Influence. Innovate. Inspire. The premium compliance and voluntary carbon offset certification standard. Carbon Offset Handbook

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1 Influence. Innovate. Inspire. The premium compliance and voluntary carbon offset certification standard Carbon Offset Handbook 1

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3 Acknowledgements We would like to gratefully acknowledge and thank Tricorona for allowing us the use of their carbon offset handbook as the basis for this publication. We would also like to thank our project developers for providing the project imagery. 3

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5 Carbon Offset Handbook Contents The challenge...4 Why a handbook on carbon offsetting?...4 Why a handbook by The Gold Standard?...5 What is carbon offsetting?...5 Why engage in carbon offsetting?...6 Carbon offsetting a part of your climate strategy myths about carbon offsetting...8 How do carbon offsets work?...14 The three main forms of carbon offsets Basic criteria for choosing your carbon offsets Offsetting options...17 Conditions your offset supplier should fulfil...27 Frequent questions about carbon offsetting ways to take responsibility for your carbon footprint...31 How is a carbon footprint calculated?...31 How to communicate carbon offsetting...32 References...37 Glossary

6 The challenge Combating climate change is one of humanity s biggest challenges. We are now close to a tipping point of no return in the protection of our natural resources and scientific evidence shows without doubt that the problem is human induced. To prevent warming of more than 2 C - considered the danger threshold by scientists - atmospheric concentrations of greenhouse gases (GHG) cannot exceed 450 parts per million. This will require cutting annual emissions by at least 30 billion tons by The task is as ambitious as it is essential. Why a handbook on carbon offsetting? Many companies, public authorities, organisations and individuals have realised that something must, and can, be done to prevent climate change. Most people can achieve significant carbon footprint reductions, individually, and within their own organisations. Carbon offsetting involves taking responsibility for any remaining emissions by financing low carbon development elsewhere. It is a small but necessary part of the solution to climate change and has become an established phenomenon in many developed countries. However, there are still many who wonder what carbon offsetting really is, how it works, how it helps prevent climate change, how to avoid mistakes and how it fits into a corporate climate strategy. This handbook answers those questions and gives readers the information they need to ensure they purchase genuine, credible offsets, as part of a comprehensive climate strategy. 6

7 Why a handbook by The Gold Standard? The Gold Standard is a globally recognised and trusted regulatory framework for the deployment of public and private capital into climate, environment and development projects. Unlike traditional NGOs, The Gold Standard takes a market based payment for outcomes approach, ensuring that projects achieve genuine outcomes that deliver with as much impact as possible. Our ten-year track record is unmatched. Every project certified by The Gold Standard must monitor, report and verify carbon savings and sustainable development benefits for local communities. This carbon for development philosophy has been recognised by governments, business and civil society as the most effective approach and we feel this best practice model, endorsed globally by more than 80 NGO supporters, should be shared as widely as possible as a minimum standard when purchasing offsets. What is carbon offsetting? Carbon offsetting is the funding of an activity outside of one s own organisation that reduces emissions elsewhere, by the same amount as the emissions that need to be offset. Some see carbon offsetting as philanthropy where money is donated to help the environment. We prefer to see it as waste management, where you pay someone to carry out the service of dealing with your carbon waste, under the strict monitoring criteria of The Gold Standard. There are several ways of offsetting carbon emissions, ranging from purchasing carbon allowances from a cap-and-trade scheme, to using carbon credits from unregulated or regulated carbon offset projects. You will find a detailed description of all major alternatives on page 17. 7

8 Why engage in carbon offsetting? Carbon offsetting is a way of taking responsibility for those emissions that an individual, company or organisation cannot eliminate or has not yet eliminated - with internal measures. As such, it is a necessary part of a climate strategy. Carbon offsets are surrounded by many myths, often arising from misconceptions or misuse of the term. When managed correctly, however, carbon offsetting is an effective and efficient way to manage and reduce your climate impact. Carbon offsetting a part of your climate strategy A credible climate strategy is based on four key components, which interact in an ongoing cycle: Climate impact reporting: calculating and monitoring your carbon footprint. Climate action plan: targets for the reduction of your carbon footprint, such as energy efficiency and reduced travels, and actions to meet the targets. Carbon offsetting: the financing of emission reductions outside of your own business, equal to the emissions you have not yet managed to eliminate. Climate communication: communication of your climate strategy, where you can build brand and inspire others so that they also take responsibility for their emissions. It s important to recognise that carbon offsetting can only be one component of your climate strategy but it is just as important as the other parts. This is because, even in organisations that have clear emission targets and succeed in reaching them, emissions can rarely be reduced to zero overnight and offsetting is how you take responsibility for your emissions during this process. 8

