Carbon Offsetting: Buyers’ Guide 1.0

25 April 2017 | A few weeks back, my Skype started bleating impatiently.

It was my friend Hein, seeking my advice – which is odd, because Hein is one of those people I’m always running to for help. He’s a lawyer who became obsessed with computers and now makes his living protecting governments and companies from cyberattacks.

It turns out he’d been listening to a podcast I produced on passenger flights, and he’d been trying to offsets his greenhouse-gas emissions from a whole year of travel.

“I went to the sites you mentioned, and I calculated my total emissions,” he explained.

“Cool!” I said.

“Then I went to buy the offsets, and I saw they were priced at $10 per ton.”

“Yep!”

“But, I started googling,” he continued, “and I found prices are all over the place, which doesn’t make sense.”

He’d clearly done his homework.

“A ton of carbon dioxide is a ton of carbon dioxide, no matter where it’s emitted – right?”

“Yes,” I said.

“That means an emissions-reduction is a commoditized product – they’re all the same – right?”

“From a purely emissions-reduction perspective, yes,” I said.

“Then I should buy the cheapest one, because that saves me money and promotes the most efficient way of reducing emissions, right?”

“Hmmm,” I said. “That’s true if all you want to do is reduce emissions, but I have a soft-spot for forests, so I buy from projects that reduce emissions by helping indigenous people plant trees or save their forest…”

He cut me off.

“I’m all for sustainable farming, but right now I just want to offset my emissions, and to do so in the most efficient way possible,” he answered. “If everybody on the planet reduces in the most efficient way possible, then we get the low-hanging fruit first and reduce global emissions faster, right?”

He was right again.

“But some of these are so cheap, and others are so expensive. Are these low-cost emission-reductions real and verifiable? Can I trust them?”

I was impressed.

“Wow, Hein, you’re actually using the lingo of the trade: there are about 20 carbon standards, and each is a little different, but their carbon accounting is based on the same science, and they all say that offsets have to be real, measurable, verifiable, and additional.”

“Different standards?” he asked. “Is that why prices are different? Some say ton, others say tonne, and some say tC₂Oe…”

“They’re all metric tons, and in theory, every ton is the same amount,” I said – launching a discussion that ended with Hein offsetting his emissions and my coming to suspect that lots of people want to offset their emissions but don’t know how.

This is my effort to correct that.

It’s very much a work in progress, and I’ll make changes to it as people suggest them. So, if you’re an expert who sees errors, e-mail me at [email protected]. If you’re a novice who finds parts of this confusing, do the same. For now, here it is:

How do I Calculate my Carbon Footprint?

You can use scores of sites to calculate your greenhouse gas emissions, and all are self-explanatory. I recommend CarbonFootprint.com because it’s not trying to sell anything. As far as I know, all footprint calculators use the same formulas.

Where do I Buy Carbon Offsets?

I’ve found a few platforms that provide multiple ways to buy offsets, and am listing them at the end of this piece because I wanted to explain a few things first. Feel free to scroll to the Buyer’s Guide at the end. You can always scroll back up if something isn’t clear.

What are Greenhouse Gasses?

We all know the basics: greenhouse gasses float around in the air and cause the atmosphere to act like a “hothouse”, as Swedish scientist Svante Arrhenius called it when he identified the phenomenon back in the 1800s. (Yes, it’s been that long, and Spencer Weart’s 2003 book “The Discover of Global Warming” told the tale quite well 15 years ago.)

Greenhouse gasses work by reflecting some of the sun’s heat back out into space but trapping more of it down here with us, along with heat coming from the Earth’s core. We need greenhouse gasses to prevent Earth from turning into an ice ball, but too much greenhouse gas will cook us.

Some greenhouse gasses – like carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O) – existed before we came along, but our activities are increasing them. Others – like the perfluorocarbons (PFCs), the hydrofluorocarbons (HFCs), and sulphur hexafluoride (SF₆) – are our own contribution to the mess.

If There are so Many GHGs, why do we Talk of a “Carbon” Footprint?

Mostly because carbon dioxide is the greenhouse gas that we humans generate the most of, thanks to the fossil fuels we burn and the forests we chop. It’s also a benchmark for the other greenhouse gasses, but not a perfect one.

