Carbon offsets: now with data!

A new report with numbers and stuff

Posted by David Roberts at 10:19 AM on 18 Jul 2007

Read more about: climate | energy | carbon offsets

Our discussion of carbon offsets has been rather hand-wavey -- lots of intuitions and moral judgments and gut feelings flying around. This obviously offended the gods of wonkitude, who have now seen fit to deliver unto us a report on the voluntary carbon credit market, containing some sweet, sweet numbers and graphs.

The report was done by market analyst types at New Carbon Finance (in London) and Ecosystem Marketplace (in D.C.), and is based partly on "a wide ranging survey with responses from over 70 organizations involved all stages of the supply chain from developers, aggregators, developers and retailers, and covering five continents."

Here's the executive summary (PDF) and the full report (PDF).

Turns out the voluntary carbon credit market -- which consists of the Chicago Climate Exchange plus the "over the counter" (OTC) offset market we've been discussing -- accounted for about $91 million in 2006. And it's getting bigger rapidly: based on survey responses, the volume of credits traded in the voluntary market by June 2007 may well have exceeded the entire volume traded in 2006.

Between 2005 and 2006, the OTC market grew by 200%. Here's how the voluntary markets stack up against gov't regulated trading markets:

Comparing carbon markets

The biggest purchasers are businesses (80%). Individuals account for only 5% (which makes all our overwrought discussion of whether individuals are buying offsets rather than changing behavior much ado over very little). Most buyers are in the U.S. Here's the breakdown:

offsets by purchaser

According to suppliers, the businesses that purchase credits are not, contrary to what you might expect, hedging against future carbon regulation. Rather, the most common motivations were corporate social responsibility (CSR) and a desire to "walk the talk" on environmental stewardship. In other words, most businesses buying voluntary credits seem to have their hearts in basically the right place. Not that their motivations really matter one whit.

What are credit buyers looking for? Again contrary to what you might think, it's not just price -- in fact, quality- and environment-related factors were primary. To wit:

offset evaluation criteria

Relative to gov't carbon markets, voluntary markets source more from forestry and smaller "micro" projects. Here's where the credits are coming from in the voluntary market:

Forestry: 36%
Renewables: 33%
Industrial gas: 20%
Energy efficiency: 5%
Methane capture: 3%
Mixed/other: 3%

(By contrast, just 1% of CDM credits are from forestry projects. I'll paste a larger chunk about forestry down at the bottom, for those into that sort of thing.)

The volume-weighted average price of carbon in the voluntary market is $4.1 per tonne of CO2e, but that's from a range of $0.45 all the way up to $45. As you'd expect, the more expensive credits were for "projects with strong quality and verifiability attributes, such as landfill methane and coal mine methane, as well as the more publicly visible forestry projects and long term sustainable development projects, such as energy efficiency and off-grid renewable energy."

This is an excellent summary of the promise and perils of the voluntary carbon market:

The flexibility of the voluntary markets is both a source of strength and a weakness. One of the reasons the market has very low transaction costs is that it does not require proof of quality in the same way as the regulated markets. For instance, in the OTC markets there are no widely accepted standards, processes for certification and verification, or requirements to list credits on established registries. This lowers transaction costs, but it also makes it a "buyer-beware" market where getting a handle on the quality of credits being bought can be difficult for customers.

But this is changing. The quality of offsets is - and will likely continue to be - the most important issue for both buyers and sellers in this market. In our survey, buyers indicated that the quality of offsets was more important to them than price, and sellers all agreed that addressing issues of quality would ultimately determine how (and how fast) this market continues to grow. According to suppliers, the issues that determine quality of offsets in this market include: additionality (would the reductions have happened anyway with or without the offset purchases), third party certification and verification, standards, and avoidance of double-counting and double-selling (i.e. registries).

As part of the consolidation in the market that began to take shape in 2006, various groups (from non-profits and industry associations, to offset providers and government agencies) continue work aimed at creating rigorous standards and processes as a way of ensuring confidence and quality in the market. In 2006 and early 2007, the issue of quality in the voluntary market became very visible in the form of media stories and articles questioning the validity of offsets being sold. This backlash was (at least partly) the result of the increased growth and visibility of the market, but it also helped to fuel increasing efforts on the part of those interested in the industry to strengthen quality and create standards. These efforts are explained and documented in this report.