9 Another good reason for carbon offsetting is that when implemented properly, it is often profitable in itself, since it focuses the organisation on reducing waste. A comprehensive climate strategy increases the value of your organisation s brand, making it easier to attract and retain employees and customers. Many customers are willing to pay extra for climate friendly products. Along with low-carbon production and logistics, carbon offsetting is an efficient way of producing products with minimal environmental impact. The development of a climate strategy is a great way to increase employee commitment and focus an organisation on reducing resource and energy consumption. This may in turn lead to cost savings for your business. Upper Yangtze - GS CDM energy efficiency project 9

10 6 myths about carbon offsetting The benefits of carbon offsetting are often debated in the media, but the discussion is in many cases founded on myths and misconceptions. In this section, we address these arguments. Myth 1 It s like buying a papal indulgence you re just paying for absolution This thought is based on the idea that carbon offsets are a way to buy yourself a clear conscience, without changing your behaviour. If your climate strategy is based on offsets alone, you may indeed be accused of having simply bought your way out of your responsibilities. However, if carbon offsets are part of a climate strategy that also includes measures to reduce your carbon footprint, the offsets are, on the contrary, a way of taking full responsibility for your emissions. Likewise, in today s globalised economy that operates in an energy mix dominated by fossil fuels, next to no company on the planet can be carbon neutral through internal emission reductions alone. Therefore, a climate strategy is not complete, and a company is not taking full responsibility, without the purchase of offsets for the emissions that cannot be eliminated internally. Carbon offsets, therefore, are precisely the opposite of paying for absolution they are a necessary pillar of any credible climate strategy. Myth 2 I ve heard that most offsets are bogus A core issue with regard to your choice of carbon offsets is how to ensure their integrity. 10

11 The Gold Standard applies monitoring, reporting and verification of - and safeguards around - projects in a uniquely robust way to ensure that projects and larger programmes deliver what they say they will from the beginning. From the outset this approach maximises the full potential of investments made and provides measurable outcomes. Every Gold Standard project represents a community that has benefited from The Gold Standard approach. Each project must undertake a Do No Harm assessment, using UNDP safeguarding principles and complete a Sustainable Development Matrix to identify and quantify associated environmental, social and economic benefits. For this reason it is actively supported and endorsed by more than 80 NGOs, used by the largest corporates and recognised by governments of all perspectives. If you stick to Gold Standard projects which require that the carbon offset provider provide evidence from The Gold Standard system, you can be sure that your carbon offsets are genuine. Sustainable Deployment of the Lifestraw Family in rural Kenya - GS water filter project 11

12 Myth 3 Carbon offsetting is expensive The cost of carbon offsets is determined by two factors: the quantity of the emissions to be offset, measured in tonnes of carbon dioxide equivalent, and the per tonne cost of the specific project. Even with the high carbon offset quality of The Gold Standard the cost of carbon offsets is usually only a fraction of the cost of the project or service you seek to offset. For example: Air travel typically 4 6% of the ticket cost for business travel. Electricity and heating varies from country to country depending on the energy mix, but often 2 8% of the energy cost. Road travel typically 3 6% of the fuel cost, depending on the fuel. Further, carbon offsetting does not necessarily increase costs over time: by highlighting emission-intensive activities, the introduction of carbon offsetting within an organisation often leads to reduced costs for travel, electricity, heating and fuel savings that often exceed the cost of the carbon offsets. Myth 4 It s simply a new form of colonialism As carbon offsets often entail investments in developing countries, some people see them as carbon colonialism, meaning that rich countries can retain a high level of consumption by taking advantage of poor countries. There are two reasons why many forms of carbon offsets are based on investments in developing countries: Carbon offset projects in developing countries often lead to development in a broader sense, through a range of co-benefits such as better health among the local population, better access to energy and new job opportunities. 12

13 Projects in developing countries often generate greater emissions reductions for a given investment; the cost of reducing one tonne of carbon dioxide is often much lower than in developed countries. This is because developing countries often have very carbon-intensive energy systems and industries, so the potential for improvement is great, even if their emissions per person are low. So can offsetting be described as colonialism? Offset projects in developing countries involve significant investments that lead to a higher standard of living quite the contrary to colonialism, where rich countries extracted resources from developing countries. The Gold Standard framework is catalysing more than half a billion euros of investment into developing countries. Much of the emissions in developing countries such as China and India relate to the production of goods consumed in the West and these emissions can be seen as the moral responsibility of consumers. It is easy to reduce emissions by relocating carbon-intensive production to a country like China, a practice known as carbon leakage. But the developed countries moral responsibility for these emissions, and for reducing them, remains as long as there is continued consumption of these products. Carbon offsetting is therefore the opposite of colonialism it is a transfer of resources and technology to the countries and people who need them most. Myth 5 It s better to invest at home One argument against developed countries investing in offset projects overseas is that this lets them avoid taking action at home. Developed countries must also reduce their emissions. If these investments are deferred, the bill will grow larger in the long term it may even be too late when we eventually turn our gaze back home. 13

