Order Code RL34241
Voluntary Carbon Offsets:
Overview and Assessment
November 7, 2007
Jonathan L. Ramseur
Analyst in Environmental Policy
Resources, Science, and Industry Division
Voluntary Carbon Offsets: Overview and Assessment
Summary
Businesses and individuals are buying carbon offsets to reduce their “carbon
footprint†or to categorize an activity as “carbon neutral.†A carbon offset is a
measurable avoidance, reduction, or sequestration of carbon dioxide (CO ) or other
2
greenhouse gas (GHG) emissions. Offsets generally fall within the following four
categories: biological sequestration, renewable energy, energy efficiency, and
reduction of non-CO emissions.
2
In terms of the carbon concentration in the atmosphere, an emission reduction,
avoidance, or sequestration is beneficial regardless of where or how it occurs. A
credible offset equates to an emission reduction from a direct emission source, such
as a smokestack or exhaust pipe. The core issue for carbon offset projects is: do they
actually offset emissions generated elsewhere? If the credibility of the voluntary
offsets is uncertain, claims of carbon neutrality may be challenged.
Evidence suggests that not all offset projects are of equal quality, because they
are developed through a range of standards. In the voluntary market, there are no
commonly accepted standards. Although some standards are considered stringent,
others are less so. At least 30 companies and organizations (domestic and
international) sell carbon offsets to individuals or groups in the international,
voluntary carbon market. Two recent studies that examined many of the offset sellers
found a general correlation between offset price and offset quality.
Due to the lack of common standards, some observers have referred to the
market as the “wild west.†This does not suggest that all carbon offsets are low
quality, but that the consumer must necessarily adopt a buyer-beware mentality when
purchasing carbon offsets. This places the responsibility on consumers to judge the
quality of carbon offsets.
The viability of the voluntary offset market may influence future policy
decisions regarding climate change mitigation. For example, credible offsets could
play an important role, particularly in terms of cost-effectiveness, in an emissions
control regime. There is some concern that the range in the quality of voluntary
market offsets may damage the overall credibility of carbon offsets. If this occurs,
it may affect policy decisions concerning whether or not to include offsets as an
option in a mandatory reduction program.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What are Carbon Offsets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Size of the Voluntary Carbon Offset Market . . . . . . . . . . . . . . . . . . . . . 2
Carbon Offset Integrity Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Baseline Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Double Counting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Permanence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Carbon Offset Types and Potential Integrity Concerns . . . . . . . . . . . . . . . . . 4
Biological Sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Renewable Energy Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Reduction of Non-CO Emissions from Specific Sources . . . . . . . . . . . 8
2
Supplementarity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Assessment of Carbon Offset Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Congressional Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1. Estimates of the Volume and Value
of the Voluntary Carbon Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Voluntary Carbon Offsets:
Overview and Assessment
Introduction
In the United States and around the world, a growing number of businesses,
interest groups, and individuals are purchasing carbon offsets and asserting that all
or part of their greenhouse gas (GHG) emitting activities (e.g., air travel, corporate
events, or personal automobile use) are “carbon neutral†as a result. These exchanges
represent a voluntary market for carbon offsets, because there is currently no federal
requirement that GHG emissions be curtailed.
The concept of purchasing carbon offsets to achieve carbon neutrality (or reduce
one’s “carbon footprintâ€) has spurred both interest and debate in recent years. This
report provides an overview of carbon offsets and examines some of the issues that
are generating debate (and controversy). Although there is some overlap of issues
between voluntary carbon offsets and the offsets used to comply with mandatory
reduction regimes, this report focuses on the voluntary offsets market. Unless
otherwise stated, the carbon offsets in this report refer to those exchanged in the
voluntary market.
What are Carbon Offsets?
A carbon offset is a measurable avoidance, reduction, or sequestration of carbon
dioxide (CO ) or other greenhouse gas (GHG) emissions. Offsets generally fall
2
within the following four categories (discussed in greater detail later in the report):
biological sequestration, renewable energy, energy efficiency, and reduction of non-
CO emissions.
