The guide to finding a genuine carbon offset

Finding a genuine carbon offset can be daunting at first. I have spent the past five years offsetting my unavoidable CO2 emissions, only to find a myriad of options and companies, not all of which provide real carbon offsets. During this period, I also discovered that there are truly genuine offsets – ones which ensure your money goes towards real emission reductions, towards helping communities switch to clean energy or protect their local forests. I also gained an insider’s perspective in the field, working in carbon markets for the past three years, speaking to people closely involved in the industry. This knowledge helped me understand the absolute must-have qualities a carbon offset should have to be genuine and how to find a genuine offset if you are looking to reduce your carbon emissions.

A genuine carbon offset

The purpose of a carbon offset is to reduce greenhouse gas emissions to compensate for, or “offset” emissions which are practically unavoidable, as are for example flights on important personal or business occasions. To represent a genuine reduction of emissions, a carbon offset must be permanent, additional and third-party verified. Additionality implies that a carbon offset must result in emission reductions which would not have occurred without the offset payment.

There are two ways to genuinely offset emissions: buying an offset credit generated from a high quality offset project, and buying a CO2 permit from a credible emissions trading system.

Offset credits rule 1: Look for high-quality standards

Offset credits are offered by a number of organizations, which develop projects to reduce emissions and sell the corresponding reductions in the form of credits. Offset standards are meant to ensure that a project’s emission reductions are permanent, additional and verified by an independent third party. There are many existing standards that aim to ensure offset quality, but how well they do this varies from one to another.

The strictest offset standard is the Gold Standard, initiated and supported by NGOs, which consult and participate in the project development process. A Technical Advisory Committee overlooks the third-party verification process, helping ensure that third-party auditors carry out truthful assessments. In addition to emission reductions, the Gold Standard requires that projects deliver additional environmental and social benefits to local communities.

The Verified Carbon Standard (VCS) is another widely used internationally recognized standard, developed in consultation with scientific committees and NGOs. VCS projects, however, are approved directly by their third party auditors. The lack of an oversight committee means that verifiers might face a conflict of interest as they are paid by the project developer. While such cases have not been documented to exist, there is potential for misalignment of incentives. Purchasing a VCS credit may therefore require a closer scrutiny on behalf of the customer. If purchasing a VCS offset, look for one that is also certified by the Climate, Community and Biodiversity Alliance, which ensures the project benefits local communities and valuable ecosystems.

Offset credits rule 2: Be mindful of companies’ incentives

Relying on standards alone may be enough in most cases, but may fall short of a 100% guarantee that all of your money is going in the right place. This can be due to conflict of interest problems or because not all emission reductions resulting from an offset project are additional. Proving additionality is extremely difficult. It requires that project developers make a future forecast of what would have happened without the project, a counter-factual scenario that inevitably involves some degree of subjectivity.

A solution to these issues is to be aware of the incentives facing your carbon offset provider. Companies that develop a carbon offset project purely for profit reasons have the incentive to minimize costs and do as little as they can to achieve a certification. Many organizations involved in carbon offsets, however, are driven by different goals, such as mitigating climate change and helping communities in need. These organizations are the ones to make as conservative assumptions as possible when estimating potential emission reductions or when proving additionality, thereby plugging any holes that might exist in the certification process. Such organizations are often environmental non-profits, but exceptions exist.

CO2 permits from credible emissions trading systems

The second way to genuinely offset emissions is to purchase a CO2 permit from an established and credible emissions trading system. This is for example the European carbon market, which places a firm cap on emissions by handing out a limited number of CO2 permits to participating companies. Robust and accurate monitoring and verification rules ensure that a company cannot emit a ton of CO2 without holding a corresponding permit. Therefore, buying a CO2 permit and retiring it – so it cannot be used again – effectively prevents a ton of CO2 from being emitted. This will result in an additional reduction of CO2, as we can be certain that a company will have used the permit otherwise.

Anybody can purchase a CO2 permit from the European carbon market through the non-profit Sandbag. The only disadvantage is that this method of offsetting emissions does not result in any supplementary benefits for communities in need.

