Reduce what you can...offset what you can't
Frequently Asked Questions
These FAQs will help you understand carbon offsets and the carbon credit market.
Over the past decade, there has been an increasing awareness and concern about the effects of climate change. Various offset programs have been created around the world to address these issues. There are a number of standards which govern the carbon credit market. We have explored all of them and we elected The Gold Standard. We believe the Gold Standard Foundation has enacted the most stringent standard ever developed, thus making them the premier carbon credit in the world. Indeed we are not alone in that thinking. The answers to many of the most frequently asked questions are listed below. If you have any additional questions, concerns, or comments about the offset program, please contact us at info@LegacyCarbon.com and tell us what you think.
What are the basics of carbon offsetting?
When companies or individuals go about their daily lives and conduct business they use energy. When this energy is derived from fossil fuels such as oil, coal and gas, it releases carbon and other greenhouse gases (GHGs) into the atmosphere. This is one of the key contributors to climate change.
Carbon offsetting is the process by which businesses and households can compensate for the release of these GHG emissions by funding certified GHG emission reduction projects that either destroy GHG emissions, prevent their release elsewhere or sequestrate the carbon dioxide.
What exactly is a carbon credit?
A carbon credit (also referred to as a carbon offset) is a financial instrument that represents a unit measurement (1 ton of carbon dioxide) of atmospheric gasses that are being removed from the atmosphere. These programs vary greatly in terms of their methodologies and offerings.
Where do carbon credits come from?
Carbon credits come from GHG emission reduction projects that deliver measurable reductions in emissions by either:
• Replacing the use of dirty fossil fuels with renewable energy;
• Reducing the use of fossil fuels through energy efficiency; or
• Capturing and storing already released carbon in trees and other plants.
Why carbon markets?
Climate change caused by greenhouse gas (GHG) emissions is a serious global problem. National and international attempts to mitigate the growth in atmospheric concentrations of GHGs have resulted in the formation of a carbon market. Currently the carbon market is comprised of a compliance market, made up of emitters who are obligated to reduce their emissions and a voluntary market, in which organizations voluntarily reduce their carbon emissions. Most economists argue that an efficient, international carbon market will reduce GHG emissions at the lowest cost, allowing polluters that are unable to abate their own emissions cheaply to invest in projects globally that can.
What is a safe level of carbon dioxide for our atmosphere?
The Earth has a natural "carbon cycle" that has maintained the perfect balance of carbon dioxide in the air for more than a half-million years. Since the industrial revolution the CO2 content in our atmosphere exceeded the planet's normal range. Today the Earth's CO2 content is 392 ppm, and increasing an average of 2 parts per year. Scientists believe the only way to preserve life on Earth is to keep the CO2 levels below 350ppm.
What is Cap-and-Trade?
This is a regulatory process that places a limit "cap" on the greenhouse gas emissions industries are allowed to emit. Companies that come in under the cap are entitled to "trade" (i.e., sell) their leftover emission allowances to other companies that have exceeded their limit. The nations that ratified the Kyoto Protocol utilize this cap-and-trade system. The United States, unfortunately did not. There are however, other U.S. cap-and-trade programs instituted by regions and states.
What are the main differences between a Regulated Carbon Market and a Voluntary Carbon Market?
Carbon markets can be either voluntary or mandatory. The main difference between the two is that the voluntary market is unregulated. Even so, there are recognized international standards, such as The Gold Standard, that monitor and verify the quality and validity of the carbon credits that are traded.
Those involved in both markets also tend to have different profiles. Compliance programs are currently aimed at the most “energy intensive” emitters (at a company level). These include power generators, oil refineries, iron and steel production and processing companies, those who produce commodities such as cement, glass and ceramics and the paper and pulp industry.
The voluntary market serves the purpose of businesses (typically blue-chip corporations), government departments, NGOs and single individuals wanting to manage their carbon footprint.
The Regulated Carbon Market
In 1992 the United Nations Framework Convention on Climate Change (UNFCCC) was created to raise awareness and build knowledge to help mitigate climate change. In 1997, more than 170 countries adopted the Kyoto Protocol to the Convention. This set legally binding targets for 37 industrialized countries to limit or reduce overall GHG emissions by at least 5% below 1990 levels during the period 2008-2012.
To achieve the targets set within this protocol, three flexible financial mechanisms were created:
1. Emissions Trading – the international transfer of emission allocations between industrialized (Annex 1) countries. E.g. a country that stays within its target can sell the surplus allowances to another country that has exceeded its limit.