2
Carbon offsets are sometimes described as project-based because they typically
involve specific projects or activities that reduce, avoid, or sequester emissions.
Because offset projects can involve different GHGs,1 they are quantified and
described with a standard form of measure: either in tons of carbon-equivalents or
CO -equivalents (frequently expressed as tC-e or tCO -e).
2
2
To be considered a credible offset, the emissions reduced, avoided, or
sequestered need to be additional to business-as-usual: i.e., what would have
happened anyway. In the context of a mandatory GHG emission reduction regime,
an offset can come only from sources not covered by the reduction program (i.e.,
1 Six GHGs have been identified by the United Nations Framework Convention on Climate
Change (UNFCCC) as being those of major interest: carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluorane.
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outside the emissions cap).2 Emission reductions from regulated sources would be
required under the cap, and thus would not be additional. By comparison, a reduction
activity may be additional if it occurs from a source in a nation that does not limit the
source’s GHG emissions. As more nations (or U.S. states) establish mandatory caps
on emission sources, the universe of potential carbon offsets will shrink.
The Size of the Voluntary Carbon Offset Market
There is currently no registry or tracking system that follows exchanges in the
voluntary market. For this reason, the precise size or value of the voluntary offset
market is unknown. However, a series of World Bank reports — The State and
Trends of the Carbon Market — provides some estimates for recent years.3 These
estimates are listed in Table 1.
Table 1. Estimates of the Volume and Value
of the Voluntary Carbon Market
Year
Estimated Volume of
Estimated Value of
Transactions
Transactions
(in million metric tons of
CO -equivalents, MtCO -e)
2
2
2004
3 MtCO -e
$6 million
2
2005
6 MtCO -e
$44 million
2
2006
10 MtCO -e
$100 million
2
Source: Prepared by Congressional Research Service with data from the following: 2004 estimates
from World Bank 2006, State and Trends of the Carbon Market 2006; 2005-2006 data from World
Bank, 2007, State and Trends of the Carbon Market 2007.
The estimates indicate that the size of the market has increased rapidly every
year since 2004. The World Bank report cites forecasts of increasing growth in
coming years. One projection (described as “optimistic†by the World Bank)
indicates that the volume of transactions in the international voluntary market will
2 This approach is part of the European Union's (EU) Emission Trading Scheme (ETS),
which the EU members use to meet their Kyoto Protocol commitments. For more
information, see CRS Report RL34150, Climate Change: The EU Emissions Trading
Scheme (ETS) Gets Ready for Kyoto, by Larry Parker.
3 The World Bank report states that the estimates are based on an unpublished study. The
authors of the study provided the estimates to the World Bank prior to its publication.
World Bank, 2007, State and Trends of the Carbon Market 2007, p. 10.
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be 400 MtCO -e by 2010.4 To put this figure in context, the U.S. GHG emissions
2
were approximately 7,200 MtCO -e in 2005.5
2
Carbon Offset Integrity Issues
A primary concern regarding voluntary carbon offsets is their integrity. It is
generally agreed that a credible offset should equate to an emission reduction from
a direct emission source, such as a smokestack or exhaust pipe. Several criteria
determine the integrity or quality of an offset project.
Additionality. This is generally considered to be the most significant factor
that determines the integrity of the carbon offset. Additionality refers to whether the
offset project (e.g., wind farm) would have gone forward on its own merits (or own
financial benefits) without the support of the offset market. In other words, would
the project have happened anyway? If the project would have occurred without the
financial support of the offset buyer, the emission reductions generated from the
project would not be additional.
The additionality criterion is at the crux of an offset’s integrity, but additionality
can be difficult to assess in practice. The standards used to analyze a project’s
additionality vary, and some groups may downplay the importance of this attribute.
An offset seller who employs a more stringent additionality analysis will likely offer
“higher quality†offsets.
