Avoiding "Rip-Offsets": A User's Guide

Carbon offsets have received some bad press of late, some of it deserved but much of it misdirected. This is due in part to the fact that there is no single prevailing quality assurance standard or government oversight of the voluntary emissions reductions (VER) market. However, the variety of standards means that there are high quality and lower quality offsets, and therein lies the challenge.

The truth is there are many praiseworthy carbon reduction projects. To increase the odds of selecting one, offset buyers must become educated consumers. Only through education can buyers ensure they are purchasing the right carbon commodity for them and avoid the traps that have tripped up the most well-intentioned greening efforts.

Buying Carbon Offsets: A Quick Primer

Carbon offsets serve a number of purposes. In the European Union Emissions Trading Scheme (EU-ETS), under the auspices of the Clean Development Mechanism (CDM), European companies can invest in emissions reduction projects in developing countries and claim the reductions as their own. That's because greenhouse gases, unlike local pollutants such as mercury, are global: reducing one ton of CO2 in China has the same result as reducing one ton of CO2 in Germany.
Cognizant of this fact, and seeing an opportunity for wealthier countries to reduce their emissions at the lowest cost while simultaneously contributing to international development, the framers of the Kyoto Protocol included the CDM as a cost containment mechanism. In the US, where there is not yet a mandatory federal cap-and-trade scheme in place, offsets can be purchased by those companies that would like to voluntarily reduce their carbon footprint but find it too expensive to curtail their own emissions without an incentive to do so.
There are several key components of an offset that every potential buyer should examine closely before making a purchase:

Five Easy Pieces: Your Offset Quality Checklist

Verification standard: There are numerous standards under which an offset project can be certified (a good comparison of the major standards can be found here). The most important criterion for many buyers is additionality, or whether the project goes beyond business as usual. If you are about to invest in a project that can't meet the additionality standard: think twice! A rigorous additionality requirement is the most important component of a high quality offset.

Project type: As with additionality, some standards are more selective of the types of emissions reductions projects they will certify. Moreover, from a public relations perspective, some project types can be more appealing to stakeholders than others. For example, while a wind farm and a landfill gas capture project may have identical emissions mitigation potential, the former might look better on your company's annual report.

Project location: The geographic location of an offset project may be important to a company looking to make an investment in a strategically significant region. Where a project is based can also introduce geo-political risks. Knowing where a project is based can allow buyers to factor country risk into their pricing considerations.

Co-benefits: Some projects provide employment in the local area. Others create clean drinking water as a by-product. Auxiliary benefits such as these can make offset purchases more attractive.

Likelihood that offsets will be accepted under a future compliance regime: As the US Congress debates a mandatory, federal cap-and-trade scheme, there is speculation as to which offsets, if any, will be permissible in meeting compliance obligations. While there is no way to be certain that offsets from a particular project will be accepted, a good rule of thumb is that the more rigorous the protocol a project adheres to, the higher the probability that those offsets will be fungible.

These factors, amongst others, demonstrate the need for transparency in the offset marketplace. When buyers know exactly what they are buying - when they can see all project documentation and compare offsets from projects based on the criteria that matter most to them - they will be making an informed decision that they can defend to their stakeholders. And thankfully, opportunities to buy high quality offsets at a reasonable cost and in a transparent and liquid marketplace are closer than you might think.

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