Carbon credit

From Wikipedia, the free encyclopedia This article deals with carbon credits for international trading. For carbon credits for individuals, see personal carbon trading. For voluntary schemes, see carbon offset.
Part of a series on

Green economics
Concepts[show] Policies[show] Dynamics[show] Carbon related[show]
vde

A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon or carbon dioxide equivalent (tCO2e).[1][2][3] Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world. There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon offsetters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the

sponsor to the carbon project. This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously validated Clean Development Mechanism.[4]

Contents
[hide]

1 Definitions 2 Background
o o o o o

2.1 Emission allowances 2.2 Kyoto's 'Flexible mechanisms' 2.3 Emission markets 2.4 Setting a market price for carbon 2.5 Carbon credits SPOT trading safety

3 How buying carbon credits can reduce emissions

o

3.1 Credits versus taxes

4 Creating real carbon credits

o o

4.1 Additionality and its importance 4.2 Criticisms

5 See also 6 References 7 External links

[edit] Definitions
The Collins English Dictionary defines a carbon credit as a certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment.[1] The Environment Protection Authority of Victoria defines a carbon credit as a generic term to assign a value to a reduction or offset of greenhouse gas emissions.. usually equivalent to one tonne of carbon dioxide equivalent (CO2-e).[2] The Investopedia Inc investment dictionary defines a carbon credit as a permit that allows the holder to emit one ton of carbon dioxide..which can be traded in the international market at their current market price.[3]

[edit] Background
Burning of fossil fuels is a major source of industrial greenhouse gas emissions, especially for power, cement, steel, textile, fertilizer and many other industries which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil). The major greenhouse gases emitted by these industries are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs), etc., all of which increase the atmosphere's ability to trap infrared energy and thus affect the climate. The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions. The IPCC (Intergovernmental Panel on Climate Change) has observed[5] that: Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to significantly invest in low-GHG products, technologies and processes. Such policies could include economic instruments, government funding and regulation, while noting that a tradable permit system is one of the policy instruments that has been shown to be environmentally effective in the industrial sector, as long as there are reasonable levels of predictability over the initial allocation mechanism and long-term price. The mechanism was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed through the subsequent Marrakesh Accords. The mechanism adopted was similar to the successful US Acid Rain Program to reduce some industrial pollutants.

[edit] Emission allowances

Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the developed Annex 1 countries are known as Assigned Amounts and are listed in Annex B.[6] The quantity of the initial assigned amount is denominated in individual units, called Assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent, and these are entered into the country's national registry.[7] In turn, these countries set quotas on the emissions of installations run by local business and other organizations, generically termed 'operators'. Countries manage this through their national registries, which are required to be validated and monitored for compliance by the UNFCCC.[8] Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tonne of carbon dioxide or other equivalent greenhouse gas. Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market. As demand for energy grows over time, the total emissions must still stay within the cap, but it allows industry some flexibility and predictability in its planning to accommodate this. By permitting allowances to be bought and sold, an operator can seek out the most cost-effective way of reducing its emissions, either by investing in 'cleaner' machinery and practices or by purchasing emissions from another operator who already has excess 'capacity'.

Since 2005, the Kyoto mechanism has been adopted for CO2 trading by all the countries within the European Union under its European Trading Scheme (EU ETS) with the European Commission as its validating authority.[9] From 2008, EU participants must link with the other developed countries who ratified Annex I of the protocol, and trade the six most significant anthropogenic greenhouse gases. In the United States, which has not ratified Kyoto, and Australia, whose ratification came into force in March 2008, similar schemes are being considered.

[edit] Kyoto's 'Flexible mechanisms'

A tradable credit can be an emissions allowance or an assigned amount unit which was originally allocated or auctioned by the national administrators of a Kyoto-compliant cap-and-trade scheme, or it can be an offset of emissions. Such offsetting and mitigating activities can occur in any developing country which has ratified the Kyoto Protocol, and has a national agreement in place to validate its carbon project through one of the UNFCCC's approved mechanisms. Once approved, these units are termed Certified Emission Reductions, or CERs. The Protocol allows these projects to be constructed and credited in advance of the Kyoto trading period. The Kyoto Protocol provides for three mechanisms that enable countries or operators in developed countries to acquire greenhouse gas reduction credits[10]

Under Joint Implementation (JI) a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country. Under the Clean Development Mechanism (CDM) a developed country can 'sponsor' a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use. Under International Emissions Trading (IET) countries can trade in the international carbon credit market to cover their shortfall in Assigned amount units. Countries with surplus units can sell them to countries that are exceeding their emission targets under Annex B of the Kyoto Protocol.

These carbon projects can be created by a national government or by an operator within the country. In reality, most of the transactions are not performed by national governments directly, but by operators who have been set quotas by their country.

[edit] Emission markets

For trading purposes, one allowance or CER is considered equivalent to one metric ton of CO2 emissions. These allowances can be sold privately or in the international market at the prevailing market price. These trade and settle internationally and hence allow allowances to be transferred between countries. Each international transfer is validated by the UNFCCC. Each transfer of ownership within the European Union is additionally validated by the European Commission.

Climate exchanges have been established to provide a spot market in allowances, as well as futures and options market to help discover a market price and maintain liquidity. Carbon prices are normally quoted in Euros per tonne of carbon dioxide or its equivalent (CO2e). Other greenhouse gasses can also be traded, but are quoted as standard multiples of carbon dioxide with respect to their global warming potential. These features reduce the quota's financial impact on business, while ensuring that the quotas are met at a national and international level. Currently there are six exchanges trading in carbon allowances: the Chicago Climate Exchange, European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange. NASDAQ OMX Commodities Europe listed a contract to trade offsets generated by a CDM carbon project called Certified Emission Reductions (CERs). Many companies now engage in emissions abatement, offsetting, and sequestration programs to generate credits that can be sold on one of the exchanges. At least one private electronic market has been established in 2008: CantorCO2e.[11] Carbon credits at Commodity Exchange Bratislava are traded at special platform - Carbon place.[12] Managing emissions is one of the fastest-growing segments in financial services in the City of London with a market estimated to be worth about 30 billion in 2007. Louis Redshaw, head of environmental markets at Barclays Capital predicts that "Carbon will be the world's biggest commodity market, and it could become the world's biggest market overall."[13]

[edit] Setting a market price for carbon

This section includes a list of references, related reading or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more
precise citations where appropriate. (August 2008)

Unchecked, energy use and hence emission levels are predicted to keep rising over time. Thus the number of companies needing to buy credits will increase, and the rules of supply and demand will push up the market price, encouraging more groups to undertake environmentally friendly activities that create carbon credits to sell. An individual allowance, such as an Assigned amount unit (AAU) or its near-equivalent European Union Allowance (EUA), may have a different market value to an offset such as a CER. This is due to the lack of a developed secondary market for CERs, a lack of homogeneity between projects which causes difficulty in pricing, as well as questions due to the principle of supplementarity and its lifetime. Additionally, offsets generated by a carbon project under the Clean Development Mechanism are potentially limited in value because operators in the EU ETS are restricted as to what percentage of their allowance can be met through these flexible mechanisms. Yale University economics professor William Nordhaus argues that the price of carbon needs to be high enough to motivate the changes in behavior and changes in economic production systems necessary to effectively limit emissions of greenhouse gases.