2. The Clean Development Mechanism (CDM) – creates carbon credits called Certified Emission Reductions (CERs) through emission reduction projects in developing countries, regulated by the United Nations. Emitters who have exceeded their emission allocations can purchase these CERs to make up the difference.
3. Joint Implementation – any Annex I country can invest in emission reduction projects in any other Annex I country as an alternative to reducing emissions domestically.
The rationale behind such schemes is that climate change is a global problem and that the location of GHG emission reductions is irrelevant in scientific terms. This means that a ton of carbon dioxide reduced in a cook stove project in Kenya has the same environmental value as a ton of carbon dioxide reduced through a wind project in China or a clean energy project in the United States. The difference in these projects is the cost of implementation.
The emission reductions generated by these flexible mechanisms are collectively referred to as ‘carbon credits’. A carbon credit is a financial instrument that represents a reduction or the avoidance of one ton of carbon dioxide equivalent (tCO2e) from the atmosphere.
These three mechanisms, along with the European Union Emissions Trading Scheme (EU ETS) put in place by the EU in order to meet its Kyoto target, make up the largest environmental market in the world for the trading of carbon credits.
The Voluntary Carbon Market
In a voluntary carbon market, an entity (company, individual, or other “emitter”) volunteers to offset its emissions by purchasing carbon credits that reduce the amount of carbon in the atmosphere. It is driven by a company’s desire to demonstrate leadership and/or ‘do the right thing’ and has been around in different forms for many years. The wish to make voluntary commitments to reduce their impact on the environment pre-dates the Kyoto Protocol.
Reasons to engage in the voluntary carbon market could include:
1. To save money/reduce operating costs
2. Corporate Social Responsibility (CSR)
3. Leading by example
4. Demand from stakeholders
6. Green marketing / boosting green and socially responsible credentials
7. Mitigating reputational and commercial risk
What is the Gold Standard?
The Gold Standard is an award winning certification standard for carbon mitigation projects, recognized internationally as the benchmark for quality in both the compliance and voluntary carbon markets. The Gold Standard is the standard of choice for multiple governments, multinationals and the United Nations and the only certification standard trusted and endorsed by more than 80 NGOs worldwide.
Why was the Gold Standard created, and what are its main objectives?
Established in 2003 by World Wildlife Fund to demonstrate that carbon markets could deliver capital efficiently to greenhouse gas mitigation projects, with substantial co-benefits, all Gold Standard projects demonstrate real and permanent GHG reductions and sustainable development benefits in local communities that are measured, reported and verified.
In the past decade more than 800 Gold Standard low carbon projects have been listed, predominantly in China, India, Turkey and Africa. In 2010 alone, 175 projects were added to the Gold Standard pipeline, a 40% increase from 2009. Each project represents a community that has benefited from The Gold Standard’s rigorous requirements. In total, over 6-million Gold Standard credits have been issued in the voluntary market (VERs) and almost 1-million have been labelled by The Gold Standard in the compliance market (CERs). This approach ensures Clean and Sustainable Development is genuinely achieved.
What types of projects are eligible to register with the Gold Standard?
• Renewable Energy – such as solar, biomass, biogas and liquid biofuels (if they produce electricity), wind, geothermal, hydro.
• Energy Efficiency – industrial, domestic, transportation, public sector, agricultural sector and commercial sector.
• Waste Handling and Disposal – all waste handling activities that deliver an energy service or a usable product with sustainable development benefits (e.g. composting).
• Land Use and Forests – including New Forests & Agroforestry, Forest Management and Smart Agriculture.
Why is The Gold Standard different from other standards in the market?
• Although operating in a competitive market alongside many other carbon standards, The Gold Standard’s culture and approach to carbon credit certification is unique. Its founding NGOs – World Wildlife Fund, SouthSouthNorth and Helio International – felt a rigorous approach was essential, to ensure that emission reductions are real and verifiable and that the activities make a measureable positive impact on sustainable development in local communities.
• The Gold Standard is also unique for its insistence that developers take a holistic approach to project design and implementation. In this context, The Gold Standard remains the ONLY certification standard that requires ALL projects adhere to the strictest standards on additionality and positively impact the economy, health, welfare and environment of the local community hosting the project.
