the truth about offsets

7/28/2019 The Truth About Offsets

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In recent years, a push has been made to transform environmental protection aroundthe world from regulatory regimes to cap-and-trade schemes. Under cap-and-trade, a polluter is allowed to emit a certain amount of pollution in a given period. Ifthe polluter wants to emit more pollution than allowed, it may, but it must first buypollution credits from another company.

Under cap-and-trade, polluters are offered the opportunityto pay to pollute, turning decades of environmental effortson their head and undermining improvements in environ-mental health. The linchpin of these cap-and-trade schemesis offsets, or credits from outside the regulated industrythat polluters can buy in order to keep on polluting.

For example, say a manufacturer is permitted to emit 5,000tons of carbon dioxide per year, but wants to emit 7,000tons. Under cap-and-trade, the manufacturer would lookto buy 2,000 tons of carbon dioxide emissions credits fromanother company, or would look to offset those 2,000tons by buying an offset credit from someone outside thecap-and-trade regime.

Of all the problems with cap-and-trade, offsets are themost egregious. In fact, when the U.S. poultry group Del-marva Poultry Industry, Inc. described water quality tradingas a way to help farmers earn money while providingpolluters with the opportunity to increase their pollution,they were referring to offsets.1 Offsets are unwieldy and donot lead to sufficient pollution reductions. They are subject

to abuse and do not represent a realistic approach to pollu-tion abatement. Any program relying on them is suspect.

2VHWVDQG&DSDQG7UDGH0DUNHWVOffsets serve as an additional alternative for meeting emis-sions reduction requirements. They too are tradable credits,and represent a theoretical emissions reduction, avoidanceor sequestration of emissions or other pollutants from anentity falling outside of the targeted industry in a cap-and-trade market.2 Through offsets, a company can pay totheoretically prevent emissions outside of the cap, insteadof reducing emissions at the source.3

For example, a power plant in California could pay for asection of forest to not be cut down in Oregon. This wouldcount toward the polluter's required reductions eventhough emissions are not reduced in California but are intheory prevented in Oregon. Because trees store carbonbut also release greenhouse gases into the atmosphere ifthey are cut down, not cutting down trees is considered anoffset.

Offsets

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But, the assumptions behind offsets do not hold up. TheU.S. Government Accountability Office (GAO) points outthat, In theory, offsets allow regulated entities to emitmore while maintaining the emissions levels set by a capand trade program or other program to limit emissions. 4The reason this is theoretical is that it is unclear whetheroffsets create the emissions reductions they promise.5Pollution continues at the source while it is assumed thatreductions are made at the offset location, which may ormay not be the case.6

The supposed benefits that offsets are intended to provideoften fail to materialize. Offsets are supposed to be morecost effective than trading emissions credits, are to pro-vide incentives for emissions sources outside of the cap toreduce their emissions by selling offsets, and are supposedto reduce the costs of complying with cap requirements.7But in reality, they allow polluters to substitute unverifiablereductions for real reductions..

Moreover, the concept that offsets are cost effective and re-duce compliance costs, along with many other benefits, is

misleading.8 Several requirements must be met in order toverify them, and the process of verification is actually quiteexpensive.9 While the price that an offset sells for might belower than that of an emissions credit, establishing an off-set's credibility is costly, and therefore not cost effective. 10

7KH0DQ\6KDSHVDQG6L]HVRI2VHWVOffsets can be categorized by what kind of resource isinvolved primarily air, water or other natural resources.Current debates about climate change focus on carbondioxide through projects like biological sequestration, re-

newable energy, energy efficiency and non-carbon dioxideoffsets. Other air pollutants, such as those that cause acidrain, have also been part of cap-and-trade programs.11Water quality trading usually focuses on excess nutrients nitrogen and phosphorous entering waterways fromagricultural and industrial runoff, wastewater treatmentutilities and power plants.

