Erik Blachford, CEO of TerraPass, saw my post on carbon offsets and wrote to ask if he could help us better understand the wonderful world of carbon offsets –Of Course!, I replied. Talking to him helped me realize how complex the carbon finance world is AND got me motivated to learn more. The following is my list of highlights . . .

• A carbon offset is a financial instrument that represents a reduction or removal of carbon dioxide, or its equivalent in other greenhouse gases (methane, nitrous oxide, sulfur hexafluoride, HFCs, PFCs).
• Countries, companies or individuals can purchase offsets from two types of offset markets: compliance & voluntary
• The “Annex I” countries that ratified the Kyoto Protocol (entering into a legally binding international agreement to reduce their collective emissions to 5.4% below 1990 levels by 2012) participate in the compliance market. The European Union Emissions Trading Scheme (EU ETS) is an example.
• The voluntary market is made up of the Chicago Climate Exchange (CCX) -a structured and closely monitored voluntary cap-and-trade system and the more disaggregated over-the-counter (OTC) market which represents a wide range of voluntary transactions made on a deal-by-deal basis.
• The 2007 total global offset market value was $64 trillion -$63.6 trillion of which comes from the compliance market (and of that $63.6 trillion, $50 trillion comes from the EU ETS).
• Although the 2007 total voluntary market only accounted for $331 million (Erik estimates $5 million in the U.S.), it grew at a rate of just over 300% between 2006 and 2007.
• If you are interested in purchasing carbon offsets to mitigate airline travel, car travel, all those burgers you’ve been eating, etc. make sure that the company you are purchasing them from VERIFIES and VALIDATES their greenhouse gas reduction projects using an independent standard (TerraPass uses the Voluntary Carbon Standard). Verification and Validation ensure that offsets are producing authentic benefits that are “additional” to business-as-usual activities, measurable, permanent and unique.
• Regarding the uniqueness of offsets, another important thing to look for is a project registry. Registries track projects and help prevent offsets from being used twice. The registry is important because a carbon credit in the voluntary market doesn’t actually offset another greenhouse gas emission until it is retired. When an entity purchases carbon credits to offset greenhouse gas emissions, the carbon credit is then retired and cannot be sold again. Without a good registry, fraud would be easy.

It’s pretty fun and interesting to explore one’s carbon footprint -and the calculators are getting better and better. It can also be fun to try and reduce your footrpint -whether you decide to consume less, get more efficient, purchase offsets or some combination of all that and then some, get creative and tell us what you’re doing!

New Carbon Finance
World Bank Carbon Finance Unit