There's more where this came from -- lots more, particularly some good stuff about efforts to improve standards and verification -- in the full report.

----

For those who track this issue -- i.e., Joe "no trees" Romm -- here's an interesting excerpt about forestry credits:

The predominance of forestry credits in voluntary carbon markets is not surprising. While forestry sequestration projects are widely accepted under the New South Wales Greenhouse Gas Abatement Scheme, these credits must be from local projects. In other words, outside of Australia, the Kyoto and voluntary markets are the only two outlets for forest-related sequestration credits. Compared to Kyoto markets, it's clear that the voluntary carbon markets play a critical role in financing sequestration projects. In 2006, less than 1% of CDM credits were sourced via approved forestry or the broader Kyoto category defined as Land Use, Land Use Change and Forestry (LULUCF) methodologies. As of early 2007, seven different afforestation/reforestation methodologies had been 35 accepted by the CDM board. However only one LULUCF project (compared to about 500 non-LULUCF projects) has actually been registered by the CDM and is being issued with CERs. Moreover, the EU ETS, the largest potential market for carbon offsets currently does not accept LULUCF credits of any kind.

In contrast, on the voluntary side, LULUCF projects may not only face lower financing and bureaucratic hurdles, but may also be valued more highly for providing more benefits to communities, to biodiversity, and to other values which voluntary buyers care about. They may, in other words, be more "charismatic." While not all forestry projects can boast high sustainable development co-benefits, and several projects have been criticized for negative social or environmental impacts, many projects (especially native forestry projects) do in fact result in ancillary social and environmental benefits beyond sequestration. Moreover, LULUCF credits may be appealing because they are simple to understand: Most consumers have an intuitive understanding of the role trees play in the carbon cycle. The same cannot be said for exotic chemical gases such as HFC and N O. 23 2 Erin Meezan of Interface explained that her company chose forestry credits from major tree planting projects to offset their in-house emissions because, "Trees is one area of carbon sequestration that everyone understands, even little kids understand it... people get it."

Due to concerns about permanence (i.e. carbon stored in trees may be released into the atmosphere if the forests burn down or are felled by disease) and further investments in abatement technologies, the percentage of forestry credits provided to the market has decreased rapidly, especially in the EU, and especially in the retail sector. Conversely, forestry carbon projects have historically played an important role in the US voluntary carbon markets. For example, the first protocol approved for offsets by the California Climate Action Registry was the forestry protocol. In the voluntary OTC market, about 66% of these forestry based credits originated from US projects. Whether a backlash against forestry carbon of European proportions will some day emerge in the US still remains to be seen. So far, forestry projects have been highly valued in the US voluntary markets, and their future role will largely be dictated by how the main criticisms of carbon forestry (additionality, measurement, and permanence) are dealt with. One interesting development is that some organizations have proposed innovative approaches (namely insurance schemes) for addressing the permanence problems associated with forestry carbon.

For story: Carbon offsets: now with data!
17 Comments | Post a Comment

awesome.

thanks for this, Dave. It's nice to see some data associated with this stuff for once.

by naturescene at 11:49 AM on 18 Jul 2007

carbon question...

Does anyone have any insight on how to calculate your personal carbon offset if you decide to plant in your yard, whether it be a perennial, native garden, or a tree?

by Milena at 12:12 PM on 18 Jul 2007

Hmmm

Ok, so I read this, then saw an ad for a Range Rover dealer that is buying carbon offsets for 50,000 miles with every purchase -- and they are from trees.

I'm pretty sure that those show up as purchased by a business.

What's that phrase? Spleensploshing? Deanfroshing? It'll come to me ...

The 5% Project

by JMG at 12:17 PM on 18 Jul 2007

Garbage in

Garbage out

That said, it's suprising how little they spend on effeciency.

Remember, "Entropy is the Enemy!"

by GreyFlcn at 1:29 PM on 18 Jul 2007

Re: carbon question

How about if it's an apple tree and so you don't have to buy apples shipped 3,000 miles anymore (at least while your apples are in season)?

Eat what you grow, grow what you eat

by PermieWriter at 1:41 PM on 18 Jul 2007
[ Parent ]

Depends

Is it an organicaly fertilized apple tree?

by GreyFlcn at 1:51 PM on 18 Jul 2007
[ Parent ]

Someone will pay me to plant an apple tree...

and I get to eat the apples?!

