wording was plastered on ski lifts, advertising brochures, and countless company e-mails.

But even as he helped launch this campaign, Schendler had a queasy feeling. At some level, he suspected the credits weren’t causing any new windmills to be built. They weren’t literally offsetting anything. He felt torn. “I’m well aware of what is right and what works and what matters,” he says. “I’m also aware of brand positioning. Part of my job is to maintain [Aspen Skiing’s] leadership.” His industry “was going to do this in a big way. One small resort in California already had, and we needed to move. My solace was the educational value of the move. The discussions it would cause would be valuable, even if the RECs were not.”

His prediction proved accurate. In the year and a half since his RECs purchase, more than 50 other ski resorts have made similar buys. No fewer than 28 claim to be “100% wind powered.” Enticed by inexpensive green claims, companies in other industries have been equally enthusiastic. The top 25 REC purchasers have bought the equivalent of 6 million megawatt hours this year, nearly quadruple the volume from 2005, the EPA says.

Rather than enjoying his role as an REC pioneer, Schendler felt increasingly anxious. In private, he pushed REC brokers for hard evidence that new wind capacity was being built. Their evasiveness gnawed at him. He asked veterans in the renewable energy field whether his marketing message was legitimate. “They laughed at me,” he says.

The trouble stems from the basic economics of RECs. Credits purchased at $2 a megawatt hour, the price Aspen Skiing and many other corporations pay, logically can’t have much effect. Wind developers receive about $51 per megawatt hour for the electricity they sell to utilities. They get another $20 in federal tax breaks, and the equivalent of up to $20 more in accelerated depreciation of their capital equipment. Even many wind-power developers that stand to profit from RECs concede that producers making $91 a megawatt hour aren’t going to expand production for another $2. “At this price, they’re not very meaningful for the developer,” says John Calaway, chief development officer for U.S. wind power at Babcock & Brown, an investment bank that funds new wind projects. “It doesn’t support building something that wouldn’t otherwise be built.””

Milan July 22, 2009 at 5:02 pm

HFC offset projects are also very problematic.

Gabe July 22, 2009 at 6:08 pm

Milan,

Just because some offsets are problematic does not mean that all offsets are problematic. The article above speaks to the need for auditing, not to any inherent problem with an offset market.

Simply put, I think you would be hard pressed to find any individual that has ever purchased a carbon offset arguing that they can singlehandedly solve the climate crisis. They are certainly quite useful, however, for facilitating carbon reductions that I am unwilling to undertake personally.

For example, I would be hard pressed to have the temperature inside my home drop to the ambient air temperature in Ottawa in January. Similarly, I would not eat exclusively raw foods. If I were to move to a province where renewable electricity is not available, I would similarly not give up lighting my house in order to reduce carbon emissions. More dubiously, I am unwilling to forgo long distance travel. The net result of these indulgences is a carbon footprint approximately half of the Canadian average.

I am more than willing to pay the ~$40 per ton (for gold standard credits) of carbon that these activities require be emitted. However, if reliable carbon offsets were not available, I would not forgo these activities. I simply would not purchase carbon offsets.

Which brings me to my point – assuming that individuals either choose or preferably are required to offset their carbon emissions, this merely serves to increase the price of these offsets, as the cheapest reductions are used up. The principle behind carbon offsets, then, is identical to that behind other emissions-reduction strategies. That I’m aware of, no ‘rationing’ system for carbon emissions has been seriously considered by any developed (or developing, for that matter) nation. Market based systems, on the other hand, have. All of which work on this very same principle – the more you want to emit, the more you have to pay.

Okay, so I’m taking longer to get to my point than I thought, but nonetheless: The only difference that I see between a certified, audited carbon credit and other market-based systems for carbon reduction is that it is purchased in addition to the product being consumed, rather than being integrated into the price. The large-scale emissions reduction programs that you speak of seek to integrate them into the price. Would you thus be opposed to mandating purchase of these credits along with any/all goods? In other words, funneling money from purchases of carbon intensive (or all) goods into these very same large scale emission reduction programs?

So very simply put, why do you care how an emission reduction is paid for?

Gabe

R.K. July 22, 2009 at 6:34 pm

Offsets don’t actually reduce emissions, they just move them around.

Instead of some factory in China emitting a tonne of carbon, I am doing so in their place.

Gabe July 22, 2009 at 6:47 pm

R.K.,

That’s only true where the credit is not certified and/or audited.

