Carbon Offset Credits: Caveat Emptor

As concerns about climate change heat up, more people are buying carbon credits. Are they paying too much, and where is the money really going?

by Mark Scott

The fight against climate change has never been so popular. From former Vice-President Al Gore's Oscar-winning documentary, An Inconvenient Truth, to the star-studded Live Earth concerts held to raise awareness of global warming, climate change has shot up the public agenda.

In Europe and the U.S., companies and consumers alike are looking for ways to reduce carbon dioxide emissions. Where that's impossible—say, when there's no alternative to a polluting transatlantic flight—a growing number of individuals are performing a kind of eco-atonement by buying carbon offset credits to compensate for the environmental impact of their actions.

Well-intentioned, no doubt. But some consumers may be overpaying for carbon offsets, and the money they believe to be funding noble causes such as reforestation and alternative energy may not always be well spent. To date, the consumer carbon offset business is almost entirely unregulated, though a number of voluntary compliance efforts are springing up to head off bad practices before governments crack down.

Carbon Confusion

Consider the case of the London Science Museum: Responding to public interest in global warming, the museum offered visitors a "Climate Relief Gift Pack," which promised to offset the equivalent of 100 kilograms of carbon dioxide for £20, or $40. But because Europe's carbon trading system remains oversupplied, the true cost of a 100-kg credit earlier this year was less than $1. After The Guardian exposed the embarrassing price disparity, the museum withdrew the gift pack.

Sometimes the problem isn't the cost of the credit, but where the money is going. After the 2005 G8 summit in Scotland, for example, the British government tried to offset the meeting's CO2 footprint by investing $300,000 in energy-efficiency programs for South Africa. But the project suffered financial and logistical setbacks and still hasn't got off the ground.

That's prompting some advisers to counsel caution. "People need to follow up on their investments to see where the money is being spent," says Mark Spelman, global head of strategy at consultancy Accenture (ACN). "You have to look at how the scheme is operated and whether it's sustainable."

Nonprofit to Offer Guidelines

To help improve the transparency of consumer carbon offsetting, the Climate Group, a London nonprofit, plans to introduce on Nov. 19 a set of universal standards for the voluntary market. Intended to define what constitutes a valid offset project, the guidelines are an attempt to unify a mish-mash of existing rules that cover different parts of the sector—and should help reassure companies and individuals that their money is well spent. "It'll give confidence that what they're buying is on the level," says Mark Kenber, the group's policy director.

The voluntary carbon offset industry also is planning to establish a trade association in early 2008 to lay out best practices for intermediaries who buy and sell credits. The rules should give consumers greater confidence the money they spend on carbon offsetting really is being used to reduce or compensate for emissions. Specifics of the plan have yet to be disclosed.

The Carbon Credit Market Is Growing

It's not a moment too soon for more clarity, because carbon offsetting has become a big business. According to Washington-based research firm Katoomba Group, the global "compliance sector," or the market covering companies such as utilities and chemicals makers that are required to offset their carbon emissions under the terms of the Kyoto Protocol, amounted to $5.4 billion last year. And the over-the-counter voluntary market—where most private transactions occur—more than doubled in size between 2005 and 2006, to an estimated $54.9 million.