14 Carbon offsetting as such is not the problem, but rather it is the decision to stop at offsetting, instead of combining it with investments and emissions reductions at home. We must reduce emissions in developed countries, but unless we also invest in upgrading the energy infrastructure of developing countries, right now, we will be too late. Additionally, as it stands developing countries often have very low emissions as they lack the polluting infrastructure for high emissions. It is therefore vital that we ensure they develop low emissions infrastructure now rather than replace high emissions technologies in the future when it is already too late. Climate change is too serious and too urgent a matter: we cannot afford the luxury of only investing at home. Myth 6 No thanks, we re a company; international aid is not our responsibility. Many see carbon offsets as a form of aid, where some money from the sponsorship budget is donated to a charitable organisation to make the world a better place. Many companies believe that it is not up to them to spend money on aid, so they decide not to offset their emissions either. However, there is another way of looking at it: carbon offsetting should be regarded as waste management. Most businesses generate waste in many forms, such as refuse and waste water, and most take responsibility for their waste beyond statutory requirements, for example by attempting to minimise waste and recycling what waste they do produce. Your carbon waste is not visible, but it still needs to be taken care of; and this is exactly what you do when you offset it. 14

15 . Rotor Elektrik Uretim Osmaniye - Gold Standard wind farm project 15

16 How do carbon offsets work? The commonest form of carbon offsets are based either on emission allowances or on regulated or unregulated offset projects. To ensure that you, as a buyer, actually get the emissions reductions you pay for, it is important that you understand the different between the various forms of carbon offsets. The three main forms of carbon offsets In most markets, there are three ways to offset carbon: Carbon offsets in the form of emission allowances, where a cap is set for the emissions allowed to be generated by a certain industry. If as a business you stay under your allowance you can trade your excess credits with those industries that exceed their allowances. Therefore there is a financial incentive to reduce your emissions. Carbon offsets in the form of CDM projects regulated by the UN, where you pay for a concrete measure that reduces greenhouse gas emissions, such as the expansion of renewable energy production. The projects are regulated under the UN s Clean Development Mechanism (CDM), part of the Kyoto Protocol, and their emissions reductions are reviewed and verified by the UN. Voluntary carbon offsetting, where you voluntarily pay for a measure to reduce greenhouse gas emissions. The projects can vary in quality as some are not subject to UN supervision or any other independent review. It is therefore important to ensure you use reputable projects that have been independantly reviewed, such as those under The Gold Standard, when choosing voluntary offsetting. There are five basic criteria to consider when evaluating and comparing the alternatives. 16

17 5 basic criteria for choosing your carbon offsets The overall goal when buying carbon offsets is that they should generate genuine emissions reductions. This depends in turn on a number of factors: 1. Additionality It must be possible to verify that the project would not have occurred without the money from the sale of carbon offsets to ensure that your money will bring about a change that would otherwise not have happened under a business as usual scenario. 2. Verifiability The alleged emission reductions must have been quantified and verified by an independent third party. 3. Traceability A carbon offset must be traceable so that it can be ensured that it has not been used before and will not be resold to other customers in the future. 4. Permanence The emission reduction you finance should be permanent, not temporary. 5. Contribution to sustainable development In addition to the emission reductions, it is important to know that your carbon offsets also contribute to sustainable development in other ways. Even if this is not the main purpose of your carbon offsets, it can be a decisive factor in the choice between different carbon offsets that are otherwise equivalent from a climate change perspective. Some carbon offset projects improve social sustainability of the local community through new job opportunities, poverty reduction, improved health, economic security or better access to energy resources. Alternatively, a carbon offset project may enhance environmental values such as limiting soil erosion or conserving biodiversity. Every project certified by The Gold Standard must monitor, report and verify carbon savings and sustainable development benefits for local communities. This carbon for development philosophy has been recognised by governments, business and civil society as the most effective approach. 17

18 Improved Household Charcoal Stoves - Gold Standard cookstove project 18

19 Offsetting options Offsetting with emission allowances Several countries now have a system that covers certain emission-intensive industries, under which companies may be granted a number of emission allowances or must pay for the emissions they produce. The total level, the emissions cap, is set by the relevant national or regional administrative body. The idea is that fewer allowances are granted than the industry needs as a whole. Each facility must report their emissions annually to the supervisory authority and surrender a corresponding number of allowances to avoid a fine. As fewer allowances are granted than the industry needs, companies are forced to reduce their emissions. Companies are allowed to trade allowances among themselves, so those that are able to reduce their emissions can do so and sell their surplus allowances, while those who find it more difficult and/ or expensive to reduce emissions can buy allowances from those that have managed to do so. An alternative approach is to make emitters pay for the emissions they produce thereby providing economic incentives to reduce emissions and ensuring low carbon solutions become viable alternatives. Carbon offsetting through United Nations-regulated offset projects (CDM/JI) The Kyoto Protocol requires developed country signatories to reduce their emissions. The Protocol allows some of these emission reductions to be achieved through investments in other countries, provided the investments are made under one of two defined mechanisms for carbon offset projects: Clean Development Mechanism (CDM), for investments in projects in developing countries. Joint Implementation (JI), for investments in projects in developed countries. 19

