Carbon Offsets: An Important Component of the Effort to Become Climate Neutral

Transcription

1 Carbon Offsets: An Important Component of the Effort to Become Climate Neutral April 30, 2010 ENST 480 Spring 2010 John Greenfield, Nick Leslie & Jackie Stimmel

2 Executive Summary This document is intended to serve as an informational tool regarding the purchase and/or development of carbon offsets by Colgate University. By providing an overview of the background, importance, implementation, and relative benefits of specific carbon offset projects, we seek to provide the University with the requisite information necessary to achieve carbon neutrality. Carbon offsets are a tool which represents a reduction in emissions or an increase in sequestration of greenhouse gases. Through the selection of projects that meet established criteria, we can ensure that all offsets purchased meet Colgate s definition of quality, both in relation to technical and procedural aspects and the inclusion of co-benefits, which are defined complementary benefits that result from a climate policy, such as improved air quality or a reduced reliance on fossil fuels. Our research indicates that there are multiple ways in which Colgate can pursue quality offsets, including the use of retailers or wholesalers, investing in concert with others, and developing projects from start to finish on our own. All of these options are discussed in greater depth in the body of our paper. Admittedly, not all carbon offset projects are created equal. In order to address this fact, we have researched a wide variety of projects and included a description of the relative benefits of each. Ceteris paribus, we believe that Colgate will realize greater co-benefits, and a greater strategic advantage vs. peer institutions, by achieving climate neutrality sooner. As a result, we believe that Colgate should aggressively pursue the implementation of mitigation projects so that we are as close to our residual level of emissions (defined as the amount of emissions that will remain even after all possible reductions have been realized) when offsets are first purchased. Our paper discusses how these timing 2

3 decisions should be thought about, and includes multiple time paths which indicate the amount of offsets that would need to be purchased at various points in time in order to reach climate neutrality. 3

4 Table of Contents Executive Summary 2 Introduction... 5 Why Should Colgate Care about Offsets?... 6 RECs vs. VERs.. 7 What Constitutes a Quality Offset? 9 Evaluation of Specific Offset Project Types.. 17 Options for Purchasing Carbon Offsets.. 23 Local Offset Projects Potential Offset Retailers 26 Timing Discussion.. 30 Theoretical Discussion of Implementation. 36 Conclusion. 37 Next Steps Appendix References

5 Introduction In November 2008, Colgate s then-president Rebecca Chopp signed the American College & University Presidents Climate Commitment (hereafter, ACUPCC), which stated that the undersigned, and their respective institutions, would pursue a highvisibility effort to address global warming by garnering institutional commitments to neutralize greenhouse gas emissions and to accelerate the research and educational efforts of higher education to equip society to re-stabilize the earth s climate (ACUPCC, 2008a). At its most basic level, the effort to achieve climate neutrality arises from an acknowledgment of the validity of anthropogenic global warming. Keeping this in mind, our research is aimed at answering the question, How can Colgate University best use carbon offsets to achieve climate neutrality? In order to help frame and focus our research, the following assumptions have been made: 1. Colgate University will need to utilize carbon offsets in order to reach climate neutrality - it cannot reduce its emissions to zero through mitigation measures alone (at least in the short-to-medium run). 2. Over time, Colgate University will reduce its carbon footprint through energy efficiency and energy-use reduction measures. Therefore the number of carbon offsets the University would need to purchase will decrease over time. 3. Colgate University is concerned with purchasing quality offsets. 4. All other things being equal, Colgate University prefers local offset projects, which we define as having a measurable positive impact that can be realistically connected back to the University. 5

6 In this study, we will determine what constitutes a quality offset for Colgate University, as well as how the decision regarding the timing of offset purchases should be thought about. On the whole, our goal is two-fold: to provide an educational document regarding offsets in general and more specifically to provide a tool with which future decision makers at Colgate University can make coherent decisions in achieving climate neutrality. Why Should Colgate Care about Offsets? Through the purchase of carbon offsets, it is possible to reduce net emissions to zero, thereby neutralizing the negative effects that the institution s activities have on our climate. Because it is widely acknowledged that achieving climate neutrality through energy-use reductions and mitigation alone is not possible in the short-to-medium run, we assume that this is, in fact, the case. In order to reach climate neutrality, therefore, these residual emissions must be offset in some manner (per assumption #1). The potentially significant co-benefit aspect is the one that should be most closely considered when Colgate determines its own plan for carbon offsets. In addition to the environmental benefits brought about by offsets, community and educational aspects have the potential to provide significant benefits to the Colgate student body and community. This is the way in which the ROI (return on investment) of Colgate s use of offsets really needs to be considered. In this respect, offsets will make the most sense for Colgate when they can be incorporated back into the educational experience of the student body whether that occurs through an off-campus trip to implement or study the offsets or they become subject matter of student research and work in the future. 6