Raising the price of carbon will achieve four goals. First, it will provide signals to consumers about what goods and services are high-carbon ones and should therefore be used more sparingly. Second, it will provide signals to producers about which inputs use more carbon (such as coal and oil) and which use less or none (such as natural gas or nuclear power), thereby inducing firms to substitute low-carbon inputs. Third, it will give market incentives for inventors and innovators to develop and introduce low-carbon products and processes that can replace the current generation of technologies. Fourth, and most important, a high carbon price will economize on the information that is required to do all three of these tasks. Through the market mechanism, a high carbon price will raise the price of products according to their carbon content. Ethical consumers today, hoping to minimize their carbon footprint, have little chance of making an accurate calculation of the relative carbon use in, say, driving 250 miles as compared with flying 250 miles. A harmonized carbon tax would raise the price of a good proportionately to exactly the amount of CO2 that is emitted in all the stages of production that are involved in producing that good. If 0.01 of a ton of carbon emissions results from the wheat growing and the milling and the trucking and the baking of a loaf of bread, then a tax of $30 per ton carbon will raise the price of bread by $0.30. The carbon footprint is automatically calculated by the price system. Consumers would still not know how much of the price is due to carbon emissions, but they could make their decisions confident that they are paying for the social cost of their carbon footprint. Nordhaus has suggested, based on the social cost of carbon emissions, that an optimal price of carbon is around $30(US) per ton and will need to increase with inflation. The social cost of carbon is the additional damage caused by an additional ton of carbon emissions. ... The optimal carbon price, or optimal carbon tax, is the market price (or carbon tax) on carbon emissions that balances the incremental costs of reducing carbon emissions with the incremental benefits of reducing climate damages. ... [I]f a country wished to impose a carbon tax of $30 per ton of carbon, this would involve a tax on gasoline of about 9 cents per gallon. Similarly, the tax on coal-generated electricity would be about 1 cent per kWh, or 10 percent of the current retail price. At current levels of carbon emissions in the United States, a tax of $30 per ton of carbon would generate $50 billion of revenue per year.[14]

[edit] Carbon credits SPOT trading safety

Exchanges after reports of stolen carbon credits created safety messures to make the SPOT trading safe. Bluenext announced on 13.04.2011 Safe harbour initiative [15]. Commodity Exchange Bratislava opened on March 11th, 2011 the Suspicious carbon credits registry [16]. The SCC Registry is free to use to check the block serials safety. SCC Registry asks emitters to report the stolen credits as soon as possible.

[edit] How buying carbon credits can reduce emissions

This section includes a list of references, related reading or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more
precise citations where appropriate. (August 2008)

See also: Economics of global warming

Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets. For example, consider a business that owns a factory putting out 100,000 tonnes of greenhouse gas emissions in a year. Its government is an Annex I country that enacts a law to limit the emissions that the business can produce. So the factory is given a quota of say 80,000 tonnes per year. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess. After costing up alternatives the business may decide that it is uneconomical or infeasible to invest in new machinery for that year. Instead it may choose to buy carbon credits on the open market from organizations that have been approved as being able to sell legitimate carbon credits. We should consider the impact of manufacturing alternative energy sources. For example, the energy consumed and the Carbon emitted in the manufacture and transportation of a large wind turbine would prohibit a credit being issued for a predetermined period of time.

One seller might be a company that will offer to offset emissions through a project in the developing world, such as recovering methane from a swine farm to feed a power station that previously would use fossil fuel. So although the factory continues to emit gases, it would pay another group to reduce the equivalent of 20,000 tonnes of carbon dioxide emissions from the atmosphere for that year. Another seller may have already invested in new low-emission machinery and have a surplus of allowances as a result. The factory could make up for its emissions by buying 20,000 tonnes of allowances from them. The cost of the seller's new machinery would be subsidized by the sale of allowances. Both the buyer and the seller would submit accounts for their emissions to prove that their allowances were met correctly.

[edit] Credits versus taxes

Carbon credits and carbon taxs each have their advantages and disadvantages. Credits were chosen by the signatories to the Kyoto Protocol as an alternative to Carbon taxes. A criticism of tax-raising schemes is that they are frequently not hypothecated, and so some or all of the taxation raised by a government would be applied based on what the particular nation's government deems most fitting. However, some would argue that carbon trading is based around creating a lucrative artificial market, and, handled by free market enterprises as it is, carbon trading is not necessarily a focused or easily regulated solution. By treating emissions as a market commodity some proponents insist it becomes easier for businesses to understand and manage their activities, while economists and traders can attempt to predict future pricing using market theories. Thus the main advantages of a tradeable carbon credit over a carbon tax are argued to be:

the price may be more likely to be perceived as fair by those paying it. Investors in credits may have more control over their own costs.

the flexible mechanisms of the Kyoto Protocol help to ensure that all investment goes into genuine sustainable carbon reduction schemes through an internationally agreed validation process. some proponents state that if correctly implemented a target level of emission reductions may somehow be achieved with more certainty, while under a tax the actual emissions might vary over time. it may provide a framework for rewarding people or companies who plant trees or otherwise meet standards exclusively recognized as "green."

The advantages of a carbon tax are argued to be:

possibly less complex, expensive, and time-consuming to implement. This advantage is especially great when applied to markets like gasoline or home heating oil. perhaps some reduced risk of certain types of cheating, though under both credits and taxes, emissions must be verified. reduced incentives for companies to delay efficiency improvements prior to the establishment of the baseline if credits are distributed in proportion to past emissions. when credits are grandfathered, this puts new or growing companies at a disadvantage relative to more established companies. allows for more centralized handling of acquired gains worth of carbon is stabilized by government regulation rather than market fluctuations. Poor market conditions and weak investor interest have a lessened impact on taxation as opposed to carbon trading.

[edit] Creating real carbon credits

The principle of Supplementarity within the Kyoto Protocol means that internal abatement of emissions should take precedence before a country buys in carbon credits. However it also established the Clean Development Mechanism as a Flexible Mechanism by which capped entities could develop real, measurable, permanent emissions reductions voluntarily in sectors outside the cap. Many criticisms of carbon credits stem from the fact that establishing that an emission of CO2-equivalent greenhouse gas has truly been reduced involves a complex process. This process has evolved as the concept of a carbon project has been refined over the past 10 years. The first step in determining whether or not a carbon project has legitimately led to the reduction of real, measurable, permanent emissions is understanding the CDM methodology process. This is the process by which project sponsors submit, through a Designated Operational Entity (DOE), their concepts for emissions reduction creation. The CDM Executive Board, with the CDM Methodology Panel and their expert advisors, review each project and decide how and if they do indeed result in reductions that are additional[17]

[edit] Additionality and its importance

This section includes a list of references, related reading or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more
precise citations where appropriate. (August 2008)

It is also important for any carbon credit (offset) to prove a concept called additionality. The concept of additionality addresses the question of whether the project would have happened anyway, even in the absence of revenue from carbon credits. Only carbon credits from projects that are "additional to" the business-as-usual scenario represent a net environmental benefit. Carbon projects that yield strong financial returns even in the absence of revenue from carbon credits; or that are compelled by regulations; or that represent common practice in an industry are usually not considered additional, although a full determination of additionality requires specialist review. It is generally agreed that voluntary carbon offset projects must also prove additionality in order to ensure the legitimacy of the environmental stewardship claims resulting from the retirement of the carbon credit (offset). According the World Resources Institute/World Business Council for Sustainable Development (WRI/WBCSD) : "GHG emission trading programs operate by capping the emissions of a fixed number of individual facilities or sources. Under these programs, tradable 'offset credits' are issued for project-based GHG reductions that occur at sources not covered by the program. Each offset credit allows facilities whose emissions are capped to emit more, in direct proportion to the GHG reductions represented by the credit. The idea is to achieve a zero net increase in GHG emissions, because each tonne of increased emissions is 'offset' by project-based GHG reductions. The difficulty is that many projects that reduce GHG emissions (relative to historical levels) would happen regardless of the existence of a GHG program and without any concern for climate change mitigation. If a project 'would have happened anyway,' then issuing offset credits for its GHG reductions will actually allow a positive net increase in GHG emissions, undermining the emissions target of the GHG program. Additionality is thus critical to the success and integrity of GHG programs that recognize project-based GHG reductions."