20 The objective of these mechanisms is to achieve emission reductions where it can be done most efficiently, while at the same time (for CDM) contributing to development in poorer countries. The energy systems of developing countries tend to be more carbon-intensive than in developed countries, so the same investment achieves a much greater emission reduction than it would in a developed country. JI has not been widely applied so far; only a handful of projects have been implemented. CDM on the other hand has resulted in thousands of projects around the world, with a total reduction in greenhouse gas emissions of over half a billion tonnes per year, roughly equivalent to the total annual emissions of the United Kingdom. Even though the CDM system was created as a mechanism for fulfilment of binding commitments of countries under the Kyoto Protocol, it can also be used by organisations seeking to offset their greenhouse gas emissions on a voluntary basis. This voluntary carbon offsetting is additional to the binding commitments from the states, i.e. it generates emissions reductions in addition to those provided for the Kyoto Protocol. Reducing deforestation through efficient fuel woodstoves - GS CDM project 20

21 How carbon offsetting through a CDM project works When a customer purchases a CDM-based offset, the money goes to the company that developed the CDM-project, thus financing the emission reductions created in the project. The CDM system has highly developed mechanisms for ensuring that projects comply with the Kyoto Protocol criteria and for continuously quantifying their emissions reductions. This supervision is carried out by independent accredited auditors who report to the UN. The most important criterion in the UN assessment is additionality: that the project would not have taken place without the funding provided through the CDM. This is the customer s guarantee that their money makes a difference. Each CDM project is subject to continuous review to calculate the actual emission reductions each year. Thereafter, the UN issues a corresponding amount of emission reduction certificates, known as CERs (Certified Emission Reductions). The certificates are recorded in an international registry system, with unique serial numbers, that makes each CER traceable to the project through which it was generated. These certificates are evidence that the provider generated the emission reductions paid for by the customer. The certificates are cancelled (by the customer or the provider) in the registry, which means that the emission reductions are irrevocably assigned to the customer and cannot be reused. The customer may be a company that seeks to offset on a voluntary basis but emission reductions from CDM projects can also be used by companies within the EU emissions trading system or by states with obligations under the Kyoto Protocol. This means that voluntary carbon offsets based on CDM projects have a similar effect on European industry as offsetting with European emission allowances, by reducing the total number of units in circulation. Read more about the pros and cons of offsetting with the EU emission trading system on page

22 How carbon offsetting through a The Gold Standard project works The process is very similar to that of the CDM. However, there are some fundamental differences: The Gold Standard insists 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 to adhere to the strictest standards on additionality and positively contribute to sustainable development by making a net-positive impact to the economic, environmental and social welfare of the local communities. Like the CDM, Gold Standard credits can only be assessed by independent accredited auditors, however unlike any other standard; The Gold Standard also conducts additional in-house reviews of independent audit reports. This unique double-checking process is the only way to ensure that carbon reductions are real, measurable, additional and permanent and that sustainable development benefits are assured. Providing customers with the vital assurances and peace of mind required when purchasing carbon offsets. Each Gold Standard project is subject to continuous monitoring, reporting and verification (MRV) to check both the emission reduction calculations and the sustainable development benefits. Thereafter, The Gold Standard issues a corresponding amount of emission reduction certificates, known as GS-CERs (Gold Standard Certified Emission Reductions) and GS-VERs (Gold Standard Verified Emission Reductions), depending on whether they were issued in the CDM or voluntary market. Gold Standard credits are uniquely numbered and transparently listed in one central registry that allows direct access to all project and audit documentation. This, like the CDM registry, not only ensures traceability of the project but also provides the platform for retiring the credits (cancelling the certificate once it has been assigned to an end-user). 22

23 The Gold Standard Certification Process This diagram represents a simplifed version of the process project developers need to go through to certify their carbon reduction projects under The Gold Standard scheme. 1. Assess eligibility of the project 2. Open GS registry account 3. Conduct Local Stakeholder Consultation (LSC) and write LSC report 6. Submit documentation for validation by independent auditor (DOE) 5. Organise Stakeholder Feedback Round 4. Finalise project documentation and 60-day feedback period 7. Submit to GS for 8-week registration review 8. Prepare monitoring report and submit documentation for verification by DOE 9. Submit to GS for 3-week verification review before issuance of credits 23

