Environment / Global Warming

In their study, though, Wara and Victor found indications that offset funding is flowing to projects that would probably have been built anyway. “We can show that essentially every major wind and hydro project in China is claiming credit for CDM offsets,” Wara says. “We know that China has been building about 10 gigawatts of hydropower every year for a long time. Last year, suddenly all of that development was claimed as carbon credits. Is it really the case that none of those projects would have been built without offset money? These offsets are being sold to the United States and Europe, and if they’re not real reductions, we have a big problem.”

Another popular type of offset demonstrates a different kind of problem with the carbon market. HFC-23, an industrial greenhouse gas thousands of times more potent than carbon dioxide, is produced as a by-product in the manufacture of refrigerant, and a number of major offset projects capture and destroy HFC-23, doing a huge service to the climate. But Wara discovered that offset sales from destruction of the gas were far more lucrative than the sale of the refrigerant responsible for creating the pollutant in the first place, giving factories a perverse incentive to produce as much waste as possible and then create projects that sell offsets to destroy it.

Both Wara and Lohmann say that a cap-and-trade program that excludes offsets would probably be more effective at reducing emissions. “When you have offsets in a cap-and-trade system,” Wara says, “it’s like not being able to tell counterfeit money from real money.” Lohmann notes that the acid rain program so often cited by carbon market proponents as a success story did not allow offsets.

David Orr, a professor of environmental studies at Oberlin College, agrees that the concept should be viewed with skepticism. “I’m suspicious of offsets,” he says. “The farther away they get, and the more abstract they get, the more difficult it is to know whether you got what you paid for. And you can’t monitor them. It opens up a can of worms.”

The Presidential Climate Action Project, which Orr cofounded and advises, recommends that the United States bring a new, more streamlined approach to the carbon market. Instead of regulating carbon at the many smokestacks where emissions occur, the group recommends regulating by cap-and-trade permits directed “upstream” at the wellheads, mine mouths, and import points where oil, coal, and natural gas enter the economy. Repetto of Yale points out that unlike a market for emissions, which come from countless sources and can be complicated to calculate, “an upstream system is very easy to administer. There are only about 2,000 initial sellers of fossil fuel that you’d need to keep track of, and their sales are already tracked anyway.” However, an upstream cap-and-trade program would be likely to face political resistance because it would bring a sharp increase in operating costs for power plants that emit greenhouse gases. Orr notes that industry would prefer a downstream cap.

As the nation debates possible structures for federal climate change legislation, many states are already moving forward with carbon-cutting plans of their own. The Regional Greenhouse Gas Initiative (RGGI), a mandatory cap-and-trade carbon market encompassing 10 Northeast and mid-Atlantic states, requires electricity producers to reduce carbon dioxide emissions by 10 percent by 2018. The first batch of carbon permits were auctioned off to power companies in late September, and a second auction is scheduled for December. RGGI does allow participants to buy offsets, but it limits the percentage of required cuts that can be met with such purchases.

Similar programs are arising across the United States. The Western Climate Initiative, covering seven states and four Canadian provinces, and the Midwestern Greenhouse Gas Reduction Accord, signed by six states and one province, are both developing cap-and-trade markets. The plans may speed the development of a nationwide program, since companies that do interstate business would probably prefer a single set of operating regulations. Broker Klein points out that many firms now embrace the idea of carbon emission laws but need “clear rules of the game” in order to plan for them.

As for Wara, the shortcomings of current carbon markets are not enough to dissuade him from his belief that laws governing greenhouse gas emissions should be enacted as soon as possible. “We’re going to stumble, and we need to be prepared for that,” he says, “but my criterion is, what can we do now? Even if we don’t get it right the first time, we need to learn by doing. This is the problem of the century.”

Meanwhile, the carbon market keeps whirring, and Margolis keeps brokering—or, as he likes to put it, “making the world a better place, one deal at a time.”

DISCOVER experimented with carbon trading when we calculated our carbon footprint for the May 2008 issue and bought a $4,796 offset from Carbonfund.org to cover it. The small but growing voluntary offset market (operating outside of government programs like the one in Europe and reaching sales of $258 million in 2007) offers to erase emissions from your business, home, travel, or even your whole life. We, like others who have sought to be a little more green, wondered what we got for our money.

Carbonfund.org finances a changing roster of renewable energy, reforestation, and energy efficiency projects, all certified by third-party auditors. When we checked on the impact of our offset, a spokesperson told us our donation had been pooled with others earmarked for reforestation and renewable energy projects, as we had requested, but added, “Unfortunately, it’s not possible to pin it to a specific project.” So we called some of the projects listed on Carbonfund.org’s Web site to find out how they use offset donations. At a reforestation project in Nicaragua, offset money pays for plants and workers. A power company that produces wind energy told us offset funds are used to reduce prices for consumers.

Anja Kollmuss, a staff scientist with the Stockholm Environment Institute and the author of two recent industry reports, says that while problems exist, voluntary offsets “have helped to get some good projects off the ground ?that otherwise would not have existed.” They also help businesses and consumers develop an awareness of their carbon footprints, she adds.

If you would like to get involved with offsets, both Kollmuss and climate blogger Romm recommend projects certified by the Gold Standard Foundation as the most rigorously vetted ones on the voluntary market.