Turning Carbon Into Gold
News: The Lieberman-Warner emissions bill crashed and burned. Now get ready for industry’s phoenix: Carbon offsets.
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Noting that contributing to global warming would be "ironic, not to mention wrong," the producers of An Inconvenient Truth announced in June 2006 that they had given $496.80 to NativeEnergy, a well-regarded carbon-offset company. The firm, in turn, said the movie was providing "critical revenues" to several renewable-energy projects, including a Pennsylvania dairy farm that planned to capture and burn the methane emitted by its cow manure. Such efforts to cut greenhouse gas emissions, said one of the film's producers, "would likely not happen without these kinds of investments."
NativeEnergy says that by agreeing to buy the dairy's methane reductions for 20 years, it ensured the poop project's success. The farm's co-owner says that she and her husband would have tried to build the digester even without the offset money, since they planned to use it to produce electricity and trap odors. So did NativeEnergy really help to create a new carbon offset, or just piggyback on an existing project and charge customers such as An Inconvenient Truth to support the status quo?
Only in the world of documentary filmmaking would a $500 question set off a finger-pointing firestorm. But in the mini-controversy surrounding An Inconvenient Truth's carbon footprint lies a cautionary tale about how hard it is to tell good offsets from bad in an industry with rapidly rising stakes. The best of these swaps reduce greenhouse gas emissions without environmental or social costs; the worst have been compared to medieval indulgences—absolving environmental sins with little more than feel-good marketing. The sometimes fuzzy line between the two is becoming evident as the carbon-offset market is poised for a potentially lucrative boom, with myriad new players lining up for a piece of the green.
In 2007, ecoconscious consumers and corporations spent $330 million on offsets, paying to balance the greenhouse gas emissions of everything from suvs to oil refineries by eliminating an equal amount of emissions elsewhere. Now the offset sellers and their backers have their eyes on a bigger prize: The enormous offset market that would be created if the federal government were to require companies to reduce their carbon footprints.
The offset lobby has set its sights on Capitol Hill, where Congress has been considering competing carbon-reduction plans. The Lieberman-Warner Climate Security Act, which was debated in the Senate this week, would have made companies reduce their CO2 emissions a full 70 percent by 2050, but would allow them to use carbon offsets to achieve up to 30 percent of their reductions. Although the bill failed to pass this morning, it will be a template for the next Congress, where climate legislation is sure to be a top priority. Other climate bills would allow for even more offsets, but even under Lieberman-Warner, the federally regulated offset market would be more than 40 times larger than the current consumer market.
Supporters of the Lieberman-Warner plan point to the success of the offsets program created in 2003 under the Kyoto Protocol's Clean Development Mechanism, CDM, a carbon-trading system that they say has been more efficient and cheaper than forcing companies to cut emissions.
Yet prominent environmental groups such as the Sierra Club and Greenpeace are resisting the inclusion of offsets in the bills. "We feel that offsets are very suspect," says Shawnee Hoover, legislative director for Friends of the Earth. "The whole system is just rife with the potential for corruption."
Opponents cite the perverse incentives that have been created under Kyoto's CDM, which last year authorized hundreds of offset projects to be converted into $1.2-$1.8 billion worth of carbon credits. At the heart of their concerns is the question of whether these projects are "additional"—in other words, do they create new emissions reductions, or simply bankroll endeavors where carbon credits are incidental, yet profitable, byproducts? A 2006 United Nations investigation found that a third of CDM-approved offset projects in India would have happened even without Kyoto funding. In China, almost every new hydroelectric and natural-gas-fired power plant has applied for CDM money, casting doubt on whether they really require the offset revenue to be built. "It looks like the CDM is just turning into a production subsidy," says Stanford University climate policy expert Michael Wara, "and that's not a good way to spend our money."
In total, CDM-approved offsets have captured or destroyed the equivalent of 135 million tons of CO2 emissions worldwide, slightly more than the annual emissions of Pakistan. Yet an astounding 51 percent of those offsets have been generated by paying refrigerant manufacturers to incinerate HFC-23, an industrial byproduct and potent greenhouse gas, instead of spewing it into the atmosphere. The price of HFC-23 offsets can be worth more than twice the market price of the refrigerants themselves, which has had the unintended effect of encouraging refrigerant companies to produce (and then destroy) even more greenhouse gases in the name of eliminating them. The 43,000 tons of HFC-23 incinerated between 2003 and 2012 will generate $6 billion worth of carbon credits, but cost just $150 million to destroy, according to Wara. He describes the practice as "an excessive subsidy that represents a massive waste of resources."