A Gold Standard Offset is extremely difficult to just “move around.” To take your Chinese factory example, a gold standard (at least the 2.1 variety – I can’t speak to previous versions) offset would make sure that the reduction did indeed take place, and that it would not have taken place without outside funding. So we have two scenarios:

a) I burn enough jet fuel in my backyard to emit 10 000 tons of carbon. I purchase carbon offsets from a reputable, gold standard certified dealer, and facilitate an emissions reduction of 10 000 tons through installation of modern manufacturing processes/methane capture for their waste stream/whatever. Net carbon emission: 10 000 tons.

b) I burn enough jet fuel in my backyard to emit 10000 tons of carbon. I do not purchase carbon offsets. Net emissions: 10 000 tons of carbon from me, 10 000 tons from the factory. Total emissions: 20 000 tons, 10 000 tons more than in scenario a.

I fail to see how these 10 000 tons have been “moved around” – they are simply not emitted.

Gabe

Milan July 22, 2009 at 7:04 pm

Offsets do not cut emissions in an absolute sense. Rather, they are an attempt to produce lesser overall emissions than would have existed without them. No amount of trading emissions between parties will reduce absolute global emissions; all they can do is shift the cuts produced by a cap on total emissions from the most expensive and painful areas to cheaper and easier ones.

That being said, there are at least a couple of ways in which they could actually have the effect of increasing emissions:

1) People buy meaningless offsets and use it as an excuse to emit more

2) Companies in unregulated sectors invest in processes that produce awful greenhouse gasses like HFC-23, knowing they will be able to get people to pay them to destroy those chemicals

3) Money that could have been invested directly and productively in cutting emissions gets diverted towards dubious projects instead

Milan July 22, 2009 at 7:10 pm

Offsets can also produce poor value for money.

For instance, if there is a firm with a hugely emissions intensive process and thin profit margins, they could get people to pay a lot more for their offsets than they would have earned by undertaking the production. This produces a windfall gain for them and a deadweight loss, overall.

In theory, if the market for offsets got big enough, all such opportunities would be exhausted, bur we are probably a long way from that now.

Milan July 22, 2009 at 7:11 pm

I fail to see how these 10 000 tons have been “moved around” – they are simply not emitted.

It depends on what you take as your baseline: the scenario where you burn, or the scenario where you don’t.

If I was unwilling to travel before, but decided to do so because of carbon offsets, I would really be just moving emissions around.

Before: 0 from me, X tonnes from the factory
After: X tonnes from me, 0 from the factory

. July 22, 2009 at 7:16 pm

Carbon offset >> Controversies >> Perverse incentives

Because offsets provide a revenue stream for the reduction of some types of pollutants, they can in some cases provide incentives to pollute more, so that polluting entities can later get credit for reducing emissions from an artificially high baseline. This is especially the case for offsets with a high profit margin. For example, one Chinese company generated $500 million in carbon offsets by installing a $5 million incinerator to burn the HFCs produced by the manufacture of refrigerants. The huge profits provided incentive to create new factories or expand existing factories solely for the purpose of increasing production of HFCs and then destroying the resultant pollutants to generate offsets. Not only is this outcome environmentally undesirable, it undermines other offset projects by causing offset prices to collapse.

In Nigeria oil companies flare off 40% of the natural gas found. The Agip Oil Company plans to build plants to generate electricity from this gas and thus claim 1.5 million offset credits a year. United States company Pan Ocean Oil Corporation has also applied for credits in exchange for processing it’s own waste gas in Nigeria. Oilwatch.org’s Michael Karikpo calls this “outrageous” as flaring is illegal in Nigeria, “It’s like a criminal demanding money to stop committing crimes”.

Gabe July 22, 2009 at 7:43 pm

Milan, point taken on the moving around – however, a strategy of purchasing > 1 * the required number of credits generates a net reduction in emissions, rather than a “shift” under your self-centered baseline scenario.

A >2 * purchase actually has the effect of removing the carbon from the atmosphere. Does choosing to fly under such a scenario not have a significantly positive impact on the environment?

As for your objections, none of these three scenarios are possible where a gold standard offset is employed. Which is part of why they’re so (relatively) expensive, but nonetheless.

Agreed on the poor value for money – at present offsets are a relatively inefficient market. That said, it’s also a relatively new market. One can expect ever decreasing deadweight losses as time moves forward.

But my primary point here remains unadressed: Certified, audited offsets are but one method of channeling resources into emissions reduction projects. They are not mutually exclusive with other mechanisms, but rather provide individuals an increased set of options over and above whatever regulatory constraints are imposed. I fail to see how that can be a bad thing, so long as you take my initial statement into account: you won’t find purchasers of carbon offsets advocating against new regulatory measures.

Gabe July 22, 2009 at 7:48 pm

A related question: At present, even if I were to forgo all non-essential activities, I would still have a carbon footprint, however small. Assuming I wished to mitigate the impact of my existence, what action would you advocate if not carbon credit purchases?

Gabe

Milan July 22, 2009 at 7:50 pm

Assuming I wished to mitigate the impact of my existence, what action would you advocate if not carbon credit purchases?

