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Carbon Offsetting: the Frequently Asked Questions

Steve Zwick

Climate change is finally getting the media attention it deserves, and so is carbon offsetting. But what is carbon offsetting? How does it work? Can you trust it? These are just some of the most frequently-asked questions we encounter on carbon offsetting, and here are some simple, concise answers.

This story has been adapted and condensed from a piece we originally ran in 2017.

8 October 2019 | So, Greta Thunberg got to you, and you’ve decided to reduce your carbon footprint by going vegan and riding your bike as much as possible. Good for you! But what about those emissions you can’t eliminate? Maybe you have to drive to work, or maybe you have to fly to meetings.

You can offset your emissions by purchasing carbon credits, which are generated by reducing emissions elsewhere – by, say, planting trees or saving endangered forest, or building giant wind farms in developing countries. All legitimate offsets conform to one carbon standard or another, and all follow the same basic rules of carbon accounting, which have evolved over decades of trial, error, and adjustment. Here are some of the most commonly-asked questions about carbon accounting.

It’s very much a work in progress, and I’ll make changes to it as people suggest them. So, if you’re an expert who sees errors, e-mail me at szwick@forest-trends.org. If you’re a novice who finds parts of this confusing, do the same. For now, here it is:

How do I Calculate my Carbon Footprint?

You can use scores of sites to calculate your greenhouse gas emissions, and all are self-explanatory. I recommend CarbonFootprint.com because it’s not trying to sell anything. As far as I know, all footprint calculators use the same formulas.

Where do I Buy Carbon Offsets?

I’ve found a few platforms that provide multiple ways to buy offsets, and am listing them at the end of this piece because I wanted to explain a few things first. Feel free to scroll to the Buyer’s Guide at the end. You can always scroll back up if something isn’t clear.

What are Greenhouse Gasses?

We all know the basics: greenhouse gasses float around in the air and cause the atmosphere to act like a “hothouse”, as Swedish scientist Svante Arrhenius called it when he identified the phenomenon back in the 1800s. (Yes, it’s been that long, and Spencer Weart’s 2003 book “The Discover of Global Warming” told the tale quite well 15 years ago.)

Greenhouse gasses work by reflecting some of the sun’s heat back out into space but trapping more of it down here with us, along with heat coming from the Earth’s core. We need greenhouse gasses to prevent Earth from turning into an ice ball, but too much greenhouse gas will cook us.

Some greenhouse gasses – like carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) – existed before we came along, but our activities are increasing them. Others – like the perfluorocarbons (PFCs), the hydrofluorocarbons (HFCs), and sulphur hexafluoride (SF6) – are our own contribution to the mess.

If There are so Many GHGs, why do we Talk of a “Carbon” Footprint?

Mostly because carbon dioxide is the greenhouse gas that we humans generate the most of, thanks to the fossil fuels we burn and the forests we chop. It’s also a benchmark for the other greenhouse gasses, but not a perfect one.

Remember your high-school biology? Living forests breathe in both carbon dioxide and nitrous oxide, and they breathe out oxygen, while keeping most of the carbon for themselves and injecting most of the nitrogen into the soil, where it acts as fertilizer. Carbon, therefore, concentrates in plants and animals, and it becomes the main ingredient of fossil fuels like coal and oil after those beings die and ferment.

We release carbon dioxide by burning fossil fuels, and we release methane and nitrous oxide by draining peat bogs, raising cows, and spreading nitrogen-based fertilizer, among other activities.

What do you Mean by “a Benchmark for the Other Greenhouse Gasses”?

Each of these greenhouse gasses behaves a little differently. Methane, for example, traps about 100-times more heat than carbon dioxide does, but it also disintegrates more quickly. Over a period of 100 years, methane is “only” 25-times as bad as carbon dioxide, but over 20 years, it’s 72-times as bad. On top of that, rising temperatures will force our natural systems to release more and more methane – so a little warming now could mean a lot more later.

