Carbon Offsets: A Mitigation

Tool for the Hospitality Industry

Carlos Rymer
Sustainability and Hospitality
Fall 2007

Table of Contents
Summary………………………………………………………………. 2
Global Climate Change………………………………………………... 2
Carbon Offsets…………………………………………………………. 3
Case Studies ………….………………….…………………………….. 5
Economic Impacts……………………………………………………... 7
Designing Carbon Offset Programs……………………………………. 8
Conclusion……………………………………………………………. 10
References…………………………………………………………….. 11

Summary
It is now widely accepted that global climate change is caused largely by greenhouse gas
emissions resulting from the combustion of fossil fuels in human society. The impacts of climate
change on the world economy, and especially on the hospitality industry, are projected to be

2
significant for this century. As a large contributor to the world economy, the hospitality industry
has the responsibility to lead on this issue by designing programs that reduce greenhouse gas
emissions, which are blamed for the increasing global mean temperature. Already, companies in
the hospitality and energy sectors are beginning to address this issue. One emerging, popular
approach is to provide customers the opportunity to offset their greenhouse gas emissions.
Carbon offsets, which neutralize greenhouse gas emissions by avoiding or sequestering
emissions elsewhere, are increasingly being used as a way to fund projects that reduce emissions.
Currently, the costs of this approach to tourists is minimal, and designing carbon offset programs
is becoming easier and more flexible for hospitality businesses. Carbon offsets can be an
effective tool for hospitality businesses and customers to contribute to reducing greenhouse gas
emissions.

Global Climate Change

Global climate change is referred to the biophysical changes happening in the Earth’s
ecosystems and climate due to an increase in the global mean temperature, which is being driven
by human-made greenhouse gas emissions. Increasing temperatures have risen global sea levels;
decreased the extent and thinned the thickness of Arctic sea-ice; forced the widespread retreat of
non-polar glaciers; decreased global snow cover; thawed and degraded the permafrost in many
regions; intensified El Niño events; shifted plant and animal ranges; extended the spring and fall
seasons; increased coral reef bleaching; and increased economic losses globally (IPCC, 2007).
These changes are forecasted to accelerate and worsen in the 21st century (see figure below),
with a potential economic cost of $20 trillion per year by the year 2100 (Ackerman and Stanton,
2006). With the estimated costs of avoiding dangerous climate change significantly lower than
the costs associated with dangerous climate change, it is important for the hospitality industry to
begin addressing this issue by reducing its contribution to climate change (Stern, 2006).

Source: IPCC 2007

3
 According to the most recent assessment by the Intergovernmental Panel on Climate
Change, the world’s authority on climate change, the forecasted increase in the global mean
temperature will affect important economic sectors, including agriculture, energy, forestry, and
hospitality. In order to increase the possibility of avoiding the worst case scenario projected, the
world must more than halve greenhouse gas emissions by mid-century (IPCC, 2007). The
hospitality sector, contributing more than 10% to the global gross domestic product and
responsible for about 5% of global greenhouse gas emissions, has the potential to significantly
impact the world’s greenhouse gas emissions path (WTTC, 2007).
The impacts of global climate change on hospitality are projected to be significant. In
Southern Europe, climate change threatens to bring increased drought, fire risk, water shortages,
heat stress, beach degradation, flash floods, and tropical diseases. In North America, there may
be significant damage to attractive coasts, increased heat index and storm damage risk, and
increased tropical disease risks. Island nations in the Pacific and the Caribbean are threatened by
sea-level rise, increased beach erosion, coral bleaching and reef damage, aquifer salinization,
higher air conditioning costs, more intense floods and droughts, more tropical diseases, and
increased pressure on natural resources. Elsewhere, these typical impacts will also be negatively
influencing hospitality (WTO, 2003).

Carbon Offsets
In North America, there has emerged a voluntary carbon market similar to the clean
development mechanism used to meet the binding targets of the Kyoto Protocol. The clean
development mechanism allows nations that must reduce their greenhouse gas emissions to
receive credits from projects in developing countries that reduce emissions and promote
sustainable development. Similarly, the voluntary carbon market allows businesses,
governments, organizations, events, and individuals to take responsibility for their greenhouse
gas emissions by purchasing carbon offsets, which are credits that negate greenhouse gas
emissions somewhere by avoiding or sequestering emissions elsewhere through renewable
energy, energy efficiency, reforestation, or other projects (Taiyab, 2006).