Baseline Determination. To determine the amount of emissions avoided by
an offset project, project managers must establish an emissions baseline: an estimate
of the “business-as-usual†scenario or the emissions that would have occurred
without the project. If project managers inaccurately estimate the baseline, the
offsets sold may not match the actual reductions achieved. For example, an
overestimated baseline (projecting more emissions than would have been emitted in
the project’s absence) would generate an artificially high amount of offsets. Baseline
measurement may present technical challenges. In addition, project developers
would have a financial incentive to err on the high side of the baseline determination,
because the higher the projected baseline, the more offsets generated.
Double Counting. A carbon offset is meaningful if it is only counted once.
To be credible, when an offset is sold, it should be retired and not sold again or
counted in other contexts. However, opportunities for double-counting exist. For
example, a U.S. buyer may purchase offsets generated through the development of
a wind farm in a country, state, or locality that has established GHG emissions
targets. The U.S. buyer will count the offsets, which may have been purchased to
counter an increase in personal air travel. In addition, the nation (state or locality),
in which the wind farm is located, may see an emissions reduction due to the wind
farm. This decrease will be reflected in the nation’s GHG emissions inventory.
Thus, the offset project (wind farm) may replace other reduction activities that the
4 The 2007 World Bank (p. 41) report cites ICF, 2006, Voluntary Carbon Offsets Market:
Outlook 2007.
5 U.S. EPA, 2007, Inventory of U.S. Greenhouse Gas Emissions and Sinks:1990 – 2005.
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nation might have taken to meet its target. A tracking system needed to avoid such
double-counting does not exist.6
Some may argue that double-counting is less of a problem if the offset project
occurs in a U.S. state (county or city) with only a voluntary target (as opposed to a
nation subject the Kyoto Protocol). However, the impact would be the same if the
state is eventually part of a federal emissions reduction program, and the state is
allowed to take credit for the earlier reductions associated with the offset project. By
taking credit for an earlier reduction, the state will need to make fewer reductions to
be in compliance with the new mandatory program.
Permanence. When carbon offsets are generated from a project, there should
be confidence that the emission offsets are permanent — that the emissions are not
merely postponed. This characteristic is most pertinent to biological sequestration
projects, specifically forestry activities. For example, buyers need some assurance
that the land set aside for forests will not be used for a conflicting purpose (e.g.,
logging or urban development) in the future. Although natural events (fires or pests)
are hard to control, human activity can be constrained through legal documents such
as land easements. In addition, an offset could come with a guarantee that it would
be replaced if the initial reduction is temporary.
Carbon Offset Types and Potential Integrity Concerns
In the voluntary market, carbon offsets can be generated from multiple
economic sectors. This report discusses carbon offsets grouped into the four
categories identified above. Each category contains a list of possible carbon offset
examples. Specific integrity issues may be associated with particular offset
categories. These issues are discussed below. The potential problems highlighted
below should not necessarily rule out entire carbon offset categories. If offset project
developers can address these potential obstacles, the offsets may be credible.
However, it may be difficult for offset buyers to know if these problems were
addressed (as discussed later in the report).
Biological Sequestration. Trees, plants, and soils sequester carbon, thereby
reducing its amount in the earth’s atmosphere.7 Biological sequestration projects
generally involve activities that either increase sequestration or preserve an area’s
existing sequestration ability that is under threat (e.g., from logging or development).
This offset category includes sequestration that results from activities related to
agriculture and forests, and is sometimes referred to as land use, land use change and
forestry (LULUCF) projects. Example of these projects include:
! Planting trees on previously non-forested land (i.e., afforestation)
! Planting trees on formerly forested land (i.e., reforestation)
! Limiting deforestation by purchasing forested property and
preserving the forests with legal mechanisms (e.g., land easements)
6 See Anja Kollmuss, 2007, Carbon Offsets 101, World Watch.
7 For more information on these processes see CRS Report RL34059, The Carbon Cycle:
Implications for Climate Change and Congress, by Peter Folger.
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! Setting aside croplands from production to avoid emissions released
during crop production
! Promoting practices that reduce soil disruption (e.g., conservation
tillage)
Compared to the other offset categories, biological sequestration projects offer
the most potential in terms of volume (particularly forestry projects). However, this
category is arguably the most controversial, because of several integrity issues that
are typically associated (or perceived to be associated) with biological sequestration
projects.