[edit] Criticisms
The Kyoto mechanism is the only internationally agreed mechanism for regulating carbon credit activities, and, crucially, includes checks for additionality and overall effectiveness. Its supporting organisation, the UNFCCC, is the only organisation with a global mandate on the overall effectiveness of emission control systems, although enforcement of decisions relies on national co-operation. The Kyoto trading period only applies for five years between 2008 and 2012. The first phase of the EU ETS system started before then, and is expected to continue in a third phase afterwards, and may co-ordinate with whatever is internationally agreed at but there is general uncertainty as to what will be agreed in PostKyoto Protocol negotiations on greenhouse gas emissions. As business investment often operates over decades, this adds risk and uncertainty to their plans. As several countries responsible for a large proportion of global emissions (notably USA, Australia, China) have avoided mandatory caps, this also means that businesses in capped countries may perceive themselves to be working at a competitive

disadvantage against those in uncapped countries as they are now paying for their carbon costs directly.[citation needed] A key concept behind the cap and trade system is that national quotas should be chosen to represent genuine and meaningful reductions in national output of emissions. Not only does this ensure that overall emissions are reduced but also that the costs of emissions trading are carried fairly across all parties to the trading system. However, governments of capped countries may seek to unilaterally weaken their commitments, as evidenced by the 2006 and 2007 National Allocation Plans for several countries in the EU ETS, which were submitted late and then were initially rejected by the European Commission for being too lax.[18] A question has been raised over the grandfathering of allowances. Countries within the EU ETS have granted their incumbent businesses most or all of their allowances for free. This can sometimes be perceived as a protectionist obstacle to new entrants into their markets. There have also been accusations of power generators getting a 'windfall' profit by passing on these emissions 'charges' to their customers.[19] As the EU ETS moves into its second phase a

Reducing Emissions from Deforestation and Forest Degradation

From Wikipedia, the free encyclopedia "REDD" redirects here. For other uses, see Redd (disambiguation). Reducing Emissions from Deforestation and Forest Degradation (REDD)[1] is a set of steps designed to use market/financial incentives in order to reduce the emissions of greenhouse gases from deforestation and forest degradation. Its original objective is to reduce green house gases but it can deliver "co-benefits" such as biodiversity conservation and poverty alleviation.[2] "Reducing emissions from deforestation and forest degradation" implies a distinction between the two activities. The process of identifying the two is what raises questions about how to measure each within the REDD mechanism, therefore their distinction is vital. Deforestation is the permanent removal of forests and withdrawal of land from forest use. Forest degradation refers to negative changes in the forest area that limit its production capacity. REDD is presented as an "offset" scheme of the carbon markets and thus, will produce carbon credits. Carbon offsets are emissions-saving projects that in theory compensate for the polluters emissions. The carbon credits generated by these projects can be used by industrialised governments and corporations to meet their targets and/or to be traded within the carbon markets. [1] In recent years, estimates for deforestation and forest degradation were shown to account for 2025% of greenhouse gas emissions, higher than the transportation sector.[3] Recent work shows that the combined contribution of deforestation, forest degradation and peatland emissions accounts for about 15% of greenhouse gas emissions, about the same as the transportation sector.

[4]

Even with these new numbers it is increasingly accepted that mitigation of global warming will not be achieved without the inclusion of forests in an international regime. As a result, it is expected to play a crucial role in a future successor agreement to the Kyoto Protocol.[5]

Contents
[hide]

1 History 2 Main actors 3 Active international organizations 4 Active governments 5 Key questions 6 Concerns 7 REDD-Plus 8 For an effective REDD+ mechanism 9 References 10 Further reading 11 External links

[edit] History
In the 1997 global climate agreement, the Kyoto Protocol, policies related to deforestation and degradation were excluded due to the complexity of measurements and monitoring for the diverse ecosystems and land use changes. This exclusion resulted in the formation of the Coalition of Rainforest Nations. Participant nations included Papua New Guinea, Costa Rica and other forest nations. In 2005, at the 11th Conference of the Parties (COP-11), the Coalition of Rainforest Nations initiated a request to consider 'reducing emissions from deforestation in developing countries.' The matter was referred to the Subsidiary Body for Scientific and Technical Advice (SBSTA). The United States challenged the proposal but failed in its attempts.[6] Later, at the 2007 Bali UNFCCC meeting (COP-13), an agreement was reached on the urgent need to take further meaningful action to reduce emissions from deforestation and forest degradation. The deadline for reaching an agreement on the specifics of an international REDD mechanism, at least as regards to its being implemented in the short and medium term, was set to be the 15th Conference of the Parties to the UNFCCC (COP-15), which was held in Copenhagen in December 2009.[7]

[edit] Main actors

REDD activities are undertaken by national or local governments, dominant NGOs, the private sector, or any combination of these. It is being pushed strongly by the World Bank and the UN for setting up the bases for the carbon market and the legal and governance frameworks of countries receiving REDD. A number of NGOs, development agencies, research institutes and international organizations support developing countries that wish to engage in REDD activities. The World Banks's Forest Carbon Partnership Facility, the UN-REDD Programme, and Norway's International Climate and Forest Initiative are such examples. The genuine actors of REDD, however, will be the populations whose livelihoods derive from forests. Indigenous Peoples and forest-dependent communities will be the front liners of REDD, and the success of REDD activities will largely depend on their engagement. There are many corporative and financial lobbies behind the push for REDD. The REDD"+" is more than just avoided deforestation and forest degradation, it also includes the possibility of offsetting emissions through sustainable forest management, conservation and increasing forest carbon stocks. Some argue that this is opening the door to logging operations in primary forests, displacement of local populations for conservation, increase of tree plantations.[6] REDD+ is another extension of green capitalism, subjecting the forests and its inhabitants to new ways of expropriation and enclosure at the hands of polluting companies and market speculators. This article needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (January 2011)

This article has been nominated to be checked for its neutrality. Discussion of this nomination can be found on the talk page. (January 2011) For example, at the global level, the International Tropical Timber Organization (ITTO) an intergovernmental body that includes 60 countries of producers and consumers of wood in tropical forests and the European Union, is a key actor in the push to approve REDD+. The ITTO has launched a thematic program on REDD and environmental services with an initial funding of US$3.5 million from Norway. In addition, the 45th session of the ITTO Council held in November 2009, recommended that efforts relating REDD+ should focus on promoting sustainable forest management. In this regard, this sectors lobbying seeks above all to include forest extraction inside REDD under the guise of sustainable management in order to benefit from carbon markets while maintaining business-as-usual.[2] On the other side, Indigenous Peoples are an important side of the actors scenario that most of the times is ignored. The International Indigenous Peoples Forum on Climate Change (IIPFCC) was explicit at the Bali climate negotiations in 2007: "REDD/REDD+ will not benefit Indigenous Peoples, but in fact will result in more violations of Indigenous Peoples rights. It will increase the violation of our human rights, our rights to our lands, territories and resources, steal our land, cause forced evictions, prevent access and threaten indigenous agricultural practices, destroy biodiversity and cultural diversity and cause social conflicts. Under REDD/REDD+, states and carbon traders will take more control over our forests." [3]

Some grassroots organisations are already working to develop REDD activities with communities and developing benefit-sharing mechanisms to ensure REDD funds reach rural communities as well as governments. Examples of these include Plan Vivo projects in Mexico, Mozambique and Cameroon. [4]