7 Furthermore, offsets make sense for Colgate because they have the ability to provide the University with a strategic advantage. By leveraging the local community (if offsets are pursued in the surrounding area), and the student body, the community and educational benefits can be an integral part of Colgate s acknowledgment that civic responsibility is vital to our University s mission. From a moral view, Colgate also has a responsibility to compensate for its own direct activities that result in environmental degradation. By approaching offsets in a pragmatic and sensible manner, our research indicates that the University can realize significant co-benefits in the course of achieving climate neutrality, while also conferring on itself a strategic advantage against peer institutions. Renewable Energy Credits (RECs) vs. Voluntary Emissions Reductions (VERs) In the United States, there are two distinct clean energy markets: the market for renewable energy credits and the market for voluntary emissions reductions, also known as carbon offsets. In order to understand the difference between RECs and carbon offsets, one must first understand the three Scopes of emissions. Scope 1 emissions are emissions from direct, on-site activity, an example being an oil-burning generator on campus. Scope 2 emissions are indirect, energy-based emissions, such as those from an electricity provider. Scope 3 emissions account for all other indirect emissions sources, such as paper use and travel (EPA, 2009). Carbon offsets represent a reduction or sequestration of the equivalent of x amount of greenhouse gases in one place to offset the corresponding x amount of emissions elsewhere. Offsets are normally characterized by a direct emissions reduction, 7

8 such as capturing the methane produced by a landfill. These types of activities offset direction emissions, like an institution s Scope 1 emissions. On the other hand, RECs are characterized by creation of renewable electricity, and therefore represent a more indirect emissions reduction whereby clean energy production is displacing or reducing demand for dirty energy. Another main difference between the two is that all of the carbon offsets we are analyzing are held to strict additionality standards, such as the Voluntary Carbon Standard, while REC s are not. Additionality requirements ensure that the amount of carbon that is being offset is in addition to what would happen otherwise that is, the project must not have been already planned, for example to reduce costs. Additionality requirements normally apply only to carbon offsets, which would make them a more certifiable purchase than RECs for Colgate. Renewable Energy Credits, also known as Green Tags, are created when electricity is produced from a renewable energy provider, such as wind, solar, hydro or biomass. RECs represent the environmental benefits received by a displacement of conventional fuel use, such as coal, oil or gas. One REC is representative of 1 megawatt hour of electricity (1000kW hours) and allows the purchaser to support renewable energy production even though they themselves are not using the renewable energy (EPA, 2009). There are two components to an REC: the energy commodity, which is the actual electricity produced at a renewable electricity generator, and the corresponding green power attribute. After the renewable energy is fed into the local grid, the REC can be sold on the open market, acting as a green power attribute. RECs can be sold and traded, and the current owner of an REC can claim to have purchased renewable energy. The attraction of RECs is that they incentivize renewable energy by providing a production 8

9 subsidy for renewable electricity generation. For each megawatt hour of renewable electricity an electricity provider produces, a certifying agency will provide an identification number for that REC, to ensure that it is not double counted. Double counting occurs when REC ownership is not completely clear, and leads to multiple persons claiming the reduction as their own. For example, if a wind farm is built on an unused tract of land, who is the rightful owner of the offsets produced by the wind farm? Is it the builder, the utility company, the owner of the land it is on, or the end user (Stockholm Environmental Institute, 2008)? In addition, a study by the United States Government Accountability Office found that RECs were rated the least credible by stakeholders (See Appendix). Given the potential issues of double counting and additionality, to which RECs are more vulnerable, our current recommendation is that Colgate focus primarily on carbon offsets over RECs. What Constitutes a Quality Offset? Before becoming climate neutral through the purchase of offsets, Colgate must identify what constitutes a quality offset. First, decision makers will need to establish the technical and procedural requirements for a quality offset to ensure the offset is legitimate, meaning it reduces carbon emissions, among other factors. Second, Colgate must consider what factors are important to various stakeholders, which include, but are not necessarily limited to, administrators, professors, students, employees, and the Hamilton Village community. 9

10 Technical/Procedural Quality Given the fact that Colgate is a signatory to the American College & University Presidents Climate Commitment, we have adopted its guidelines as a baseline for defining what constitutes a quality offset in terms of the technical and procedural aspects. These guidelines are as follows (ACUPCC, 2008a, pg.2): Offset projects are real and emissions reductions are additional: Projects result in actual reductions of GHG emissions and would not have otherwise occurred under a reasonable and realistic business-as-usual scenario. Offset projects are transparent: Project details (including project type, location, developer, duration, standard employed, etc.) are known to the institution and communicated to stakeholders in a transparent way to help ensure validity and further the goal of education on climate disruption and sustainability. Emissions reductions are measurable: Projects result in measurable reductions of GHG emissions. Emissions reductions are permanent: Projects result in permanent reductions of GHG emissions. Emissions reductions are verified: Projects result in reductions of GHG emissions that have been verified by an independent third-party auditor that has been evaluated using the accompanying criteria. Offset projects are synchronous: Projects result in reduction of GHG emissions that take place during a distinct period of time that is reasonably close to the period of time during which the GHG emissions that are being offset took place. Offset projects account for leakage: Projects take into account any increases in direct or indirect GHG emissions that result from the project activity. Credits are registered: Credits generated from project activities are registered with a well-regarded registry that has been evaluated using the accompanying criteria. Credits are not double counted: Credits generated from project activities are not double counted or claimed by any other party. Credits are retired: Credits are retired before they are claimed to offset an institution s annual greenhouse gas inventory, or a portion thereof. Given the breadth of the ACUPCC guidelines the Environmental Studies Seminar Group looked to other resources to simplify these technical and procedural requirements. In Duke University s Climate Action Plan the institution focused on issues of additionality, measurement and monitoring, verification, ownership (deals with double counting), and 10