Some agricultural sequestration offsets may raise concerns of additionality: i.e.,
the sequestration activity would have happened regardless of the payments received
from offset buyers. For example, farmers may be able to generate offsets by
conducting no-till operations on their land, but for the offsets to be credible, the
impetus to adopt this practice should be driven by the financial gain from the offset
market. If the no-till practice was part of normal operations before the offset market,
then the offset would fail the additionality test. There is anecdotal evidence
indicating that some farmers have been using the no-till technique for years, but still
received compensation for the offsets.8 If this is the case, this would be a fairly
straightforward example of a non-additional offset. Should this bar other farmers,
who have not been practicing conservation measures (e.g., no-till farming), from
receiving offsets for initiating such measures? Arguably the measures provide some
benefit on their own (e.g., less fuel use), because some farmers have been using the
techniques for years. However, the offset incentive may be a primary driver at some
farms. This example demonstrates the difficulties associated with proving that a
project is additional.
Biological sequestration offset projects may present challenges in terms of
measurement. This issue is especially relevant to forestry-related offsets. The carbon
cycle in trees and soils is complex: variations across tree species, ages, and
geographic locations increase the measurement challenge.9 In addition, other
variables complicate the measurement of reductions from forestry projects. For
example, a recent study in the Proceedings of the National Academy of Sciences
stated:
We find that global-scale deforestation has a net cooling influence on Earth’s
climate, because the warming carbon-cycle effects of deforestation are
overwhelmed by the net cooling associated with changes in albedo10 and
evapotranspiration.11 Latitude-specific deforestation experiments indicate that
8 Jeff Goodell, 2006, “Capital Pollution Solution,†New York Times Magazine, July 30,
2006.
9 For more on these challenges, see CRS Report RL31432, Carbon Sequestration in Forests,
by Ross W. Gorte.
10 Albedo refers to the reflectivity of the Earth's surface. For more on this effect, see CRS
Report RL33849, Climate Change: Science and Policy Implications, by Jane A. Leggett.
11 Evapotranspiration is the sum of evaporation and transpiration. The transpiration aspect
(continued...)
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afforestation projects in the tropics would be clearly beneficial in mitigating
global-scale warming, but would be counterproductive if implemented at high
latitudes and would offer only marginal benefits in temperate regions.12
As mentioned earlier, biological sequestration projects often raise questions of
permanence: i.e., whether the activity that generates offsets will continue. Although
many observers expected biological sequestration offsets to dominate the
international market, this has not been observed in practice. Concern of permanence
has been one of the issues that has hindered the development of biological
sequestration offsets in developing nations.13
Renewable Energy Projects. Renewable energy sources generate less GHG
emissions (wind and solar energy produce zero emissions) than fossil fuels,
particularly coal. Therefore, use of renewable energy sources would avoid emissions
that would have been generated by fossil fuel combustion. These avoided emissions
could be sold as carbon offsets. Historically, renewable energy sources — wind,
solar, biomass — have been more expensive (per unit of energy delivered) than
fossil fuels in most applications.14 Sales of renewable energy offsets may provide the
financial support to make a renewable energy more economically competitive with
fossil fuels. Potential renewable energy offset projects may include:
! Constructing wind farms to generate electricity
! Installing solar panels
! Retrofitting boilers to accommodate biomass fuels
Some renewable energy offsets may raise concerns of additionality. Several
offset sellers offer renewable energy certificates or credits (RECs) as carbon offsets.
One REC represents the creation of 1 megawatt-hour of electricity from a renewable
energy source. RECs generally convey the environmental attributes of renewable
energy projects, and RECs may be sold to promote further use of renewable energy.
However, a REC does not necessarily equate with a carbon offset. A credible offset
must be additional to the status quo; RECs are not subject to the same standard.