24 CDM project categories Carbon offset projects within the CDM system may involve anything from the collection of methane from landfills to renewable energy production or energy efficiency projects. There are over a hundred approved methodologies, and these define which projects are allowed and how the emission reductions should be quantified. Within voluntary offsetting, the most popular types of CDM projects are renewable energy or the prevention of deforestation. Examples include: Building power plants based on wind power, hydropower or solar cells can reduce carbon emissions by replacing the construction of additional coalfired power plants. Use of biomass from agricultural residue to generate biodiesel reduces the use of fossil diesel, and can replace coal in existing or new power plants. Deforestation is often driven by the need for firewood. Projects that provide solar-powered equipment for food preparation/water purification reduce deforestation, and therefore greenhouse gas emissions. Reforestation and afforestation projects can also be developed within the CDM system. However, due to the CDM s strict requirements on quantifiable and permanent emission reductions, not many such projects have been approved. On the other hand, projects related to replacing firewood as a fuel source and thereby preserving existing forests are more common within the CDM system. Carbon offsetting with CDM projects which entails transfer of resources and technology to developing countries can have significant positive side-effects in the form of poverty reduction and improvements to the local environment for example, when coal is replaced by cleaner sources of energy. 24

25 The Gold Standard project categories The Gold Standard certifies project activities under the following categories: Renewable energy the generation and delivery of energy from non-fossil and non-depletable energy sources, such as solar, biomass, biogas, wind, geothermal and hydro. End-use energy efficiency the reduction in the amount of energy required to produce goods or services, for example energy efficient cookstoves or water filters. Waste handling and disposal that deliver an energy service (e.g. electricity generation from land fill recovered methane) or a usable product with sustainable development benefits (e.g. composting). Land-use and forestry reforestation/aforestation, climate smart agriculture and improved forest management. 25

26 Carbon offsetting with Voluntary Emission Reduction (VER) projects Carbon offsetting has existed as a concept for many years, but it was only when the CDM regulations were defined in the UN s Marrakesh Accords in 2001 that a system of uniform regulations were established in this market. Many organisations that provide carbon offsets have, however, chosen not to subject their projects to the scrutiny required for CDM projects. These unregulated projects represent the third category of carbon offsets. They are called Voluntary Emission Reduction (VER) projects. Just like a CDM project, the idea is that the end customer finances a concrete measure that reduces emissions in one way or another. Since these projects are not regulated by the Kyoto Protocol, there is no single body that restricts projects to specific types. The Gold Standard is, however, the only high quality offset standard that operates in the voluntary market and also provides a high quality label for CDM projects in the UN compliance market. The quality of VER projects There are wide variations in the integrity and the quality of unregulated projects some projects outside of the Kyoto system are excellent, but many are questionable, making it important that customers have the skills to evaluate different projects and providers, and confirm that the emissions reductions and other effects are genuine. Many of those projects are self-audited, which mean that the company that runs/sells the project makes its own statements and calculations regarding the project s emissions reductions without any third party verification. In other cases, the project owners arrange for the project to be audited against certain standards which set requirements of varying degrees for the projects. Common to all of these alternatives is that the project owner gets to choose the criteria and standards used in the audit of the project. 26

27 The Gold Standard is a quality certification, originally developed by the environmental movement to identify the very best CDM and voluntary projects. In recent years, The Gold Standard has also been applied to projects outside the CDM system, usually in countries that do not have CDM status under the Kyoto Protocol (e.g. Turkey and the US). Of the various standards that can be applied to VER projects, The Gold Standard is considered the best by far (see diagram below). The Gold Standard uses the same principles as the CDM to calculate emission reductions and sets even stricter criteria for local support and contribution to sustainable development in a wider sense. 27

28 Differences between CDM and VER An important difference between most VER projects and a CDM or Gold Standard project is additionality, where most VER standards often set the quality bar lower than the CDM. Without the CDM and Gold Standard s strict requirements on additionality, there is a risk that the project would have taken place anyway, even without the revenue from the carbon offset. In such a case, the customer s money makes no difference, other than making an already profitable project even more profitable. Another question to ask regarding most VER projects is where the system boundaries are drawn for the calculation of emission reductions. For example, both The Gold Standard and the CDM have strict criteria for biomass projects to prove that there is a surplus of biomass in the entire region, to ensure that forests are not being cut down to fuel the biomass plant. Lacking such a requirement, some VER projects may cause carbon leakage, which means that the project reduces emissions in one place but increases emissions elsewhere. This reduces or eliminates the benefits of the project. Summary of the pros and cons of the methods European emission allowances. Carbon offsetting with EUAs can be a political, symbolic action, but it is uncertain if any reductions are generated, as this method is based on a future shortage of allowances in the system. This has not been the case so far, and through 2012, the system is believed to contain a surplus of approximately 480 million tonnes of CO2. This has kept the price of credits relatively low meaning there is little incentive for heavy polluters to reduce their emissions as it remains cheaper to simply purchase credits. The purchase of EUAs does not contribute to sustainable development in developing countries. Regulated CDM projects. Carbon offsets through CDM projects are regulated under the Kyoto Protocol, with strict criteria for additionality and genuine, permanent emission reductions. There are robust systems for measuring, monitoring and recording the emission reductions generated by the projects. For projects that are also certified according to the environmental movement s Gold Standard, the bar has been set even higher with regard to their contribution to sustainable development. 28