Finally, be aware of your own motivation

As Lindsay Wilson at Shrink that Footprint points out, carbon offsets are an effective emission reduction tool only when we have the right motivation for offsetting our emissions. As we attempt to reduce our carbon footprints or those of our companies, we must first do what we can to achieve reductions internally, and purchase carbon offsets as a last resort. The use of carbon credits to offset emissions that we could have reduced anyway only serves to superficially ease our conscience and can actually result in a rebound effect, whereby we increase carbon-polluting activities.

The bottom line

To genuinely offset carbon emissions, consider your motivation and how the carbon offset fits within a broader strategy that focuses on internal emission reductions. For a genuine carbon offset credit, look for one certified by high quality standards and inspect the motivation driving your offset credit provider. If you are simply looking for an effort-free and genuine way to offset your emissions, and are ready to forgo the multiple benefits generated by a carbon offset project, buy emission permits from a credible emissions trading system such as the European carbon market.

Image Credit: Jason, Flickr

This article was originally published on Triple Pundit: http://www.triplepundit.com/2014/09/genuinely-offset-emissions/

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How renewables can leave fossil fuel assets stranded

Over the course of 2013, Europe’s largest utilities, RWE,  E.ON and EnBw announced plans to close a number of high-capacity fossil fuel-powered plants. RWE stated its power plants had become unprofitable to operate due to competition from renewables, in a testimony to the way policies to reduce carbon emissions can leave fossil fuel assets “stranded.”

Stranded assets are ones which suffer from unanticipated or premature write-offs, downward revaluations or are converted to liabilities. Traditionally, assets become stranded due to an unexpected change in their market environment. The shale gas revolution in the U.S. is one example that has affected the viability of coal mines across the country. More recently, however, an emerging risk for investments with exposure to CO2 emitting assets is the introduction of climate change legislation.

In this respect, the European Union, and Germany in particular, are a case in point. In 2008, the EU enacted legislation, which committed it to generating 20 percent of its electricity from renewable sources by 2020. In Germany, the renewable share must be 35 percent by 2020. Berlin has been offering additional support to renewable development through the implementation of feed-in-tariffs in 1990. The resulting growth in renewables has increased the overall supply of power in the German electricity market. Combined with the effects of the Europe’s financial crisis, the growth in renewables has depressed German power prices, and pushed many fossil fuel power stations out of the money.

The unprofitability of conventional power plants in a market with increasing shares of renewable energy is leaving a dent in companies’ share prices. RWE’s shares (which have also been negatively affected by Germany’s nuclear moratorium) have fallen 78 percent since their January 2008 peak. E.ON’s shares have shared largely the same faith. In comparison, the German equities index has now recovered to levels higher than its 2008 peak.

RWE’s stranded assets represent a small part of a potentially much larger “carbon bubble,” according to the Carbon Tracker Initiative. The researchers assert that oil and gas reserves are at risk of being overvalued and could become unusable if world governments ramp up climate change policies. In a global warming scenario of an increase of 2°C, 60-80 percent of fossil fuel reserves owned by publicly listed coal, oil and gas companies and their investors would become stranded.

Keeping global warming below 2°C might seem far-fetched, given that carbon pricing currently only cover 7 percent of world emissions. The energy sector, however, is already seeing assets become stranded due to competition from renewables, enhancing the case for factoring broader environmental factors in investment decisions.

This post was originally published on Triple Pundit on 23 August, 2013. Link to original article: http://www.triplepundit.com/2013/08/europes-stranded-assets-cautionary-tale-global-investors/

Image credit: Frank Kehren, Flickr

The implications of EU’s 2030 climate target

The EU Commission published in January a white paper that describes its thinking on what type of climate and energy targets the EU should adopt for 2030. This was only the first milestone on the road to the adoption of such targets and it will likely take years until actual targets are agreed by EU member states. However, the white paper is significant as it is the result of an internal hard-fought political debate within the EU Commission, whose members span the whole EU-wide spectrum of various opinions.

