WHITE PAPER

How They Work:Demystifying Carbon OffsetsIn this white paper, we explore motivations for purchasing, details on measurement, and a breakdown of how to choose a high quality, credible offset.

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Although the term “carbon offset” may be a common part of the current environmen-tal vernacular, many of us are still unclear on what exactly a carbon offset is and how organizations and individuals can credibly use them to address the emissions associated with their activities. Particularly in North America, while many people have become familiar with renewable energy credits (RECs) and how they are employed to address the impact of their purchased electricity usage, the use of carbon offsets, or verified emission reductions (VERs), to address other emissions such as fuel consumption or corporate travel still remains unclear.

The general concept behind a carbon offset is that while an organization may find it cost prohibitive or operationally difficult to address emissions through direct or on-site reductions, they may still be able to achieve their environmental goals by financially supporting infrastructure projects that remove carbon dioxide from the air or keep it from being emitted. These projects incorporate a wide variety of technology types, from forestry to landfill gas capture to fuel switching.

Essentially, the organization chooses to “offset” the emissions generated at their facility with the reduction or destruction of emissions that occur elsewhere. While this has become a very commonly used method of addressing greenhouse gas (GHG) emis-sions in various rigorously monitored and managed “cap and trade” schemes (such as the one developed as part of the Kyoto Protocol), the voluntary participant is often still left wondering how they can ensure the same level of credibility in their own commit-ment to reducing the environmental impact of their GHG emissions.

While it’s impossible to cover all elements of the trading of environmental commodities in a few pages, we’ll touch on the three important aspects of motivation, measurement, and offset quality here, as well as offering some options for further reading.

MOTIVATION

Essentially, the organization chooses to “offset” the emissions gener-ated at their facility with the reduction or destruction of emissions that occur elsewhere.

White Paper: How They Work: Demystifying Carbon Offsets

DEMYSTIFYING CARBON OFFSETS

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In our work with thousands of different organizations from almost every industry sec-tor, we see many motivations behind an offset effort. In general, these commitments fall into two categories: voluntary and compliance.

Compliance program participants are required to measure and manage emissions under a variety of national or regional programs. Examples of these programs in North America are California’s AB32, the Northeast Regional Greenhouse Gas Initiative (RGGI), and the Western Climate Initiative (WCI), all of which are regional programs, generally designed to cover only the highest emitting companies.

While these programs currently account for the majority of the carbon offsets traded in North America, there is a rapidly growing market for voluntary offset purchases as well. Voluntary purchases are made by organizations ranging in size from Fortune 500’s to small businesses and, in general, are made as a part of a corporate environ-mental initiative with goals such as meeting carbon reduction targets, achieving points toward facility LEED certification, or making claims of carbon neutrality for a product or organization.

MEASUREMENT

GHG Inventories >> Emission units >> Scope 1, 2 and 3

It’s well known that you can’t manage what you don’t measure. Conducting a GHG inventory to determine an organization’s carbon footprint is a recognized first step to beginning to manage and reduce corporate carbon emissions. Under the internation-ally recognized GHG Protocol, companies and institutions first define the boundaries of their organization then set out to quantify their emissions. This is most easily accomplished using a carbon accounting software system like Mosaic™.

During the inven-tory process, emis-sions are separated into three different categories, or scopes, depending on the level of control the com-pany has over the emission sources. In brief, Scope 1 emissions are those that a company has direct control over, such as onsite fuel combustion (natural gas heat, for example) and fuel used in company-owned vehicles. Scope 2 emissions include purchased electricity and steam – in this case, the company can control how much electricity it uses but not necessarily how the utility generates that electricity. Scope 3 emissions include everything else that a company has the least amount of control over, things like corporate travel and supply chain emissions. You can learn more about the GHG Protocol and emissions scopes here.

White Paper: How They Work: Demystifying Carbon Offsets

It’s well known that you can’t manage what you don’t measure. Conduct-ing a GHG inventory to determine an organiza-tion’s carbon footprint is a recognized first step to beginning to manage and reduce corporate carbon emissions.

Image Source: WRI

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It is commonly accepted in North America and elsewhere that Scope 2 electricity emissions can be offset by purchasing RECs. However, most methodologies do not encourage the purchase of RECs to address Scope 1 or Scope 3 emissions since RECs are intended as an offset for grid power electricity. Instead, companies can look to carbon offsets to address these emission sources.

There are six major greenhouse gasses measured according to the GHG Protocol. Regardless of the specific gas emitted, the impact can be expressed in the common unit of metric tons of CO2 equivalent (MT CO2e). Similarly, all emissions avoided through a carbon offset project will be expressed in the same units, i.e. one VER is equal to one metric ton of carbon. This allows for a 1-to-1 calculation of emissions to reductions. For example, if your company has a carbon footprint of 1000 MT CO2e, a 100% offset of your emissions would require a purchase of 1000 VER’s.

QUALITY

Standards or Certification >> Verification >> Tracking

The claim of reduced emissions through the use of carbon offsets is only as valid as the quality of the offsets themselves. To this end, a variety of organizations have arisen to accomplish three critical tasks. The first is to create rigorous standards by which the offset project can be judged as credible. The second, to verify at the site and over time that the emissions reductions are occurring as claimed, and, finally, to track the trading and retirement of these offsets, ensuring that they are only counted by the project developer and the end user once.

This complicated verification process, while at times expensive and time consuming for the project developer, is integral to ensuring that the offsets traded within environmen-tal commodities markets are only of the highest quality. Examples of highly respected standards in today’s marketplace are the Verified Carbon Standard (VCS), the Gold Standard, and the Climate Action Reserve (CAR). Links to more information about the landscape of carbon offset standards can be found here.

While many organizations have become familiar with reducing emissions internally through increased efficiencies and the purchasing of green power/RECs as core com-ponents of their environmental initiatives, they are only now beginning to take a look at the full scope of their emissions and looking to carbon offsets as a means of addressing their environmental impacts beyond utility generated electricity. More and more are finding the process of carbon reduction through offsetting to be an affordable, credible, and powerful means of achieving their organization’s sustainability goals.

At Renewable Choice, we work with you to help you to move your organization’s sus-tainability initiative forward, whatever your goals may be. Talk with one of our business development consultants today to see how we can assist you in measuring, managing, and offsetting your carbon footprint.

Six GHGs are recognized by the U.S. Environmental Protection Agency. They are: carbon dioxide (CO2), methane (CH4), ni-trous oxide (N2O), sulfur hexafluoride (SF6), perfluorocar-bons (PFCs), and hydrofluorocarbons (HFCs).

A GHG inventory may include all or some of these gases, depending on an organiza-tion’s operations and the scope of the assessment.

White Paper: How They Work: Demystifying Carbon Offsets