Introduction: what is offsetting?
Offsetting is nothing new – offsetting schemes and providers have been around for more than ten years, and much has been written about them already. Despite renewed focus at the Copenhagen conference (COP15) on the role of carbon credits in climate change mitigation, there remains considerable lack of clarity on what they actually are, how they work, together with their advantages and potential pitfalls.
Offsetting is the general term given to the purchasing of carbon credits to compensate for a given quantity of greenhouse gas emissions. It works on the basis that money raised by the sale of carbon credits finances projects that create an equivalent amount of greenhouse gas emission reduction elsewhere in the world.
The principles of offsetting are set out in the Flexible Mechanisms of the Kyoto Protocol, including the Clean Development Mechanism (CDM) and Joint Implementation (JI). In simple terms, under these schemes, organisations and governments in the developed world can buy carbon credits produced in the developing world. These credits count towards the developed country’s carbon reduction target. In theory this results in a win-win situation; the developing country host receives additional investment in clean technology and the developed country receives carbon reduction sooner and at lower cost, essentially because projects are cheaper and quicker to implement in the developing world.
Offsetting can also be linked to emissions trading schemes. For example, the EU Emissions Trading Scheme allows participants to use a certain amount of credits from the CDM or JI to cover part of their emissions. The proposed US emissions trading scheme also allows participants to use offsets.
The credits can be produced in a variety of ways, but can be divided into four broad categories: renewable energy, energy efficiency, forestry and industrial gases. Each category has its own attributes and a variety of standards have arisen that assure the quality of the offset. However, as with offsets themselves, the quality standards differ in scope and level of assurance provided – there is no universally accepted best practice.
Benefits
Carbon offsetting is intended to benefit both parties – the offset purchaser and the host that is developing the project that will reduce greenhouse gas emissions. Most offsets are purchased as part of voluntary initiatives to reduce environmental impacts of organisations or enhance their environmental image.
Business benefits
The biggest benefit of offsets for organisations wanting to reduce their impact on climate change is that offsets provide a way of compensating for emissions that cannot be avoided. Even with the best intentions and stringent carbon reduction programmes, most businesses will have essential operations that cause emissions of greenhouse gases. Purchasing offsets is an efficient way of balancing out those impacts.
Many offset projects also have wider benefits to the host community, such as providing rural electrification to communities without electricity, or providing a source of clean drinking water. By purchasing offsets from this sort of project, businesses can benefit from the positive impacts that go with them.
A more subtle, but potentially more important benefit, is that an offsetting programme places a monetary value on the emissions caused by the organisation. This creates a driver for the organisation to reduce their emissions as this will then lead to a reduction in the amount that they need to spend on offsets in subsequent years.
Host benefits
The benefits for the communities hosting offsetting projects are more tangible. Businesses or projects receive additional financing, making marginal projects such as renewable energy more viable. More expensive clean technology can be deployed earlier, allowing these communities to develop with lower levels of pollution. In addition to emissions reduction, some offset projects also invest in social initiatives such as healthcare or schooling that have long term development benefits.
Potential pitfalls
Offsetting is not without risk. Both projects and purchasers have attracted large amounts of criticism in the past so it is important to be aware of potential pitfalls before embarking on an offsetting strategy.
Unsubstantiated claims
As many offsets result from the avoidance of emissions that would have occurred under business as usual conditions, or from the removal of greenhouse gases from the atmosphere over a long time period, it is essential that the emission reductions claimed are based on a solid and verified foundation. Low quality offset projects may not result in any real emission reduction.
‘Greenwash’
Badly planned and executed offsetting campaigns can attract criticism for so-called ‘greenwash’. Critics accuse organisations of not taking any real steps to reduce their impact on the environment, saying they are outsourcing their responsibility to the developing world.
Misreporting
Although there are no legal requirements at present on how to report an offsetting project, the Department of Energy and Climate Change (DECC) has published guidelines. The BSI is also developing a standard for correct offset reporting, PAS 2060.
Conclusion
Overall, implementing an offset strategy can be positive for the purchaser, the host country and climate change mitigation, provided that they are high quality and implemented correctly. Greenstone’s consultants can provide independent advice on the most appropriate offsetting options to achieve your organisation’s aims while avoiding the pitfalls. For more information please contact info@greenstonecarbon.com