Carbon offsets are typically conducted through large projects, such as wind farms and
large reforestation or forestry management projects. The key concept with these is that there is an
additional emission reduction as compared to the business-as-usual scenario. In order to measure
these additional emission reductions, a baseline of projected greenhouse gas emissions is used
for comparison. While carbon or emission allowances are based on transactions in regulated
trading schemes, carbon offsets are based on specific projects and sold to voluntary customers
under a retail market (Taiyab, 2006).

Voluntary carbon offset buyers have two options from which to choose their credits:
Kyoto-related offsets and non-Kyoto offsets. Kyoto-related offsets have to undergo verification
under the Clean Development Mechanism or the Joint Implementation, programs that are within

4
 the Kyoto Protocol. No offset can be used to meet Kyoto-related greenhouse gas reduction
targets. As of 2006, prices ranged from $5-35 per ton of carbon dioxide equivalents (CO2e) in a
market that removed over 9 million tons of CO2e (Taiyab, 2006). The table below shows a list of
non-profit and for-profit organizations serving the hospitality industry.

Provider Price Non- or Projects Verification

($/Ton For-Profit
CO2)
CarbonFund.Org 4.30 - $5.50 Non-Profit Renewable Energy Environmental Resources
(RE), Efficiency, Trust, UNFCCC
Reforestation
e-BlueHorizons 5 For-Profit RE, Reforestation Environmental Resources
Trust, CCX
Driving Green 8 For-Profit RE SES
Terrapass 8.30 - 11 For-Profit RE, Efficiency Center for Resource
Solutions, CCX
CarbonNeutral 14 - 18 For-Profit RE, Efficiency, Edinburgh Center for Carbon
Methane, Management
Reforestation
Standard Carbon 15 For-Profit Methane, RE, CCX
Efficiency
Cleaner Climate 15 - 18 For-Profit Renewables, CDM Gold Standard
Efficiency
Sustainable Travel 15.25 Non-Profit Renewables N/A
Int.
Uncook the Planet 19.45 For-Profit Efficiency CDM
Source: EcoBusiness Environmental Directory

In the hospitality industry, these voluntary carbon offsets can provide an opportunity for
customers to show responsibility for climate change by paying for the emissions their travel and
tourism activities have generated. With increased public pressure for action on climate change
and the recent declarations by the World Tourism Organization, the Intergovernmental Panel on
Climate Change, and other recognized bodies for strong action, it is clearly in the hospitality
industry’s best interest to aggressively address this issue.

Case Studies
The Chicago Climate Exchange

The Chicago Climate Exchange (CCX) is a voluntary carbon exchange program that
legally binds participating companies to reductions in greenhouse gas emissions. Launching
trading operations in 2003 with 13 large companies, it created the world’s first multi-sector
5
market for reducing and trading greenhouse gas emissions. Operating solely in North America, it
is the only emission reduction trading system that includes all six greenhouse gases (carbon
dioxide, methane, nitrous oxide, hydrofluorocarbons, perflurocarbons, and sulfur hexafluoride),
with over 300 members trading under the system (CCX, 2007).

The exchange is based on the cap-and-trade model used last century to reduce sulfur
dioxide (SO2) emissions. To reduce acid rain, the U.S. Environmental Protection Agency put a
cap on SO2 emissions from electric power plants. Power generators that found it expensive to cut
sulfur emissions bought allowances from those that made emission cuts at lowest cost. While the
first compliance year was 1995, trading started several years earlier. The first EPA auction was
administered by the Chicago Board of Trade in 1993. Through private transactions and annual
auctions, electric power generators traded emission allowances to arrive at an efficient use of
mitigation resources. The program was very successful, reducing emissions faster than required
and at costs far below many forecasts (CCX, 2007).

Upon membership in the CCX, new members had to make a voluntary but legally
binding commitment to reduce greenhouse gas emissions. By the end of Phase I in December
2006, all members were to have reduced direct emissions 4% below a baseline period of 1998-
2001. Phase II, which extends the reduction program through 2010, will require all members to
reduce emissions 6% below baseline levels by 2010. The exchange has been successful to date
and has experienced record-breaking transaction volumes. As a result, the company that owns the
CCX has expanded operations to Europe through the European Climate Exchange and the
Northeast through the New York Climate Exchange and the Northeast Climate Exchange (World
Bank, 2007).