11 permanence (also known as reversibility). Reversibility accounts for the fact that a project might currently reduce emissions, but later these emissions may still occur. For example, while forest sequestration reduces carbon emissions, if the forest burns down in the future, the carbon will be released into the atmosphere (Duke University, 2008). Other resources have affirmed the importance of these technical and procedural qualifications. Point Carbon defined a quality offset as permanent, additional, verifiable, enforceable, and real (Point Carbon, 2010). Finally, the Environmental Studies Seminar Group examined the Broekhoff Testimony before the House Select Committee on Energy Independence and Global Warming (World Resource Institute, 2007). The testimony provided three categories for a quality offset, which are as follows: accounting standards, monitoring and verification standards, and registration and enforcement systems. Accounting standards make sure the offset is real, permanent, and additional. Monitoring and verification standards affirm the project is legitimate through a third-party verifier. Registration and enforcement systems deal with ownership (World Resource Institute, 2007). The Environmental Studies Seminar Group chose these three categories because they include the ACUPCC guidelines, but in a more comprehensible version. Enforcement of Technical and Procedural Quality The criteria mentioned above can be taken care of by a third-party verifier. Thirdparty verifiers assess projects to determine if they meet additionality and permanence criteria and are verified (Responsible Purchasing Network, updated). In regards to registration and enforcement, Colgate has the option of listing projects on an established registry, which many of the standards below contain. Additionally, there are different verifiers for different types of offset projects. Colgate will need to determine which 11

12 project(s) it wants to pursue and then choose an appropriate third-party verifier. Thirdparty verification is typically done through the use of one of several well-established standards or protocols. Several of these standards, which Colgate could choose in verifying its own offset projects, are discussed below. Standards/Third-Party Verifiers United Nations Framework Convention on Climate Change (UNFCCC) The Clean Development Mechanisms (CDM) The UNFCCC Clean Development Mechanism (CDM) was developed as part of the Kyoto Protocol (UNFCCC, 1996; the description in this section is based on information at the CDM website: CDM allows developed countries to earn carbon emission reduction credits (CERs), which are equivalent to one ton of CO 2, for emissions-reduction projects in developing countries. These can be traded and sold in order for developed countries to meet their Kyoto targets. All projects under the CDM must qualify under a thorough registration and validation process designed to ensure that projects represent real, measurable and verifiable emissions reductions that are additional to what would have occurred without the project (CDM). The three main steps of this process are as follows: 1. A desk review of the project design documents 2. Follow-up interviews with project stakeholders 3. The resolution of outstanding issues and the issuance of the final validation opinion The verification mechanism is governed by the CDM executive board and projects must first be approved by the Designated National Authorities. The CDM has been in operation since 2006 and has already registered more than 1,000 carbon offset projects, with a projected CER total amounting to more than 2.7 billion tons of CO 2 by

13 As with all third-party verifying bodies, the CDM places a high level of importance on the concept of additionality. Also, every project approved by the CDM must use an approved baseline and monitoring methodology in order to be validated, approved and registered. A baseline methodology creates a plan in order to determine the energy use baseline within certain conditions, while a monitoring methodology creates a plan to determine monitoring parameters, quality assurance, and equipment used in order to most accurately determine the actual emissions reductions. While the CDM has become a well-respected mechanism for verifying carbon offset projects, it also has its drawbacks. The first commitment period of the Kyoto Protocol (ending in 2012) does not include forest conservation/deforestation avoidance in the CDM, which we believe is a very legitimate carbon offset objective since carbon emissions from deforestation represent more than18% of global emissions (Stern et al, 2006). Given Colgate s large amount of forested property, we believe that a third-party verifier that recognizes forest conservation as a carbon offset project would be advantageous for Colgate to work with. UNFCCC Joint Implementation Joint Implementation (JI) is another mechanism created by the Kyoto Protocol that helps countries reach binding emissions targets. Under JI, any Annex 1 country, which includes the 36 industrialized or Economies in Transition countries, can invest in emissions reduction projects in another Annex 1 country as an alternative to domestic emissions reduction (Information about JI is available at the JI website: The JI has a very rigorous and extensive verification process for all proposed projects. As such, it has become an important foundation for 13