I would say driving political action is more important than reducing your footprint.

Milan July 22, 2009 at 7:51 pm

Would it be better for the world if Al Gore sat in a passive house, sending emails using energy from solar panels? The fact that he is working instead to change whole energy systems makes him a lot more significant (and probably a lot more ethical) than if he took the abstinent route.

Milan July 22, 2009 at 7:57 pm

Does choosing to fly under such a scenario not have a significantly positive impact on the environment?

Even if you offset your emissions, there are still other harms. There are the criteria air contaminants present in jet exhaust. More systemically, you are helping to keep industries afloat (airlines, airports, aircraft manufacturers) that may have no place in a sustainable world. Certainly, they haven’t demonstrated an ability to survive in a carbon-neutral world.

Gabe July 22, 2009 at 8:17 pm

Milan,

Gore adopts exactly the approach I discuss above – reducing emissions wherever possible, and offsetting the rest.

Even these systemic impacts are quantifiable – perhaps the appropriate multiplier is 1.1, perhaps it’s much higher. But even if it’s 35.8 * the amount of carbon, one could still purchase this quantity of offsets. And I disagree that they haven’t shown they can operate in a carbon neutral world. Air travel would (will) simply be far more expensive. Probably more expensive to the cost of air travel in the 1930s (about double today’s prices), but still well within the budget of a sizeable segment of the (developed) world’s population, I would imagine.

But regarding your first response – it doesn’t answer my question – these are not mutually exclusive activities. I can be politically active AND offset my carbon emissions.

Gabe

Milan July 23, 2009 at 10:42 am

I think Gore offsets primarily to provide himself with political cover, against those who complain that he flies a lot and has a big house. Bringing him specifically into the conversation distracts from my point, which is that there are some people working effectively enough to more than excuse the emissions. We would rather have them as active ambassadors than carbon-neutral hermits.

Airlines definitely haven’t shown an ability to be carbon neutral. Nobody has flown a commercial flight using only biofuels, and most biofuels are not sustainable. Until someone demonstrates the commercial feasibility of a carbon neutral full-cycle for aircraft production and use, we cannot assume the industry has a future with tickets at any price.

Yes, you can take several forms of action simultaneously. That said, I maintain that offsets are one of the less meaningful options that exist. Dollar-for-dollar, I think people would be better off making investments in energy efficiency and similar actions with a direct capacity to reduce emissions. In terms of time and/or personal sacrifice, political agitation is likely to be more effective. If you are already doing a lot politically, and on cutting your emissions, buying credible carbon offsets probably doesn’t do any harm.

Jimmy July 23, 2009 at 8:37 pm

I got yer quality carbon offsets right here:

freecarbonoffsets.com

Go get 13 billion like I did.

Milan July 24, 2009 at 10:46 am

I put up a post on the prospects for carbon-neutral aviation.

. July 24, 2009 at 4:59 pm

David Suzuki Foundation & Pembina Institute Carbon Offset Guide Fails Consumers

14:02 EDT Friday, July 24, 2009

Guide Rejects Internationally Accepted Third-Party Standards in Favor of Subjective, Non-CO2 Related Criteria

SILVER SPRING, Md., July 24 /PRNewswire-USNewswire/ — In a guide purporting to rate and rank carbon offset providers in Canada and abroad, the David Suzuki Foundation (DSF) and Pembina Institute have rejected internationally accepted carbon reduction standards in favor of subjective criteria that have no bearing on whether or not carbon dioxide is reduced from the atmosphere. The guide rejects forest-based carbon reductions even when certified to the strict standards adopted by the United Nations, International Organization of Standards (ISO), California’s Climate Action Reserve (CAR) and Voluntary Carbon Standard (VCS). The U.S. Environmental Protection Agency (EPA) also allows forest-based carbon reductions, as does theKyoto Protocol.

. September 24, 2009 at 4:39 pm

The Guilty Language of Offsets

In Climate

In NewScientist today, there is a little article that describes the different types of carbon offsets you can purchase. It’s not too informative and I much prefer articles with a little more of a critical eye, such as this 2007 piece in BusinessWeek or this piece from the NYTimes blog on confusing carbon labels. (By the way, be sure to check out the UK offset parody Cheat Neutral).

Truth is, I have been bored by carbon offsets for ages (ever since I did my master’s related to carbon trading–back in 2002, when they were still calling it ‘carbon sequestration’ and the concept had not yet burgeoned into the fancier ‘offset market’ and the neocon eco-manifesto designed to fleece sensitive yuppies it is today; my then supervisor at Cornell, Duane Chapman, used to joke around about a “Logs in Space” program to sequester carbon). Stocking stuffer or not, carbon offsets just aren’t that interesting.

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