Suspect carbon offsetting
I recently received a press release from a company called My Emissions Exchange. I get lots of press releases – mostly about ethical shampoo and that sort of thing – but this one caught my eye.
‘MyEEX’ (no relation to German energy exchange EEX I assume) sells carbon offsets. The ‘projects’ behind the carbon offsets are individuals who reduce their home energy bills. You can sign up to MyEEX, enter your baseline bill, reduce your energy use, enter your new bill and MyEEX will create carbon credits that represent the reductions. They will then sell the credits on voluntary offset market – not sure who to – and return some proportion of the money to the individual.
For those of you familiar with the concept of additionality, alarm bells will be ringing. How do we know the baseline bill is not unusually high? How do we know the individual would not have reduced their energy use anyway (making the carbon offsets irrelevant)? Why do people need to be paid to reduce their bills? Who are the buyers anyway?
When I saw this I assumed it was an enterprising but poorly conceived project that probably wouldn’t get that far, but today I spotted a very promotional article in The Times!
“People really want to make a difference by cutting down their carbon emissions, but at the moment it’s all very woolly and they’re not seeing anything concrete from their efforts,” said Paul Herrgesell, the company’s project manager.
“This will let people actively track their energy usage and make money at the same time, both of which will motivate people and make them more aware of their carbon emissions.”
Herrgesell said the firm is hoping to expand the website to measure all types of personal carbon emissions, but is using households bills as a starting point.
“Our vision is to cover personal carbon footprints produced by car and air travel, and even, eventually, food and services,” said Herrgesell.
Bonkers!
Animation – Carbon Retirement
We’ve just produced a short animation about how Carbon Retirement works. Carbon Retirement is a new company I’m involved in. We remove EU Emission Allowances from the EU’s Emission Trading Scheme, reducing the volume of CO2 that can be emitted.
Check out our animation (on the Carbon Retirement homepage, Youtube or below) – we’re really happy with it.
CCX offsets: the money is gravy to us
Hidden at the end of an article in Monday’s Washington Post is a clear statement of non-additionality from the owner of a project selling offsets on the CCX:
In the western Virginia town of Christiansburg, the operators of a landfill sell carbon offsets tied to a project that captures methane, a powerful greenhouse pollutant, and burn it in a tall orange flare. They’ve made $43,000 on the Chicago Climate Exchange in just a couple of months.
But that project was put in long before the offsets were sold and for a different reason: to keep dangerous gases from accumulating in a capped landfill. So if the offset market dried up completely?
Nothing would change.
The money “is gravy to us right now,” said Alan Cummins, executive director of the regional authority that runs the landfill. Even without it, he said, “we would always continue to flare.”
Non-paper?
The CDM “provides member states with a cost-effective means to meet their obligations and is an important flexibility mechanism,” says a UK ‘non-paper’ leaked to the press on 17 September.
Downing Street suggests expanding the scheme to allow EU countries to offset up to 50% of their CO2 emissions reduction obligations - 20% more the current approximate limit of 30% - on the grounds that this would not undermine climate change efforts at EU or global level.
(for Phase 3)
Paying people not to relieve themselves on the pavement
This article caught my eye. From the LA Times:
In L.A., the [automated public toilets] are supported by advertisers that buy space on nearby street furnishings. All of the APTs in the city, except two on skid row, charge a quarter for each use. Los Angeles is actually guaranteed $150 million in revenue from the 20-year contract for the APTs.
Why the skid-row exception? Two reasons seem pretty clear. First, homeless people don’t spend quarters lightly, if they have them at all. Second, if the city doesn’t give them a free indoor place to relieve themselves, they’ll use a free outdoor place: the street.
You can’t exactly sell a lot of advertising around a john for homeless people. That means no company can make money off such a toilet. The toilet’s existence, therefore, implies that the city is willing to pay a significant subsidy to dissuade those people from soiling public space.
Why don’t you get subsidized the same way? Because you’re no threat. You don’t foul sidewalks.
So if you do pollute, the city will pay you not to. And if you don’t, the city will take advantage of the services you can provide to it in terms of looking at adverts.