14 third-party verification of carbon offset projects. In February 2009, JI developed its most recent determination and verification manual (DVM), which outlines a series of steps to be followed when verifying the legitimacy of a carbon offset project: 1) Developers must provide an in-depth background of the proposed project, as well as a detailed list of objectives which they anticipate the project will achieve 2) Baseline setting JI will determine the baseline settings for the project, which involves determining which CDM methodologies the project will use 3) Determination involves determining the possibility of project success and feasibility, includes steps 4 7 4) Leakage project is studied to ensure that leakage is not an issue 5) Monitoring Indicators, constants and variables that affect emissions reductions are studied 6) Additionality CDM Tool for the demonstration and assessment of additionality is applied to the project in question 7) Verification steps ensure that the project is in accordance with final determination, monitoring system is in place and being complied with, and emissions data is recorded and legitimate Voluntary Carbon Standard (VCS) The VCS was first released in March of 2006 as a joint effort by the Climate Group and the International Emissions Trading Association to be used as a consultation document and pilot standard for market use. The Climate Group is a non-profit organization that works internationally with business and political leaders to advance clean technologies and policies to cut global greenhouse gas emissions and accelerate the development of a low carbon economy (The Climate Group, 2008). The main objective of the Climate Group is to advance the economic and political case for climate change action by showing that reducing GHG emissions can lead to economic growth and job creation. The International Emissions Trading Association is also a non-profit organization, whose main objective is the development of an active, global greenhouse gas market, consistent across national boundaries and involving all flexibility mechanisms: the Clean Development Mechanism, Joint Implementation, and emissions 14

15 trading ( The most recent version of the VCS (Voluntary Carbon Standard, 2008a) states the following objectives: Standardize and provide transparency and credibility to the voluntary offset market. Enhance business, consumer and government confidence in voluntary offsets. Create a trusted and tradable voluntary offset credit; the Voluntary Carbon Unit (VCU). Stimulate additional investments in emissions reductions and low carbon solutions. Experiment and stimulate innovation in emission reduction technologies and offer lessons that can be built into future regulation. Provide a clear chain of ownership over voluntary offsets that prevent them being used twice. This is achieved through multiple VCS registries and a central project database that is open to the public. Dictate that offsets must be real, additional, measurable, permanent, independently verified and unique. Also eligible under VCS are offsets verified by The Climate Action Reserve, Clean Development Mechanisms, and Joint Implementation under the Kyoto Protocol. The Gold Standard Foundation (GS) The Gold Standard Foundation (GS) is a non-profit organization under Swiss law that operates a certification scheme for premium quality offsets. The GS registers and certifies carbon offset projects that contribute to sustainable development. All projects submitted for approval by the GS must be consistent with the UNFCC rules under the Clean Development Mechanisms and Joint Implementation in regards to issues of additionality and permanence (The Gold Standard Foundation, 2009). The Climate Action Reserve (CAR) The Climate Action Reserve (CAR) is a nationwide offset program that develops regulation standards for GHG emissions reduction projects in North America and issues carbon offset credits called Climate Reserve Tonnes (CRT). The CAR strongly emphasizes that offset projects be real, additional and permanent (The Climate Action 15

16 Reserve, 2007). Offset Verification Objectives are as follows: Ensure projects are real, additional, permanent, verifiable and enforceable. Minimize the risk of invalid creation or double counting of Climate Reserve Tonnes (CRTs). Support the transparency and integrity of the data contained within CAR. Maintain that verifications are conducted in a consistent and comparable manner across projects. Assist CAR in monitoring project developer s on-going compliance with the CAR protocols. Human/Environmental Interaction Aspect The technical and procedural criteria are important to consider when choosing an offset project. There are other important criteria to consider as well, as brought to light by Duke University s Climate Action Plan. In addition to the aspects discussed above, Duke decided that its offsets also needed to have community and environmental benefits, as well as a link to education (Duke University, 2008). These three additions certainly seem appropriate for Colgate. Colgate University is part of several larger communities, the Village of Hamilton, Madison County, and Central New York. Colgate, for example, employs many of the residents of Hamilton. Throughout Colgate s history, the institution has taken pride in these communities, and we therefore assume that the University wants to continue fostering these relationships. Also, given that Colgate has pledged to go climate neutral and has an environmental studies curriculum along with many environmental groups on campus, we assume that there is ample interest in preserving our environment. Thus, it is important for offsets to have more than simply environmental benefits. The fact that Colgate is an academic institution also makes it imperative that Colgate links its purchase of offsets to education. This is already occurring to some extent, evidenced by this research. In speaking with senior level administrators, it has become clear that Colgate is most interested in offset projects that 16