• The Gold Standard approach means lower project risk through inclusive and thorough design, higher investor confidence, greater access to carbon finance, more impactful, often transformational projects for communities and a superior price due to higher demand for a premium product. All of these aspects are unique and, have helped to bring greater credibility to the carbon markets.
Are there higher transaction costs associated with GS registration and certification?
The transaction costs for Gold Standard registration are somewhat higher than for normal CDM registration. The higher costs are attributable mainly to the additional time and effort needed to conduct the local stakeholder consultation and supply the additional information required by the Gold Standard method.
Why does The Gold Standard obtain a price premium?
For the past decade, The Gold Standard has continually innovated, influenced and inspired those involved with the carbon markets, demonstrating that a market mechanism for carbon finance, when managed correctly, can deliver multiple positive outcomes at no net additional cost. The Gold Standard approach means lower project risk through more inclusive and thorough design, higher investor confidence, greater access to carbon finance, better projects for communities and a superior price due to higher demand for a premium product. All of which has for ten years helped to bring greater credibility to the carbon markets.
This rigorous certification process ensures genuine quality and like all high end products, Gold Standard carbon offsets carry a price premium. We are proud that our credits command this premium over other standards since it reflects the credibility, honesty, integrity and robustness of the standard and our brand. Moreover, it clearly demonstrates that The Gold Standard approach delivers not only better quality projects but also more commercially viable investments. Only by meeting these two criteria can carbon markets be financially sustainable in the long term.
For the end buyer, reduced risk brings peace of mind – an offset program is only as strong as its weakest tonne. With sustainable development and environmental co-benefits being maximized and ensured via The Gold Standard’s MRV, investing in quality Gold Standard carbon credits is an investment in your own brand, demonstrating to clients, staff and suppliers sincerity towards environmental and corporate social responsibility.
Do my offset contributions help support actual projects?
Absolutely. Contributions to the voluntary carbon offset program benefit real world conservation projects with verifiable carbon benefits. Our first project in the voluntary carbon offset program is the Hawaiian Legacy Forest in Umikoa Hawaii. For more information on this project, visit www.LegacyTrees.org and www.HLH.co
What happens if the forest burns down or some other catastrophic event occurs?
To help protect the program against such risks, the Gold Standard Foundation requires that we (along with all other GFS carbon projects) set aside a percentage of the carbon offsets verified from our project as an insurance buffer In order to provide a safeguard against catastrophic loss in any one project within their program. In the extremely unlikely case that a project suffers from a catastrophic loss, such as a fire, the reserve pool of carbon offsets will be used to cover the loss.
What does “additionality” mean and why is it important?
Additionality is a defining concept of carbon-offset projects. To qualify as a genuine carbon offset, the reductions achieved by a project need to be ‘additional’ to what would have happened if the project had not been carried out (e.g. continued as business-as-usual). For instance, if a project is viable in its own right, say through the sale of electricity, or because of government funding, regulation or other policies, then it cannot be used as an offset project as it would have been undertaken regardless of investment secured through carbon markets.
The concept of additionality is important as only carbon credits from projects that are “additional to” the business-as-usual scenario represent a net environmental benefit. Without the “additionality” requirement, there is no guarantee that the emissions reduction activities will lead to a reduction of greenhouse gases into the atmosphere. Therefore, in simple terms, if carbon credits are awarded to activities that would have happened anyway, emissions are allowed to rise without a corresponding cut elsewhere, therefore making the process meaningless.
How can we know if an emission reduction is real?
Genuine carbon standards have been set up to provide assurances to buyers that the emissions reductions generated by a particular project are indeed real, quantifiable and additional.
Credible standards provide high quality, independently verified assessments of the emission reductions produced by a project. The Gold Standard goes one step further and ensures that all its projects meet robust and stringent methodology requirements for sustainable development in the local area.
To ensure the purchase of high quality carbon offsets, it is imperative that companies pursue offsets that have been subjected to rigorous third party monitoring, reporting and verification procedures. It is also useful to source carbon credits from a reputable offset supplier who can offer transparency in terms of the projects, pricing and retirement of the carbon credits.
How does carbon offsetting provide a solution to climate change?
Carbon offsetting on its own will not provide a solution to climate change, it will need a multi-layered approach with different schemes working in conjunction. However, that said, carbon offsetting does have a large role to play in the overall approach to carbon management. Reducing emissions internally takes time and money; carbon offsetting is a quick and cost effective way to balance a carbon footprint whilst waiting for the fruition of internal abatement measures.
