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Market News

 November 06, 2007
Unregulated offset market may get help

 Vancouver, Canada (GLOBE-Net) -- The flourishing greenhouse gas (GHG) offset market remains largely unregulated and is open to abuse with respect to the legitimacy of carbon offsets being offered. Six U.S.-based non-profit organizations involved in greenhouse gas reduction policy endeavors have announced the formation of the Offset Quality Initiative (OQI) to help control the more 'wild west' aspects of the market.

The OQI says it will develop and promote consensus policy positions on how to include greenhouse gas offsets in current and future state, regional, and national climate change policy. Its members include The Climate Trust, California Climate Action Registry, Environment Resources Trust, Greenhouse Gas Experts Network, Pew Center on Global Climate Change and The Climate Group.

The carbon credit market is based on the principle that greenhouse gas (GHG) emissions generated by one activity can be offset by buying 'credits' from projects that reduces GHG emissions. Growth of the offsets market has been rapid, but concerns remain over offset schemes that provide no real GHG reductions.

The OQI, which promotes the incorporation of high quality greenhouse gas emission offsets into emerging climate change policy, may be a crucial step in validating the market and creating a universal standard under which it operates.

"As policy makers begin to design future climate legislation it will be important to have an authoritative source of information regarding effective, high quality greenhouse gas offsets," said Janet Peace, Senior Research Fellow at the Pew Center on Global Climate Change. "The Pew Center is pleased to be a founding member of this important effort."

The OQI hopes to utilize the expertise of the involved organizations to help governments 'crack down' on the offset market and to develop the most comprehensive and appropriate offset and climate change policy possible. This may be the first step in helping the offset market work as was originally intended.

Industries ranging from banks to airlines have entered the market looking to neutralize emissions by purchasing offsets. The demand for offsets led to a tripling in the size of the carbon credit market over the past two years. The largely voluntary nature of the unregulated market has led some companies to buy credits that are valued more for their public relations appeal than their actual greenhouse gas reduction potential.

For example, as part of a voluntary move by airlines to improve fuel efficiency by 1.1% per year, some airlines have jumped into the offset market, allowing passengers to purchase offsets for their travel at $20 roundtrip or $12 one way. However the same emissions would be released from the flight whether or not an offset was purchased and it is unclear what, if anything, passengers are buying.

Tree planting, a common offset vehicle, has also been the subject of recent criticism as it is difficult to quantify the true offset values involved. Nor does tree planting actually reduce emissions in the short term, or promote the use of renewable energies or create real alternatives to fossil fuels.

Deliberate or not, schemes such as these flood the market with tradable offsets that cause little or no GHG emission reductions. In fact, they may be causing a net increase in global emissions as buyers of these questionable offsets can continue to generate GHG emissions and have no incentive to modernize their business with more energy efficient technologies.

This is the main criticism of the Clean Development Mechanism (CDM), the key offset program under the Kyoto Protocol. It allows countries to fund emission reduction projects in developing countries rather than incurring the costs to reduce their own emissions.

Early in 2007, it was revealed that participants in CDM programs paid 50 times more than what was necessary for many of the emission reduction projects in developing countries. This additional money inflated the carbon credit market with bogus reductions that could be bought to generate additional emissions.

The offset market is not broken nor is it corrupt; it is simply unregulated and needs tighter control and meaningful standards. Several verification systems and user guides exist that can help consumers identify legitimate offset projects in this turbulent market.

The Consumer's Guide to Carbon Offsets for Carbon Neutrality lists some questions that potential buyers can ask of offset vendors:

  • Do your offsets result from specific projects?
  • Have your offsets been validated against a third-party standard by a credible source?
  • Do you sell offsets that will actually accrue in the future? If so, how long into the future, and can you explain why you need to 'forward sell' the offsets?
  • Can you demonstrate that your offsets are not sold to multiple buyers?
  • What are you doing to educate your buyers about climate change and the need for climate change policy?
  • Do you use an objective standard to ensure the additionality and quality of the offsets you sell?
Additionality means a project resulted in net emission reductions compared to what would have happened under a 'business as usual' scenario. In other words, the emissions reductions would not have been realized without the project.

Projects that lack additionality and would have occurred regardless of the purchase of offsets are considered spurious and cause no reduction or a net increase in global emissions.

To read the official OQI press release, click here.



For More Information: Environmental Leader