17 can be directly tied back to the University, therein providing the University with cobenefits. Below are the potential benefits for each category: Community Benefits (Rocky Mountain Institute, 2002) Job Creation Money Increase in Recreational Areas Improved Relationship between the Community and Colgate Environmental Benefits (Duke University, 2008) Improve Water Quality Improve Air Quality Improve Soil Quality Improve Wildlife Habitat Link to Education Students can visit offset projects to learn about the process Students can research the effectiveness of projects Colgate will need to determine which of these categories is most important and the importance of the benefits within each category when purchasing an offset. Evaluation of Different Carbon Offset Project Types The project types chosen for evaluation were based on the projects offered by the Chicago Climate Exchange, Carbon Fund, and Native Energy. The project types are as follows: landfill methane collection and combustion, agricultural methane collection and combustion, coal mine methane collection and combustion, agricultural best management practices (these include grassland conversion soil carbon sequestration, continuous conservation tillage, and rangeland soil carbon sequestration), forest carbon sequestration (this includes forest management, afforestation, and reforestation), renewable energy (this includes wind, hydro, solar, geothermal, and biomass energy production) (ACUPCC, 17

18 2008b), and energy efficiency (such as replacing incandescent light bulbs with CFLs, creating fuel efficient vehicle fleets, and replacing inefficient HVAC mechanical systems (ACUPCC, 2008b; Chicago Climate Exchange, Aug. 2009; Carbon Fund, 2009a; Native Energy, 2009). Technical and Procedural Evaluation of Individual Carbon Offset Projects As mentioned in the standards and third-party verifier section many of the technical and procedural requirements are addressed. Below is an assessment of the accounting standards (real, permanence, additionality) required for individual carbon offset projects. This is meant to provide Colgate decision makers with the beginning of a template with which to choose between different carbon offset projects. Table 1. Offset Projects Evaluated According to Accounting Standards Permanent Additional Real Landfill Methane Collection X X X Agricultural Methane Collection X X X Coal Mine Methane Collection * X * Agricultural Best Management Practices Forest Carbon Sequestration Renewable Energy X * Energy Efficiency X * Indicates that additional research is needed Both agricultural best management practice and forest carbon sequestration projects do not meet permanence, additionality, and real requirements (Chomitz, 2000; Manomet Center for Conservation Sciences, 2008; United States Government 18

19 Accountability Office, 2008; Nicholas Institute for Environmental Policy Solutions, 2010). Energy efficiency projects meet permanence requirements, but not additionality or real requirements (Chomitz, 2000; ACUPCC, 2008b; GreenBizCheck, 2009). Renewable energy projects meet permanence requirements, but not additionality, and real requirements need to be determined (WWF, 2008; GreenBizCheck, 2009). Coal mine methane projects meet additionality requirements, and permanence and real requirements have not been determined (WWF, 2008). Both landfill and agricultural methane collection meet all three requirements (WWF 2008, Sterling Planet 2009). In terms of accounting standards, landfill and agricultural methane collection are the best options. However, additional research regarding these projects environmental and community impacts still needs to be conducted and evaluated. Human/Environmental Interaction Evaluation of Individual Carbon Offset Projects Included below is a table summarizing the environmental and community benefits of the carbon offset projects examined. Table 2. Offset Projects Evaluated by Environmental and Community Benefits Environmental Community Landfill Methane Collection Pros -Reducing 1 ton of methane is equivalent to reducing 25 tons of CO 2 (United States Government Accountability Office, 2008) Cons -Disincentive to regulate landfills (ACUPCC, 2008b) Pros -Creates jobs: engineers, equipment vendors, construction firms, and utilities (EPA, 2010b) -Decreases odors Cons 19

20 -Reduces air pollutants that contribute to acid rain and smog (EPA, 2010b) -Health benefits (destroys nonmethane organic compounds) -Increase safety by reducing risk of explosion from gas build up Agricultural Methane Collection -Reduces runoff (Carbon Offset Providers, 2008) - Reducing 1 ton of methane is equivalent to reducing 25 tons of CO 2 (United States Government Accountability Office, 2008) -Disincentive to regulate agricultural emissions (GreenBizCheck, 2009) -Generate revenue from the sale of the gas (EPA, 2010a) -Reduces odors -Creates jobs - Supports farms (Carbon Offset Providers, 2008) Coal Mine Methane Collection - Reducing 1 ton of methane is equivalent to reducing 25 tons of CO 2 (United States Government Accountability Office, 2008) 20

21 Agricultural Best Management Practices -Can improve water quality (Chomitz, 2000) -Provides food and habitat for wildlife -May benefit the rural poor (Chomitz, 2000) -Reduces erosion -Improves soil organic matter Forest Carbon Sequestration -Reduces soil particulate emissions (Chicago Climate Exchange, Sept. 2009) -Can increase biodiversity (Chomitz, 2000) -Clean water -Wildlife habitat (Manomet Center for Conservation Sciences, 2008) - Some tree species planted may cause decreased soil fertility (Chomitz, 2000) - Recreational (Manomet Center for Conservation Sciences, 2008) - Some tree species planted may cause depletion of groundwater (Chomitz, 2000) - Decrease the amount of cropland available for crops (Point Carbon North America, 2010) Renewable Energy -Hydropower can destroy natural habitats and decrease biodiversity in fresh-water habitats (Chomitz, 2000) 21