[edit] Active international organizations

REDD has received strong support and push from international organizations and IFIs (International Financial Institutions). The World Bank presently plays an important role in the progression of REDD activities. As one of the financial contributors for the REDD program, the World Bank has created a $300 million fund, the Forest Carbon Partnership Facility (FCPF).[6] So far small grants of $200,000 have been disbursed. This fund is aimed towards initiating REDD activities in developing countries. In addition, another World Bank facility, the Carbon Partnership Facility (CPF), is expected to be used in areas like the power sectors, transportation, urban development and other areas related to energy efficiency where greenhouse gases are generated.[8] Although the World Bank declares its commitment to fight against climate change, many civil society organisations and grassroots movements around the world view with scepticism the processes being developed under these funds. Among some of the most worrying reasons are the weak (or inexistent) consultation processes with local communities; the lack of criteria to determine when a country is ready to implement REDD projects (reddiness); the negative impacts such as deforestation and loss of biodiversity (due to fast agreements and lack of planning); the lack of safeguards to protect Indigenous Peoples' rights; and the lack of regional policies to stop deforestation. During the UN climate negotiations in Copenhagen (2009) and Cancun (2010) strong civil society and social movements coalitions formed a strong front to fight the World Bank out of the climate [5] The UNDP, UNEP and FAO set up the UN-REDD Programme, which is aimed at assisting developing countries in addressing certain measures needed in order to effectively participate in the REDD mechanism. These measures include capacity development, governance, engagement of Indigenous Peoples and technical needs. The first initial set of nine countries were Bolivia, Democratic Republic of Congo, Indonesia, Panama, Papua New Guinea, Paraguay, Tanzania, Vietnam, and Zambia. The total number of funds allocated by the UN-REDD Programme Policy Board to date is US$ 48.3 million, allocated to eight of these countries.[9] The Programme also ensures overall guidance through its global activities on Measuring, Verifying and Reporting (MRV) systems, engagement of indigenous peoples and other forest-dependent communities, and governance; the Programme aims for multiple benefits from REDD for livelihoods and ecosystems. However, among other exclusions, the definition of forests currently adopted by the UN climate change convention (and therefore the UNDP, UNEP and FAO) contains a large loophole: it fails to distinguish between natural forests and plantations, including eucalyptus, pines, acacias, oil palm, and others. Biodiverse, natural forests could therefore be destroyed and replaced with plantations, but this would not be treated as deforestation because according to the definition

- the area would still be covered by trees. The lack of a clear distinction is no accident. Defining a forest simply in terms of tree cover - rather than complex ecosystems and the livelihoods of peoples interacting with them has long been used as a cover for the expansion of industrialscale plantations. The most plausible explanation, arguably, is that commercial interests take precedence over environmental and social objectives in the shaping of REDD policy. [www.wrm.org.uy]

[edit] Active governments

The REDD mechanism has been well received by some national governments.[6] At the 2007 Bali Conference, the Norwegian government announced their International Climate and Forests Initiative, which provided $500 million towards the creation and implementation of nationalbased, REDD activities in the nation of Tanzania. The Norwegian government will work closely with international organizations such as UN-REDD to promote REDD activities in the area.[10] In addition, the Government of Norway and United Kingdom contributed $200 million towards the Congo Basin Forest Fund to aid forest conservation actives in Central Africa.[6] Australia has joined the efforts to promote REDD mechanisms. Their $200 million International Forest Carbon Initiative focused on developing REDD activities in the region, i.e., in areas like Indonesia, and Papua New Guinea.[11] The governments of Spain and Denmark have recently become donors to the UN-REDD Programme. There have been a few cases of corruption and bribery thus far. In late October 2010, Wandojo Siswanto, a lead delegate in Copenhagen and key architect of REDD, was arrested and charged with accepting bribes of up to US$10,000 from the director of PT Masaro Radiokom, a telecommunications company.[12] In Indonesia, the forestry sectors reputation has been referred to as a source of unlimited corruption, by Indonesias Corruption Eradication Commission (KPK).[13]

[edit] Key questions

A number of questions are being discussed and will inform the decisions on REDD at the upcoming 16th Conference of the Parties to the United Nations Framework Convention on Climate Change. They include:

Example of forest structure mapping done during ground survey. Similar data are used as a baseline for Monitoring, reporting and verification of forest cover and allows to follow up carbon stock volume in time. The structure of funding mechanisms Tying REDD into a broader system of carbon trading could allow developed countries or private firms to offset their own emissions and meet emissions reductions targets. However, some developing countries, such as Brazil and China, maintain that developed countries must commit to real emissions reductions, independent of any offset mechanism.[14] Setting reference levels to measure the reduction in emissions Will it be based on current emissions levels or historical deforestation rates, a business-as-usual scenario? Will countries with different forest covers and historic deforestation rates hold different interests in the way the reference levels are constructed? Involving countries with high forest covers and low historic deforestation rates will be necessary to reduce perverse incentives.
[15]

Distribution of benefits How can the benefits from REDD be distributed to forest communities in a just, equitable way that minimizes capture of the benefits by national governments or local elites? [16]

Participation of Indigenous peoples and Forest-Dependent Communities in the design, implementation and monitoring of REDD activities, and respect for their human rights[17]
[18][19]

Strategies to prevent "carbon leakage", caused by the displacement of deforestation to other areas Achieving multiple benefits, for example the conservation of biodiversity and ecosystem services (such as watersheds), and social benefits (for example income and improved forest governance).

[edit] Concerns

The availability of a large supply of potentially cheap carbon credits could provide an avenue for companies in the developed world to simply purchase REDD credits without providing meaningful emission reductions at home.[20] Large number of carbon credits could swamp developing carbon markets...but could also facilitate ambitious emissions targets in a post-Kyoto agreement.[3] Putting a commercial value on forests neglects the spiritual value they hold for Indigenous Peoples and local communities.[3] There is no consensus on a definition for forest degradation. The risk is that baselines are set unrealistically by developing country authorities and it's not actually accurate around the forest's carbon stocks There's risks the local inhabitants, the communities that live in the forests, will be bypassed and they won't be consulted and so they won't actually receive any revenues Some projects are unaccountable and dodgy companies are taking advantage of the low governance.[21] Fair distribution of REDD benefits will not be achieved without a prior reform in forest governance and more secure tenure systems in many countries.[22]

[edit] REDD-Plus

In 2007, at the Conference of the Parties to the UNFCCC in Bali (COP-13) an agreement was reached called the Bali Action Plan. As defined, its aims are directed toward forest conservation, sustainable forest management and the enhancement of carbon stocks.[23] REDD-plus calls for activities with serious implications directed towards the local communities, indigenous people and forests which relate to reducing emission from deforestation and forest degradation. Therefore this will involve enhancing existing forests and increasing forest cover. In order to meet these objectives, policies need to address enhancement of carbon stocks by providing funding and investments in these areas.[23] In 2009, at COP-15 in Copenhagen, the Copenhagen Accord of 18 December 2009 was reached, noting in section 6 the recognition of the crucial role of REDD and REDD-plus and the need to provide positive incentives for such actions by enabling the mobilization of financial resources from developed countries.[24] The Accord goes on to note in section 8 that the collective commitment by developed countries for new and additional

resources, including forestry and investments through international institutions, will approach USD 30 billion for the period 2010 - 2012.

[edit] For an effective REDD+ mechanism

The complexity of the issue could be better reflected in the way the question of agriculture is approached for the REDD+ mechanism at the international level. Although intensification in other words the increase in productivity per hectare - is a key variable for long-term forest conservation, the problem cannot be resolved by this alone. The scientific findings previously presented all indicate that there is no simple, unequivocal relationship between changes in agricultural systems and tropical deforestation. However, the major trend to follow undoubtedly remains the increase in yields, without however basing this increase primarily on the provision of chemical inputs that increase the quantity of greenhouse gas emissions. One solution could theoretically lie in the rapid dissemination of a type of intensive agriculture in certain countries or regions notwithstanding numerous problematic consequences, for example geographical specialisation implying a restrictive approach to the conservation of natural resources for the developing world. This option tends to maximise use of favourable agricultural conditions in certain regions, in order to indirectly preserve other countries or regions with less favourable conditions (a strategy know as common agricultural pools). It remains to be determined how a REDD+ mechanism could represent an incentive for this global strategy, in the sense that areas that are unsuited to agriculture would see an economic advantage in reaping the benefits of REDD+ and minimising their agricultural areas, and vice versa for other regions. Necessary public support policies Public support policies are necessary. This may be understood in at least four different ways. a) Fostering changes in agricultural technologies First, it means that we must not count on spontaneous changes in technologies that may contribute to forest conservation objectives. Farmers show a strong tendency to adopt extensive systems when land is abundant in order to compensate for the scarcity of other factors of production such as labour and capital. Consequently, counting on the spontaneous innovation and adoption of new agricultural technologies implies accepting an increase in clearing while forest resources are abundant, and waiting until this resource is almost depleted before farmers attempt to remedy the problem! A certain number of macro tools must therefore be implemented, for example management of the industry, taxation applied to the agricultural sector, or the creation of an area network with agencies responsible for disseminating technologies among their potential users. b) Harmonising sectoral public policies The second way to interpret the need for public support policies amounts to accepting the importance of harmonising measures that have a direct or indirect impact on forest cover. These are the forest-related policies, which include all sectors of activity that have a significant impact: trade, taxation, infrastructure, regional control, and programmes encouraging human migration, etc. A strategy that is limited to just one sector of activity here, agriculture and not harmonised with the other sectors of activity, such as the

