Making the Carbon Offset Market Work

There are two ways the U.S. government could bring consistency and credibility to the voluntary carbon offset market: endorse an existing program and provide guidance, oversight and/or enforcement.

That was the basis of my testimony (PDF, 259 Kb) to the U.S. House of Representatives Select Committee on Energy Independence and Global Warming last July. Then last month, the Federal Trade Commission held a workshop to explore how to provide guidance and oversight.

The booming increase in sales in the voluntary offset market - growing globally from 6 million CO2-equivalent tons in 2004 to between 10 and 13 million tons in 2006 (and probably much more in 2007) - has led to a growing interest by federal policymakers in establishing regulations and standards for the purchase of offsets. While the FTC is looking at the voluntary market, the Lieberman-Warner global-warming bill percolating in the Senate includes measures for mandatory offsets and may be voted on this year.

As my presentation at the FTC workshop indicated, however, providing guidance about marketing claims for voluntary carbon offsets may be trickier than it seems. The reason is that there are various ways to substantiate and quantify emission reductions for carbon offsets, and the “right” way can depend on circumstances and your view of the overall objectives for the carbon-offset market.

It is hard to separate larger policy questions about the market from the methods used to certify offsets, something WRI and the World Business Council for Sustainable Development highlighted in our “Greenhouse Gas Protocol for Project Accounting,” published in November 2005 - see Greenhouse Gas Protocol. It may be easier to develop clear and consistent rules in the context of a mandatory program - like that envisioned under Lieberman-Warner - than for the voluntary market, where there is no central authority to decide unavoidable tradeoffs between things like transparency, practicality, and environmental integrity.

In the meantime, companies are moving forward in spite of uncertainties. The Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, has become wildly popular as a emissions-accounting tool for companies to measure their carbon footprints. In the past month alone, there have been dozens of media reports of companies - from wine makers to Dell to Pepsi - adopting the corporate GHG Protocol to inventory their emissions, despite the lack of mandatory oversight. We’ve been very busy fielding calls from interested businesses.

While it is important for companies to identify ways to reduce their greenhouse gas emissions internally, clearer standards for carbon offsets (either through oversight and guidance for voluntary markets, or the establishment of a mandatory government-offset program) would help these companies achieve even greater benefits for the environment.