29 VER projects. There is a wide variation in project quality and far from all projects deliver what they promise. Many authorities, academic institutes and environmental and development organisations recommend only the use of Gold Standard projects in the voluntary market. Conditions your offset supplier should fulfil The market for carbon offsets has matured so it is now possible to buy and pay for carbon offsets on the same basis as other products and services. You should therefore demand all this from your provider: 1. Proof that you get the emission reductions you are buying Regardless of the type of carbon offsets you buy, the reason for the purchase is to reduce emissions. Ask your provider to state in the agreement how the emissions reductions will be verified, reported and irrevocably assigned to you, the buyer. 2. Proof that the project exists If you choose a CDM or Gold Standard project, you benefit from an established control mechanism where all projects are registered in the UN or Gold Standard databases. If the provider gives you the project registration number, you can locate the project in the database and independently verify its existence. See the link on page A guaranteed delivery date As carbon offsets are purchased to offset emissions from a specific period, it is important for environmental integrity and for your organisation s credibility that the emission reductions are generated in roughly the same period as the emissions to be offset. Ensure that the provider guarantees the delivery date and pays a penalty if it fails to meet the agreed deadline. 4. Contribution to sustainable development The safest way to identify the projects with the greatest contribution to sustainable development is to require Gold Standard certification. Check that the project is listed in The Gold Standard registry with the status Registered or Issued to distinguish it from as yet unapproved projects. See the link on page

30 Frequent questions about carbon offsetting What requirements apply to CDM and Gold Standard projects? The main requirements are that the emission reductions be real, additional, quantifiable, traceable and permanent. The projects must also comply with the definition of sustainable development in the Kyoto Protocol and in the host country. The Gold Standard has even stricter criteria for the contributions to sustainable development delivered by projects. What is the difference between carbon offsetting and purchasing green electricity? Many organisations choose to buy green power, i.e. electricity certified as originating from renewable sources. Since all electricity is mixed together in the grid, this model is based on paying an extra amount on your electricity bill for each kwh consumed, where the money goes to generators who can show that they have produced renewable electricity. The idea is that the customer ensures that its own electricity consumption is balanced by the production of an equal amount of renewable electricity elsewhere on the grid. This is a form of electricity offsetting, rather similar to the system of carbon offsetting with renewable energy projects the primary difference is simply where the wind turbine or solar panel is constructed: in your home country in the first case, or in a foreign country in the latter case. Another difference is cost, where offsetting electricity consumption through CDM and The Gold Standard is often cheaper than purchasing renewable electricity certificates. Also, for example, the integrity of the European systems for accounting for green electricity have been called into question, for two reasons: 30

31 In some countries, the supply of renewable electricity certificates (from existing renewable plants) far exceeds demand (from conscientious customers). This means that an individual consumer choice to purchase green electricity does not actually change the production mix; it simply reallocates the fossil electricity to someone else s consumption. In other words, the system lacks the additionality that is so central to CDM and Gold Standard projects. The EU energy sector is regulated under the emissions trading system with a joint cap for the entire system. This means that even if the purchase of green electricity can theoretically improve the production mix, the consequence is that a number of emission allowances are freed up from the energy sector and can be used to increase emissions in other regulated sectors. Carbon offsets through CDM and Gold Standard projects within renewable energy are therefore more effective, as money is used to build new fossil-free power plants outside of the EU, where the default alternative is usually to build coal-fired power plants. Biomass Urja Kotdwar, India - GS biomass project 31