Remember your high-school biology? Living forests breathe in both carbon dioxide and nitrous oxide, and they breathe out oxygen, while keeping most of the carbon for themselves and injecting most of the nitrogen into the soil, where it acts as fertilizer. Carbon, therefore, concentrates in plants and animals, and it becomes the main ingredient of fossil fuels like coal and oil after those beings die and ferment.

We release carbon dioxide by burning fossil fuels, and we release methane and nitrous oxide by draining peat bogs, raising cows, and spreading nitrogen-based fertilizer, among other activities.

What do you Mean by “a Benchmark for the Other Greenhouse Gasses”?

Each of these greenhouse gasses behaves a little differently. Methane, for example, traps about 100-times more heat than carbon dioxide does, but it also disintegrates more quickly. Over a period of 100 years, methane is “only” 25-times as bad as carbon dioxide, but over 20 years, it’s 72-times as bad. On top of that, rising temperatures will force our natural systems to release more and more methane – so a little warming now could mean a lot more later.

Scientists managed to simplify the mess – albeit imperfectly – by coming up with something called “CO₂e”, which stands for “Carbon Dioxide Equivalent” and acts as a standardized measurement of greenhouse gases. It works by first determining how many times worse than carbon dioxide a given greenhouse gas is over the next century, and using that as the multiplier.

Because methane is 25-times worse than carbon dioxide over 100 years, for example, its multiplier is 25; but many environmentalists argue it should be 72, because the next 20 years are so critical. For carbon accounting purposes, that means you have to buy 25 metric tons of carbon offsets, each representing one metric ton of CO₂e, to generate enough emission-reductions to offset one ton of methane emissions. You can also triple that and buy 72 carbon offsets, and some companies are, in fact, doing so. As an individual, however, methane is hard to calculate, which is one reason we need companies to reduce their emissions – preferably by fixing their processes, but also by offsetting those emissions they can’t reduce themselves.

Nitrous oxide’s multiplier, by the way, is 298, and Sulphur hexafluoride’s is a staggering 22,800. Between them are a wide range, which you’ll find here.

Is “Carbon Price” the Same as “Social Cost of Carbon”?

No. The “social cost of carbon” is the theoretical cost to society of every tC₂Oe emitted, and most people peg it around $100 per ton.

The “price” is what people pay for a one-ton emission reduction, and they can do so either voluntarily, or, if they are a regulated company, under a cap-and-trade program like California’s. Be aware that compliance programs are a bit more complex, because some prices are set as taxes, while other prices are determined through bidding for allowances, which are issued by the government, and still others are determined through buying and selling offsets. Most cap-and-trade programs are a hybrid of all three.

Why are Prices so Different?

Now we’re getting into the meat of this issue. At Ecosystem Marketplace, we track voluntary prices, and we’ve found them from lower than a penny per ton of C₂Oe (often abbreviated as “tC₂Oe”) for offsets from the now-defunct Chicago Climate Exchange to higher than $120 per ton for Japan’s “J-VER” credits.

Some of the cheapest offsets are no longer being produced because buyers rejected them. One type, for example, worked by reducing man-made industrial gasses, which is good, but did so by going into developing countries and simply adding catalyzers that burned away the gas – a practice that was mandatory in developed countries, and that arguably rewarded bad actors who simply stopped being horrible. (For details, see this EU press release).

Other project types, like those generated by building hydropower plants, are cheap because buyers don’t like the fact that hydropower plants often force poor people to move (and, it turns out, may be emitting more methane than previously believed because of the plants that rot in the reservoirs).

On the flip side, people in developed countries like Japan and the United States often prefer buying offsets generated closer to home, and they’re more expensive to generate than those in developing countries.

For the most part, the actual emission-reductions are uniform across standards, because they use the same basic science. They differ in the way they treat “co-benefits” – or how they impact indigenous people and biodiversity – as you can see by reading the 2012 article “Carbon Offset Prices Vary Widely By Standard And Project Type”.

How do Standards Work?

They work by creating frameworks within which carbon offsets can be developed and then overseeing the process through which the offsets are created, tracked, and sold.