With regard to air pollution, biological sequestration in-

volves storing carbon dioxide from the air into the ground,or preserving existing stores to prevent releasing it backinto the atmosphere.12 Renewable energy releases feweror no emissions, and avoids emissions that would haveoccurred with fossil fuels.13 Energy efficiency projects usetechnology to reduce emissions and increase efficiency.14

And non-carbon dioxide offsets come from other emissionslike methane gas, nitrous oxide, hydrofluorocarbons, sulfurdioxide and sulfur hexafluoride.15

Offsets for water pollution often happen through nutrientwater trading arrangements. Under the U.S. EnvironmentalProtection Agency's water quality trading plan, designated

nonpoint sources of pollution under the U.S. Clean WaterAct, such as farms, are now free to sell credits for these pol-lutants to point sources such as power plants, wastewatertreatment plants and other end-of-the-pipe industries.16

In addition, further distinctions exist depending on anoffset's scope domestic, national, international, etc. Thedifferent levels refer to the region or jurisdiction. Specificprograms like the Clean Development Mechanism (CDM),set up through the Kyoto Protocol, generate internationaloffsets from developing countries to be bought by industri-alized countries.17


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6HYHUDO&ULWHULD0XVW%H0HWWR(QVXUH&UHGLELOLW\Offsets must meet several requirements to be credible.Verifiers must prove that an offset is additional, permanent,quantifiable, verifiable, enforceable and real.18 These are

defined as: (KKP[PVUHS: The offset and the emissions reductions

they generate must be in addition to business-as-usual they cannot come from programs already requiredby law or that are pre-existing;

7LYTHULU[: Emissions removed, avoided or sequesteredfrom going into the atmosphere must not be undonelater;

8\HU[PHISL: The emissions reductions produced byan offset must be measured, and it must be possible toreproduce the findings;

=LYPHISL: The emissions reductions from an offsetmust be monitored and documented. Systems to do thismust be in place;

,UMVYJLHISL: There must be an oversight body thatenforces the requirements of offsets to ensure that weakor fake offsets do not make it into the market; and

9LHS: There must be evidence that the offset is both ap-propriate and accurate.19

7KH:HDNHVW/LQNMany problems plague offsets. But the most egregious have

to do with the fact that a majority of offsets cannot be veri-fied or credible they are a theory that cannot hold upin reality. Offsets are a loophole and liability that does notlead to emissions reductions, and most of all they are notcost-effective alternatives to actual reductions in pollution.

Verifying offsets is not truly attainable because meeting allof the requirements is near impossible. This creates oppor-tunities for fraud, corruption and minimal emissions reduc-tions if not increased emissions because of illegiti-mate offsets that cannot meet the requirements.20 Offsetsdo not reduce emissions at the source and may or may notcreate reductions elsewhere, making them a serious threat.

One of the most important requirements for offset verifi-cation is additionality, but this is very difficult to prove. 21It involves calculating what emissions would have beenwithout an offset project and showing that the reductionswere not already occurring or would not have happenedanyway.22 This requires extensive monitoring and the useof a baseline to compare the status quo to an offset projectscenario. Because of the difficulty in establishing addition-ality, non-additional offsets already have been issued underexisting markets, meaning that real reductions might nothappen.23

Since additionality depends on a solid baseline, estab-lishing this baseline is critical for measuring emissions.24However, there is inherent uncertainty associated withestimating emissions reductions relative to projectedbusiness-as-usual baselines.25 This is because determininga baseline is also a complicated process, and without one,calculating emissions reductions is almost unattainable.26

Ensuring permanence is a crucial requirement as well, butis equally difficult to achieve. Once an offset has beencreated, this must not be reversed or undone. Biologicalsequestration projects like forest offsets are particularlyvulnerable to this, since trees can easily be cut down, dam-

aged by fire or destroyed through other natural disasters.27

Guaranteeing permanence also requires retiring the offsetcredits after they are sold to avoid double counting.28

-HRSDUGL]LQJ5HDO(PLVVLRQV5HGXFWLRQVFor emissions reductions to truly occur, we must reduceand stop polluting. But offsets allow polluters to pay to pol-lute. If real and sustained emissions reductions are to everoccur, offsets cannot be part of the process.

Forward crediting and forward selling is particularly com-mon with offsets that take a long time to create treessequester carbon over many years. Forward crediting is thepractice of allocating an offset before it can have producedthe expected emissions reduction.29 The emissions reduc-tion might not even happen in the future, but the credit iscreated and allotted in the present it's like selling anI-owe-you.

The process of then selling these forward credited offsets issimilar to trading futures on the stock market.30 The creditsrepresent future reductions, but are sold now, risking thepossibility that the emissions reductions may or may not

PHOTO COURTESY OF U.S. FISH AND WILDLIFE SERVICE


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materialize, but money is exchanged for these fictionalcredits anyway.31 It's a big game of trading smoke for mir-rors, and has implications for achieving any level of mean-ingful reductions.