11 (...continued)
of evapotranspiration is essentially evaporation of water from plant leaves. For more on this
issue see the U.S Geological Survey website at [http://ga.water.usgs.gov/edu/watercycle
evapotranspiration.html].
12 Govindasamy Bala, et al, 2007, "Combined climate and carbon-cycle effects of large-scale
deforestation," Proceedings of the National Academy of Scieneces, 104: 6550-6555.
13 Frank Lecocq and Philippe Ambrosi, 2007, The Clean Development Mechanism: History,
Status, and Prospects, Review of Environmental Economics and Policy, Winter 2007, pp.
134-151.
14 This comparison does not account for the externalities associated with fossil fuel
combustion: air pollution, environmental degradation, and health problems linked to
emissions.
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Although some offset sellers closely scrutinize the RECs they offer for sale as offsets,
there is no system or standard in place to ensure that RECs are additional.15
Several factors, other than CO emission reductions, may drive the development
2
of a renewable energy project. Although renewable energy has historically been more
expensive, higher fossil fuel prices and tax incentives16 have made renewable energy
more competitive in recent years. Moreover, many states have enacted or are
developing Renewable Portfolio Standards (RPS). An RPS requires that a certain
amount or percentage of electricity is generated from renewable energy resources.
Twenty-eight states have implemented or are developing some type of RPS.17
Although some sellers will not issue RECs that were counted towards an RPS, it is
uncertain whether all sellers follow this protocol.18 These factors complicate the
determination of additionality regarding renewable energy offsets projects,
particularly offsets based only on RECs.
Energy Efficiency. An improvement in a system’s energy efficiency will
require less energy to generate the same output. Advances in energy efficiency
generally require a financial investment. These capital investments may pay off in
the long run, but may be unprofitable in the short-term, particularly for small
businesses or in developing nations. Examples of possible energy efficiency offset
projects include:
! Upgrading to more efficient appliances or machines
! Supporting construction of more energy efficient buildings
! Replacing incandescent light bulbs with fluorescent bulbs
Energy efficiency improvements are sometimes described as a “no regretsâ€
policy, because the improvements would likely provide net benefits (e.g., cost
savings) regardless of their impact on other concerns (climate change or energy
independence). Thus, the issue of additionality may be a particular concern for
energy efficiency offsets. For example, in some cases, it may be difficult to discern
if the improvements would have been made regardless of the offset market.
Offset ownership is another potential challenge regarding some energy
efficiency offsets. Energy efficiency improvements may occur at a different location
than the actual reduction in emissions. For example, a business that runs its
15 Anja Kollmuss and Benjamin Bowell, “Voluntary Offsets For Air-Travel Carbon
Emissions Evaluations and Recommendations of Voluntary Offset Companies,†Tufts
Climate Initiative, Revised April 5, 2007, p. 13.
16 See CRS Report RL33578, Energy Tax Policy: History and Current Issues, by Salvatore
Lazzari.
17 See EPA, Summary of State Clean Energy-Environment Policy Data Table (current as of
1/1/2007), at [http://www.epa.gov/cleanenergy/stateandlocal/activities.htm]. Additional
states identified by the Pew Center on Global Climate Change, Map: States with Renewable
Portfolio Standards, at [http://www.pewclimate.org].
18 See Anja Kollmuss and Benjamin Bowell, “Voluntary Offsets For Air-Travel Carbon
Emissions Evaluations and Recommendations of Voluntary Offset Companies,†Tufts
Climate Initiative, Revised April 5, 2007.