At the same time, the emission reduction projects paid for by offsets introduce clean technology and investment into developing countries, helping communities to improve their economy and industry but not at the cost of the environment. Carbon offsetting projects help to successfully establish a path to a low carbon economy.
Why should a business consider carbon offsetting?
Carbon offsetting provides the opportunity to offset unavoidable emissions, reducing a company’s impact on the environment. It offers companies’ access to compelling social-economic community marketing opportunities whilst helping to finance projects that would not otherwise be viable. The atmosphere does not care where GHGs are emitted or where they are prevented. All that matters in the fight against climate change is reducing the total amount of emissions.
In addition to showing leadership and environmental stewardship there are many reasons to reduce emissions and support carbon offsetting, including:
• Mitigate against the risk of impending regulations
• Create significant savings from reduced energy bills and increased operational efficiencies
• Demand from stakeholders, improving brand perception, especially in the eyes of environmentally conscious consumers
• To meet with Corporate Social Responsibility (CSR) obligations
• Leading by example, power to evoke a real change in consumer purchasing behaviour
• Reputational and commercial risk of not being seen as environmentally conscious
• The rising threat of extreme weather warnings, rising sea levels and natural disasters
• Security risks from lack of energy, water and food supply
Are carbon credits just ‘permissions to pollute'?
No. Even with the clean technology we continue to develop, our society as a whole is going to carry on polluting the atmosphere. It is not possible to not pollute, but one thing we can do is regulate it whilst we move to low carbon economies.
Under Emissions Trading Schemes there is a maximum amount of CO2 that countries, or companies, are allowed to release into the air every year. Countries and organizations can buy or sell carbon credits, that is, the allowance to put more carbon into the air, from other countries and organizations. Where one might lose a carbon credit, the other is gaining it.
In fact, having carbon credits is believed to help reduce pollution as it encourages companies to continually reduce emissions. Buying obligatory carbon credits is an additional cost to a company, it therefore motivates companies and countries to look for ways to internally reduce the amount of CO2 they emit. Likewise, there is an incentive to pollute less than the allocation as selling the surplus carbon credits is also lucrative.
Are some offsets or carbon credits better than others?
Arguably, as long as the credit is trustworthy and robust, a ton of CO2 removed from the atmosphere is a ton of CO2 removed from the atmosphere, it doesn’t matter where or what type of technology was used. However, different types of carbon credits suit different buyers depending on their needs and obligations. For example, compliance buyers may prefer cheaper offsets to meet their obligations in the most economical manner whereas buyers building a comprehensive CSR strategy may prefer more ‘charismatic’ projects that meet both their environmental and the social-economical commitments. So there isn’t one carbon credit better than another, but there are carbon credits more suited to a business need than others.
Should I buy carbon credits for investment purposes?
The Gold Standard Foundation is aware that there have been complaints to the Financial Services Authority (FSA) in the United Kingdom about carbon credit trading schemes. While none of the complaints to the FSA were related to The Gold Standard, some financial institutions, hedge funds and corporations do invest, buy, sell and trade in carbon credits, including Gold Standard-certified carbon credits.
The carbon markets have witnessed significant growth over the last few years, but they are not risk-free. Investing in carbon credits is more complex than a traditional investment, making the opportunity more difficult for individual investors to evaluate. If you need to sell your carbon credits at any given time, you should be aware that your ability to do so will be contingent on the state of the secondary trading market, which is affected by various global political and economic factors that are beyond The Gold Standard Foundation’s control. The Gold Standard Foundation recommends that purchasers of its credits retire them in order to reduce their carbon footprint.
The Gold Standard Foundation will be a part of any industry initiative on best practice and strongly recommends that consumers seek independent financial advice before investing in the carbon markets. Individual investors are also urged to review the additional resources listed below and check the registration of any person or company offering an investment opportunity in the carbon markets.
What are some additional resources I can investigate?
• Ecosystem Marketplace (www.ecosystemmarketplace.com)
• Carbon Markets & Investors Association (www.cmia.net)
• International Carbon Reduction & Offset Alliance (www.icroa.org)
• International Emissions Trading Association (www.ieta.org)
• Point Carbon – A flight to Gold Standard credits
• ANALYSIS: Premium voluntary CO2 credits ‘a safer bet’ than U.N.-backed market
• By John McGarrity from Thomson Reuters Point Carbon - 23 Jan 2012 19:12 CET
• For more carbon related stories please visit Thomson Reuters Point Carbon
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