Carbon Offsets
The Big Picture
An offset is any project that negates the impact of a company’s emissions by avoiding an equal amount of pollution, usually at another site. Because reducing emissions to zero through efficiency measures may be impossible or cost-prohibitive, offsets are an important tool for companies seeking to eliminate the climate impacts of their operations or to offer products or services that can be labeled “climate neutral” or “carbon neutral.” Some companies are prompted to invest in offsets by legislation. For example, Oregon state law requires that new energy facilities avoid, sequester, or displace a portion of their carbon dioxide emissions.
There are three main types of projects that produce offsets: projects that prevent the release of CO2, projects that reduce non-CO2 greenhouse gases, and projects that sequester carbon in vegetation or soil. A company could achieve the first two goals by purchasing an energy-efficient heating system for a school, for example, thus reducing the school’s CO2 emissions. A company could accomplish the third goal by reforesting an area. There are numerous other ways to offset emissions, such as paying a company to offset individual emissions as created through vehicle or air travel. Another method gaining in popularity is the capture and reuse of methane.
While useful, it is important to recognize that carbon offsets are not enough to solve the climate problem. If every individual offset all their emissions, the impact would not be significant enough to protect the environment. Any company should always start with an emissions reduction program first, and perhaps even try switching their energy sources to renewable forms; leaving offsets only as a final attempt to secure any unavoidable emissions.
Key Players
Since the first offset project was launched in 1989, companies of all sizes and sectors have invested in offset projects. They have worked closely with a variety of NGOs, many of them conservation-based organizations that have added a climate element to their work. There also are a growing number of nonprofit and for-profit organizations that specialize in providing offsetting expertise to interested companies.
Leadership companies. For more than a decade, companies have been taking action to offset the impacts of entire facilities, staff travel or specific events. For example, Nike and Delta Airlines set up a fund with the Oregon Climate Trust to offset the emissions generated by Nike employee travel. The Trust will invest in an expanding portfolio of offset projects, including cogeneration of electricity at industrial sites, building and transportation efficiency, and improvements to low-greenhouse-gas construction materials.
Companies also are integral to the agreements between nations participating in the Kyoto Protocol. For instance, under a deal struck between Germany and Brazil at the World Summit on Sustainable Development, German companies will subsidize purchases by Brazilian consumers of cars that run on ethanol. The credits German companies earn from the program will help Germany meet targets set under the Kyoto protocol, while Brazil aims to profit from the deal by reducing its dependence on imported oil, as well as reducing its greenhouse gas emissions.
Nonprofits that develop offset projects. Numerous NGOs develop climate mitigation projects. These include many international conservation groups, such as Conservation International and the Nature Conservancy, as well as regional forest groups, such as American Forest and the Pacific Forest Trust. Especially in the case of international projects, NGOs with a longtime presence in a region usually are well-prepared to coordinate offset projects with local authorities and organizations that represent the needs and priorities of residents.
Offset advisors. Many organizations, both nonprofit and for profit, have developed expertise in offsets and assisting organizations in building offset portfolios, which are attractive for companies that may want to adjust their offset investments from year to year to meet their changing needs. On the nonprofit side, organizations include the U.K.-based Climate Care as well as the Oregon-based Climate Neutral Network and the Oregon Climate Trust.
The Upside
- Cost effectiveness.
- Community and ecosystem benefits. Offset projects frequently provide significant benefits to the communities in which they take place by spurring economic development, improving the quality of life, or increasing recreational value. Sequestration projects often protect existing forests or entail reforestation.
- Brand reinforcement. Many offset projects — such as forest protection initiatives — make intuitive sense and thus are easy to explain to stakeholders. By sponsoring offset projects near or within communities where one’s products are produced or sold, a company can solidify ties with key constituencies.
- Shared burden. Many large offset projects are underwritten jointly. This means that companies can pool their resources, both financial and otherwise, to achieve projects of a scale that no company could or would undertake independently.
- Flexibility. Companies that invests in offset through an intermediary organization can adjust the degree of involvement from year to year (just as one would adjust any investment portfolio) to meet changing needs, goals, and aspirations.
One of the chief selling points of offsets projects is that they allow companies to reduce or avoid carbon emissions through projects that are less costly than internal emissions reduction options.
