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A Drive to Offset Emissions

David Biello

No matter what their government does, individual U.S. citizens seem to be waking up to the fact that climate change is real and that they should do something about it. Fortunately for them, a whole new industry has sprung up to offer concerned consumers a way to lessen their global warming impact. The Ecosystem Marketplace asks: can this really make a difference?

No matter what their government does, individual U.S. citizens seem to be waking up to the fact that climate change is real and that they should do something about it. Fortunately for them, a whole new industry has sprung up to offer concerned consumers a way to lessen their global warming impact. The Ecosystem Marketplace asks: can this really make a difference? In addition to being the highest altitude ski resort in the U.S., Arapahoe Basin in Colorado is also among the first to offers its customers a chance to fight one of the biggest threats to the ski industry as a whole: global warming. One Saturday this February, the ski basin held a climate awareness day. In addition to educating skiers about the threats to snowfall and snowpack from rising concentrations of greenhouse gases in the atmosphere, management offered them the chance to sign up to offset their greenhouse gas emissions. In essence, they offered them the chance to take as many tons of greenhouse gas out of the air as they had put in by driving to the resort nearly 70 miles west of Denver. "Most consumers don't know what offsets are so, of course, our partners are tasked with educating consumers about global warming and efforts to offset," explains Sid Embree, president of Massachusetts-based AtmosClear Climate Club, the offset provider allied with Arapahoe Basin. "Skiers are a very obvious group. They are concerned about weather and climate, but also most skiers tend to have extra cash." Thus far, the Club only has about 500 members, according to Embree, but as public awareness grows, so will business. In exchange for this membership, the Arapahoe skiers got assorted "swag"—bumper stickers, magnets, a membership card, and other fringe benefits—and, more importantly, the serial number to one offset, in this case a ton of carbon dioxide equivalent (CO2e) for methane emissions flared, or burned off, before reaching the atmosphere at a small landfill roughly 30 miles west of Chicago called Des Plaines. "In a way, we're structured more like a rewards program," Embree says. "We use partnerships with retailers of different kinds to present to individuals and families a chance to reduce their overall contribution of greenhouse gases." AtmosClear is unique in being the only greenhouse gas (GHG) offset provider structured like a rewards program but it is certainly not unique in being a GHG offset provider. In fact, the number of such providers has gone from one to at least five (see Speaking for the Trees: Voluntary Markets Help Expand the Reach of Climate Efforts) in the US alone in just the past few years. And, in the absence of government regulation, such offset providers present one of the few ways for concerned U.S. consumers to make a global warming difference.

The Offset Field

The idea of providing offsets is not new. It ranks among the first ideas put forward to combat global warming itself. As early as 1992, green-minded entrepreneurs floated the concept of selling products such as computer printers that had been stripped of the GHG emissions associated with their manufacture through offsets. And though the original company did not get far, the idea did not die. The U.S. government, for one, lobbied hard for such offsets—whether in the form of planting trees to suck GHGs out of the atmosphere, building renewable generation such as wind or solar power, or undertaking energy efficiency projects to reduce or avoid emissions from conventional, fossil fuel-fired power generation—to be included in international efforts to combat global warming. As a result, the Kyoto Protocol has two, so-called "mechanisms for flexibility" that allow rich countries to purchase offsets from poorer countries in exchange for credits: the Clean Development Mechanism, which links developed and developing countries, and the Joint Implementation program, which allows developed countries to take credit for changing energy infrastructure in Eastern Europe and Russia. With the ratification of the Kyoto Protocol and the launch of the European Union's Emissions Trading Scheme in the past few years, nations and corporations have begun mandatory efforts to reduce their GHG emissions. Even in the U.S., various voluntary schemes, such as the Chicago Climate Exchange (CCX) or the Environmental Protection Agency's Climate Leaders program, allow corporations to begin to reduce their pollution profile voluntarily. But, thus far, individual consumers have had little opportunity to contribute to the fight. And in countries like the U.S. or Australia—countries that have refused to ratify the Kyoto Protocol—a consumer cannot even vicariously participate in international efforts, voluntarily or not. Into this gap have stepped a slew of non-profit and for-profit organizations, ranging from the advocacy community-linked Carbonfund.org to marketing consortium TerraPass. Each aims to give the individual consumer the opportunity to offset the GHG pollution associated with their daily lives or their daily commutes.