Deutsche Bank, a European investment bank that has financed HFC-23 offsets, disagrees. Through the Geneva-based International Emissions Trading Association, it is lobbying for US climate legislation to include offsets from the developing world, where most HFC-23 is produced. (Currently, Lieberman-Warner effectively limits international offsets to those sold in Europe.) IETA, which also represents BP and American Electric Power, wants to convert its members' existing investments in Chinese dams and Indian wind farms into carbon credits on the American market, where they would trade for less than domestic or European offsets.
"The atmosphere really does not care whether a ton of emissions are reduced in Brazil or in the US," says David Hunter, IETA's lobbyist on Capitol Hill and a former adviser to Republican Senator Susan Collins of Maine, a leading cosponsor of Lieberman-Warner. "The key is to reduce as many tons as you can as quickly as you can."
In addition to pushing Congress to replicate the Clean Development Mechanism, the carbon lobby wants an even wider range of offsets to buy and sell. It supports a provision in Lieberman-Warner that would allow companies to receive retroactive credit for offsets purchased through voluntary markets such as the Chicago Climate Exchange. Like the CDM, the Climate Exchange has been criticized for approving questionable offsets. For instance, it paid some Midwestern farmers to reduce methane emissions by practicing no-till agriculture, even though they'd been doing so for more than a decade. The exchange's founder, Richard Sandor, has donated $34,000 to candidates including Senators John McCain and Barack Obama.
The Carbon Offsets Providers Coalition, the self-described "Better Business Bureau of carbon offsets," is lobbying for climate legislation to incorporate "enhanced oil recovery," a petroleum extraction process in which CO2 is injected into old oil wells. Critics say such a move would create a new subsidy for the oil industry. Lobbyists have also proposed exempting offset projects from being regulated under the National Environmental Policy Act, which requires developers to carry out environmental-impact studies.
Some offset backers also have shaky environmental credentials. Beveridge & Diamond, counsel for the Carbon Offsets Providers Coalition, boasts on its website of successfully defending an oil company accused of violating the Clean Air Act. Last year, Van Ness Feldman, the Coalition of Emission Reduction Providers' lobby shop, represented a group that seeks to gut the Endangered Species Act.
At the Carbon Forum America, a recent trade show in San Francisco focused on cashing in on the "new carbon-constrained economy," attorneys from the law firm Hunton & Williams passed out "carbon neutral" burlap handbags, along with pamphlets touting their experience "dealing with climate change on Capitol Hill." Not mentioned was the firm's $3 million in lobbying for 22 different oil and coal interests last year.
Most offset companies are not against some kind of oversight, such as allowing third-party auditors to vet their projects. But they want the system to be more streamlined than the CDM's, which is plagued by bottlenecks. The Offset Quality Initiative, a group focused on "high quality greenhouse gas offsets," supports a fast-track approval process for certain kinds of projects, such as those that capture methane from cow manure. That approach isn't foolproof, concedes Janet Peace, an economist with the Pew Center on Global Climate Change. "Some projects will be business as usual for whatever reason," she says.
Seeing offsets get a bad name doesn't sit well with Aimee Barnes, a one-time activist with the Natural Resources Defense Council who now works for the British offset firm EcoSecurities. "We wanted to be in a place where we could utilize capitalist sentiment to drive environmental change and innovation," she said at the San Francisco carbon confab, sitting at a booth decorated with images of lush forests. But walking the line between corporate clients and environmental critics is proving tough. "We are in this bizarre gray space in between," she mused. "Nobody really likes us."
Josh Harkinson is a reporter at Mother Jones.
I spent a lot of time gathering that data, it'd be nice to get sourced (Ecosystem Marketplace & New Carbon Finance).
If the dairy farmer was going to do it anyway then the offsets weren't really offsets. Al Gore got swindled. Additionality is the core concept defining a carbon offset, without it, an offset does not exist. It means a reduction/ capturing of emissions that would not have occurred in the "business as usual" operations of the company or organization.
There aren't any other practical policy options outside of cap-and-trade.
A carbon tax? The price is too transparent to the public and thus it is simply not politically feasible, esp. in an era of rising energy prices and peak oil production. A carbon tax would never make it to the President's desk. Not even worth discussing.
Command-and-Control? Too inefficient, virtually every economist agrees with this. Government oversight is simply too costly, esp. when trying to regulate something as ubiquitous as CO2. Oversight & compliance costs are out the wazoo, which is why federal cap-and-trade of NOx & SOx pollutants is viewed as a huge success.