Reality Check
- Corollary expectations. If a company has done little to streamline its own operations, offset projects may be dismissed as merely “greenwash,” or an attempt to “buy” a good emissions profile. Thus, offsets projects should be a complement, not a replacement for, internal reduction efforts.
- Inequity concerns. Some critics challenge the premise that everyone stands to benefit from international offset projects. Instead, they view such projects as yet another example of companies from the world’s wealthiest nations finding quick, inexpensive fixes abroad rather than focusing on what could or should be done domestically.
- Dubious accounting. Many of the internationally recognized mechanisms and rules that allow for companies to count specific offsets are still under development. To account for a project’s impact, one must predict what would have happened in its absence, a principle known as additionality. This is difficult to do and leaves companies open to accusations of biased forecasting, unless they work with a reputable organization and invest in a certified project. Assessing additionality is an important element in maximizing the impact and value of an investment in an offset project by ensuring that it delivers real results. Look for a program that funds emissions reductions that wouldn’t have happened without your money.
- Concerns abroad. Some offset programs promise to offset the emissions of those companies who choose to invest in their project, however, it is important to research exactly where the investment is going. If the program in participation uses the money for the preservation of a forest in Madagascar, it may not be directly negating the emissions of a company in Texas. It is best for businesses to find projects located in proximity to their establishment, thus making it more likely that their specific emissions are being offset as quickly and as efficiently as possible.
Action Plan
- Determine the scope of the offset. Typically, companies first select discreet elements of their operations to offset — for example, emissions from a key facility, staff travel, product shipments, or a conference or event. Once this goal has been achieved and a certain degree of competence and confidence is gained, they may expand their efforts.
- Choose an offset project. Multiple options for action exist within each of the three main types of offsets mentioned earlier. For instance, one may prevent the release of CO2 by improving the efficiency of energy supplier equipment, switching to lower carbon fuels, or preventing deforestation. If one has joined a measuring and reporting initiative, its guidelines may encourage certain types of offset projects more than others.
- Choose an offset partner. Key issues to consider include a potential partner’s reputation and experience, the partner’s ability not only to run a project but to account for its impacts, and its ability to obtain third-party certification for the project. Companies must decide between a for-profit or nonprofit partner. The former tend to offer more flexibility — the ability to invest in a broader portfolio of projects — while the latter tend to offer a strong and direct link that can ensure a project’s success. In addition, the company must choose between a domestic and international project. The former are often easier to manage, the latter less expensive.
Leads
- To ensure the additionality of their investment, companies should look for projects that promise top quality under a Kyoto instrument known as the Clean Development Mechanism (CDM). For more information WWF – global environmental conservation organization offers an elaboration on the architecture of Gold Standard as well as its practices and voluntary projects. Once ready to make the investment, businesses can go to the The Gold Standard website, where a retailer list is provided under the Marketplace section.
- The Climate Trust was created to administer funds from utilities mandated by Oregon State law to offset the impact of new projects. The trust also runs a Partnership Program to provide businesses with offset expertise gained through its work with local utilities.
- A Consumer’s Guide to Retail Carbon Offset Providers is available for download at from CleanAir-CoolPlanet.org [PDF].
- The Carbon Emissions Offset Directory lists over a dozen poviders in a chart that details price per metric ton, and offset and project types. The chart also includes information on non-profit organizations and provides links to direct web sites.
- The World Bank Community Development Carbon Fund links small-scale carbon projects with companies looking to fund offset projects. The fund became operational in July 2003 and is currently reviewing potential project in least-developed countries and in poorer communities of all developing countries.
- Climate Care and individuals. Its website provides quick access to illustrative case studies and a list of company participants, divided into three groups: purchases for sale to consumers; purchases to cover all or part of ongoing operations; and occasional purchases.
Bottom Line
Emissions offsetting is already a widely used tool that promises to continue gaining momentum whether the companies employing it are motivated by legal requirements or lofty goals. Because offsetting can be done in multiple ways and in endless venues, it provides an opportunity for companies to pursue independent reduction goals in ways that are meaningful to the company, its core business, and its key stakeholders.
-Updated October 2007 by Christina Syriani.