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The idea of carbon offsets is to provide funds for projects that reduce greenhouse gases and impose a cost on those generating them but it is doubtful that they contribute to long-term sustainability.
The Joint Implementation (JI) of the Kyoto Protocol allows countries to offset their excess emissions by paying for emissions reductions or carbon sinks in other countries which have agreed to the Protocol. The Clean Development Mechanism (CDM) allows countries to offset their excess emissions by paying for emissions reductions or carbon sinks in developing nations. They can be created by projects that absorb carbon dioxide or reduce greenhouse gas emissions. These include tree plantations, renewable energy generation projects, landfill gas extraction and the closing down of old, dirty plants. The emissions reductions are supposed to be additional to what would otherwise have occurred.
Carbon offsets are not confined to nations that have signed up to the Kyoto Protocol. They can be used with any emissions trading scheme. Businesses can also invest in projects to offset their emissions and businesses in nations like Australia that have not signed can still sell carbon offsets to nations or corporations that need them to meet Kyoto obligations. There are also schemes where individuals can pay for offsets in an effort to make some of their activities ‘carbon neutral’.
In 2004 107 million metric tonnes of carbon offsets were being traded, up 38% on the year before. Sixty percent of these were bought by European buyers and just over 20 percent by Japanese buyers. Almost 70 percent were bought by private buyers as opposed to governments. They sell for between $3 and $7 per tonne of CO2 equivalent, much less than the price in emissions trading systems. The emissions reductions were mainly generated in China, India, Brazil and Chile.
However there are many questions about how effectively carbon offset schemes reduce greenhouse gases in the long-term. It is up to those claiming carbon credits to explain how they are reducing greenhouse gas emissions and why these reductions would not have occurred without their investment. This means the carbon offsets can be rather debatable and often would have occurred anyway. An example is the Esti Dam in Panama which was more than half complete when the Dutch government applied for 3.5 Mt of CDM credits for it.
A company can argue that a gas-fired power plant it is investing in is reducing carbon emissions because otherwise a coal-fired power plant would have been built. There is no onus on the company to prove that the coal plant would have been built nor that the gas-fired plant would not have been built without the carbon credits. Nor does it matter that a wind farm would have reduced CO2 emissions far more. Using the credits gained with ‘imagined’ reductions, the company can increase its emissions back home. However the benefit to the environment is doubtful.
The CDM mechanism also provides a disincentive for governments in poor countries to introduce environmental policies and projects in case CDM projects might no longer be seen as additional to what would normally have happened. This means that government policies that would have reduced global greenhouse gas emissions are substituted for by project financing that avoids corresponding emission reductions in affluent nations so there is no global benefit.
The CDM also provides an incentive for industrial facilities to be designed without pollution controls so that they present an attractive emission reduction opportunity. For example, future land fill dumps may be designed without methane capture in the hope that foreign investors looking for credits will be attracted to pay for it. There are even cases where credits have been claimed for complying with environmental laws in the host nation on the basis that the laws would not otherwise have been enforced.
CDM projects favour cheap methods of reducing carbon emissions rather than renewable energy projects in developing countries. One of the easiest ways to earn carbon reduction credits is to pump methane out of a waste dump. This is because renewable energy is more expensive for investors, even though it offers more benefits to the local community and the nation. This has caused the CDM to be referred to as the ‘Cheap Development Mechanism’. Most emission reductions are earned by reducing greenhouse gases other than CO2 (see figure below).
Source of Emission Reduction Credits, 2004-5
NB: HFC is a refrigerant and a greenhouse gas
Source: ‘State and Trends of the Carbon Market 2005’, International Emissions Trading Association, Washington DC, May 2005, http://carbonfinance.org/docs/CarbonMarketStudy2005.pdf, p. 3.
Various technologies of contested environmental benefit are being promoted as offering carbon offsets. For example, the CDM provides an incentive for the construction of nuclear power plants in developing nations, particularly China, despite the known hazards associated with operating nuclear plants and storing nuclear waste. It is estimated that carbon credits could reduce the construction costs of such plants by 10-40%.
The use of tree plantations as carbon offsets are also problematic. Firstly there is no accepted method for calculating how much carbon is temporarily taken up by growing trees. Such trees may release their carbon early as a result of fires, disease or illegal logging but the necessary long-term monitoring is often not carried out.
In many situations plantations are not sustainable. They can create ‘green deserts’ because they are so water intensive. Generally plantations are made up of single species, such as eucalyptus or pine, that grow quickly, have high fibre yield and can be easily logged. They suck up all the water in an area leaving wells dry, and the land around desiccated and unable to support crops. The trees are planted in rows of trees of the same age and species that require heavy use of agri-chemicals, including fertilisers, chemical weeding, herbicides that pollute remaining waterways. Such plantations reduce soil fertility, increase erosion and compaction of the soil, and increase the risk of fire. In addition they may lead to a loss of biodiversity because in many nations they are monocultures of non-native species and because their densely packed uniform rows do not provide the variations of form and structure found in a forest.
Of most concern, however is the fact that carbon offsets enable very polluting or dirty industries to continue to emit carbon in return for dubious and often temporary gains elsewhere that may have occurred anyway. Instead of making effective changes to their own production processes these industries can take advantage of the cheap and often unsustainable reductions and sinks that are available in poor nations. For individuals it is a way to pay to take the guilt out of excessive and mindless consumerism. A sustainable lifestyle is not so easily attained.
For a more detailed discussion that considers the equity and other dimensions of carbon offsets see Sharon Beder, Environmental Principles and Policies, UNSW Press, 2006.