32 Are internal offset funds a good alternative? Many organisations, including some municipalities, have an offset mechanism based on an internal fund for emission reduction measures. These funds are sometimes referred to as carbon offset funds, but the idea is that the funds should be used internally in the organisation and they are seldom connected to quantified emission reductions. It is important to invest internally to reduce emissions. But it is also important to ensure that the money especially tax money is used in a cost efficient manner. It is therefore crucial that the organisation accounts for and monitors the effectiveness of such an internal fund how many tonnes of CO2 have been avoided or will be avoided thanks to a particular investment in order to make comparisons between different internal and external measures. In many cases, it becomes clear that the cost of carbon offsetting with internal measures is so high that the initiative becomes an expensive symbol without actually achieving much in the fight against climate change. Should I buy carbon credits for investment purposes? Investing in carbon credits is more complex than a traditional investment, making the opportunity more difficult for individual investors to evaluate. There are many different global political and economic factors to consider. The Gold Standard recommends that end-purchasers of credits retire them in order to reduce their carbon footprint. If a consumer did want to purchase offsets for investment purposes, then The Gold Standard strongly recommends that the consumer seek independent financial advice before making any investment decisions. 32

33 5 ways to take responsibility for your carbon footprint 1. Determine your organisation s carbon footprint and set clear objectives for how it should be reduced. The most ambitious companies set a zero target for future emissions. Read more about emissions calculations on page Develop an action plan for how your organisation will reduce its carbon footprint. Perhaps your business can become more energy efficient, develop new climate-friendly products or adopt a travel policy that reduces unnecessary travel. You should also examine how your organisation itself may be affected by climate change. Read more about action plans on page Offset your carbon emissions to mitigate any remaining climate impact. Choose a project that suits your business and conduct a proper procurement process to ensure that you get quality carbon reductions. 4. Communicate your efforts externally, to inspire others, so that they also take their responsibility for their emissions. Read more about communication on page Evaluate the strategy regularly and review what has been achieved and what remains to be done: the world is constantly changing and your business changes with it. Evaluate your strategy, reassess the objectives and find new sources of inspiration for yourselves and others. Gold Standard cookstove project in Africa 33

34 How is a carbon footprint calculated? An important first step in a climate strategy is to calculate your carbon footprint. There are a number of standards for this, but no standard gives the full picture, and your organisation must determine which boundaries and assumptions to use. Before you can adopt a climate action plan that specifies how the emissions from your operations should be reduced and to what extent they should be offset, you need to have a clear view of your current carbon footprint. This is a major topic, but some of the more important aspects are summarised below. Product vs. organisation perspective There are two main approaches to carbon footprint calculations. The product perspective: This involves the calculation of the carbon footprint of a particular product or service throughout its entire life cycle, including upstream in your suppliers operations, e.g. the extraction of raw materials for your product, and downstream in your customers operations, e.g. the energy your product consumes while in use. The organisational perspective: this involves the calculation of the emissions from your organisation s operations, including supplier emissions for goods and services consumed by the organisation, e.g. emissions from the utility company for electricity consumed, or emissions from the airline for the organisation s air travel. Emission calculation standards There are a number of carbon accounting standards for each of these perspectives. Some of the most relevant ones are briefly described below. Greenhouse Gas Protocol (GHG Protocol) The GHG Protocol is an initiative by the World Business Council on Sustainable Development. It aims to create a common methodology for the calculation of emissions on an organisational basis. 34

35 This protocol is the most widely accepted standard for greenhouse gas reporting and most other standards in the field are based on this standard in one way or another. For further information, visit Global Reporting Initiative (GRI) GRI is a framework for economic, social and environmental sustainability indicators. Compared to the GHG Protocol, GRI acts on a higher level: somewhat simplified, one can say that the GRI is a reporting framework that defines what should be included in a sustainability report and how it should be structured, while the GHG Protocol is a concrete tool that defines how the content related to greenhouse gas emissions should be determined. For further information, visit ISO standards The ISO standard is based on the same principles as the GHG Protocol, but with greater emphasis on the procedures, processes and structures required within an organisation for the development of a footprint calculation. Other footprint-related ISO standards include: ISO 14067, for the calculation of the carbon footprint of products. ISO 14021, which defines how terms like carbon neutral and carbon footprint should be used in environmental communications. For further information, visit 35

36 How to communicate carbon offsetting Most organisations that offset their emissions communicate this internally and/or externally. This must be done correctly in order to retain credibility: it is important to place carbon offsetting in a wider context and to emphasise that it is part of a broader climate strategy. To protect the brand, it is also important to avoid claiming that your organisation has offset its emissions before the emissions reductions have actually taken place and been confirmed. Why communicate your climate strategy? Most organisations that have an active climate strategy want to communicate their actions, both internally and to external stakeholders. In general, there are two main reasons for this: Environmental benefits: Your good example will be a source of inspiration; by communicating your initiative, you encourage others to emulate you and improve their own environmental performance. Financial benefits: Your brand will be strengthened in the eyes of your target groups including employees and customers generating value in the long and short term. Much has been written about environmental communication how to inform your stakeholders of what you believe and what you are doing in environmental matters and an important part of this is how to avoid greenwashing. Some key points to bear in mind are discussed below. Focus on your overall strategy Carbon offsets work best when included as part of a broader climate strategy, which should include concrete actions to reduce your footprint as well as a strategic analysis of how your business should be adapted to a world where climate change is becoming ever more important. 36