Scientists managed to simplify the mess – albeit imperfectly – by coming up with something called “CO2e”, which stands for “Carbon Dioxide Equivalent” and acts as a standardized measurement of greenhouse gases. It works by first determining how many times worse than carbon dioxide a given greenhouse gas is over the next century, and using that as the multiplier.

Because methane is 25-times worse than carbon dioxide over 100 years, for example, its multiplier is 25; but many environmentalists argue it should be 72, because the next 20 years are so critical. For carbon accounting purposes, that means you have to buy 25 metric tons of carbon offsets, each representing one metric ton of CO2e, to generate enough emission-reductions to offset one ton of methane emissions. You can also triple that and buy 72 carbon offsets, and some companies are, in fact, doing so. As an individual, however, methane is hard to calculate, which is one reason we need companies to reduce their emissions – preferably by fixing their processes, but also by offsetting those emissions they can’t reduce themselves.

Nitrous oxide’s multiplier, by the way, is 298, and Sulphur hexafluoride’s is a staggering 22,800. Between them are a wide range, which you’ll find here.

Is “Carbon Price” the Same as “Social Cost of Carbon”?

No. The “social cost of carbon” is the theoretical cost to society of every tC2Oe emitted, and most people peg it around $100 per ton.

The “price” is what people pay for a one-ton emission reduction, and they can do so either voluntarily, or, if they are a regulated company, under a cap-and-trade program like California’s. Be aware that compliance programs are a bit more complex, because some prices are set as taxes, while other prices are determined through bidding for allowances, which are issued by the government, and still others are determined through buying and selling offsets. Most cap-and-trade programs are a hybrid of all three.

Why are Prices so Different?

Now we’re getting into the meat of this issue. At Ecosystem Marketplace, we track voluntary prices, and we’ve found them from lower than a penny per ton of C2Oe (often abbreviated as “tC2Oe”) for offsets from the now-defunct Chicago Climate Exchange to higher than $120 per ton for Japan’s “J-VER” credits.

Some of the cheapest offsets are no longer being produced because buyers rejected them. One type, for example, worked by reducing man-made industrial gasses, which is good, but did so by going into developing countries and simply adding catalyzers that burned away the gas – a practice that was mandatory in developed countries, and that arguably rewarded bad actors who simply stopped being horrible. (For details, see this EU press release).

Other project types, like those generated by building hydropower plants, are cheap because buyers don’t like the fact that hydropower plants often force poor people to move (and, it turns out, may be emitting more methane than previously believed because of the plants that rot in the reservoirs).

On the flip side, people in developed countries like Japan and the United States often prefer buying offsets generated closer to home, and they’re more expensive to generate than those in developing countries.

For the most part, the actual emission-reductions are uniform across standards, because they use the same basic science. They differ in the way they treat “co-benefits” – or how they impact indigenous people and biodiversity – as you can see by reading the 2012 article “Carbon Offset Prices Vary Widely By Standard And Project Type”.

How do Standards Work?

They work by creating frameworks within which carbon offsets can be developed and then overseeing the process through which the offsets are created, tracked, and sold.

The Ecosystem Marketplace State of Voluntary Carbon Markets reports track almost 20 standards, but they’ve each evolved similar modus operandi: first, someone (usually a project developer or environmental NGO) has to create a “methodology” for a certain type of offset, such as ones generated by saving peat forests. A methodology is a process for generating offsets that are real, measurable, verifiable, and additional. While most of those terms are self-explanatory, “additional” means that the payment actually caused the emission-reduction to take place, or that the project would not be economically viable without the carbon payments. A company that saves a ton of money by becoming more energy-efficient will, therefore, not be able to earn carbon offsets unless it can prove the offsets made the project possible, and even they would only earn offsets for a small percentage of their overall reductions. Once a company creates a methodology, it runs it through a gauntlet of scientists and carbon accountants who try to shoot holes in it. Only after the methodology survives this process is it recognized under a given standard, but there is some debate over the additionality of certain project types.