CRS-8
operations with purchased electricity will use less electricity if energy efficiency
improvements are made, but the actual emission reductions will be seen at a power
plant. This may create a double-counting situation. Although the federal government
has not set a mandatory GHG emission reduction, several states and local
governments have enacted limits.19 If the state counts the emission reductions at the
electricity plant towards its goal, while the business sells the offsets, the reductions
will be counted twice.20
Reduction of Non-CO Emissions from Specific Sources. There are
2
multiple GHG emissions sources, whose emissions are not generally controlled
through law or regulation. These sources — primarily, agricultural, industrial, and
waste management facilities — emit non-CO GHGs as by-products during normal
2
operations. In many cases, the individual sources emit relatively small volumes of
gases, but there are a large number of individual sources worldwide. In addition,
these non-CO gases emitted have greater global warming potentials (GWP) than
2
carbon dioxide.21 Offset projects in this category could provide funding for emission
control technology to capture these GHG emissions. Examples of emission capture
opportunities include:
! Methane (CH ) emissions from landfills, livestock operations, or
4
coal mines (GWP = 25)
! Nitrous oxide (N O) emissions from agricultural operations or
2
specific industrial processes (GWP = 298);
! Hydrofluorocarbon (HFC) emissions from specific industrial
processes, such as HFC-23 emissions from production of HCFC-22
(GWP of = 14,800)
! Sulfur Hexafluoride (SF ) from specific industrial activities, such as
6
manufacturing of semiconductors (GWP = 22,800)
This offset category is relatively broad, as it can involve many different
industrial activities. As such, there are offset types in this category that are generally
considered high quality, and others that have generated some controversy. For
example, methane capture (and destruction through flaring) from landfills or coal
mines has a reputation as a high quality offset. These projects are relatively easy to
measure and verify, and in many cases would not have occurred if not for the offset
market.
19 See CRS Report RL33812, Climate Change: Action by States To Address Greenhouse Gas
Emissions, by Jonathan L. Ramseur.
20 One way to address this potential dilemma is to restrict energy efficiency projects to only
those that reduce or avoid on-site combustion of fossil fuels.
21 A GWP is an index of how much a GHG may, by its potency and quantity, contribute to
global warming over a period of time, typically 100 years. GWPs are used to compare a
gas’s potency relative to carbon dioxide, which has a GWP of 1. For example, methane’s
GWP is 25, and is thus a more potent GHG than carbon dioxide by a factor of 25. The
GWPs listed in this report are from: Intergovernmental Panel on Climate Change, 2007,
Climate Change 2007: The Physical Science Basis, p. 212.
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Offsets involving abatement of HFC-23 emissions from production of HCFC-22
(primarily used as a refrigerant) have spurred controversy.22 Although offsets from
HFC-23 abatement are primarily used in the compliance market (i.e., nations
complying with the Kyoto Protocol or other emission reduction obligations), the
concerns highlighted by this offset type could apply to the voluntary market as well.23
Of the offset types certified through the Kyoto Protocol’s Clean Development
Mechanism (CDM), HFC-23 offsets represent the greatest percentage: 50% of the
certified emission reductions (CERs)24 have come from HFC-23 projects. Before the
formation of the carbon offset market, facilities in the developing world, which
produce about half of all HCFC-22, vented the by-product (HFC-23) to the
atmosphere.25 With the carbon market in play, facilities can generate offsets by
capturing the HFC-23 emissions. Controversy has arisen, because the HCFC-22
production facilities can potentially earn more money from the offsets (destroying
HFC-23 emissions) than from selling the primary material (HCFC-22).26 This creates
the perverse incentive to produce artificially high amounts of product, in order to
generate the more lucrative by-product.
Supplementarity
This issue is perhaps more relevant within the context of a mandatory GHG
reduction program, but it may have an analogous application in a voluntary offset
market. The Kyoto Protocol states that emissions credits (or carbon offsets) must be
“supplemental to domestic actions for the purpose of meeting quantified emission
limitations and reduction commitments....†(emphasis added).27 Proponents of
supplementarity argue that carbon offsets are a means of escaping or postponing real
reductions.
This concept could also apply in the context of voluntary GHG reduction.
Advocates of supplementarity may argue that if parties (individuals or companies)
want to achieve carbon neutrality, parties should focus primarily on reducing their
own emission-generating actions — e.g., travel, vehicle choice, size of home or
22 Of the CERs expected to be issued by 2012, the percentage drops to 22% (still the highest
percentage by offset type). See the United Nations Environment Programme (UNEP) Risoe
Centre CDM Pipeline data, at [http://cdmpipeline.org/index.htm].
