You remember carbon offsets, don’t you? When companies like Dell, Yahoo!, News Corp. and HSBC promised to go carbon neutral, they decided to do so, in part, by financing projects to develop clean energy, or plant trees, or capture methane gas from landfills or farm animals that would, in theory, offset their own emissions. In regulated markets, mostly in Europe, traders bought and sold billions of dollars in carbon credits. Carbon finance was going to be the next big thing.
That was so, well, 2007. These days, you don’t hear much talk about carbon neutral. And the price of carbon credits on regulated markets has collapsed; you can buy a credit, once worth 32 euros (about $42), for about 4.5 euros ($6) these days on the European exchange. Here in the US, cap-and-trade was rejected by Congress. Carbon offsets came under attack, rightly or wrong, as a scam.
So it came as a surprise to me to learn recently that the market for voluntary carbon credits is alive and well and growing, at least by some metrics. A report by a nonprofit called Ecosystem Marketplace put the size of the market at 101 million tons of carbon offsets in 2012, which is up 4 percent over the previous year. In dollar terms, the value of the voluntary offset market fell by 11% to $523 million, as the prices that buyers were willing to pay fell. Even so, a not-insignificant number of companies and individuals are willing to act ahead of governments when it comes to curbing climate change.
What can we learn from the State of the Voluntary Carbon Markets report? First, as a tool for dealing with global climate change, these voluntary offsets are, at best, a small step in the right direction and, at worst, harmful if they get in the way of other forms of action. One hundred million tons of CO2 emissions may sound like a lot, but it’s a fraction of global carbon dioxide (CO2) emissions, which will likely reach a record high of 35.6 billion tonnes in 2012. GHG emissions are rising and they will continue to do so, even in the wake of the climate actions announced last week by President Obama.
Having said that, half a billion dollar represents a significant investment in carbon finance, particularly when that money is spent in the developing world. Disney, in partnership with Conservation International, spent $3.5 million to help protect a forest that is threatened in Peru; the money goes to train families in agriculture and provide them with other benefits, in return for pledges not to cut down trees. Chevrolet has supported an array of projects in the US, supporting biomass to heat a North Caroline greenhouse, a wind farm in South Dakota and energy efficiency improvements to homes in Maine. Microsoft, which has committed to carbon neutrality, and imposed a carbon tax on its operations, is another important buyer of offsets, but it has been has been vague about the specifics, so it’s hard to judge their effectiveness.
And that’s a persistent problem with offsets. Despite efforts to set standards and verify their effectiveness, their impact is hard to measure. Would the Peruvian forest that Disney is protecting otherwise have been destroyed, and for how long will it be preserved? How important were Chevrolet’s contributions to weather stripping those homes in Maine? Critics have questioned those projects (see this about Disney and this about Chevrolet) as well as others. A carbon offset, when all is said and done, is nothing more than the certified absence of a colorless, odorless gas–not an easy thing to track.
And yet carbon offsets–whether voluntary, or part of regulated markets like ones in the EU and California–can surely do good. Particularly when carbon reduction is combined with poverty alleviation–by, for instance, financing clean cookstoves or solar power in emerging markets–the offsets can drive markets that are otherwise stalled. In 2012, for instance, voluntary buyers spent $80 million on projects that distribute water filtration devices and cookstoves that burn “clean,” thereby reducing greenhouse gas emissions while sparing households from harmful smoke inhalation.
At a Washington event where the report was released, Jennifer Tweddell, manager of carbon finance and impact investing of the Global Alliance for Clean Cookstoves, said cookstove projects generate health, economic and environmental benefits, and so they appeal to voluntary buyers looking for a PR boost. “Certainly you can tell a great story about having a health benefit and improving the lives of poor people in developing countries,” she said.
Carbon offsets helped pay for about 2.7 million cookstoves last year, according to Molly Peters-Stanley of Ecosystem Marketplace, an author of the report. Most of them were assembled in the countries where they were sold, generating local employment, she said. The corporate buyers of offsets to finance cookstoves include Jaguar Land Rover, which supported projects in Uganda, Ghana and Cambodia, the Dutch utility Eneco, which backed a large project in Uganda and shipping company DHL, which financed a project in Lesotho.
These projects almost surely do good, and despite the criticism leveled against then, it’s likely that the offset projects financed by Disney, Chevrolet and Microsoft provide real climate benefits as well. But offsets are complicated and bureaucratic–all of the people tracking and verifying them need to get paid, of course–and subject to abuse. With voluntary offsets, those drawbacks may be acceptable. But my takeaway from a quick look at the voluntary market is that carbon regulation, if it ever comes, should not depend on offsets. Better to apply a simple carbon tax (if such a thing can be designed) to GHG emissions, which would discourage the burning of fossil fuels and promote cleaner alternatives.
Image of offsets: Ron Barrett, via PlanetThoughts
Photo courtesy of the Global Alliance for Clean Cookstoves