Beyond Petroleum Target Neutral

The British oil company Beyond Petroleum (formerly known as British Petroleum)
launched a non-profit organization called Target Neutral in 2006 to offer customers in the United
Kingdom (and now in the Netherlands) an opportunity to offset their greenhouse gas emissions.
The initiative is aimed at generating awareness about greenhouse gas emissions to improve
driving behavior. The program follows a 3-step structure called “reduce, replace, and neutralize,”
where offsetting emissions is the very last step customers take to reduce their greenhouse gas
emissions after they have taken practical steps. All of their carbon offset projects come from
India and Mexico (TargetNeutral, Wikipedia, 2007).

Continental Carbon Offset Program

In 2007, Continental Airlines began to offer its customers the opportunity to offset their
flight’s greenhouse gas emissions through its Eco-Skies program. The company has partnered
with Sustainable Travel International, a non-profit organization that provides carbon offset
services to hospitality businesses. Continental has made available a carbon footprint calculator
on its website so that customers can quickly assess how many tons of greenhouse gases their

6
flight will emit and how much they have to pay to offset those emissions (Continental Airlines,
2007).

The program directly collects proceeds from responsible customers, which are invested
by Sustainable Travel International in reforestation, renewable energy, and energy efficiency
projects around the world. These offset projects are verified by third-party companies under the
CDM Gold Standard or the Green-e Certification from the Center for Resource Solutions.
Recently, the non-profit was ranked the best in a study by Clean Air-Cool Planet that assessed
non-profits that provided carbon offset programs in the United States (Continental Airlines,
2007).

Delta Carbon Offset Program

In April 2007, Delta Airlines launched the world’s first carbon offset program for air
travel customers. The airliner partnered with The Conservation Fund, an environmental non-
profit organization dedicated to protecting land and water resources. The program began on
Earth Day with a donation to offset the greenhouse gas emissions of all customers travelling with
Delta Airlines during that day and to plant one tree for each of its 47,000 customers.

Since last summer, Delta customers have the opportunity to offset the carbon dioxide
emissions associated with their air travels. The Conservation Fund uses these proceeds to plant
trees around the world that sequester carbon dioxide and to fund outreach activities run by the
organization. The airliner also hopes to engage customers in select cities in planting trees to
further sequester carbon dioxide. This carbon offset program is the latest addition to Delta’s
“Force for Global Good,” a program that united Delta employees and customers in effecting
positive social and environmental change around the world (Delta, 2007).

Leading Hotels of the World-Sustainable Travel International

In April 2007, the Leading Hotels of the World company partnered with Sustainable
travel International to launch a carbon offsets program for customers using the company’s
resources. Leading Hotels of the World is a company dedicated to helping find the most
luxurious hotels and resorts for high-income travelers. Sustainable Travel International, on the
other hand, is a non-profit organization that promotes sustainable tourism and responsible travel.
The partnership opens up the Sustainable Travel International’s new carbon offset program,
Leading Green Initiative (Miner, 2007).

The Leading Hotels of the World donates $0.50 per guest, which goes to offset the carbon
dioxide emissions from the accommodations. Sustainable Travel International invests the funds
directly in solar and wind power. In addition to this, Sustainable Travel International provides
other “green” services, including sustainability consulting, eco-directory, local purchasing guide,
education and training, and green market travel information. With this new carbon offset

7
program, customers have the opportunity to be more responsible for their greenhouse gas
emissions and environmental impact during their travel (Miner, 2007).

These case studies show that carbon offsets are becoming popular and are increasingly
being used by businesses to offer customers the opportunity to contribute to mitigating climate
change. With these models, it becomes easier for hospitality businesses to adopt these programs
for their customers and potentially work together to create a standard for the hospitality industry,
with the goal of raising awareness, funding climate change mitigation, and eventually developing
more non-voluntary programs to achieve greenhouse gas reduction targets.

