What You Need to Know about Carbon Offsets

By Joel Levin, Vice President for Business Development, Climate Action Reserve

(This article appears in the February, 2011 issue of The ACUPCC Implementer)

I once heard a speaker at a conference define a carbon offset as the absence of a colorless, odorless gas. Try explaining that to your grandmother! No wonder there is so much confusion and doubt surrounding offsets.

Offsets can be a real way for universities and others to make cost effective GHG (greenhouse gas) reductions with an impact that goes beyond the facilities over which they have direct control. In buying a carbon offset, you are investing money in a third-party project that reduces GHG emissions. Universities can participate in carbon offset markets, either as buyers or as project developers (i.e. originators and sellers of offsets.) [1]

Because it is generally not possible for the buyer of an offset to fully investigate and understand the project that he or she invests in, highly credible independent registries have been established that can offer buyers confidence in the offsets they purchase.

For anyone considering participating in the offsets market, either as a project developer or a buyer, there are five concepts that are critical to understand.

• Additionality: This is the most important concept related to offsets and the most frequently misunderstood. Additionality is the notion that the GHG reduction from a project is additional to what would have happened if the project had not been undertaken. It is not good enough that a project reduces GHG emissions. Would the emissions have been reduced anyway if the project had never happened? Did the project cause a change in behavior? Offset buyers want to know, as a result of the money that they spend – did something good for the environment happen that would not have otherwise taken place? In the Climate Action Reserve’s program, there are two elements to additionality. First, a project must go beyond any regulatory requirements. If you are doing something just to comply with the law, it is probably not additional. Second, the project must go beyond business-as-usual practice. This should be based on a conservative evaluation of standard practices for a given project type.

• Protocols: A protocol is an accounting standard that defines additionality for a given project type, gives instruction on how to calculate reductions that meet the additionality threshold, and provides guidance for third-party verifiers to audit a project and ensure that the reductions are genuine. A project is only as good as the protocol that it is measured against. So, as a buyer evaluating a project, it is very important to know whose protocol the project developer is using and whether it is an organization that you trust. Project developers should generally not be writing their own protocols, without some kind of rigorous third-party oversight, as this is a pretty significant conflict of interest. If you are considering developing your own projects, you should be doing them against recognized protocols, not developing protocols yourself.

• Registries: Registries issue credits to projects against approved protocols, oversee verification, and track ownership of credits as they change hands. They ensure that the correct number of credits is issued and that credits are never double sold or double counted on the secondary trading market. Most registries issue a unique serial number for each ton of reduction. This allows for tracking of ownership as offsets change hands. As a buyer, it is strongly recommended that you only purchase offsets that are listed on a recognized registry. Otherwise, you have very little control over what you are purchasing.

• Verification: It has become standard practice for all projects to be verified by a third-party verification body that is accredited by a particular registry and trained on their standards. Verification is an outside audit of a project. A project that has not been through a rigorous verification is of very little value. If someone offers to sell you unverified offset credits, run fast.

• Retirement: This is what every offset dreams about. An offset may change hands multiple times during its life. But the real environmental benefit comes when it is retired. Retirement means that the owner of an offset commits to permanently locking it away, taking it off the market, and using it to “offset” their emissions. This is effectively the point at which the owner is committing to invest in the original offset project, because the offset can no longer be sold. This is what creates scarcity in the market and encourages developers to continue doing more projects. Most registries have functionality that ensures that retired offsets are permanently locked away.

The Climate Action Reserve

The Climate Action Reserve is a non-profit organization that was established by the state of California to measure and track actions that reduce GHG emissions. It has become the largest and most widely recognized registry in North America for offset projects. It has over 380 projects in 44 states that have issued nearly 10.5 million tons of reductions to date. Many of the Reserve’s protocols have been adopted by California for use in its cap and trade program. If you are interested in participating in the Reserve’s program, either as a project developer or an offset purchaser, you can visit the Reserve’s website atwww.climateactionreserve.org

Joel Levin is the Reserve’s Vice President for Business Development. You can reach him at jlevin@climateactionreserve.org