22 -Projects can take a lot of land (GreenBizCheck, 2009) Energy Efficiency - Can reduce harmful air pollutants (Chomitz, 2000) -Some projects may need capitalintensive technologies which could result in a decrease in employment (Chomitz, 2000) From the information gathered thus far, as summarized in the table above, it appears that both agricultural best management practices and forest carbon sequestration projects have the most environmental benefits, and both landfill and agricultural methane collection projects have significant community benefits. Overall, it appears that landfill and agricultural methane collection are the most advantageous projects for Colgate to pursue, both due to their adherence to established accounting standards and their significant environmental and community benefits. The evaluation of the above carbon offset project types is a baseline assessment. More research is needed once Colgate determines how it will purchase or produce carbon offsets. For instance, the renewable energy evaluation is a general overview of the benefits and costs of that type of offset. If Colgate wanted to pursue renewable energybased offset projects, the University would need to evaluate the specific types of projects within the umbrella of renewable energy. In addition, more research would be valuable in determining precisely how a chosen project meets the technical/procedural and 22

23 community/environmental benefit requirements. The projects offered by each retailer were examined separately to allow Colgate to look at purchasing or producing offsets, both local and non-local. By listing the pros and cons of each individual project Colgate can determine which offset projects and/or retailers the University believes most fit its objectives in relation to offsets. Options for Purchasing Carbon Offsets The framework above should be utilized when Colgate considers how it will decide among specific types of carbon offset projects. In addition to specific projects, there are four basic means by which offsets can be purchased: purchasing credits from retailers, purchasing a large number of credits from a wholesaler, investing in projects with one or more other institutions, and developing projects independently. The table below compares the risks and costs of each kind of offset purchase. Risks refer to project development, verification, and monitoring (ACUPCC, 2008b). Table 3. Avenues of Carbon Offsetting Evaluated by Cost and Risk Risks Costs Retailers Low Varies Wholesale Varies Varies Investing Varies High Developing High High Colgate will need to determine if it wants to purchase carbon offsets from a retailer or wholesaler, invest or develop its own carbon offset project, or use some combination of these options. With retailers and wholesalers, Colgate would not have much control over the project location or type. Thus, the local community and environment would not 23

24 necessarily receive the benefits or incur costs. Although Colgate s community and environment might not experience the benefits or costs, another community would. In addition, the location affects the degree to which Colgate can incorporate carbon offset projects into the educational experience. Local offset projects would allow Colgate students to visit, learn about, and conduct research regarding the offset projects. Another factor to consider is that purchasing from retailers and wholesalers is not as expensive as investing or developing offset projects (ACUPCC, 2008b). Local Offset Projects: Our group decided to evaluate more in depth the options for pursuing local offset projects because it appears that, at this time, Colgate s administration is partial to local offset projects because of the ability to incorporate them into the educational experience. Local offsets have community and environmental benefits as seen in Table 2, as well as educational benefits students can visit and learn about local offset projects. If Colgate decides to pursue local offsets it will need to determine the feasibility of the different types of offset projects and whether it is practical to work with a developer or do it entirely on its own. As an example, Colgate is located in a farming community. Thus, there are opportunities to pursue agricultural best management practices, such as conservation tillage. However, Colgate still needs to consider issues of accounting for greenhouse gas emission, which can be difficult to determine in these instances. Another option for Colgate to consider is a community empowerment project, such as a light bulb exchange in the Hamilton community, in which students would replace incandescent light bulbs with compact fluorescent light bulbs (CFLs). Such a community empowerment project would benefit the local community by reducing electricity use and, as a result, 24

25 electricity bills. In addition, it fosters the relationship between students and community members and students have the opportunity to participate directly in the project. However, as other colleges have shown, there are some important drawbacks. Brown University and Colorado University - Boulder have found that there are challenges in accounting, verification, and permanence. There is also the issue of ownership because homeowners may take credit for the light bulb switch (Andrews, 2010). Colgate also needs to consider the costs and timeframe when considering the types of projects it would like to pursue. Predictably, some projects are more expensive than others. For instance, reforestation is more expensive than landfill methane recapture. Reforestation has a higher cost due to land acquisition and monitoring costs. With regards to timeframe, some projects take significantly longer to develop than others. For instance, most agricultural and forest sequestration projects take a long time to materialize around forty years (Responsible Purchasing Network, updated). If Colgate is serious about becoming carbon neutral in a relatively short timeframe, yet wants to do so through local projects, we recommend that the University pursue either a landfill or agricultural methane capture offset project. These projects can be implemented quickly because the requisite technology is already in place. In addition, these projects meet many of the technical and procedural requirements along with imparting significant community and environmental benefits. Given the difficulty and time necessary for conducting all of the accounting internally, we believe that Colgate should work with either a developer or a third-party verifier to help lead the offset projects through these stages. These experts will help address issues of permanence, verification, ownership that are inherent in all offset projects (Andrews, 2010). 25