There is an analogy between the skid-row bathrooms and some criticisms of the economic incentives provided by some carbon offsetting projects. If we pay project developers to reduce their emissions (by destroying potent greenhouse gases, for example), when the incentive gets big enough new sources of emissions may emerge just so they can be cleaned up and receive offsets. If the APTs in LA were expensive enough, perhaps wealthy people would look at their compatriots’ situation in skid-row and start relieving themselves on the pavement in the hope that the city would open free bathrooms.
Hat tip – Tim Harford.
Carbon Retirement is live today
I’ve been working hard over the last few months to set up a company, Carbon Retirement. We buy EU Emission Allowances (EUAs) on behalf of our customers and retire them. This reduces the amount of carbon dioxide that industrial facilities within the scheme can produce and pushes up the price of carbon.
The service is designed for offsetting unavoidable parts of our customers’ carbon footprints. It’s fundamentally different to existing carbon offsetting services in that we don’t fund projects. We think it’s a great idea because it can give a very high level of confidence in the emission reduction.
Do have a look round the site and if you have any comments, let me know by email (inbalance dot blog at gmail dot com) or in the comment section to this post.
Report shows booming voluntary offset market
The voluntary offsetting market is a murky place. New Carbon Finance and Ecosystem Marketplace have just published their second annual overview report (pdf). It is based on a survey of project developers and other actors in the carbon market, and shows huge growth driven particularly by European demand.
Huge range of prices driven by non climate change considerations
Perhaps the most striking finding in the report is the enormous range of prices paid for voluntary offsets. Different types of project command different prices, ranging around $2.5 / tCO2e (for industrial gas or geological sequestration) up to $50 for Gold Standard (a very selective quality regime) renewable energy offsets.
Carbon markets are based on the premise that avoiding a tonne of CO2e is worth the same in climate change mitigation terms, no matter where or how the reduction is made. Voluntary offsets should therefore have commodity-style prices.
Part of the reason why voluntary offsets don’t behave like commodities is that some customers are interested in ‘co-benefits’. Co-benefits are positive social outcomes for local communities that are delivered in addition to emission reductions. Projects that involve the destruction of potent greenhouse gas by-products from industrial processes have few co-benefits and the report shows they are becoming less popular.
Voluntary offsets cannot prove their additionality. Even the most robust quality regimes give no assurance of the baseline (what would have happened without the funding provided by offsets). Project developers and salespeople therefore use co-benefits, which may be worthy but are irrelevant in terms of emission reductions, to show that the offsets are not a waste of money.
Few projects in Africa
The report shows that a very small and shrinking proportion of voluntary offsets originate in Africa. This is considered worrying, because many people feel that offsetting should support international development.
It’s quite natural that few project-based offsets are derived from Africa. There is only limited opportunity to finance emission reductions in a continent where there are low levels of industrialisation and grid electricity.
Additionality cannot be taken out of the CDM, even if it is impossible to administer
Ken Newcombe, who founded the World Bank’s Carbon Finance Unit, yesterday described the concept of additionality in the Clean Development Mechanism as “impossible”.
A reduction in emissions is ‘additional’ if it would not have happened without the funding provided by selling carbon offsets through the CDM (mainly as Certified Emission Reductions in the EU ETS).
He rightly points out that additionality is very difficult to measure and has added significantly to the administrative costs of verifying CDM projects. Instead, he proposes a ‘benchmarking’ approach, in which activities that ‘emit below the benchmark’ are allowed to sell offsets.
The thing is, additionality is the basic premise of offsetting. To claim that an investment will reduce emissions by a specific quantity, you must measure the baseline (what would have happened without intervention).
If the CDM is not necessarily additional (which it is not now, but at least it aims to be), emissions will leak out of statutory cap-and-trade schemes like the EU ETS in unknown quantities. Not only that: unknown quantities of money will leak out too as projects that would have happened anyway are given unnecessary funding.
Perhaps the CDM is not the right way to transfer clean technology to the developing world. In fact, CDM is a misnomer – it is not primarily designed to foster clean development, but to reduce the costs imposed on the developed world by the Kyoto Protocol.
CDM is growing and maturing – but remember that it delivers cost reduction, not lower emissions
The Clean Development Mechanism is two and half years old and has just registered its 1,000th project (press release – pdf).