Sign me up!

by wiscidea at 1:55 PM on 18 Jul 2007

A little perspective . . . get out your microscope

The first thing that jumped out at me was the same thing GreyFlcn caught: energy efficiency dropped from a better than 50% share of investments prior to 2002 to about 5% in 2006. That is surprising and disappointing given that arresting the geometric growth of conventional energy use is one of the best and most hopeful means of ever turning around the growth in carbon emissions. Also, given that quality of investment was rated so highly, one would think energy efficiency and conservation measures would be in ever greater demand given that they tend to be easier to verify and predict than, say, tree planting, especially if they are of the low or no maintenance variety.

Perhaps a $91 million global market seems "big" to some, but if you look at the actual amount of carbon estimated to have been sequestered (over what period of time?--I didn't catch that in my skimming) relative to the amount of emissions, it's next to nothing. According to page 19 of the report, and estimated 23.7 metric tons of CO2 was accounted for in the global voluntary offset markets of 2006. When compared to the approximately 8 billion tons of CO2 released in the same year, the offsets amount to about 0.0000003% of the whole. It's a nice feel good gesture for some, I suppose, but it isn't making a meaningful contribution to solving the problem, and as JMG hints, the green washing involved may actually make it easier for consumers to make choices that detrimental in more ways than just CO2 emissions.

By the way, did anyone notice that the greatest number of businesses buying offsets were developers? Given the absolute and very long term loss of habitat and carbon sequestering biotic activity of the soil that industry compacts and covers each year and the minuscule amount of credits being purchased globally, it's hard to imagine that the developers' purchases are anything but window dressing for governments and their public's who may not have a good grasp of the true magnitude of the impacts and the offerings involved.

by Rune at 2:18 PM on 18 Jul 2007

Get out your macroscope.

Did anyone notice that the sponsors of the report benefit directly from the carbon offset market?

by wiscidea at 2:34 PM on 18 Jul 2007

One Depressing Bit of Information

My 2-acre prairie remnant that I constantly go on about, which I feel is somewhat important because it removes at least a little CO2 from the atmosphere and stores it in the soil, is essentially useless as far as carbon offsets are concerned.

A quick search on the internet reveals I'm removing, at most, about 2 tonnes of carbon from the atmosphere per acre per year. So that's a total of 4 tonnes.

Yahoo... all the effort, all the fuel burned, all the days in the hot sun rather than reading a book... hell, the water I pumped out of the ground to keep myself hydrated... is currently worth -- as judged by the free market -- about $16.40 per year. Good thing that is not my primary motivation or I would not bother. I know preservation of biodiversity, setting an example for others, and the pure aesthetic value is worth more than that.

It is quite clear that the current money pouring into carbon offsets and used for restoring ecosystems -- or pretending to by planting grass or trees -- absolutely cannot be paying for actual preservation, restoration, and protection of those ecosystems. There is no way such a small amount of money ($8.20 per acre) can accomplish much as far as saving ecosystem is concerned.

I point this out because so many people have said that it does not matter if the purchase of carbon offsets actually reduced CO2 emissions; they still help preserve natural areas and provide homes for wildlife. Barely, I say, if at all.

I never noticed this before because I never thought about how much people pay to remove a tonne of CO2 from the atmosphere. It really is a drop in the bucket as far as the health of the planet is concerned. I apologize for wasting everyone's time -- and regret wasting my own time -- discussing it. At least I now realize carbon offsets are pointless.

Thank you for posting the detailed report.

by wiscidea at 2:56 PM on 18 Jul 2007

70 Million Tons a day, 8 hrs of progress.

That's what we put in the air today.

So the entire contribution of the voluntary market (Rune: 24 Million Tons, not just tons) is about nine basis points. Or put differently we just offset 8 hours and 11 minutes.

No it's not enough. We desperately need a national cap and an international treaty on carbon.

But its a start. And it can be part of the solution.

Wiscadea, don't get discouraged on the price. Price will rise and we'll get around supporting everything that helps climate change. In the meantime keep on fighting the good fight, as your primary motivation is the best thing we've all got going for us.

Tom Arnold Chief Environmental Officer TerraPass

by TerraPassTom at 8:21 PM on 18 Jul 2007

Whoops . . . but . . .

"Rune: 24 Million Tons, not just tons"

My bad. I read "mtons" as metric tons and didn't make the connection to the number of dollars involved while quickly skimming the report. Thanks for the catch.