The Ecosystem Marketplace State of Voluntary Carbon Markets reports track almost 20 standards, but they’ve each evolved similar modus operandi: first, someone (usually a project developer or environmental NGO) has to create a “methodology” for a certain type of offset, such as ones generated by saving peat forests. A methodology is a process for generating offsets that are real, measurable, verifiable, and additional. While most of those terms are self-explanatory, “additional” means that the payment actually caused the emission-reduction to take place, or that the project would not be economically viable without the carbon payments. A company that saves a ton of money by becoming more energy-efficient will, therefore, not be able to earn carbon offsets unless it can prove the offsets made the project possible, and even they would only earn offsets for a small percentage of their overall reductions. Once a company creates a methodology, it runs it through a gauntlet of scientists and carbon accountants who try to shoot holes in it. Only after the methodology survives this process is it recognized under a given standard, but there is some debate over the additionality of certain project types.

But it’s not over yet: once a methodology exists, a project developer has to design a project within the methodology’s guidelines, and this specific project design also goes through a rigorous process of peer review. If approved, the project is “validated”. Then, to sell offsets, it’s “verified” by outside auditors who make sure it’s doing what it’s supposed to do.

Any offsets that are verified are then deposited in a registry, which is like a clearinghouse tracks offsets so the same one doesn’t get sold twice. When you buy an offset, it’s “retired”, meaning it can never be sold again.

Almost 90 percent of all offsets are certified under one standard or another, according to our most recent “State of the Voluntary Carbon Markets” report. The Rainforest Alliance has created a handy overview of the most common standards, and we’ll provide an updated list in May, when we publish our next report.

One standard that’s not listed on the Rainforest Alliance site is the Clean Development Mechanism, which was launched by the United Nations to help companies meet their obligations under the Kyoto Protocol. Though created for companies under cap-and-trade, the offsets are available for anyone who buys them.

What are “Project Types”?

Project “type” refers to the technology that reduces emissions: are you paying to build wind-farms? Or are you paying to plant trees?

Where Can I Buy?

There are plenty of places to buy, and I certainly haven’t seen them all. Having said that, I wanted to start with two that I know and trust, as well as the site that Hein eventually settled on. I also encourage people to send in recommendations, and we’ll review them and expand this list.

Cool Effect launched last year, and we’ll be profiling them soon. They focus on projects that reduce emissions by helping farmers recycle their methane (turning “poo into power“, as one project description puts it) or switch to clean-burning stoves. All projects are certified to the highest standards, and the group also adds their own filters. What’s more, they provide detailed project descriptions in clear language, as well as monthly updates on project developments, and 90 percent of all the money goes to the project developers. This is the most user-friendly and educational site I’ve seen so far.

When I offset my own emissions, I use a site called Stand for Trees, which has aggregated offsets from several projects I’ve written about over the years. I can’t say they’re better than others, but it just happens that several projects I’ve written about ended up on the site. Offsets go for $10 per ton, and the project developers get $7 of that.

Hein decided to buy his offsets from a portal that the United Nations created to sell CDM offsets. It’s called “Go Climate Neutral Now”, and it categorizes projects by type, which are pretty self-explanatory. All projects are certified under the Kyoto Protocol’s Clean Development Mechanism, but one of them – specifically #5461 (the Fatima N₂0 Abatement Project) is an industrial gas project that did legitimately reduce emissions, but did so by just installing a catalyzer that breaks the gas into inert substances, an action that is mandatory in most parts of the world.

What’s Wrong with Cheap Offsets?

I’ll close on a personal opinion of mine, but want to first acknowledge that there is an argument for buying the cheapest offsets, and it’s the one Heine made at the start: if everybody on the planet decided to go carbon-neutral, the demand will go through the roof. The cheap ones will get bough up, driving money into the most efficient emission-reductions. Then the price will rise, driving money into more expensive technologies.

On the other hand, right now most project developers are hurting. They took a lot of risk to generate these emission-reductions, and I believe that should be rewarded. Plus, if enough of us buy more expensive offsets, we send a price signal to other project developers.

In the end, Hein bought cheap offsets, but bought three-times as many as he needed to offset his emissions. He now buys the $10 offsets for individual flights, because the sticker shock isn’t as bad as doing a full year at once.

In the end, offsetting is just one tool among many, and we ultimately have to reduce our own emissions. Ecosystem Marketplace has found, however, that offsetting is a kind of “gateway strategy” for more sophisticated strategies, and the act of offsetting forces us all to become more aware of our emissions.