We’ve recently been asked by several organisations for advice about carbon offsetting. This brought up some interesting issues that we thought would be good to explore.

The idea of offsetting provides a fantastic prospect: we can carry on with our carbon intensive lifestyles and simply ‘offset’ the emissions by paying for someone to plant trees, which will gobble up the carbon and turn it into greenery faster than you can say “parts per million”.

The most obvious and widely known example of offsetting can be seen on the websites of the low-cost airlines where, for a few quid, you can apparently undo the carbon emission from your flight, all conveniently built into the booking process.

This approach is also being adopted on a much larger scale by organisations keen to show their green credentials, and salve their consciences, through this convenient mechanism. Some buy enough offsets to claim to be 'carbon neutral'.

What exactly are offsets?

The basic principle is simple: you (or your company) emit carbon dioxide, and you pay someone else to remove the same amount of carbon dioxide from the atmosphere. So, overall there's no increase in CO2 levels.

Projects to 'create' offsets can either avoid the production of CO2, and other greenhouse gases, or absorb or sequester CO2 by planting trees to absorb it or storing CO2 underground.

There are two types of offsetting scheme:

• Certified emissions reductions (CERs), that are part of a recognised and regulated emissions trading scheme such as the European Emission Trading Scheme or the Kyoto Protocol. CERs are used in these 'compliance' markets by large carbon emitters to meet legally binding caps on emissions.
  
• Voluntary emissions reductions (VERs), operate in either the 'legally binding voluntary' market or the 'non-legally binding voluntary market'. The levels of transparency, standards and independent verification of VERs is variable - especially, the non-legally binding voluntary market. It is this non-legally binding sector that is often referred to as the 'offset market'.
  

In the EU, companies in most sectors emitting large amounts of greenhouse gases are required to participate in the European Emission Trading Scheme, where they can trade CERs to meet reduction targets. CERs are also sold, alongside VERs to consumers and organisations.

And both have been strongly criticised - on the fundamental premise behind them and the way in which they operate.

What makes a 'good' offset?

Let's assume for a moment that the concept is sound, and take a look at how the offsets work in a bit more detail.

To be credible, any offset project must meet certain criteria:

• Additional: are reductions additional to any reductions that would have happened anyway?
  
• Verified: is there evidence that the claimed emissions have actually been made?
• Permanent: are the reductions lasting - will for example, the trees planted be looked after long enough to survive, or cut down to use the land for agriculture?
• Leakages: does the project have effects that increase emissions elsewhere? Tree planting might lead farmers to turn pasture into arable land, releasing CO2 from the soil.
• Double counting: is the offset being sold more than once? And if it's only sold once, is it also being counted towards national targets?
• Timescale: over what period do the reductions actually take place? If you offset a year's worth of emissions, it's not much good if the project takes a couple of decades to soak up or save the same amount of carbon.
  

The CER market has standards that attempt to address these issues, and standards are emerging in the voluntary market - such as the Gold Standard - though many offset retailers are not signed up to them. The UK Government is developing a voluntary code of best practice for CERs, a code for VERs may follow.

What's the problem?

These initiatives follow considerable criticism of the quality of the scrutiny and enforcement of VERs over the last couple of years - including devastating, but foreseeable, social problems, such as local people being cleared from traditional land to make way for offsetting projects. For a particularly critical analysis see the Carbon Neutral Myth from the Transnational Institute and Carbon Trade Watch.

A recent paper in the leading science journal Nature highlights some of the difficulties - in particular:

• it's almost impossible to decide if a project is truly 'additional';
• the costs of monitoring and policing standards and projects are high;
• it's difficult to establishing clear property rights which avoid double counting.

Of course, as policing and monitoring gets stronger, the costs of compliance and administration go up - so less of your money funds the projects. This has led some organisations, particularly NGOs, to develop 'sort of' offsetting where you donate to 'climate friendly projects'. They make a virtue of not having detailed technical monitoring, arguing your money goes to where it's needed, not on compliance. The credibility of such schemes will ultimately lie in the quality of the projects and the level of trust people have in such organisations.

We think it's pretty clear that even if you accept the concept of offsetting, actually buying offsets that you can have real confidence in, is not straightforward. The Stockholm Environment Institute has produced a comparison of ten top standards.

Is offsetting a good approach in principle?

Now let's assume that offsetting schemes work perfectly - are they a sensible way of addressing climate change?

At the international level the Kyoto Protocol sets limits (or 'caps') for greenhouse gas emissions for industrial countries. Kyoto's Clean Development Mechanism allows countries to meet targets not just by cutting their own emissions but also by buying Certified Emissions Reductions from other countries. The concept has been criticised on a number of grounds in addition to the practical problems with CERs we mentioned above - not least the morality of the rich world appearing to buy the right to pollute when it's already responsible for around 90% of CO2 emitted since the industrial revolution.

The difference between Kyoto emissions trading and voluntary offsets is that Kyoto 'cap and trade' system sets caps on total emissions. So:

• if the market is technically 'efficient',
• if the reductions are real,
  
• if the caps are low enough,
  
• if the caps aren't exceeded,
• and if there aren't unintended side effects,
  

this may be an effective strategy to reduce carbon emissions. We - and many others - reckon these are all big ifs, and cap and trade will only be effective if it's part of a concerted action plan to radically restructure the economy for a low carbon future - just buying permission to emit will solve nothing. The FT interestingly is lukewarm on cap and trade, arguing carbon taxes would be more efficient and effective.

Offsetting comes third

We might come back to cap and trade in a future article - but we'll stick with voluntary offsets just now. Here there are no caps on emissions, but take a look at the guidance from the government's Carbon Trust or any high quality offset provider, and they'll tell you that offsetting is third thing to do after, first, reducing your direct emissions (eg fuel use), and second, reducing your indirect emissions (eg business travel).

Undoubtedly some organisations buying offsets really have significantly reduced their direct and indirect emissions first - or at least are taking serious steps to do so. But our experience is all too often, offsets are the first and only step on a business-as-usual journey.

Get out of jail free!

I was speaking with a client the other day about reducing emissions from business travel. He told me he'd been encouraging a colleague to switch from air to rail - "It's ok, there's no need" his colleague said, "I always buy the offsets when I book my flight".

That's the heart of the problem with offsets - you feel you can keep on emitting with a clear conscience, and there is no motivation to actually change the way we do things. It seems like a get out of jail free card - but you're just pretending the bars have gone!

We're heading for a low carbon economy - and we can either try and shape that economy, preparing for it as we manage the transition, or it will be imposed, ready or not, by circumstances beyond our control.

Offsetting just blinds us to the need to plan for transition.

We've got some ideas about preparing and planning the transition, and we'll explore them in a future article.

In the meantime do leave us a comment to share your thoughts.

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