Adjust decimal point accordingly and raise new questions about the accuracy of the report. The voluntary, no-clear-standards, pick up game of carbon offsets is already knocking off 0.3% of global emissions in real time? I have trouble believing that. I suspect that credit is being given the for the entire time series of projected carbon sequestration for projects as they are funded (at least in some cases), rather than recognizing the carbon offsetting as it actually occurs over a span of decades. No time to dig back into the report at this moment, but I am very interested in anyone else's findings regarding that matter.

by Rune at 9:36 PM on 18 Jul 2007

FWIW

To put it in perspective, $91m is the annual sales volume of a medium size shopping mall. Or three Wholefoods groceries.

Too soon to tell yet if the voluntary offset market is going to get enough consumer acceptance to make a difference. And the answer to Rune's question about carbon reduction metrics - which speaks to how quickly the reductions are projected to have an impact in what is a very time-sensitive situation - should probably have an impact on that acceptance.

The true meaning of life is to plant trees, under whose shade you do not expect to sit.

by spaceshaper at 4:46 AM on 19 Jul 2007

Huh?

And the answer to Rune's question about carbon reduction metrics - which speaks to how quickly the reductions are projected to have an impact in what is a very time-sensitive situation - should probably have an impact on that acceptance.

I hope it is obvious that all concerned should be keenly interested in when a given offset project will actually deliver carbon reductions, but I do not see in the above quote an answer to my question about whether the projects tallied by the report tend to use a cash basis of accounting or whether they accrue offsets for a given project over the years, more or less in line with when and how much carbon is actually pulled out of the atmosphere (or prevented from entering to begin with). Again, does anyone have some input on that?

I'll try to look into it myself, later, but right now I need to go climb into an attic and replace a bunch of leaky light cans that cannot be insulated (thus reducing the effect of the surrounding R-32 insulation to about R-8) with some sealed ones that can be insulated over while my crew helps finish off sealing and insulating the space before the sun makes it too hot to work up there. It won't show up on anyones carbon offset tally, but it will make the home more energy efficient and comfortable for as long as it stands, which I think is a better use of money in which one can have confidence as well as reap personal benefits, as opposed to paying someone else to do something they will probably never know about in hopes that it does some good, somewhere, some day.

And about that unknown pay off in the future, does anyone know if these carbon offsetters who sell tree planting as offset projects, does anyone know if they tend to assume that most or all of the trees will survive when they tally up the offsets (whenever they recognize those)? I know that in habitat restoration or replacement projects, the agencies typically require that several times more trees be planted than were removed by the project requiring the work because they know many of the seedlings won't make it past the monitoring period and others will die not so long after that activity ends. Makes sense to me that the same sort of rules should apply to carbon offset projects in which the outcomes are uncertain.

by Rune at 8:04 AM on 19 Jul 2007

Re: Huh?

Rube: sorry for the clumsy phrasing - I was not attempting an answer to your question but rather repeating it. When indeed is delivery on the claimed carbon reduction to occur? This is one of the many grey areas of many offset schemes, unlike your attic insulation project which will undoubtedly have prompt results.

The true meaning of life is to plant trees, under whose shade you do not expect to sit.

by spaceshaper at 2:54 PM on 19 Jul 2007
[ Parent ]

Yeah! Getchur Greenwash here!

Hey, all:

Well, I have decided I am goin' into th' greenwash--ooops--offset market meself.

And I bet I can come up with some great self-generated data to support the value of the offsets and the benefits of MY offsets. I am going to buy some slick magazine and TV ads to appeal to the ignorant, pretentious, fashion-is-everything crowd. Who cares that in a couple of months they will be forgotten about, just like the exercise equipment under the bed--just as long as I get my money.

This is just an extension of the ignorant consumerism that got us into the situation we are in.

David
Sustainability For Life

Messages done with sustainable energy, with Wind and Sun!

by SustainableGreen at 3:16 PM on 19 Jul 2007

Rune! Rune! Rune!

I just noticed that I mistyped your name on my last post. I am mortified!

I will preview my posts
I will preview my posts
I will preview my posts
I will .....

The true meaning of life is to plant trees, under whose shade you do not expect to sit.

by spaceshaper at 4:09 PM on 19 Jul 2007

ADVERTISING POLICY

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