construction of road infrastructure, would at best produce mixed, temporary results, and at worst be doomed to failure. Admittedly, some would argue that the price signal a carbon market would produce is itself capable of guiding decisions favourable to reducing emissions and therefore the harmonisation of policies if this harmonisation will lead to the objective being met. This idea is somewhat disconnected from reality, however, and political economy as well as governance issues must also be part of the analysis. c) Adopting the PES principle The third way to interpret public support policies is central. Indeed, some major opportunities exist for giving the principle of Payments for Environmental Services (PES) the position it could well deserve in the future. The beneficiaries of an environmental service establish voluntary contracts with the providers of this service (who control the natural resource) and condition their rewards on the maintenance of the service. In the case in question, PES would consist in measures aimed at conditioning support for the adoption of sound agricultural technologies on the absence of excessive forest clearing on nearby land. Farmers and landowners would thus benefit from the possibility of using technologies capable of increasing their production and income, and at the same time the adverse consequences of forest clearing could be minimised. In other words, the principle is to benefit from REDD+ funding for an ecosystem service (climate regulation through CO2 emissions reductions), in order to foster an agricultural revolution that would serve the interests of poor populations suffering from undernourishment on the one hand, and on the other, would avoid losing precious time in meeting the food challenge (substantially higher global food production by 2050). PES would therefore make it possible to set up contracts aimed at covering the costs of investment and of the transition towards new agricultural technologies. d) Acting on global demand The fourth way to interpret the need for support policies refers to the issue of demand for agricultural products. When production increases, demand also tends to rise in response to lower prices. This is known as the rebound effect. It is based on the behaviour of consumers and their tendency to increase their consumption when purchasing power enables them to do so. It seems there are few remedies to this, since it is undoubtedly unrealistic to restrict consumers in their consumption choices. It is sometimes suggested that action should focus on diets throughout the world, in both developing and developed countries in order to bring demand per capita into line globally, for example by attempting to reduce the share of dairy products and meat. Another alternative envisaged consists in setting up systems that would subject agricultural products to a kind of tax based on their carbon content but the implementation of such a system is still considered to be highly problematic.[25]

Carbon offset
From Wikipedia, the free encyclopedia
Part of a series on

Green economics
Concepts[show]

Policies[show] Dynamics[show] Carbon related[show]

vde

A carbon offset is a reduction in emissions of carbon dioxide or greenhouse gases made in order to compensate for or to offset an emission made elsewhere.[1][2][3][4] Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may represent six primary categories of greenhouse gases.[5] One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases. There are two markets for carbon offsets. In the larger, compliance market, companies, governments, or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. This market exists in order to achieve compliance with obligations of Annex 1 Parties under the Kyoto Protocol, and of liable entities under the EU Emissions Trading Scheme. In 2006, about $5.5 billion of carbon offsets were purchased in the compliance market, representing about 1.6 billion metric tons of CO2e reductions.[6] In the much smaller, voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. For example, an individual might purchase carbon offsets to compensate for the greenhouse gas emissions caused by personal air travel. Many companies (see list[7]) offer carbon offsets as an up-sell during the sales process so that customers can mitigate the emissions related with their product or service purchase (such as offsetting emissions related to a vacation flight, car rental, hotel stay, consumer good, etc.). In 2008, about $705 million of carbon offsets were purchased in the voluntary market, representing about 123.4 million metric tons of CO2e reductions.[8] Offsets are typically achieved through financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. The most common project type is renewable energy, [9] such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects.[10] Some of the most popular carbon offset projects from a corporate perspective are energy efficiency and wind turbine projects.[11] Carbon offsetting has gained some appeal and momentum mainly among consumers in western countries who have become aware and concerned about the potentially negative environmental effects of energy-intensive lifestyles and economies. The Kyoto Protocol has sanctioned offsets

as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established the Clean Development Mechanism (CDM), which validates and measures projects to ensure they produce authentic benefits and are genuinely "additional" activities that would not otherwise have been undertaken. Organizations that are unable to meet their emissions quota can offset their emissions by buying CDM-approved Certified Emissions Reductions. Offsets may be cheaper or more convenient alternatives to reducing one's own fossil-fuel consumption. However, some critics object to carbon offsets, and question the benefits of certain types of offsets.[12] Offsets are viewed as an important policy tool to maintain stable economies. One of the hidden dangers of climate change policy is unequal prices of carbon in the economy, which can cause economic collateral damage if production flows to regions or industries that have a lower price of carbon - unless carbon can be purchased from that area, which offsets effectively permit, equalizing the price.[13]

Wind turbines near Aalborg, Denmark. Renewable energy projects are the most common source of carbon offsets.

Contents
[hide]

1 Definitions 2 Features of carbon offsets 3 Carbon offset markets

o o o o

3.1 Global market 3.2 E.U. market 3.3 U.S. market 3.4 Voluntary market

4 Sources of carbon offsets

o o o o o o o o o

4.1 Renewable energy 4.2 Methane collection and combustion 4.3 Energy efficiency 4.4 Destruction of industrial pollutants 4.5 Land use, land-use change and forestry 4.6 Purchase of carbon allowances from emissions trading schemes 4.7 Links with emission trading schemes 4.8 Other 4.9 Carbon Retirement

5 Accounting for and verifying reductions

o

5.1 Co-benefits

6 Quality Assurance Schemes

o o

6.1 The UK Government's Quality Assurance Scheme for Carbon Offsetting 6.2 Australian Government National Carbon Offset Program

7 Controversies
o o o o o o

7.1 Project-offsetting 7.2 Indulgence controversy 7.3 Effectiveness of tree-planting offsets 7.4 Additionality and lack of regulation in the voluntary market 7.5 Perverse incentives 7.6 Other negative impacts from offset projects

8 See also 9 References 10 External links

[edit] Definitions
The World Resources Institute defines a carbon offset as a unit of carbon dioxide-equivalent (CO2e) that is reduced, avoided, or sequestered to compensate for emissions occurring elsewhere.[1] The Collins English Dictionary defines a carbon offset as a compensatory measure made by an individual or company for carbon emissions, usually through sponsoring activities or projects which increase carbon dioxide absorption, such as tree planting.[2] The Environment Protection Authority of Victoria (Australia) defines a carbon offset as: a monetary investment in a project or activity elsewhere that abates greenhouse gas (GHG) emissions or sequesters carbon from the atmosphere that is used to compensate for GHG emissions from your own activities. Offsets can be bought by a business or individual in the voluntary market (or within a trading scheme), a carbon offset usually represents one tonne of CO2-e.[3] The Stockholm Environment Institute defines a carbon offset as a credit for negating or diminishing the impact of emitting a ton of carbon dioxide by paying someone else to absorb or avoid the release of a ton of CO2 elsewhere.[14] The University of Oxford Environmental Change Institute defines a carbon offset as mechanism whereby individuals and corporations pay for reductions elsewhere in order to offset their own emissions.[4]

[edit] Features of carbon offsets

Carbon offsets have several common features:

Vintage. The vintage is the year in which the carbon reduction takes place.[15] Source. The source refers to the project or technology used in offsetting the carbon emissions. Projects can include land-use, methane, biomass, renewable energy and industrial energy efficiency. Projects may also have secondary benefits (co-benefits). For example, projects that reduce agricultural greenhouse gas emissions may improve water quality by reducing fertilizer usage.[16] Certification regime. The certification regime describes the systems and procedures that are used to certify and register carbon offsets. Different methodologies are used for measuring and verifying emissions reductions, depending on project type, size and location.[17] For example, the Chicago Climate Exchange uses one set of protocols,[18]

while the CDM uses another.[19] In the voluntary market, a variety of industry standards exist. These include the Voluntary Carbon Standard and the CDM Gold Standard that are implemented to provide third-party verification of carbon offset projects. There are some additional standards for the validation of co-benefits, including the CCBS, issued by the Climate, Community & Biodiversity Alliance and the Social Carbon Standard, issued by Ecologica Institute.