Economic Impacts
In the hospitality industry, like in other industries, there is strong opposition to increases
in regulation that may involve costs. Over the past decade, for example, there has been
opposition to regulation to reduce greenhouse gas emissions because of the associated costs.
With carbon offsets, customers voluntarily decide to pay an extra charge to reduce greenhouse
gas emissions elsewhere. By making it voluntary, the industry does not have to worry about
incurring additional costs due to increases in prices associated with reducing greenhouse gas
emissions.

If carbon offsets are to be used widely as a tool for reducing greenhouse gas emissions,
then over time the total costs of doing so will increase as more customers volunteer to pay for the
offsets and eventually demand that these become mandatory or included in the cost of travel. The
table below shows the associated costs of carbon offsets with current prices and reductions of
10%, 50%, and 100% from air travel and all other hospitality-related activities.

Assumptions:

Air Travel’s Share of Global Greenhouse Gas Emissions = 3% or 1.14 Gtons of CO2e

Other Share of Global Greenhouse Gas Emissions = 2% or 0.76 Gtons of CO2e

Total Arrivals (2003) = 695 million

Total Revenues (2003) = $515 billion

Average Price of Offset per Ton = $12.50

$ per Arrival Total Cost ($) Share of Revenues

10% Offset 3.4 2.4 Billion 0.5%

50% Offset 17 11.9 Billion 2.5%

8
 100% Offset 34 23.8 Billion 5%

Sources: IPCC, WTO, EcoBusiness

According to these conservative estimates, the associated costs of carbon offsets to the
hospitality industry would be minimal. Under a 10% offsets scenario where the industry itself
would take in the cost, it would lose only about 0.5% of revenues. With 50% and 100% offsets
scenarios, this grows to 2.5% and 5% of total revenues, respectively. With hospitality growing at
3-4% per year and global real income growing at 5% per year, all of these options are
economically viable and would represent increasingly responsible options (WTTC, CIA, 2007).
The economic impact of assuming a fair share of the necessary carbon offsets for the hospitality
interest would be minimal and could well be used as a tool to increase demand through strategic
communication.

Designing Carbon Offset Programs

The role of carbon offset programs in mitigating and raising awareness about climate
change is becoming increasingly important. Not only are businesses in hospitality and other
sectors using these programs to demonstrate climate responsibility, but they are also using it as a
way to further satisfy customers who are increasingly becoming worried about the consequences
of climate change. Designing a carbon offset program that meets customers’ needs, increases
awareness, and helps incentivize technologies that reduce greenhouse gas emissions is therefore
important.

In order to start a carbon offset program, a hospitality business must take into account the
following components:

• Provider: The for-profit or non-profit organization that will provide the carbon offset
service. The business must choose to support a for-profit or a non-profit organization

• Verification: The way in which the provider ensures that all projects follow a certain
standard to ensure correct offsets. This is very important as good verification systems can
help avoid future problems with the claims of critics. Verification systems include the
Chicago Climate Exchange, the CDM Gold Standard Verification, the UN Framework
Convention on Climate Change Verification System, and the Environmental Resources
Trust System.

• Outreach: The strategy and educational package in which the business will educate
customers about climate change, practical steps, and carbon offsets. This may involve
online tools, ads in newspaper, magazines, or travel commercials, and any other means of
getting to the customer.
9
 • Payments: The business must decide to either allow customers to pay for the full costs of
offsets or to pay itself all or part of the necessary carbon offsets.

• Types of Projects: While some providers offer projects such as methane combustion,
renewable energy deployment, energy efficiency, and reforestation, some choose to only
use renewable energy or energy efficiency because of the more valid measurements that
can be made with those. The business must decide whether it wants to include projects
that could be harder to measure, such as reforestation projects. This choice will influence
the provider the business decides to work with.

Once these considerations have been taken, the hospitality business must begin to design
an effective outreach program that will reach a significant amount of customers. The initial key
decisions to be taken include the type of projects that the business will support, the provider it
will choose, and the source of payments (whether it will be on one side or shared). The program
design could also be modeled from existing examples, such as those of Delta, Continental, and
the Leading Hotels of the World.

Finally, initiating carbon offset programs are potentially a way to increase competitive
advantage, as customers may choose those businesses that include the cost of greenhouse gas
emissions in tourism and travel activities. With increased pressure from the public to
aggressively promote renewable energy, energy efficiency, alternative transportation, and other
means of reducing greenhouse gas emissions, it will become imperative for the hospitality
industry as a whole to mainstream carbon offsets programs or design an industry program that
can be used as a standard.

