Understanding Carbon Offsets

By Jason Smith

In 2006, CO2 emissions resulting both directly from the combustion of fossil fuels and indirectly from the generation of electricity that is consumed by industry, accounted for 28 percent of CO2 from all fossil fuel combustion.

A carbon offset is designed to compensate for greenhouse gas (GHG) emissions via a credit achieved through another organization’s emissions reduction projects. Carbon offset projects are bought and sold based on the amount of measurable GHG emissions that a business produces or reduces.

The term “carbon neutral” is often used to refer to an effort made by an organization to calculate all of the GHG emissions of a particular process or product. Once those emissions have been entirely balanced out through a combination of direct emissions reductions and the purchase of “carbon offsets”, the process or product can be called “carbon neutral.” As more companies claim to have “carbon neutral” products, the Federal Trade Commission has recently been looking into standardizing the use of this term so that consumers and businesses can have greater confidence in the effectiveness and results of “carbon neutral” claims.

Types of Offset Projects
Every offset retailer has its own unique project assortment but in general the basic types of projects are common among retailers. These include:

Renewable energy credits. These are credits derived from large-scale renewable energy projects that displace fossil fuel-derived electricity. Generally, these credits represent wind or solar power that is fed into the electrical grid.

Forestry credits. The more trees on the planet, the more capacity there is for the planet to absorb carbon dioxide before it contributes to global climate change. However, because the amount of carbon reduced by specific forested areas varies according to tree species as well as their location, forestry-based offsets can be difficult to measure. Also, they are hard to manage because even a healthy forest can have spontaneous fires. As a result, these types of offsets are becoming less popular among providers. Nonetheless, many purchasers like tree planting because it is easy to understand and has secondary benefits aside from offsetting carbon dioxide.

Miscellaneous credits. There are several varieties of offset projects that make up this category. For example, the waste from dairy and swine farms emits methane (a very potent greenhouse gas), but this methane can actually be captured before it enters the atmosphere and used to generate electricity. Because no-till/low-till farming reduces the decay of organic matter in soils while increasing the Earth’s ability to store carbon, it’s also able to generate carbon credits. There are many more types of miscellaneous offset projects and some play a very important role in these emerging markets. For more information about other miscellaneous projects, visit: www.carboncatalog.org/guide/types/

Energy efficiency credits. In cap-and-trade programs, like the Chicago Climate Exchange, participants (e.g. companies, municipalities, universities) are required to reduce their greenhouse gas emissions by a set amount each year. That emissions limit is called a “cap.” If a participant reduces more emissions than required, they generate “carbon credits” or “energy efficiency credits” that can be sold to another participant, which was not able to meet their reduction requirements. Some of these “energy efficiency” credits are also generated through measures such as replacing a vehicle fleet with hybrids or installing solar panels on the roofs of facilities. The advantage of this system is that it provides a financial incentive for companies to reduce their emissions.

Offsetting Emissions with Retailers
Once a company has decided what type of projects it wants to support, it is important to know how to choose among the myriad of offset retailers. In general, non-profits are more transparent (than for-profits) about where the money is being allocated to help their mission. Additionally, a greater percentage of contributions go to actual projects versus shareholders or large overheads. When looking at a non-profit retailer, it is beneficial to choose one that has an educational mission to accompany its sale of offsets.

Companies should also look for credits that have some type of credible third-party certification or verification. This will ensure that the purchase of credits is going to projects that they can have confidence in.

Jason Smith is the vice president of key accounts for ClimateCHECK (www.climatecheck.com), a consulting firm that provides greenhouse gas management solutions. He can be reached at js@climate-check.com.