37 Communication that concentrates solely on offsetting means that you miss out on the opportunity to inform your stakeholders of the other positive aspects of your strategy. Communication of carbon offsetting should therefore take place in a context where it is clear how and where it fits into a comprehensive climate strategy. Link your carbon offsets to your business One purpose of communicating carbon offsetting is to inspire others. This is easier if your target group can see a logical link between the business to be offset and the project used to offset it. Such a link could be based on emission sources: for example, a logistics company could offset their use of electricity with a wind power project and its use of diesel with a biodiesel project. The link could also be based on industry affiliation a company that produces beverages may offset with a project based on water treatment, whereas a textile company might choose to offset with energy efficiency improvements in the textile industry, and an organisation that promotes technology exports could offset with a project based on technology exports from its home country. The link may also be geographic a company with many suppliers or customers in India may think it is best to offset through a project in the same country. Irrespective of where a carbon offset project is located, which technology it uses or which industry it belongs to, all emissions reductions are expressed in interchangeable units of tons of carbon dioxide equivalent. However, factors such as these do make a difference when it comes to communication and wisely chosen offset projects will add additional value in this way. Don t claim your offsets exist before they do! When communicating any form of environmental initiative, it is important to distinguish between what you have accomplished and what you plan to do in the future. If companies give the impression of having achieved more than they actually have, they risk being accused of greenwashing. 37

38 Terminology When communicating carbon offsetting initiatives, companies often use the phrase carbon neutral, or climate neutral, to mean that the company has calculated and fully offset the carbon footprint of the organisation or product. The implication is that the organisation or product, including the offsets, has net zero emissions. In general, use of the term also implies that the company has taken at least some active steps to reduce the footprint prior to offsetting, although this aspect is rarely quantified. These terms are widely used, by companies and NGOs such as the UN, and the terms even have a formal definition in ISO These expressions have some advantages they are an intuitive and concise way to showing your level of ambition for your climate strategy. However, there are some issues: The term neutral is absolute and requires that you can draw a clear and unambiguous boundary around the product or organisation that is to become climate neutral. As described on page 35, this is often hard to achieve in practice. The phrase neutral also sounds complete, as if it marks the end of a process and there is nothing more to achieve. You may therefore run the risk of being accused of complacency. We have seen many examples of organisations where ambitious climate strategies get ignored because of the debate surrounding the phrase carbon neutral, so consider if there are better ways of communicating what you have achieved. 38

39 References The links below refer to external documents mentioned in the text and other documents that may be useful in a deeper study of the topic. Guidelines Offsetting guidelines from the UK Department for Energy and Climate Change, NewFolder-3/ Scheme-Requirementsversion-1-4-FINAL.pdf Guidance on carbon neutrality from the UK Department for Energy and Climate Change do/a%20low%20carbon%20uk/carbonneutrality/1_ _e_@@_carbonneutralityguidance.pdf Reports A Comparison of Carbon Offset Standards, WWF, 2008, panda.org/downloads/vcm_report_final.pdf Kick the Habit A guide to climate neutrality, UNEP, 2008, unep.org/publications/ebooks/kick-the-habit/ Databases The UNFCCC database of registered CDM projects Projects/projsearch.html The Gold Standard Foundation database (both registered and applicants), 39

40 Glossary Carbon leakage - The phenomenon when an emission reduction policy, project or measure causes increased emissions elsewhere. CDM - Clean Development Mechanism, one of the Flexible Mechanisms of the Kyoto Protocol that regulates emissions reductions investments by developed countries in developing countries. CDM describes how carbon offset projects are carried out and how they are controlled and monitored. CER - Certified Emission Reduction, a certificate issued by the UNFCCC for CDM projects as evidence of achieved emission reductions. One CER corresponds to one tonne of CO2. CO2E - Carbon dioxide equivalent. Different greenhouse gases have different potential for causing climate change and are therefore translated into carbon dioxide equivalents for comparison. Emission allowance - An allowance to emit one tonne of CO2 within the framework of an emissions trading scheme. Mostly used to refer to an EUA. Emission reduction - The result of a measure that reduces the emission of greenhouse gases. EU ETS - The European Union Emissions Trading System, the European system for trading in emission allowances. EUA - Emission Unit Allowance, an emission allowance in the EU ETS. GHG - Greenhouse gases. GHG Protocol - The Greenhouse Gas Protocol, an initiative for the calculation and reporting of carbon footprints at the organisational level. Gold Standard - A globally recognised and trusted regulatory framework for the deployment of public and private capital into low carbon projects that protect our atmosphere. 40