Conclusion
Climate change is being increasingly perceived as the most important, decisive issue of
st
the 21 century. From academies of sciences to known deniers of human-made climate change,
this issue has been widely acknowledged as a human-caused problem. The science on climate
change has clearly demonstrated that the global consequences of climate change will be
significant if the world does not act promptly, and that the associated costs of action will be
minimal. The debate has clearly moved from science to action. In the next few years, the world
must begin to significantly reduce its greenhouse gas emissions to pave the way for a stable
climate.

Carbon offsets are becoming an increasingly used tool for businesses to contribute to
climate change mitigation. In the absence of regulation, carbon offsets provide a means for
voluntary payments to reduce greenhouse gas emissions elsewhere. In the last year, many
businesses have begun programs that allow customers to offset the greenhouse gas emissions
associated with their activities. In the hospitality industry, especially with air travel, this tool is
gaining momentum as large companies begin to offer the service.
10
 The associated costs of offsetting greenhouse gas emissions related to hospitality are
minimal. As estimated, they can range from 0.5% to 5% of global revenues related to hospitality
businesses, depending on the level of offsets. These are costs that many customers would be
willing to pay, and would likely not affect businesses economically. In fact, such programs could
be used to increase customer satisfaction as the public is becoming increasingly aware of climate
change and is demanding strong action from governments and businesses on the issue.

Finally, designing a carbon offset program is not a hard task for a business. The program
is very simple, comprising of a provider (includes the verification system), an outreach program,
and the associated payments. It is likely feasible for most hospitality businesses to adopt a carbon
offset program. Ideally, the hospitality industry as a whole would adopt a strong carbon offset
standard program that could be replicated across all hospitality businesses. In the future, carbon
offsets may prove to become an essential tool for hospitality businesses to help mitigate climate
change, with new explorations being integrated, such as emission reductions in hospitality
businesses themselves.

References
Ackerman, Frank and Stanton, Elizabeth. 2006. Climate Change: The Costs of Inaction. Global
Development and Environment Institute. Tufts University Press.

Beyond Petroleum. 2007. TargetNeutral: How It Works. BP Oil International Ltd. Source
available at: http://www.targetneutral.com/TONIC/targetneutral1.jsp. Last Accessed: December
8, 2007.

Central Intelligence Agency. 2007. World Factbook. U.S. Department of Defense.

Chicago Climate Exchange. 2007. Overview. CCX. Source available at:

http://www.chicagoclimatex.com/content.jsf?id=821. Last Accessed: December 8, 2007.

Continental Airlines. 2007. Flying Greener Skies. Continental Magazine.

Delta Airlines. 2007. Delta to Launch Worldwide Carbon Offset Program for Customers This
Summer. Source available at: http://news.delta.com/print_doc.cfm?article_id=10650. Last
Accessed: December 8, 2007.

Intergovernmental Panel on Climate Change. 2007. Synthesis Report of the IPCC Fourth
Assessment Report. UN Framework Convention on Climate Change.

Mann, Mark. 2004. Global tourism: growing fast. PeopleAndPlanet. Source available at:
http://www.peopleandplanet.net/doc.php?id=1110. Last Accessed: December 9, 2007.

11
Miner, Jennifer W. 2007. Carbon Offset Program for Travel. Suite101. Available at:
http://luxuryresorttravel.suite101.com/article.cfm/carbon_offset_program_for_travel. Last
Accessed: December 8, 2007.

Nicholas, Stern. 2006. The Stern Review on The Economics of Climate Change. UK Treasury.

Taiyab, Nadaa. 2006. Exploring the market for voluntary carbon offsets. International Institute
for Environment and Development, London.

Wikipedia. 2007. Target Neutral. Source available at:

http://en.wikipedia.org/wiki/Target_Neutral. Last Accessed: December 8, 2007.

World Bank. 2007. State and Trends of the Carbon Market 2007. The World Bank.

World Tourism Organization. 2003. Climate Change and Tourism. Proceedings of the 1st
International Conference on Climate Change and Tourism.

World Travel and Tourism Council. 2007. Progress and Priorities 2007/2008. WTTC.

12