But it’s not over yet: once a methodology exists, a project developer has to design a project within the methodology’s guidelines, and this specific project design also goes through a rigorous process of peer review. If approved, the project is “validated”. Then, to sell offsets, it’s “verified” by outside auditors who make sure it’s doing what it’s supposed to do.

Any offsets that are verified are then deposited in a registry, which is like a clearinghouse tracks offsets so the same one doesn’t get sold twice. When you buy an offset, it’s “retired”, meaning it can never be sold again.

Almost 90 percent of all offsets are certified under one standard or another, according to our most recent “State of the Voluntary Carbon Markets” report.

One standard that’s not listed on the Rainforest Alliance site is the Clean Development Mechanism, which was launched by the United Nations to help companies meet their obligations under the Kyoto Protocol. Though created for companies under cap-and-trade, the offsets are available for anyone who buys them.

What are “Project Types”?

Project “type” refers to the technology that reduces emissions: are you paying to build wind-farms? Or are you paying to plant trees?

Where Can I Buy?

There are plenty of places to buy, and I certainly haven’t seen them all. Having said that, I wanted to start with two that I know and trust, as well as one that offers left over credits from the Kyoto Protocol’s Clean Development Mechanism. I also encourage people to send in recommendations, and we’ll review them and expand this list.CoolEffect

Cool Effect launched last year, and we’ll be profiling them soon. They focus on projects that reduce emissions by helping farmers recycle their methane (turning “poo into power“, as one project description puts it) or switch to clean-burning stoves. All projects are certified to the highest standards, and the group also adds their own filters. What’s more, they provide detailed project descriptions in clear language, as well as monthly updates on project developments, and 90 percent of all the money goes to the project developers. This is the most user-friendly and educational site I’ve seen so far.

StandforTreesLogo

When I offset my own emissions, I use a site called Stand for Trees, which has aggregated offsets from several projects I’ve written about over the years. I can’t say they’re better than others, but it just happens that several projects I’ve written about ended up on the site. Offsets go for $10 per ton, and the project developers get $7 of that.

CarbonNeutralNow

Another option is to buy offsets from a portal that the United Nations created to sell CDM offsets. It’s called “Go Climate Neutral Now”, and it categorizes projects by type, which are pretty self-explanatory. All projects are certified under the Kyoto Protocol’s Clean Development Mechanism, but one of them – specifically #5461 (the Fatima N20 Abatement Project) is an industrial gas project that did legitimately reduce emissions, but did so by just installing a catalyzer that breaks the gas into inert substances, an action that is mandatory in most parts of the world.

What’s Wrong with Cheap Offsets?

I’ll close on a personal opinion of mine, but want to first acknowledge that there is an argument for buying the cheapest offsets: if everybody on the planet decided to go carbon-neutral, the demand will go through the roof. The cheap ones will get bough up, driving money into the most efficient emission-reductions. Then the price will rise, driving money into more expensive technologies.

On the other hand, right now most project developers are hurting. They took a lot of risk to generate these emission-reductions, and I believe that should be rewarded. Plus, if enough of us buy more expensive offsets, we send a price signal to other project developers.

I’ve got friends who buy the cheap offsets, but they buy multiples of what they need to offset their emissions.

In the end, offsetting is just one tool among many, and we ultimately have to reduce our own emissions. Ecosystem Marketplace has found, however, that offsetting is a kind of “gateway strategy” for more sophisticated strategies, and the act of offsetting forces us all to become more aware of our emissions.

Steve Zwick is Managing Editor of Ecosystem Marketplace and produces the Bionic Planet podcast. Before joining Ecosystem Marketplace, he covered European business for Time Magazine and Fortune Magazine and produced the award-winning program Money Talks on Deutsche Welle Radio in Bonn, Germany.

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