What is Carbon Offsetting?
Carbon offsetting works on the principle that when it comes to reducing global emission levels, the end result worldwide is what ultimately matters. If emission levels of Greenhouse Gases (GHGs) are reduced at point A but increase at point B, the overall picture has deteriorated. Conversely, if emission levels at point A remain constant but are reduced at point B, then overall emission levels, taken in the narrow context of the simplified example, have been reduced.
Carbon offsetting is designed as a system whereby the global matrix of points of GHG emissions are taken as a whole. Designed as a flexibility mechanism of the Kyoto Protocol the compliance system is the principle market. Polluters obliged to keep their GHG emissions below a certain level are provided the opportunity to engage in carbon offsetting in the case that they are unable to reduce their emissions sufficiently at source. This means that they contribute financially to the reduction of global GHG emissions at another point of the global matrix. This is the basis of carbon offsetting.
The diagram below, featured in The Little Green Blog, focuses on individuals engaging in carbon offsetting, but the principle for large industrial polluters is exactly the same, on a much bigger scale.
Carbon Offsetting Projects
The thinking behind the flexibility mechanisms is one of practicality. If, for whatever reason, it is easier to reduce GHG emissions at point B than point A, be it financial, technical etc., then why not do so when the overall global impact will be the same. Carbon offsetting projects can take a wide range of forms. Examples are renewable energy projects that mean the equivalent amount of produced energy has not been generated by burning fossil fuels, to technological improvements such as filters installed in industrial processes that capture emissions at source. Forestry preservation, preventing emissions from chopped down trees, or reforestation, which takes Co2 out of the atmosphere through sequestration as the trees grows are other popular carbon offsetting techniques, though as yet not generally accepted by Kyoto-based compliance systems.
Carbon Offsetting Projects are often found in developing economies due to simple financial incentives. A manufacturing facility or power plant in a developing economy may not be legally required, or have the financial resources, to invest in carbon reduction technology and processes considered standard in the developed world. By compliance regime emitters in developed economies financing the introduction of such technology to such facilities, the overall reduction in global GHG emissions could be potentially much higher than them investing a similar sum in their own facilities. Reducing emissions by 50% may require far cheaper technology than that required to increase reductions by a further 15%. For sum $X a manufacturer in France could be able to either reduce their own emissions by a further 15%, or invest the same sum contributing more basic technology they could otherwise not afford to a polluter in a developing economy, reducing their emissions by far more. This ‘big picture’ approach is the basis of carbon offsetting as a practice.
Value of ‘Additionality’ in Carbon Offsetting
A crucial aspect of how carbon offsetting works is ‘additionality’. For a project to be considered as valid for carbon offsetting purposes it must be able to demonstrate that the reduction in global emissions that is being facilitated would not be financially viable, ie. would not have happened, if the project was not part of a carbon offsetting initiative. For example, in the large part, renewable energy projects within the EU are not valid as carbon offsetting projects. This is because they are financially supported by Feed-In Tariffs meaning electricity providers are obliged to buy the electricity produced at a fixed priced. This makes investing in such renewable energy projects financially attractive without receiving further investment as a carbon offsetting project. So, although it cannot be denied that these renewable energy projects make a positive contribution to overall emission levels by negating the need for an equivalent amount of energy to be produced by burning fossil fuels, they do not provide ‘additionality’; they would happen anyway.
Conversely, a renewable energy project in a country which does not have a feed-in tariff in place may be eligible as a carbon offsetting project. As the electricity produced by renewable energy installations is still generally speaking more expensive than the equivalent energy produced by burning fossil fuels, without financial incentives such as the feed-in tariffs in Europe, they are an unattractive investment for private capital, or public funding by poorer nations. By being able to generate income as a carbon offsetting project, they can become financially viable and attract the necessary funding. Such a project would be considered to qualify under ‘additionality’ criteria.
Carbon offsets are the fungible units by which carbon offsetting is quantified. A carbon offset is a tradable commodity and measured as symbolic of one ton of Co2 or the Co2 equivalent of other GHGs. If a carbon offsetting project is verified as contributing ‘additionality’ as per the previously outlined criteria, the regulatory body will calculate how many tons of Co2 equivalent the project will prevent from being released into the atmosphere, or sequestered in the case of forestry projects, over the coming year. The project will then be awarded an equivalent number of carbon offsets, one for each ton. These carbon offsets will then be sold, partly or wholly funding the existence of the project. The buyers of these carbon offsets retire the units, they are held on electronic registries, to offset their own emissions and neutralise their carbon footprint.