For the Greater Good

Founded in 2004, Carbonfund.org offset roughly 37,000 metric tons of carbon dioxide (CO2) in 2005 thanks to a new partnership with Working Assets, a company that provides phone calls and credit cards and donates a portion of its proceeds to select charities and advocacy organizations. But Carbonfund.org is not linked to that charitable giving. Instead, Carbonfund.org works as the GHG provider of choice for Working Assets, offseting the emissions associated with the company's operations. "They wanted to offset their corporate footprint but then, even more significantly, they wanted to reach out to their customer base and say we feel this is important," says Craig Coulter, director of partnership development at Carbonfund.org. "We're doing this and you should do this as well." The corporation with a mailing list of more than 1 million customers made their lists available to the fledgling offset provider. Carbonfund.org then reached out to these environmentally-minded consumers and offered them the chance to purchase offsets for their car use—roughly five metric tons—or for every aspect of their daily life—around 18 metric tons according to the company's calculations. "That accounts for energy use within the house, car and air travel but also the clothes you buy, the food you buy, the consumer products you buy," explains Eric Carlson, Carbonfund.org's president. "It takes total U.S. emissions and divides by the population." At a price of $5.50 per ton, that means the truly green-minded can offset their emissions for an entire year for a one-time cost of $99. That $99 then funds projects ranging from the Highmore Wind Farm in South Dakota to replanting red oaks damaged by an insect pest in the Ozark National Forest in Arkansas. "There is an opportunity for people to realize that they can do something on an individual basis and not have the expectation that being environmentally friendly is expensive," Coulter adds. Coulter further believes that if people are willing to voluntarily give up money to fund such offsets, an organization should at least be able to give them a tax deduction. And now the non-profit plans to take its offset message to the environmentalist masses, launching a climate challenge on February 16—the one year anniversary of the ratification of the Kyoto Protocol—with Working Assets and the National Wildlife Federation. Their aim is to convince people and small businesses to offset all of their GHG pollution. Targeting the largest non-governmental organizations working on the global warming issue, Carlson and Coulter hope to convince people to put their bucks behind their beliefs. And, in the end, it may have some political benefits as well: "If it works, it gives NGOs the chance to walk in to Congress and say 'You should be doing something about global warming because it's a big problem' but also 'And this percentage of people in your district are already offsetting their emissions,'" Coulter explains. "That's a more substantial argument for a politician." Joining Carbonfund.org in its climate change push is DriveNeutral, a company launched this past October that aims to convince folks to offset the GHG emissions from their car use for about the price of a tank of gas. A project of several students at the Presidio School of Management in San Francisco, DriveNeutral has managed to sign up 600 members and offset 2,600 metric tons of carbon dioxide in just the past six months, according to CEO and student Jason Smith. The students offset those car emissions by purchasing carbon credits from the Chicago Climate Exchange (CCX)—a joint effort of several companies, municipalities and other organizations who voluntarily commit to a cap on their emissions and then are eligible to trade credits to meet that goal, in essence creating a voluntary carbon market trading on a regulated exchange. Once purchased, the credits are retired and, ostensibly, serve to force the participating companies to reduce emissions even more. "We'd like to be part of the movement that drives the price of credits up to the point where investors and traders look at [the CCX] as a viable market," says Smith, DriveNeutral's CEO, who plans to graduate in May and devote himself full-time to the carbon offset world. "Once that happens we may be priced out of the market." Indeed, some voluntary carbon retailers are planning for obsolescence: "This business will never be a big business," says AtmosClear's Embree. "And, in fact, if we do it right, it should become obsolete."

