Assessing Voluntary Carbon Markets

In the absence of government caps on carbon dioxide emissions—or sometimes alongside them—businesses, organizations, and individuals are voluntarily purchasing credits that aim to mitigate greenhouse gas emissions. Often referred to simply as "carbon offsets," these credits are bought and sold over the

Improving Carbon Markets SPECIAL SECTION: PAYING FOR NATURE'S SERVICES

Table 7-2. continued

Authorized

Participants

Other Parties

GHG Reductions

Description

(tons of CO2 equiv. per year)

Joint Implementation

Rehabilitation of the district heating system in Donetsk Region

Ukraine

826,875 (total by 2012)

Old boilers will either be replaced or upgraded; switch to natural gas from coal/oil; pipe length will be decreased and pipe insulation will be enhanced; introduce combined heat and power plants; reduce heat loss, improve efficiency, and decrease fuel consumption.

Switch from wet to dry process at Podilsky Cement

Ukraine

Ireland-based CRH plc, Dublin

750,000

Cement will be produced through dry process rather than through energy-intensive wet process.

Landfill gas recovery in Moscow

Russia

4,122,016 (2008-12)

A landfill gas recovery and flaring system will be constructed to reduce release of landfill methane.

RBTI Biomass

Waste-to-Energy

Project

Latvia

5,337

Boilers will be introduced at the Baltic Timber Industries so bark and wood waste can be used to generate electricity for the company.

Source: See endnote 32.

counter or through an established trading mechanism such as the Chicago Climate Exchange. Ecosystem Marketplace, a U.S.-based group that tracks markets for a variety of ecosystem services, estimates that in 2006 at least 23.7 million tons of CO2 equivalent were exchanged in voluntary carbon markets, with 10.3 million tons moving through the CCX. Many more voluntary credits were exchanged in so-called over-the-counter trades—transactions made outside of formal market structures, often between an offset provider and a private citizen.41

People in North America or Europe are increasingly encouraged to buy carbon offsets to negate the climate impacts of their everyday activities. The airline ticket consolidator Expedia, for example, teamed up with carbon credit broker TerraPass to offer customers the opportunity to offset the carbon dioxide generated during their flights; TerraPass, in turn, uses the fees it collects to buy carbon credits produced by verified wind, biomass, or industrial efficiency projects. And Jiva Dental in the suburbs of London advertises itself as the first "carbon-neutral" dental practice in the world; the office buys carbon offsets created by projects in India, Mexico, and

SPECIAL SECTION: PAYING FOR NATURE'S SERVICES Improving Carbon Markets the United States. Jiva Dental is just one of many institutions, events, and enterprises to claim "carbon neutrality." (See Box 7-3.)42 One specific type of renewable energy offset sometimes traded on the voluntary market is the renewable energy credit (REC), which represents power generated from renewable sources and fed into the grid. Use of RECs as carbon offsets is controversial because the energy sources are not tested for additionality—in other words, it is difficult to know if they represent renewable energy products that would not have occurred anyway without financing from the purchase of the credits.43

Forestry and tree-planting projects are a prevalent but controversial method of sequestering carbon and producing voluntary offset credits. A recent report from the Amsterdam-based Transnational Institute questions the claims of several well-known organizations or companies that sell forestry-based carbon offsets. The report documents incidents in which groups advertised that buying their offsets would support the planting of new forests when, in reality, consumers' money was going toward purchase of carbon sequestration rights to existing forests.44 The report also calls attention to an incident in which a community was displaced by a forestry project and then moved to another forested location, clearing the area to build their new homes. This allegedly happened with a project unfortunately located at a disputed boundary area in a Ugandan national park—the site of ongoing forced evictions and conflicts over resource rights. Some residents forced to move away from this site had little choice but to fell trees at their new location, perhaps cancelling the intended beneficial effects of the offset project. While some of the examples in the report are quite

Box 7-3. Carbon Neutrality—Not a Neutral Term

When "carbon-neutral" became the Oxford American Dictionary's 2006 Word of the Year, many hailed it as the mainstreaming of an important environmental topic. But what does it really mean to be carbon-neutral? Is it at all possible to document such a claim? Businesses, organizations, conferences, sporting tournaments, concerts, and individuals are certainly trying to.

Some critics argue that carbon neutrality is an empty descriptor, in part because it sometimes takes years for the emissions being offset to really be neutralized. Offsets based on forestry projects, for example, often calculate a 99-year lifespan, during which the tree will absorb carbon dioxide at varying rates.Trees are by no means guaranteed to live for this amount of time, and there are still uncertainties about the carbon emissions associated with their decay.

There are also significant questions about the often-opaque algorithms used to determine the emissions that a person or organization would need to offset in order to truly erase their impact on the global atmosphere, especially for emissions associated with air travel. Although several well-recognized methodologies do exist, such as the World Business Council for Sustainable Development (WBCSD)/World Resources Institute GHG Protocol, not all voluntary offset sites use this methodology.

While the term carbon-neutral is surely alluring, buyers do need to beware when purchasing offsets and using this term. Some critics argue that offsets are a cheap way of pushing aside more serious questions about ongoing consumption patterns. Others urge that people should go beyond carbon-neutral and look toward a "carbon-positive" future—one in which people are proactively repairing damage to the climate through lifestyle changes, business practices, and everyday purchases.

Source: See endnote 42.

Improving Carbon Markets SPECIAL SECTION: PAYING FOR NATURE'S SERVICES

old, the authors' main points remain valid: without proactive legislation, concerns over land tenure could easily escalate as forestry projects increase in frequency and size.45

Given the frequent changes in scientific findings, certification systems, and due diligence that affect carbon credits, purchasers need to ask about the origins of carbon offsets and how they are verified. By understanding the differences among various offset products, their certifiers, and the available standards, buyers can get a sense of whether they are getting value for their money. This will clarify the process involved in offsetting carbon emissions and will put pressure on those generating and brokering the credits to ensure that customers are truly getting the "offsets" they believe they are paying for.46

By understanding the differences among various offset products, their certifiers, and the available standards, buyers can get a sense of whether they are getting value for their money.

A note of caution: while carbon offsets offer some positive benefits, they are not a panacea. The carbon emissions associated with high-consumption lifestyles will not be neutralized by simply buying carbon offsets. (Nor would it even be possible to produce and offer for sale enough credits to attempt that feat.) Improving energy efficiency and decreasing consumption are key first steps to decreasing carbon emissions.

With the energy sources currently used to generate electricity, the building standards that dictate construction of houses and offices, and the industrial regulations that influence how appliances and clothes are manufactured, it is clear that government rules and regulations have great power over the emissions associated with everyday lives.

With the right legislation, people will be able to purchase better products and there will be less need to consider buying carbon offsets on a voluntary basis. Until that happens, carbon offset purchases will be made more meaningful by simultaneously lessening consumption and lobbying for more effective national legislation.

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