23 Moreover, HFC-23 offsets may be in the voluntary market. There is no system or registry
in place to track the exchanges in the voluntary market.
24 Regulated facilities can use CERs to meet compliance requirements under Kyoto or the
European Union’s Emission Trading Scheme.
25 By comparison, major producers in the developed world continue to voluntarily capture
and destroy HFC-23. See Michael Wara, 2006, Measuring the Clean Development
Mechanism’s Performance and Potential, Working Paper #56, Stanford Center for
Environmental Science and Policy.
26 This calculus depends on the market price for carbon offsets. See Michael Wara, 2006,
Measuring the Clean Development Mechanism’s Performance and Potential, Working
Paper #56, Stanford Center for Environmental Science and Policy.
27 Article 17, Kyoto Protocol.
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office, etc — instead of looking to counterbalance the emissions from lifestyle
choices through the purchase of offsets.28
Assessment of Carbon Offset Sellers
At least 30 companies and organizations sell carbon offsets to individuals or
groups in the international, voluntary carbon market. The quality of the offsets may
vary considerably, largely because there are no commonly accepted standards. Some
offset sellers offer offsets that comply with standards that are generally regarded as
the most stringent: e.g., the Clean Development Mechanism29 or the Gold Standard.30
These standards generally have a robust test for additionality, as well as more
substantial monitoring and verification procedures. As such, offsets meeting these
standards incur higher transaction costs, adding to the cost per ton of carbon.
Some offset sellers offer offsets that meet the seller’s self-established
guidelines. These self-established protocols can vary considerably, raising questions
of integrity. Are the protocols addressing additionality concerns? Are the offsets
accounted in such a way as to avoid double-counting? Are the offset projects
verified by independent third parties? Assessing the standards can be challenging for
a consumer. Moreover, some company’s standards are not made public, but may be
considered proprietary information.31
Two recent studies have examined approximately 30 companies and/or groups
that sell carbon offsets on the voluntary market.32 The following list highlights
findings from the analyses:
! The prices for carbon offsets range between $5 and $25 per ton of
carbon.
! Offset prices show a correlation with offset quality.
28 Taking this argument a step further, some have compared carbon offsets to indulgences
that were sold during medieval times: i.e., purchasing offsets helps to assuage the guilt
associated with carbon-intensive activities or lifestyles. See e.g., Kevin Smith, 2007, The
Carbon Neutral Myth, Carbon Trade Watch, at [http://www.carbontradewatch.org/pubs/
carbon_neutral_myth.pdf].
29 The Clean Development Mechanism (CDM) was developed under the Kyoto Protocol.
Projects are assessed on an individual basis and must be approved by an Executive Board.
An independent third-party verifies the projects emission reductions. For more information,
see [http://unfccc.int/kyoto_protocol/items/2830].
30 The Gold Standard was developed by a group of non-governmental organizations. The
Gold Standard sets requirements beyond the CDM, but only applies to renewable and energy
efficiency projects. See [http://www.cdmgoldstandard.org].
31 For example, one report found it difficult to evaluate certain offset marketers, because the
offset certification and verification process was deemed proprietary. See Anja Kollmuss and
Benjamin Bowell, 2007, Voluntary Offsets For Air-Travel Carbon Emissions Evaluations
and Recommendations of Voluntary Offset Companies, Tufts Climate Initiative, Revised
April 5, 2007.
32 Ibid; Clean Air-Cool Planet, 2006, A Consumer’s Guide to Retail Carbon Offset
Providers, prepared by Trexler Climate + Energy Services (“Trexler Reportâ€).
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! Overhead costs can vary substantially by seller. However, this factor
may not be a good indicator of offset quality.33
! The tax status of a seller (profit firm vs. non-profit group) was not
a good indicator of offset quality.
Arguably, the most significant finding of the two studies is the general
correlation between offset price and offset quality. This correlation is more striking,
considering the range of offset prices ($5 to $25 per ton of carbon reduced).