[edit] Carbon offset markets

[edit] Global market
In 2009, 8.2 billion metric tons of carbon dioxide equivalent changed hands worldwide, up 68% from 2008, according to the study by carbon-market research firm Point Carbon, of Washington and Oslo. But at EUR94 billion, or about $135 billion, the market's value was nearly unchanged compared with 2008, with world carbon prices averaging EUR11.40 a ton, down about 40% from the previous year, according to the study.[20] The World Bank's "State and Trends of the Carbon Market 2010"[21] put the overall value of the market at $144 billion, but found that a significant part of this figure resulted from manipulation of a VAT loophole.[22]

[edit] E.U. market

The global carbon market is dominated by the European Union, where companies that emit greenhouse gases are required to cut their emissions or buy pollution allowances or carbon credits from the market, under the European Union Emission Trading Scheme (EU ETS). Europe, which has seen volatile carbon prices due to fluctuations in energy prices and supply and demand, will continue to dominate the global carbon market for another few years, as the U.S. and Chinathe world's top pollutershave yet to establish mandatory emission-reduction policies.

[edit] U.S. market

On the whole, the U.S. market remains primarily a voluntary market, but multiple cap and trade regimes are either fully implemented or near-imminent at the regional level. The first mandatory, market-based cap-and-trade program to cut CO2 in the U.S., called the Regional Greenhouse Gas Initiative (RGGI), kicked into gear in Northeastern states in 2009, growing nearly tenfold to $2.5 billion, according to Point Carbon. Western Climate Initiative (WCI) -- a regional cap-and-trade program including seven western states (California notably among them) and four Canadian provinceshas established a regional target for reducing heat-trapping emissions of 15 percent below 2005 levels by 2020.

[edit] Voluntary market

Participants A wide range of participants are involved in the voluntary market, including providers of different types of offsets, developers of quality assurance mechanisms, third party

verifiers, and consumers who purchase offsets from domestic or international providers. Suppliers include for-profit companies, governments, charitable non-governmental organizations, colleges and universities, and other groups.[23] Motivations According to industry analyst Ecosystem Marketplace, the voluntary markets present the opportunity for citizen consumer action, as well as an alternative source of carbon finance and an incubator for carbon market innovation. In their survey of voluntary markets, data has shown that Corporate Social Responsibility and Public Relations/Branding are clearly in first place among motivations for voluntary offset purchases, with evidence indicating that companies seek to offset emissions "for goodwill, both of the general public and their investors." In addition, regarding market composition, research indicates: "Though many analysts perceive pre-compliance buying as a dominant driving force in the voluntary market, the results of our survey have repeatedly indicated that precompliance motives (as indicated by investment/resale and anticipation of regulation) remain secondary to those of the pure voluntary market (companies/individuals offsetting their emissions)."[24] Pre-compliance & trading The other main category of buyers on the voluntary markets are those engaged in precompliance and/or trading. Those purchasing offsets for pre-compliance purposes are doing so with the expectation, or as a hedge against the possibility, of future mandatory cap and trade regulations. As a mandatory cap would sharply increase the price of offsets, firmsespecially those with large carbon footprints and the corresponding financial exposure to regulationmake the decision to acquire offsets in advance at what are expected to be lower prices. The trading market in offsets in general resembles the trade in other commodities markets, with financial professionals including hedge funds and desks at major investment banks, taking positions in the hopes of buying cheap and selling dear, with their motivation typically short or medium term financial gain. Retail Multiple players in the retail market have offerings that enable consumers and businesses to calculate their carbon footprint, most commonly through a web-based interface including a calculator or questionnaire, and sell them offsets in the amount of that footprint.[25] In addition many companies selling products and services, especially carbonintensive ones such as airline travel,[26][27] offer options to bundle a proportional offsetting amount of carbon credits with each transaction. Suppliers of voluntary offsets operate under both nonprofit and social enterprise models, or a blended approach sometimes referred to as triple bottom line. Other suppliers include broader environmentally focused organizations with website subsections or initiatives that enable retail voluntary offset purchases by members, and government created projects. Features of companies that voluntarily offset emissions Companies which voluntarily offset their own emissions tend to be of relatively low carbon intensity, as they can offset a significant proportion of their emissions at relatively low cost.[28] Voluntary offsetting is particularly common in the financial sector. 61% of financial companies in the FTSE 100 offset at least a portion of their 2009 emissions.

22% of financial companies in the FTSE 100 considered their entire 2009 operations to be carbon neutral.[9]

[edit] Sources of carbon offsets

The CDM identifies over 200 types of projects suitable for generating carbon offsets, which are grouped into broad categories. These project types include renewable energy, methane abatement, energy efficiency, reforestation and fuel switching.[10]

[edit] Renewable energy

Renewable energy offsets commonly include wind power, solar power, hydroelectric power and biofuel. Some of these offsets are used to reduce the cost differential between renewable and conventional energy production, increasing the commercial viability of a choice to use renewable energy sources. Renewable Energy Credits (RECs) are also sometimes treated as carbon offsets, although the concepts are distinct. Whereas a carbon offset represents a reduction in greenhouse gas emissions, a REC represents a quantity of energy produced from renewable sources. To convert RECs into offsets, the clean energy must be translated into carbon reductions, typically by assuming that the clean energy is displacing an equivalent amount of conventionally produced electricity from the local grid. This is known as an indirect offset (because the reduction doesn't take place at the project site itself, but rather at an external site), and some controversy surrounds the question of whether they truly lead to "additional" emission reductions and who should get credit for any reductions that may occur.[29][30]

[edit] Methane collection and combustion

Some offset projects consist of the combustion or containment of methane generated by farm animals (by use of an anaerobic digester),[31] landfills[32] or other industrial waste. Methane has a global warming potential (GWP) 23 times that of CO2; when combusted, each molecule of methane is converted to one molecule of CO2, thus reducing the global warming effect by 96%. An example of a project using a anaerobic digester can be found in Chile where in December 2000, the largest pork production company in Chile, initiated a voluntary process to implement advanced waste management systems (anaerobic and aerobic digestion of hog manure), in order to reduce greenhouse gas (GHG) emissions. [33]

[edit] Energy efficiency

Chicago Climate Justice activists protesting cap and trade legislation in front of Chicago Climate Exchange building in Chicago Loop This section does not cite any references or sources.
Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (August 2008)

While carbon offsets which fund renewable energy projects help lower the carbon intensity of energy supply, energy conservation projects seek to reduce the overall demand for energy. Carbon offsets in this category fund projects of several types:
1. Cogeneration plants generate both electricity and heat from the same power source, thus

improving upon the energy efficiency of most power plants which waste the energy generated as heat. 2. Fuel efficiency projects replace a combustion device with one which uses less fuel per unit of energy provided. Assuming energy demand does not change, this reduces the carbon dioxide emitted. 3. Energy-efficient buildings reduce the amount of energy wasted in buildings through efficient heating, cooling or lighting systems. In particular, the replacement of incandescent light bulbs with compact fluorescent lamps can have a drastic effect on energy consumption. New buildings can also be constructed using less carbon-intensive input materials.