26 Potential Carbon Offset Retailers The Environmental Senior Seminar Group also looked into purchasing carbon offsets from several retailers. We have chosen three offset retailers to examine in greater depth: Chicago Climate Exchange, Carbonfund, and NativeEnergy. The Chicago Climate Exchange was chosen because it met most of the requirements in Duke s CAP analysis. These requirements include additionality, verification, permanence (accounts for reversibility), leakage, and clear ownership. The Chicago Climate Exchange is also the world s first, and America s only, greenhouse gas emissions registry, reduction, and trading system. The Carbon Fund was chosen because it is widely considered one of the industry leaders. Finally, NativeEnergy was chosen because it is where several members of the Colgate community currently purchase carbon offsets. There are many other companies and institutions from whom Colgate could purchase offsets. Although they are not examined in this paper, they include Climate Trust, Sustainable Travel International, AtmosClear, Bonneville Environmental FDN, Certified Clean Car, ClimateSAVE, Conservation Fund, DriveNeutral, E-BlueHorizons, Leonardo Academy, Natsource/Dupont/BlueSource, SELF, TerraPass and TIST (Clean Air Cool Planet, 2006). Chicago Climate Exchange To evaluate the technical and procedural component in determining what constitutes a quality offset, we reviewed the Chicago Climate Exchange s (CCX) standards, which are as follows (Chicago Climate Exchange, Aug. 2009): 26

27 1. Relevance-CCX Protocols are designed to balance requirements for adequate documentation and verification of environmental effectiveness with the goal of minimizing transaction costs while maintaining environmental integrity. 2. Completeness-CCX Protocols are developed to ensure all emissions sources are appropriately included and quantified, project leakage is addressed, negative environmental and social impacts are avoided, and reporting requirements are well-defined. 3. Consistency-CCX project types obtain consistency through the development and use of standardized protocols and to ensure compatibility with emerging national and international standards. 4. Accuracy-CCX Protocols are designed to generate unbiased estimates of emission reductions. Emission reduction estimates represent the best available scientific and technical information, as evidenced by peer-review published studies and high-quality research findings. 5. Transparency-CCX Protocols and verification procedures are designed in a transparent fashion to evaluate and incorporate input from multiple stakeholders. Protocols are designed through a tiered committee, peer review and public comment process. 6. Conservativeness- Conservative quantification methodologies are adopted to ensure that accurate estimates will, if any potential deviations occur, undercount the quantity of actual GHG mitigation through the application of discounts to parameters used to calculate offset values. The study done by Duke University determined that CCX offsets are additional, permanent, and real (Duke University, 2008). The issue of double counting is addressed through a public listing of all projects. Projects must also provide evidence that they are not a part of any other registry. The CCX also deals with the issue of permanence for forest sequestration projects through what they term the Forest Carbon Pool. According to CCX, A quantity of CCX Offsets equal to 20% of all Exchange Forestry Offsets generated by CCX eligible forestry projects is held in a CCX Forest Carbon Reserve Pool. Exchange Forestry Offsets in the Forest Carbon Reserve Pool will be used to compensate for any catastrophic losses. All CCX Exchange Forestry Offsets in the reserve pool shall be released to project owners at the end of the program provided no losses in carbon have occurred on the enrolled acres (Chicago Climate Exchange, 2007, 27

28 p. 5). The CCX also requires all projects to be reviewed by an independent third-party verifier. When evaluating retailers, the type of offset projects that the retailer supports is a critical factor in determining the quality of the retailer, as these can affect both the technical and procedural components and the human and environmental interaction component. The Chicago Climate Exchange supports six types of offset projects: landfill methane collection and combustion, agricultural methane collection and combustion, coal mine methane collection and combustion, avoided emissions from organic waste disposal, agricultural best management practices, and forest carbon sequestration (Chicago Climate Exchange, Aug. 2009). Carbon Fund The Carbon Fund s quality offset criteria is as follows (Carbon Fund, 2009a): 1. Real-The quantified greenhouse gas or carbon reductions must represent actual emission reductions that have already occurred 2. Additional- the greenhouse gas or carbon reductions must be surplus to regulation and beyond what would have happened in the absence of the project or in a business-as-usual scenario based on a performance standard methodology 3. Permanent-The greenhouse gas or carbon reductions must be permanent or have guarantees to ensure that any losses are replaced in the future 4. Verifiable-The greenhouse gas or carbon reductions must result from projects whose performance can be readily and accurately quantified, monitored and verified The criteria above are in accordance with the technical and procedural requirements that our group has determined are necessary in ensuring this aspect of quality. The Carbon Fund supports offset projects relating to renewable energy and methane capture, energy efficiency, and reforestation. The Carbon Fund states that its 28