&RVW3URKLELWLYHQRW&RVW(HFWLYHOffsets are not the cost-effective and efficient solution thatthey appear to be, contrary to supporter's claims. The costof legitimate verification alone can mean that some offsetprojects are not even possible complete assurance is tooexpensive.32

The cost of offsets continues to increase because completeassurance that all requirements are met calls for morerigor when evaluating the offset.33 The more accuracydesired, the more it costs. Measuring offsets is also expen-sive because it calls for constant monitoring and sampling.Thus, to completely verify an offset and ensure that itmeets all requirements would be prohibitively costly.34

Offsets are not cost effective and do not guarantee emis-sions reductions.

Overall, offsets are just one example of many in how themarket has not offered a cheaper solution to address theeffects of climate change and emissions reductions. Theyare not more cost effective as a whole, and they exist onlyto benefit those producing pollution, but do not benefit theultimate goal of decreasing it. Offsets do not lead to real,additional or permanent reductions.

6LGH(HFWVDQG6KRUWFRPLQJVOffsets have many side effects and shortcomings, namelythat they breed corruption; shift pollution elsewhere ratherthan reduce it at the source; and do nothing to mitigatethe impacts of pollution on communities that are closest toemissions or discharge sources.

One opportunity for corruption happens if an offset is notretired. This leaves the door open for counting an offsettwice once as an offset and again as a direct emissionsreduction.35 Double counting can also happen when aproject owner sells multiple offsets for one project.36 Forexample, if a U.S. company uses international offsets fromIndonesia to count toward its emissions reductions, butIndonesia also counts those avoided emissions as part ofthe country's national emissions, then the offset is countedtwice and the amount of true reductions is inaccurate.

The threat of leakage is another side effect of offsets, and it

is hard to prevent. Leakage happens when emissions con-trols cause pollution to shift elsewhere, leading to reducedemissions in the location under regulation and increasedemissions in unregulated areas.37 The pollution thereforeleaks from one area to another.

For instance, if a country agrees to protect its forests, a log-ging company could move to unprotected land in anothercountry and carry out logging there. If this happens, the to-tal level of prevented emissions would be unchanged, be-cause the leakage elsewhere cancels out the reductions in


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the regulated area.38 This can lead to health problems andconflict in local communities, because it can cause pollu-tion and destruction where there previously was none.

Offsets do not reduce emissions at the source, which causesenvironmental and health problems for the communitiessurrounding an emissions source.39 Taking a look at nutrientwater trading, it uses nonpoint-to-point source trading on thepremise that it is cheaper to reduce discharges from sourceslike farms than it is to force technological improvements inthe point sources sector.40 Rather than requiring direct reduc-tion of point source pollution, a company can instead buyoffsets from non-point polluters for prevented discharges.Meanwhile, communities close to a point source of pollutioncontinue to face threats to their health and their environment.

In addition, problems of inequity are perpetuated by inter-national offsets. The majority of global emissions come fromNorthern developed countries, with fewer coming fromglobal South developing countries.41 International offsets al-low northern companies to continue their emissions while itis assumed reductions occur in southern developing coun-tries.42 However, offset projects in developing countries, likethe CDM, have led to land grabs and conflict, all for thebenefit of the polluters that buy the offsets.43

5HFRPPHQGDWLRQVDQG&RQFOXVLRQRather than leaving emissions reductions to the volatilityof the market, which places profits over people and jeop-ardizes the integrity of shared common resources, emis-sions reductions must be regulated and enforced. Pollution

should be neither allowed nor traded. The point of emis-sions reductions is not to make profits, but to reduce emis-sions. Offsets are only a further loophole and avoidance ofachieving real, additional and permanent reductions.

Cap-and-trade markets are not the solutions they pretend tobe. They lead to the widespread privatization and financial-ization of nature, and there are numerous opportunities forcorruption that further weaken their legitimacy. These mar-kets, along with the use of offsets, pose serious problems forcommon resource management, and must not be allowed.

(QGQRWHV1 Delmarva Poulry Indusry, Inc., Timely Times, vol. 27, iss. 2. 2010 a 13.2 Ramseur, Jonahan L. Congressional Research Service. The Role o Ofses in a

Greenhouse Gas Emissions Cap-and-Trade Program: Poenial Benei s and Concerns.