Profiting from Climate Change

Until that time, however, Embree and AtmosClear see the opportunity to make a profit in the world of voluntary carbon offsets. They believe there is an entire class of consumers willing—and able—to pay for environmental benefit. "Skiers care about winters with lots of snow," Embree says. "Golfers need green grass. It depends on peoples' concerns and interests." So AtmosClear continues partnership talks with a wide range of companies. "We're meeting with companies in everything from 'green' groceries to gasoline retailers to car manufacturers to outdoor sports," Embree says. At a cost of $45 for the most common level—enough to offset six tons of GHG emissions—membership is growing: "We're anticipating that this year we should probably sell, depending on a number of initiatives, as much as 25,000 tons [of offsets]," she adds. Competitor TerraPass, on the other hand, has already offset that much since launching in November of 2004. Another student project, this one from the University of Pennsylvania's Wharton School of Business, TerraPass was created to convince vehicle owners to invest in offsetting their emissions. "I view this as 100% a marketing problem," says Tom Arnold, the company's chief environmental officer and co-founder. "How do I convince Joe Consumer that he needs to participate in the carbon market?" To that end, the company has done significant research on its 3,300 current customers and found that they are typically male, wealthy and well-educated. "He's kind of a nerd, but a cool nerd," Arnold says. "He has a lot of money, advanced degrees, and strong opinions about the world and the future and what companies should do. He's not afraid to put his money where his mouth is." This new consumer is in essence an environmentally educated one, willing to pay a little bit extra for products that reflect his lifestyle. In this case, $8 to $10 per metric ton of carbon dioxide. "People are serious about this now," Arnold says. "You could see more money pumped into carbon offsets in the next 12 months than in the previous 12 years."

Where There is Demand…

That potential has even attracted some of the generators of offsets themselves to enter the retail market. For example, Certified Clean Cars—originally launched as an attempt to market renewable energy credits (RECs) derived from a solar power station in California owned by a Dutch power company—is now selling carbon offsets directly to consumers. "The economics of these projects rely, in part, on the sale of RECs," explains Joe Kastner, manager of Certified Clean Car (CCC). "CCC is an outlet for RECs—along with another one of our sites, PVUSAsolar.com—generated by existing and future projects." While the company has only managed to sell slightly more than 220 metric tons of carbon dioxide offsets at roughly $14 per ton in just under a year of existence, it has already had to diversify its supply from just its own RECs, to include RECs from other project and CCX credits as well.

The Point of It All

Whether for-profit or not, each of these companies hopes to contribute to reducing greenhouse gas emissions. But with global emissions at more than 25 billion metric tons of CO2 every yea—and the U.S. contributing more than 7 billion of those tons, according to its own Energy Information Administration—these companies reductions appear to be little more than a drop in a very vast ocean; at best a 4 million metric ton drop. "The voluntary credit market could grow by an order of magnitude or two orders of magnitude and it's still not going to impact the problem," argues Mark Trexler, president of consultancy Trexler Climate & Energy Services. So, he asks, "What is the value of this market?" Answering his own question, Trexler believes the primary value lies in educating the consumer. And many of the offset providers agree, at least in part. "The educational component that we do is awareness that this is possible," Carbonfund.org's Coulter says. "As the consciousness rises, and as they do this individually, it's going to have an impact." "Part of what we think we can do is help educate people on climate change while building a business at the same time," adds TerraPass's Arnold. "We struggle every day with how do we get this message out to the right people." "Here we're playing on this visceral attitude people have about their cars, they are this thing that pollutes," he continues. "We can use those feelings people have about their cars to solicit a voluntary action that has a really big impact." But it is also clear that at least the first people responding to this challenge are those who are already aware and educated about global warming. "The unifying factor in our customers, says DriveNeutral's Smith, "is that they are not unaware that their driving contributes to climate change." But, if such efforts are merely preaching to the converted, can they still become the policy lever or fundamental contribution to fighting global warming that their founders hope for? After all, it's not as if offset customers thus far tend to be the ones contributing most to the problem. "We sell horribly in the SUV market," Arnold admits. Part of that, he says, is the nature of SUV drivers, and part of it is that "it's expensive." Even at the lowest prices on offer—a little more than $5 per metric ton—the price of GHG offsets may simply be too high for the vast majority of consumers. Only time—and marketing dollars—will tell. "Unless you can make such sustainability directly relevant to the purchaser and make it a 'me' issue, you're not going to sell it," argues Trexler.

