Cap & Trade system

Carbon offsets

iStock_000003043642MediumOffsets typically provide financial support of projects that reduce greenhouse gas (GHG) emissions or remove carbon from the atmosphere.

An offset is produced in two ways:

  • Preventing GHG emissions – These are projects that prevent emissions that would have occurred otherwise. (e.g. building a wind or solar power generation system to replace a coal-fired electrical plant)
  • Carbon sequestration – Carbon sequestration means trapping or removing GHG from the atmosphere. See also Carbon sequestration

On this page, we look at these topics related to carbon offsets:

Click a link in the list above to jump to that topic on this page.

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Offset requirements

In all cases, to be effective at reducing greenhouse gas (GHG) emissions, carbon offsets must meet 6 offset requirements:

  • Measurable results – The protocol needs a standardized method of measuring and quantifying how much of a reduction in greenhouse gas emissions is being achieved. (1)
  • Prevent leakage – Leakage occurs when emissions are not truly reduced. The emissions can’t just be moved somewhere else. For example, it’s possible for companies to reduce their emissions by outsourcing high-emission production to another country or region that is outside the Cap & Trade system. To completely prevent leakage, Cap & Trade systems need to be global.
  • Additionality – An offset must produce a greenhouse gas emission reduction that is over and above business as usual. (i.e. additional) For example, would the wind power system have been built anyway even without the investment through selling carbon offset credits?
  • Permanence – Sequestration projects need to ensure that emissions are kept out of the atmosphere for a reasonable length of time. For example, carbon is drawn into and locked within a tree only as long as the tree is green and growing. Once it starts to decay, its carbon goes back into the atmosphere.
  • Protocols – Protocols or rules need to be developed and documented for every type of offset scheme and application region. For example, landfill gas schemes that work in the tropics may not work in the arctic.(2)
  • Validated and verified – Reliable, independent auditors need to validate each project before it starts and verify each result.

The most common offset project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects. (1)

There are enormous opportunities for good with offset systems. Many biological sequestration projects involve changes to land use, agriculture, or forestry practices. These could slow or reverse habitat destruction such as cutting of rainforest or drainage of wetland.

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Offsets and regulation

All offset types can be sold on the voluntary market based on market supply and demand.

In a regulated Cap & Trade environment, offsets accepted for compliance can only be derived from an uncapped sector. At the present time, offsets could only come from the uncapped sectors of agriculture, forestry, and landfills.

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Offset providers

There are a lot of companies out there offering offsets. Some are a lot like snake-oil salesmen – you really don’t know what you are getting.

The David Suzuki Foundation and the Pembina Institute have prepared a guide to help Canadians assess the quality of available carbon offsets. The guide includes a survey of 20 carbon offset vendors from Canada and around the world to help shed light on how these vendors are performing.

There is also a website (carboncatalog.org) that can help you find offset providers.

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Clean Development Mechanism (CDM)

By effective use of tools like the United Nations Framework Convention on Climate Change’s (UNFCCC) Clean Development Mechanism (CDM), it’s possible to transfer some real wealth and sustainability to developing nations by buying offsets. (2)

CDM allows developed countries to invest in offset projects in developing nations instead of the more expensive alternative of reducing emissions or buying credits at home.

However, sufficient value has to be given to these schemes to make them more attractive than the destructive alternatives within the developing nations that are to implement them.

Also, protocols need to be developed to address all of the issues of additionality, measurement, permanence, validation, and verification for each type of offset. Working out these mechanisms is the subject of much study and a hot topic of debate now.

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