(RL34436). May 18, 2009 a 1.

3 Gilberson, Tamra and Oscar Reyes. Dag Hammarskjld Foundaion. Carbon Trading

How i works and why i ails. Critical Currents, no. 7. November 2009 a 11.

4 U.S. Governmen Accounabiliy Ofice (GAO). Climae Change Issues: Opions or

Addressing Challenges o Carbon Ofse Qaliy. (GAO-11-345). February 2011 a 8.

5 Ibid. a 7.

6 Gilberson and Reyes. 2009 a 11.

7 Ramseur. 2009 a 7.

8 GAO. Climae Change: Observaions on he Poenial Role o Carbon Ofses in

Climae Change Legislaion. (GAO-09-456T). March 2009 a Execuive Summary.

9 Congressional Budge Ofice. The Use o Ofses o Reduce Greenhouse Gases.

Augus 3, 2009 a 6.

10 Ibid. a 6.

11 Alhough oen oued as a success, he U.S. Acid Rain Program achieved reducions

ha were less han hal hose o radiional regulaory programs in Japan and Germa-

ny. In addiion, wha reducions were achieved are also atribuable o he discovery

o addiional low-sulur coal ha was used in Midwesern power plans. See: Food &

Waer Wach, Pollution Trading: Cashing Out Our Clean Air and Water. 2012.

12 Ramseur. 2009 a 3 o 6.

13 Ramseur. 2009 a 3 o 6.

14 Ramseur. 2009 a 3 o 6.

15 Ramseur. 2009 a 3 o 6.

16 EPA. Waer Qaliy Trading Policy. January 13, 2003 a 1 o 2.

17 Unied Naions Framework Convenion on Climae Change. Wha is he CDM.

Available a htp://cdm.unccc.in/abou/index.hml. Accessed April 4, 2013.

18 Air Resources Board (ARB), Caliornia Environmenal Proecion Agency. Proposed

Regulaion o Implemen he Caliornia Cap and Trade Program. Par 1, Vol. 1. Oco-

ber 28, 2010 a III-4.

19 Congressional Budge Ofice. 2009 a 4; Schmid, Charles W. Carbon Ofses: Growing

Pains in a Growing Marke. Environmental Health Perspectives, vol. 117 iss. 2. Febru

ary 2009 a A64; Taylor, Mac. Sae o Caliornia Legislaive Analys's Ofice. Evalua-

ing he Policy Trade-Ofs in ARB's Cap and Trade Program. February 9, 2012 a 19

o 20; Caliornia code 95802, secion a, 3. 2011. In Subchaper 10 Climae Change,

Aricle 5, Secions 95800 o 96023, Tile 17, Caliornia Code o Regulaions.

20 GAO. 2011 a 1.

21 Ibid. a 1.

22 Ibid. a 1 and 7.

23 Ibid. a 8.

24 GAO. 2009 a 17.

25 Ibid. a 17.

26 GAO. 2011 a 9.

27 Taylor. 2012 a 19 o 20.

28 Pew Cener on Global Climae Change. Greenhouse Gas Ofses in a Domesic Cap-

and-Trade Program. Fall 2008 a 4.

29 Ibid. a 10.

30 Ibid. a 10.

31 Ibid. a 10.

32 GAO. 2011 a 16.

33 GAO. 2011 a 12.

34 GAO. 2011 a 13; Congressional Budge Ofice. 2009 a 6.

35 Ramseur. 2009 a 5.

36 Schmid. 2009 a A65.

37 Gore, Ross W. and Jonahan L. Ramseur. Congressional Research Service. Fores

Carbon Markes: Poenial and Drawbacks. (RL34560). July 3, 2008 a 17.

38 Ibid. a 17.

39 Bernard, Susan M. e al. The Poenial Impacs o Climae Variabiliy and Change

on Air Polluion-Relaed Healh Efecs in he Unied Saes. Environmental Health

Perspectives, vol. 109, iss. 2. May 2001 a 199.

40 EPA. 2003 a 1 o 2.

41 Ramseur. 2009 a 17.

42 Gilberson and Reyes. 2009 a 11.

43 Ibid. a 12 and 71.

Copyright May 2013 by Food & Water Watch. All rights reserved. This issue brief can be viewed or downloaded at www.foodandwaterwatch.org.

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the truth about offsets

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