Integrity, Integrity, Integrity

Still, consumers have proven willing to part with extra money for lifestyle products like organic foods. And yet those products include the 'me' factor—better health thanks to less pesticides—as well as a sense that the product is good for the environment. Offsets may still, in these early stages, enjoy a similar glow, but it could turn into a backlash if issues surrounding integrity are not addressed. For this reason, most of the offset retailers provide some form of verification on the projects they are using to lessen emissions, whether that be Green-e certification for renewable energy credits or National Association of Securities Dealers oversight for the CCX. But the deeper question of offsets is not necessarily addressed: are they truly avoiding emissions? For example, some renewable energy credits are produced under state programs that reward renewable generation, such as wind or solar power plants, in that state. And, while it is clear that renewable generation is preferable to fossil fuel-fired power plants, it is not as clear that renewable generation is, in these cases, avoiding greenhouse gas emissions by displacing such power plants and, if so, how many tons of emissions are actually avoided. In many cases, the renewable generation is simply adding to the overall power generation available in a given electric grid. And the CCX—where many of the organizations source their reductions—allows companies to claim reductions for a wide range of activities, from any energy efficiency improvements in their own operations to their own offset projects in the US and abroad (e.g. sustainable forestry projects in Brazil or even conservation tilling of farmland in the Midwest). In practice, this means that the amount of offsets available far outstrips the needs of the companies that have voluntarily taken on targets. Indeed, the price of carbon credits on the CCX is less than $2, while the price of a similar ton on the mandatory EU Emissions Trading Scheme is above $30. Solutions to these fundamental issues range from serial numbers linked to specific, direct emission reductions like those provided by AtmosClear, to a more detailed examination of projects currently in the offing from Carbonfund.org, to an independent audit of purchasing behavior at TerraPass. "If you don't have this nailed, you cannot go out there and sell," Arnold says.

Room for Growth

Regardless of concerns, the voluntary offset market continues to grow by leaps and bounds, thanks in part to growing awareness of the climate change issue. After all, more than 70 percent of Americans believe that they will see the effects of global warming in their lifetime, according to recent polling by the Oak Ridge Center for Advanced Studies. TerraPass alone doubled sales of its offsets in just the past six months. And there is also plenty of room for innovation—consider that most providers source at least a portion of their product from CCX—and tailored products. For example, the most concerned consumers want to know exactly where their dollars are going. So Carbonfund.org for one has launched a program that allows customers to divvy up their contribution between funding renewable energy, energy efficiency, or planting trees. And there may be room in the future for more geographically targeted products. "A school engineer from Wisconsin contacted me a couple of months ago. He was doing some great energy efficiency projects for a school district. He said 'I can document the tons and I'd really like to market them,'" Coulter recalls. "Imagine it. Customers could support their school district with emission reductions. The problem now is the [small] size of the project and the cost it would take to go through the process." In the final analysis, organizations such as these offer individuals the opportunity to take a small step in combating a global problem. "The Earth isn't reacting to fuel efficiency standards, it's reacting to carbon dioxide [in the atmosphere]," says Carbonfund.org's Carlson. "What we've done is empowered anybody. Regardless of what the administration does, anybody can reduce their emissions to zero." And that appears to be a service the U.S. consumers are increasingly willing to pay for. David Biello is a regular contributor to the Ecosystem Marketplace. He can be reached at d_biello@yahoo.com. First published: February 21, 2006

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