The proposed targets are a 40% reduction in GHG emissions compared to 1990 levels and a 27 percent renewable energy share in EU’s energy consumption mix. In this post, I focus on the choice of the 2030 GHG target specifically. There are two main angles through which one could evaluate this target. First, does it put the EU on course to meet its long-term climate goals? Second, does it reflect EU’s “fair share” of the global carbon budget which must be met for global warming to be limited to 2°C?

Consistency with EU’s climate commitment

The EU is committed to reducing emissions by 80-95% by 2050 compared to 1990 levels. More specifically, the Commission’s low-carbon roadmap advises that the bloc reduce its domestic emissions by 80% (without the use of international offsets). According to the impact assessment accompanying the white paper, a cost-effective pathway towards the 80% target is one which reaches 40% in 2030 and 60% in 2040. These milestones imply a rather linear reduction in emissions from 2020 onwards, which I have plotted in the chart below.

EU's emission reduction pathway

Total EU emission in 1990 stood at 5.7 billion tons CO2e. By 2011 the EU had reduced this number 17% according to Eurostat data. The Commission assumes that, by 2020, the EU will have reached a 22% reduction.

After 2020, the Commission’s proposed 40% will quicken the rate of annual emission reductions. This results in equal annual reductions of 102 million tons per year between 2020 and 2030 and 114 million tons between 2030 and 2050. The proposed 40 percent target therefore puts the EU on an essentially linear track to achieve an 80 percent reduction by 2050. It causes substantial emissions reductions starting already in 2021.

However, 80% reduction is in the lower range of EU’s commitment to reduce emissions by 80-95% by 2050. The rest could be met with international offsets, as implied in the Commission’s low-carbon roadmap. The Commission’s white paper suggests that in the case of international climate action, the EU could adopt a more ambitious target and use international credits to meet the additional required reductions. However, without international climate action, it remains unclear whether, and if so how, the EU will achieve anything higher than the lower range of its 80-95% commitment.

Is the target a “fair” contribution to 2°C?

Defining a “fair” contribution is tricky but a necessary step in defining appropriate climate targets for individual countries or regions. Models analyzing fair contributions usually start with an assumption of the carbon budget available under a global warming of 2°C and allocate it to countries based on different effort sharing regimes, which use different principles for what is fair. Some allocate emission reductions so the GDP impacts are the same across countries, while others impose different carbon tax levels depending on the country’s historical contribution to global emissions.

Based on a range of effort sharing principles the IPCC 4th assessment report concluded that developed countries must reduce emissions by 80-95% by 2050 to meet the 2°C objective. This finding was later reflected in the EU’s long term climate commitment.

A recent study by Ecofys found that EU’s fair contribution to 2030 emission reductions involves a reduction between 39% and 79% (with a median of 49%). The study took into account a variety of effort sharing regimes, reflecting the wide range of results. Ecofys has also found that a “fair” 2020 target for the EU would be between 18% and 40% (with a median of 25%). In the chart below, I compare the Commission’s proposed target with the median targets, which reflect EU’s fair share of global reductions.

Is 40% a "fair" target?

There is a clear discrepancy between the proposed 40 percent target and targets defined under fair contribution principles. The pathway implied by fair contribution targets calls for steeper reductions especially between 2020 and 2030. This pathway reaches an 87.5% reduction in 2050 (median between 80 and 95).

The choice of a 40% target therefore seems to reflect a shift of focus for the EU. The bloc appears to be more concerned with meeting its own long-term 80% reduction target in the most cost effective manner, as explained above. The EU likely sees itself trying to strike a balance between concerns for economic competitiveness and an ambition to lead the global climate fight. Achieving this balance is likely to be the driving force of the political deliberations that will now follow in the European Parliament and Council.

This article was originally published on The Energy Collective on January 29, 2014. Link to original post: http://theenergycollective.com/edimantchev/333121/taking-stock-eu-s-proposed-2030-climate-target

Image credit: TPCOM [Flickr]