29 participants are able to choose what projects they invest in a potentially interesting option for Colgate to investigate further in the future. NativeEnergy NativeEnergy s main approach to renewable energy is their unique help-build model, in which donations act as upfront cash payments for projects that otherwise wouldn t get off the ground. NativeEnergy has used this model to create more than 15 wind, solar and methane projects all over the United States. NativeEnergy will purchase 2/3 of REC output and sell these them as traditional RECs to consumers. All NativeEnergy carbon offset projects are verified under one of the following standards: the Voluntary Carbon Standard, Gold Standard, Climate Action Reserve, Clean Development Mechanism, or the Joint Implementation under the Kyoto Protocol. All projects must be evaluated as financially additional to United Nations Framework Convention on Climate Change guidelines, which means that the project faces barriers to implementation, including high capital costs of equipment and lack of economies of scale (NativeEnergy, 2008). There are several reason why we feel purchasing offsets from NativeEnergy is a good option for Colgate. We believe that the NativeEnergy help-build approach is attractive to Colgate because all of its projects and operations are within the USA, which ensures our investments would support domestic, if not local, offset projects. Also, one of NativeEnergy s goals is to create offset projects that benefit communities in need, such as Greensburg, Kansas. In May of 2007, 95% of Greensburg was destroyed by a tornado. After the tornado, city officials vowed to rebuild Greensburg as the greenest city in America. The project will bring significant economic and environmental benefits to the 29

30 local community, which lost countless jobs as a result of the tornado. NativeEnergy is covering all of the up-front costs, and the resulting energy will power close to 4000 homes (more than enough energy for the entire community). Past projects have supported other in-need communities, like Native American communities, family farms, and rural communities. These past projects have included methane power, solar power, wind power, biomass, and transportation efficiency. NativeEnergy offers RECs and vintage offsets, which they claim are important in creating overall market demand for clean energy and are sold from electricity generated by past NativeEnergy projects. Also, all RECs and carbon offsets sold through NativeEnergy are verified to the following certification standards: UNFCCC Clean Development Mechanism, Gold Standard, VER+, the Voluntary Carbon Standard, and the Environmental Resources Trust protocols. We also recognize that there are some drawbacks to NativeEnergy s business model that might result in hesitancy on Colgate s part. Most importantly, of all 17 projects NativeEnergy has helped create, none are located in New York State. In speaking with administrators, we recognize that Colgate, to the extent it is possible, prefers to participate in carbon offset projects that are either local to the Colgate community or contribute to the educational experience at Colgate. In this respect, NativeEnergy s projects may not align with the University s preferences. Timing Discussion In a meeting with senior administrators, it was suggested that Colgate ought to aim to achieve climate neutrality by The argument behind this timing is as follows: the earlier Colgate can become climate neutral, the greater the strategic advantage it can 30

31 realize. As the target year for climate neutrality moves further and further into the future, Colgate will sacrifice some portion of this strategic advantage, and at some point we will have lost most, if not all, of it. Assuming that any residual emissions would be offset at a target date in the future, several different mitigation/emissions scenarios have been modeled in order to demonstrate possible paths for the University. These should not be viewed as empirically grounded, but rather as a theoretical exercise in order to help demonstrate how Colgate can actually go about becoming climate neutral. These paths emphasize the mitigate first approach, discussed below, up to a certain date. At that date (2025, e.g.), the University will have implemented mitigation projects (and perhaps also the development of its own carbon offset projects), and will purchase the necessary offsets to balance its net emissions and achieve climate neutrality. These different paths give a reasonable estimate of the range in which Colgate s real emissions (before offsets) will be at any given date, based on several generally accepted reduction forecasts. Following Colgate s first comprehensive Greenhouse Gas Emissions Inventory, conducted by Ben Taylor 10, the University s baseline emissions have been calculated at 17,380 tons of CO 2. Presumably, once the University sets a definite target date for reaching climate neutrality, the most pressing question becomes how it should go about doing so. The following discussion lays out several possibilities relating to staging the purchase of carbon offsets. The goal of this section is to help frame the discussion, as well as to provide educational material to decision makers so that future decisions surrounding carbon offsets are made with the best information available. 31

32 The purchase of carbon offsets and the pursuit of mitigation strategies are inextricably linked. Despite their distinct characteristics, each practice has the same aim the reduction of greenhouse gas emissions. While pursuing either practice separately has definite benefits, a coherent long-term approach requires the incorporation of both. Without offsets, Colgate University will be unable to reduce its carbon footprint to zero, at least in the foreseeable future. The neglect of mitigation strategies while pursuing carbon offsets can reduce the University s carbon footprint to zero but likely makes little financial or moral sense if we continue to pollute the same amount. One of the key lessons of carbon offsets, and climate change policies in general, is the importance of incorporating behavior change which this approach does not emphasize explicitly. When determining the balance between mitigation and offsets, the net benefits of the specific projects feasible under each approach ought to determine which ones are pursued, as described above. Based on our research, as well as discussions with Colgate administrators, it has become clear that the non-financial components of projects must play a significant role in this calculus in this paper, these components have been termed co-benefits. Specifically, mitigation and local carbon offset projects appear more desirable from the University s perspective because these projects may provide students an enriched learning experience, whether that occurs through the study of the projects, behavior change encouraged by the projects, or coursework incorporating the projects. For these reasons, the net benefits of mitigation projects and local offset projects are inherently greater than the net benefits of other offset projects, when viewed from the University's perspective. 32