[edit] Destruction of industrial pollutants

Industrial pollutants such as hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) have a GWP many thousands of times greater than carbon dioxide by volume.[34] Because these pollutants are easily captured and destroyed at their source, they present a large and low-cost source of carbon offsets. As a category, HFCs, PFCs, and N2O reductions represent 71% of offsets issued under the CDM.[10]

[edit] Land use, land-use change and forestry

Land use, land-use change and forestry (LULUCF) projects focus on natural carbon sinks such as forests and soil. Deforestation, particularly in Brazil, Indonesia and parts of Africa, account for about 20% of greenhouse gas emissions.[35] Deforestation can be avoided either by paying directly for forest preservation, or by using offset funds to provide substitutes for forest-based

products. There is a class of mechanisms referred to as REDD schemes (Reducing emissions from deforestation and forest degradation), which may be included in a post-Kyoto agreement. REDD credits provide carbon offsets for the protection of forests, and provide a possible mechanism to allow funding from developed nations to assist in the protection of native forests in developing nations. Almost half of the world's people burn wood (or fiber or dung) for their cooking and heating needs.[citation needed] Fuel-efficient cook stoves can reduce fuel wood consumption by 30 to 50%, though the warming of the earth due to decreases in particulate matter (i.e. smoke) from such fuel-efficient stoves has not been addressed. There are a number of different types of LULUCF projects:

Avoided deforestation is the protection of existing forests. Reforestation is the process of restoring forests on land that was once forested. Afforestation is the process of creating forests on land that was previously unforested, typically for longer than a generation. Soil management projects attempt to preserve or increase the amount of carbon sequestered in soil.

[edit] Purchase of carbon allowances from emissions trading schemes

Voluntary purchasers can offset their carbon emissions by purchasing carbon allowances from legally mandated cap-and-trade programs such as the Regional Greenhouse Gas Initiative or the European Emissions Trading Scheme. By purchasing the allowances that power plants, oil refineries, and industrial facilities need to hold to comply with a cap, voluntary purchases tighten the cap and force additional emissions reductions. Voluntary purchases can also be made through small-scale and sometimes uncertified schemes such as those offered at South African based Promoting Access to Carbon Equity Centre (PACE),[36] which nevertheless offer clear services such as poverty alleviation in the form of renewable energy development. Also, as "easy carbon credits are coming to an end" ,[37] these projects have the potential to develop projects that are either too small or too complicated to benefit from legally mandated cap-and-trade programs.

[edit] Links with emission trading schemes

Main article: Carbon Credit Once it has been accredited by the UNFCCC a carbon offset project can be used as carbon credit and linked with official emission trading schemes, such as the European Union Emission Trading Scheme[38] or Kyoto Protocol, as Certified Emission Reductions. European emission allowances for the 2008-2012 second phase were selling for between 21 and 24 Euros per metric ton of CO2 as of July 2007.

The voluntary Chicago Climate Exchange also includes a carbon offset scheme that allows offset project developers to sell emissions reductions to CCX members who have voluntarily agreed to meet emissions reduction targets. The Western Climate Initiative, a regional greenhouse gas reduction initiative by states and provinces along the western rim of North America, includes an offset scheme. Likewise, the Regional Greenhouse Gas Initiative, a similar program in the northeastern U.S., includes an offset program. A credit mechanism that uses offsets may be incorporated in proposed schemes such as the Australian Carbon Exchange.

[edit] Other
A UK offset provider set up a carbon offsetting scheme which set up a secondary market for treadle pumps in developing countries. These pumps are used by farmers, using human power, in place of diesel pumps.[39] However, given that treadle pumps are best suited to pumping shallow water, while diesel pumps are usually used to pump water from deep boreholes, it is not clear that the treadle pumps are actually achieving real emissions reductions. Other companies have explored and rejected treadle pumps as a viable carbon offsetting approach due to these concerns.

[edit] Carbon Retirement

Carbon retirement involves retiring allowances from emission trading schemes as a method for offsetting carbon emissions. Under schemes such as the European Union Emission Trading Scheme, EU Emission Allowances (EUAs), which represent the right to release carbon dioxide into the atmosphere, are issued to all the largest polluters. The theory is that by buying these allowances and permanently removing them, the price of EUAs increases and provides an incentive for industrial companies to reduce their emissions.[40]

[edit] Accounting for and verifying reductions

Due to their indirect nature, many types of offset are difficult to verify. Some providers obtain independent certification that their offsets are accurately measured, to distance themselves from potentially fraudulent competitors. The credibility of the various certification providers is often questioned. Certified offsets may be purchased from commercial or non-profit organizations for US$130 per tonne of CO2,[41] due to fluctuations of market price. Annual carbon dioxide emissions in developed countries range from 6 to 23 tons per capita. Accounting systems differ on precisely what constitutes a valid offset for voluntary reduction systems and for mandatory reduction systems. However formal standards for quantification exist based on collaboration between emitters, regulators, environmentalists and project developers. These standards include the Voluntary Carbon Standard, Green-e Climate, Chicago Climate Exchange and the CDM Gold Standard, the latter of which expands upon the requirements for the Clean Development Mechanism of the Kyoto Protocol. Accounting of offsets may address the following basic areas:

Baseline and Measurement - What emissions would occur in the absence of a proposed project? And how are the emissions which occur after the project is performed going to be measured? Additionality - Would the project occur anyway without the investment raised by selling carbon offset credits? There are two common reasons why a project may lack additionality: (a) if it is intrinsically financially worthwhile due to energy cost savings, and (b) if it had to be performed due to environmental laws or regulations. Permanence - Are some benefits of the reductions reversible? (for example, trees may be harvested to burn the wood, and does growing trees for fuel wood decrease the need for fossil fuel?) If woodlands are increasing in area or density, then carbon is being sequestered. After roughly 50 years, newly planted forests will reach maturity and remove carbon dioxide more slowly. Leakage - Does implementing the project cause higher emissions outside the project boundary?

[edit] Co-benefits
While the primary goal of carbon offsets is to reduce global carbon emissions, many offset projects also claim to lead to improvements in the quality of life for a local population. These additional improvements are termed co-benefits, and may be considered when evaluating and comparing carbon offset projects. Some possible co-benefits from a project which replaces wood burning stoves with ovens which use a less carbon-intensive fuel include:

Lower non greenhouse gas pollution (smoke, ash, and chemicals), which improves health in the home. Better preservation of forests, which are an important habitat for wildlife.

In a recent survey conducted by EcoSecurities, Conservation International, CCBA and ClimateBiz, of the 120 corporates surveyed more than 77% rated community and environmental benefits as the prime motivator for purchasing carbon offsets.[42] Carbon offset projects can also negatively affect quality of life. For example, people who earn their livelihoods from collecting firewood and selling it to households could become unemployed if firewood is no longer used. A paper from the Overseas Development Institute offers some indicators to be used in assessing the potential developmental impacts of voluntary carbon offset schemes[43]:

What potential does the project have for income generation? What effects might a project have on future changes in land use and could conflicts arise from this? Can small-scale producers engage in the scheme? What are the 'add on' benefits to the country - for example, will it assist capacity-building in local institutions?[44]

[edit] Quality Assurance Schemes

[edit] The UK Government's Quality Assurance Scheme for Carbon Offsetting
In an effort to inform and safeguard business and household consumers purchasing Carbon Offsets, the UK Government has launched a scheme for regulating Carbon offset products.[45] DEFRA have created the "Approved Carbon Offsetting" brand to use as an endorsement on offsets[46] approved by the UK government. The Scheme sets standards for best practice in offsetting. Approved offsets have to demonstrate the following criteria:

Accurate calculation of emissions to be offset Use of good quality carbon credits i.e. initially those that are Kyoto compliant Cancellation of carbon credits within a year of the consumers purchase of the offset Clear and transparent pricing of the offset Provision of information about the role of offsetting in tackling climate change and advice on how a consumer can reduce his or her carbon footprint

The first company to qualify for the scheme was Clear, followed by Carbon Footprint, Carbon Passport, Pure, British Airways and Carbon Retirement Ltd. On 20 May 2011 the Department of Energy and Climate Change announced that the Quality Assurance Scheme would close on 30 June 2011.[47] The stated purpose of the Quality Assurance Scheme was 'to provide a straightforward route for those wishing to offset their emissions to identify quality offsets'.[48] Critics of the closure therefore argued that without the scheme, businesses and individuals would struggle to identify quality carbon offsets.[49]

[edit] Australian Government National Carbon Offset Program

The Australian government is currently in a consultation period on the regulation of Carbon Offsets.[50] The standard will provide guidance on what constitutes a genuine, additional voluntary offset credit, set requirements for the verification and retirement of such credits, and provide principles for calculating the emissions of an organisation, product or service which could be offset.