Cap-and-trade is the ONLY form of govt. intervention that might help reduce CO2 emissions. I said 'might' b/c obviously as the author pointed out, there are plenty of kinks in carbon trading. But commodity markets do not develop to full maturity overnight. Give it time, and continue to criticize, but try not to be completely cynical like the author of this article, we have not other policy options.
Should the US simply not pass Climate Change policy?
If you have any better solutions, I'm all ears...
Government really only has four basic functions:
the provision of public goods, fix externalities (price inflation policy for negative externalities, and subsidies & incentives for positive externalities), market power (prevent monopolies i.e. anti-trust laws), and equity concerns.
Clearly internalizing the negative externality of producing & consuming carbon intense goods. There are only so many ways to approach this via public policy.
Clearly it is up to the govt. to internalize the negative externality of producing & consuming carbon intense goods. The only way to do this is by artificially inflating the price of emitting CO2 so that the Social Costs = Social Benefits (w/ regards to consuming carbon intense goods). There are only so many ways to approach this via public policy.
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would you like to elaborate?
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The $496 mentioned around An Inconvenient Truth simply offset the energy emissions created in producing/editing the film. It did not include the other tens of thousands of dollars for offsets related to promotion and distribution, let alone Mr. Gore’s promotional travel. Those offset purchases added to others for the Eagles-Ram’s game, and from several hundred homeowners in PA and elsewhere to collectively bring more than 9.5% of the construction costs for the waste digester. We’d like it to be more, but it was critical nonetheless in helping the farmer secure his other financing and move the project forward.
We have promised our clients not to share their purchases in detail – a promise that may frustrate reporters – but it is the exact same promise we made to Mother Jones itself when the magazine joined 53 other businesses and the 1000+ homeowners that helped bring $250,000 to the construction of the first Native American-owned, utility-scale wind turbine on the Rosebud Sioux reservation, our first project. Some of those offset purchases were small, some large, but together that community of progressive partners helped build a new renewable energy project that would not otherwise have happened. That has been our commitment and approach since, AND, it was because of that innovative model that NativeEnergy was invited into Pennsylvania by the State to see if we could help dairy farmers afford distributed energy generation from their waste streams. We and our customers have helped 6 family farms in PA so far and are looking for more there and elsewhere as well.
Exposing the feeding sharks that will smell blood in the carbon market is a noble goal, but let us who are truly interested in solving the climate crisis not throw out the good guys with the bathwater through innuendo and incomplete information. If we do, we may allow the sharks to eat the good guys too. That would be a real loss.
The article suggests that playing with carbon offsets, caps, trades, taxes, etc., is the surest and quickest way to deal with the greenhouse problems. Can you say Nuclear Energy?
And about that dairy farm in your article. Why didn't the farmer already build the digester? It's not like the technology is new.
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Caveat Emptor, there are still plenty of good offset projects, but of course the bad one's get all the hype, and rightly so, there are some messed up projects out there. google video The Carbon Connection, and google Climate Care's treadle pump projects in India, also Mt. Elgon in Uganda etc. etc. plenty of dirty projects out there. i broach them at: tiguhs.gnn.tv
Great idea, let's just tank the US economy and let China and India off the hook.
Oh, wait, that too has already happened. All I want is some sharks with freakin laser beams attached to their heads, is that too much to ask? I'm the boss, need the info.
The overwhelming 'greenhouse gas' is water vapor, and there isn't much we can do about that when 2/3 of the earth is covered with it.
I'm fed up with all the lies from the environmentalist whackos! Environmentalism is the new home for Communists.
China also pays low wages so they can produce cheap goods. Isnt that what free-market cons want? Isnt that why we have legalised poverty in America?
The surprising truth is that a carbon tax (of more appropriately, a fossil fuel tax) does not need to be very high to create incentives for efficency and a revenue stream to subsidize clean energy projects.
That just leaves methane and other GHG's to be regulated out of existence by mandatory collection systems at all of the major point sources.
Despite over a year of inquiries, neither the brewery or Fort Collins Utilities can demonstrate that REC purchases have done any anything at all to change the world. Most of the RECs are purchased from utility scale wind farms that were financed due to very generous Federal Tax incentives.
The real shame here is that Fort Collins used to be a world leader in community renewable energy. We built out a wind farm in nearby Wyoming. But in 2003, that model was abandoned in favor of bottom feeding in the Renewable Energy Credit marketplace. This change ws engineered by New Belgium and, as a result, the cost of their "wind power" dropped over 65%.
If you think that greenwashing is benign, think again.
The tragedy of cheap RECs is that they force out the really good products in the voluntary carbon markets. REC's are so absurdly hypervalued that they quickly suck all of the cash out of the market.