An Introduction to Carbon Offsets Presented December 10 th, 2010 by: Tom Baumann Co founder and Director Greenhouse Gas Management Institute
Overview 1. What is an offset, types of projects, reductions 2. Criteria relevant to offset accounting, additionality tests, baselines, verifiability... 3. Overview of offset markets, regulated and voluntary, prices, volumes, risks 4. Resources
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What is an offset? Definition: A greenhouse gas (GHG, or carbon) offset represents a reduction or removal of greenhouse gases from the atmosphere due to a specific project activity that can be used to compensate for emissions occurring elsewhere. Offsets are emissions reductions from facilities or activities in economic sectors or geographic locations not covered by an existing GHG emissions cap (avoid double counting).
Carbon Offsets Transacting Offset Emissions Emissions Offsets Payment Company Net Emissions to reach target or comply pywith cap Emission Reductions Project Emissions Baseline Emissions Company Emissions Project Emissions Reductions
Carbon Offsets Baseline minus Project Baseline Emissions Emission Reduction, Destruction or Avoidance Project Emissions Baseline Removals Project Removals Removal Enhancement
Examples of project types Programs differ on recognition of project types Destruction, e.g. CH4 from LFG, manure Renewable power, e.g. Wind, small hd hydro Industrial projects, e.g. SF6, N2O, PFCs, ODS, cement substitution Forestry, e.g. Afforestation, REED Energy, e.g. Flaring/venting reduction, energy efficiency Agricultural, e.g. N2O reduction, manure management, soil sequestration Fuel switching, e.g. Lower carbon intensive i fuels, biofuels WWT, composting, recycling, transportation, modal shift...
Project example 1 Onsite reductions (direct) of GHG emissions by switching to low carbon fuel energy Switching from gasoline to biofuel combustion Project activity Biofuel Baseline Gasoline Biofuel Vehicle Fleet Gasoline Vehicle Fleet Baseline transport transport Carbon Offsets from less direct GHG emissions from vehicles fuel switching to carbon neutral fuel
Project example 2 Offsite reductions (indirect) of GHG emissions associated with the generation of electricity Grid connected renewable electricity from wind Project activity Wind Turbine Wind Electricity Carbon Offsets Project from less indirect GHG emissions from power plants Baseline Grid reducing on fossil Mix of coal, NG, Baseline fuel use and hydro, nuclear, etc. (operating, Electricity combustion build, etc.)
Project example 3 Enhanced removals of CO 2 from the atmosphere by forest or agricultural biological processes Reforestation project Project activity More Atmospheric CO 2 Baseline Atmospheric CO 2 More trees removing and Carbon Offsets storing carbon from more direct GHG removals and Existing storage by trees vegetation removing and storing carbon
Offset quality criteria Be real Be additional Be based on an approved baseline Be measurable and measured Be independently verified Be unique and have clear ownership Address leakage Do no harm, and Address permanence
Additionality tests Regulatory Age or initiation date Financial i Barriers (non financial) Common practice Performance benchmark Ultimate question: Is the project made possible by the economic incentive of offset credits (or market)
Baselines The baseline scenario is a hypothetical reference case that best represents the conditions most likely to have occurred in the absence of a GHG project What would have happened in the absence of the project
Regulated vs. Voluntary markets Regulated markets Entities regulated and must surrender allowances + credits equal to emissions 3 rd party verification required Penalties for non compliance Quantity, types, & quality of offsets strictly regulated Kyoto, EU ETS, RGGI, WCI, Alberta, BC Voluntary markets Entity has other drivers such as brand and place to learn Verification optional No penalty if the targets are not reached hd No or little regulation of offset quality CCX, carbon neutral claims
Offset Trading Volume & Value
Offset Prices
Conclusion Ifdone well, carbon offsets/credits can be effective incentives for green solutions to enter the market and contain costs of reaching GHG reduction targets Resources: www.co2offsetsresearch.org www.unfccc.int/cdm www.westernclimateinitative.orgwesternclimateinitative www.offsetqualityinitiative.org www.ecosystemmarketplace.com com
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