[edit] Controversies
[edit] Project-offsetting
Less than 30 pence in every pound spent on some carbon offset schemes goes directly to projects designed to reduce emissions.[51] The figures reported by the BBC[52] and based on UN data reported that typically 28p goes to the set up and maintenance costs of an environmental project. 34p goes to the company that takes on the risk that the project may fail. The project's investors

take 19p, with smaller amounts of money being distributed between organisations involved in brokering and auditing the carbon credits.

[edit] Indulgence controversy

Some activists disagree with the principle of carbon offsets, likening them to papal indulgences, a way for the guilty to pay for absolution rather than changing their behavior. George Monbiot, an English environmentalist and writer, says that carbon offsets are an excuse for business as usual with regard to pollution.[53][54] Proponents hold that the indulgence analogy is flawed because they claim carbon offsets actually reduce carbon emissions, changing the business as usual, and therefore address the root cause of climate change.[55] Proponents of offsets claim that third-party certified carbon offsets are leading to increased investment in renewable energy, energy efficiency, methane biodigesters and reforestation and avoided deforestation projects[citation needed] , and claim that these alleged effects are the intended goal of carbon offsets. On October 16, 2009 Responsible Travel, once a strong voice in favour of carbon offsetting, announced that it would stop offering carbon offsetting to its clients, stating that "too often offsets are being used by the tourism industry in developed countries to justify growth plans on the basis that money will be donated to projects in developing countries. Global reduction targets will not be met this way".[56] On 4 February 2010, travel networking site Vida Loca Travel announced that they would donate 5% of profits to International Medical Corps, as they feel that international aid can be more effective at cutting global warming in the long term than carbon offsetting, citing the work of economist Jeffrey Sachs.[57]

[edit] Effectiveness of tree-planting offsets

Some environmentalists have questioned the effectiveness of tree-planting projects for carbon offset purposes.[58] Critics point to the following issues with tree planting projects:

Timing. Trees reach maturity over a course of many decades. Project developers and offset retailers typically pay for the project and sell the promised reductions up-front, a practice known as "forward selling". Permanence. It is difficult to guarantee the permanence of the forests, which may be susceptible to clearing, burning, or mismanagement. The well-publicized instance of the "Coldplay forest," in which a forestry project supported by the British band Coldplay resulted in a grove of dead mango trees, illustrates the difficulties of guaranteeing the permanence of tree-planting offsets.[59] When discussing "tree offsets, forest campaigner Jutta Kill of European environmental group FERN, clarified the physical reality that "Carbon in trees is temporary: Trees can easily release carbon into the atmosphere through fire, disease, climatic changes, natural decay and timber harvesting."[60] Monocultures and invasive species. In an effort to cut costs, some tree-planting projects introduce fast-growing invasive species that end up damaging native forests and reducing biodiversity. For example, in Ecuador, the Dutch FACE Foundation has an offset project in the Andean Pramo involving 220 square kilometres of eucalyptus and pine planted.

The NGO Accin Ecolgica criticized the project for destroying a valuable Pramo ecosystem by introducing exotic tree species, causing the release of much soil carbon into the atmosphere, and harming local communities who had entered into contracts with the FACE Foundation to plant the trees.[61] However, some certification standards, such as the Climate Community and Biodiversity Standard require multiple species plantings.

Indigenous land rights issues. Tree-planting projects can cause conflicts with indigenous people who are displaced or otherwise find their use of forest resources curtailed. For example, a World Rainforest Movement report[62] documents land disputes and human rights abuses at Mount Elgon. In March 2002, a few days before receiving Forest Stewardship Council certification for a project near Mount Elgon, the Uganda Wildlife Authority evicted more than 300 families from the area and destroyed their homes and crops. That the project was taking place in an area of on-going land conflict and alleged human rights abuses did not make it into project report.[citation needed] Methane. A recent study has claimed that plants are a significant source of methane, a potent greenhouse gas, raising the possibility that trees and other terrestrial plants may be significant contributors to global methane levels in the atmosphere.[63] However, this claim has been disputed recently by findings in another study.[64] The albedo effect. Another study suggested that "high latitude forests probably have a net warming effect on the Earth's climate", because their absorption of sunlight creates a warming effect that balances out their absorption of carbon dioxide.[65] This view is however being challenged by other studies showing that despite the negative albedo effects of temperate forests there is a net benefit[citation needed] and in addition there is weak evidence of a positive albedo effect in the tropics from clouds generated by forests [66] Necessity. Corporate tree-planting is not a new idea; farming operations have been used by companies making paper from trees for a long time. If farmed trees are replanted, and the products made from them are placed into landfills rather than recycled, a very safe, efficient, economical and time-proven method of geological sequestration of greenhouse carbon is the result of the paper product use cycle. This only holds if the paper in the land fill is not decomposted. In most landfills, this is the case and leads to the fact that more than half of the greenhouse gas emissions from the life cycle of paper products occur from landfill methane emissions.[citation needed]

[edit] Additionality and lack of regulation in the voluntary market

Several certification standards exist, offering variations for measuring emissions baseline, reductions, additionality, and other key criteria. However, no single standard governs the industry, and some offset providers have been criticized on the grounds that carbon reduction claims are exaggerated or misleading. Problems include:[67][68]

Widespread instances of people and organizations buying worthless credits that do not yield any reductions in carbon emissions.

Industrial companies profiting from doing very little or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially. Brokers providing services of questionable or no value. A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

[edit] Perverse incentives

Because offsets provide a revenue stream for the reduction of some types of emissions, they can in some cases provide incentives to emit more, so that emitting entities can later get credit for reducing emissions from an artificially high baseline. This is especially the case for offsets with a high profit margin. For example, one Chinese company generated $500 million in carbon offsets by installing a $5 million incinerator to burn the HFCs produced by the manufacture of refrigerants. The huge profits provided incentive to create new factories or expand existing factories solely for the purpose of increasing production of HFCs and then destroying the resultant pollutants to generate offsets. Not only is this outcome environmentally undesirable, it undermines other offset projects by causing offset prices to collapse.[69][70] The practice had become so common that offset credits are now no longer awarded for new plants to destroy HFC-23.[71] In Nigeria oil companies flare off 40% of the natural gas found. The Agip Oil Company plans to build plants to generate electricity from this gas and thus claim 1.5 million offset credits a year. United States company Pan Ocean Oil Corporation has also applied for credits in exchange for processing its own waste gas in Nigeria. Oilwatch.org's Michael Karikpo calls this "outrageous," as flaring is illegal in Nigeria, adding that "It's like a criminal demanding money to stop committing crimes".[71]

[edit] Other negative impacts from offset projects

Although many carbon offset projects tout their environmental co-benefits, some are accused of having negative secondary effects. Point Carbon has reported on an inconsistent approach with regard to some hydro-electric projects as carbon offsets; some countries in the EU are not allowing large projects into the EU ETS, because of their environmental impacts, even though they have been individually approved by the UNFCCC and World Commission on Dams.[72] Offset projects may also have negative social impacts, for example when local residents are evicted to enable a National Park to be marketed as a carbon offset.[73]