They’ve got a nice map, which shows that projects are concentrated in India, China and Brazil, and that Chinese projects tend to be larger scale. Between them, the projects have delivered 136 million CERs to date and are expected to deliver 2.7 billion by 2012 (a CDM project earns a CER when it prevents one tonne of CO2e – carbon dioxide or equivalent greenhouse gas – from being released into the atmosphere). By comparison, companies regulated in the EU ETS (which are the main market for CERs) will be allowed to produce just over 8 billion tonnes of CO2e between 2008 and 2012.
CERs are essentially offsets. Companies participating in the EU ETS are allowed to buy a limited number of CERs to offset emissions for which they do not have allowances (EUAs). In the UK, companies may use CERs to offset up to 8% of their emissions.
Like voluntary offsets, CDM projects have been subject to a lot of criticism. Some of the problems are intrinsic to offsetting, such as the difficultly of establishing whether the CDM project would have happened without the additional funding provided by selling CERs. Some say that the scheme has not applied its environmental criteria strictly enough. The project developers complain about a backlog of applications.
It is important to remember that CDM projects do not produce any net reduction in emissions. They make it cheaper for compliance markets such as the EU ETS to meet their cap. In the absence of CDM, companies in the EU ETS would simply have to make more cuts themselves – and arguably make more clearly measurable reductions and investments in clean technology that last longer.
JPMorgan buys Climate Care, reflecting bullishness in the voluntary offset market
A slightly lower profile JP Morgan acquisition was announced yesterday. The investment bank will buy Climate Care over the next few months in the first outright acquisition of an offset project developer. Climate Care will retain its brand and its main business will continue to be financing and packaging offset projects in the developing world.
Climate Care sells offsets to customers who are not regulated under the EU ETS (i.e. they don’t buy the offsets for any kind of compliance – they buy them for ethical or marketing purposes). Some of these offsets have passed the UN’s Clean Development Mechanism and are called ‘Certified Emission Reductions’, while others use voluntary standards.
The deal reflects continued bullishness in the voluntary offset market at a time when marketing and CSR budgets are under pressure and consumers are cutting back on any unnecessary spending.
Defra must agree a quality regime with the voluntary offset providers if its Code of Practice is to be of any use
Defra has decided that the voluntary offsetting industry does not demonstrate that its offsets are properly verified. If the industry can develop a credible quality regime, Defra is prepared to include voluntary offsetting in its Code of Practice (to be launched this summer). Otherwise, the Code of Practice will only cover credits that are approved by the UN (principally CERs).
The voluntary offset providers will now work frantically with Defra to deliver a quality regime. If Defra cannot agree a regime with the voluntary offset industry, what will be the purpose of the Code of Practice? What would be the value of a Defra stamp of approval that is only for offsets already approved by the UN?
Price differential between voluntary offset markets points to fake projects and weak quality regimes
Offsets are in principle a sensible way to allocate funding for clean development in other parts of the world. The regimes that govern the generation of emissions credits for use in the voluntary market have come under a lot of criticism – including in a recent article in Nature – with good reason. It is a murky, immature market and there are plenty of people making dishonest profits. The clearest indicator of murkiness is the widely varying prices in different markets.
Offsets can by definition be generated anywhere in the world. Credits generated by a renewable energy project (more…)
Tesco rejects offsets, but the industry continues to look strong
Tesco today scrapped plans to sell retail offset packages. The supermarket giant’s reason was that the public seems to have become disenchanted with offsets – partly due to scepticism about the quality of non-regulated schemes, and partly because many campaign groups now flatly oppose offsetting on moral grounds. The industry is portrayed as a bunch of sleazy profiteers, and Tesco does not want that brand risk.
Tesco’s decision does not reflect an industry facing imminent extinction. In fact, it is just getting started. Last month Carbonpositive reported record trading volumes on voluntary emissions credit exchanges. These sales feed the retail and non-regulated wholesale markets and demonstrate that more people are still choosing to buy offsets.
But the main reason why offsets purchased in the West will continue to fund projects across the world is the growth of the regulated market. As new industries are brought into the European Trading Scheme, the growth in the market for credits that have passed the UN’s Clean Development Mechanism (the quality criteria for the scheme) will far outstrip the voluntary market. Financiers recognise this and are poring huge sums of money into approved offset projects.
Arguments made by the likes of Rising Tide may have spooked Tesco, but don’t expect the offsetting industry to be quaking in its boots.
Stumble It!