Congressional Activity
Several bills in the 110th Congress have the potential to impact the voluntary
carbon offset market:
! 2007 “Farm Billâ€: Both the House-passed bill (H.R. 2419, H.Rept.
110-256) and the Senate Agriculture Committee-approved (bill
number forthcoming) versions include provisions that would
facilitate the development of private-sector market-based approaches
for a range of environmental goods and services (e.g., water and air
quality, carbon storage, habitat protection, etc.) involving the
agriculture and forestry sectors. The House version would, among
other things, establish an Environmental Services Standards Board
chaired by the U.S. Department of Agriculture (USDA) that would
provide grants and a framework to develop consistent standards and
processes for quantifying offsets from the farm and forestry sectors.
The Senate version differs in approach but also directs USDA to
develop a framework to develop standards and procedures; however,
the Senate bill requires the initial focus to be on carbon markets.34
! H.R. 823 (Welch): Introduced February 5, 2007, this bill would
authorize federal agencies to purchase offsets or renewable energy
credits, and direct the Department of Energy to certify whether the
offsets are eligible, based on rules developed by the Department.
Conclusions
Carbon offset purchases are intended to generate emission reductions that
would not have occurred otherwise. In terms of global climate change mitigation, an
emission reduction, avoidance, or sequestration is beneficial regardless of where or
how it occurs. For example, a ton of carbon reduced at a power plant will have the
same atmospheric effect as a ton of carbon reduced, avoided, or sequestered through
an offset project.
33 The Trexler report stated that low overhead costs may indicate that only minimal time was
spent evaluating the quality of the project.
34 For more on this aspect of the legislation see CRS Report RL34042, Environmental
Services Markets: Farm Bill Proposals, by Renee Johnson.
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The core issue for carbon offset projects is: do they actually offset emissions
generated elsewhere? If the credibility of the voluntary offsets is uncertain, claims
of carbon neutrality may lack merit. Evidence suggests that not all offset projects are
of equal quality, because they are developed through a range of standards. Although
some standards are considered stringent, others are less so. In some cases, the
standards used are not even made available to the purchaser. Due to the lack of
common standards, some observers have referred to the current voluntary market as
the “wild west.†This does not suggest that all carbon offsets are low quality, but that
the consumer is forced to adopt a buyer-beware mentality when purchasing carbon
offsets. This places the responsibility on consumers to judge the quality of carbon
offsets.
The voluntary carbon offset market raises several issues that Congress may
consider. The viability — both actual and perceived — of the offset market may
influence future policy decisions regarding climate change. For instance, some
people are concerned that the range in the quality of voluntary market offsets may
damage the overall credibility of carbon offsets.35 If this occurs, it may affect policy
decisions concerning whether or not to include offsets as an option in a mandatory
reduction program. This is an important policy question for Congress. Although
some oppose the use of offsets based on supplementarity concerns (see discussion
above), other argue that credible offsets would expand the compliance alternatives
and likely lower the costs of a GHG emissions reduction program.36
The voluntary program may inform the climate change policy debate in another
manner. If Congress were to enact a federal GHG emissions control program that
included the use of offsets, all of the integrity concerns — e.g., additionality,
permanence, accounting — would need to be addressed in some fashion. The
experiences gained in the voluntary market may help policymakers develop standards
or a process by which the integrity of offset projects could be assessed.
35 See Trexler, Mark, and Kosloff, Laura, 2006, "Selling Carbon Neutrality," Environmental
Forum, March/April 2006; and Hayes, David J., 2007, "Bring the U.S. into the Global
Carbon Market," The Environmental Forum, Vol.24, no. 4 (March/April 2007).
36 Both the Environmental Protection Agency (EPA) and the Energy Information
Administration (EIA) analyzed the costs associated with S. 280 (a cap-and-trade proposal
that would allow the use of offsets). See, U.S. EPA, 2007, EPA Analysis of The Climate
Stewardship and Innovation Act of 2007; and EIA, 2007, Energy Market and Economic
Impacts of S. 280, the Climate Stewardship and Innovation Act of 2007.