Carbon offset market grows up, problems remain

By Nina Chestney
LONDON, Oct 3 (Reuters) - A growing carbon offset market is trying to woo the public and companies with new ways and standards to cut their contribution to climate change, while dispelling continued doubts that such schemes do any real good.
The offset market is dominated by companies that fund emissions cuts, often in a developing country, thereby generating emission reduction credits that they sell on to customers in the West.

That voluntary carbon market sold about 65 million tonnes of avoided carbon dioxide (CO2) emissions in 2007, worth some $330 million, but is still dogged by criticisms that it lacks transparency.

"We started off as an offset charity but soon realised all the complications that came with it. The whole market is shrouded in controversy," said the chief executive of C-Change Trust, Jonathan Ekin.

"We go to companies and tell them to forget about offsetting. It's a dying breed, like the dotcom boom."

Instead, the trust asks businesses to acknowledge their emissions of the greenhouse gas through a charitable donation of 10 pounds a tonne.

The group then invests the profits into the UK education system, investing in renewables to reduce the overall carbon footprint of schools, Ekin said.

"People are looking for alternatives. Offsetting was something that worked a while back but now it has a negative undertone. If you want to buy credits, you don't know where they have come from. That is why it is so controversial," Ekin said.

GROWING UP
Offsetting companies defend their business models by saying they have introduced new trade bodies and standards, some of which include tracking systems so that buyers know exactly where, how and when the emissions cuts were made.

The industry got a bad press from projects that sold emissions reductions from planting trees -- which absorb carbon dioxide as they grow -- as it was selling emissions cuts now, which may not happen for decades as the trees reach maturity.
"The smaller (forestry) firms really only made up 2-5 percent of the market," said Edward Hanrahan, executive director at JPMorgan ClimateCare .

"There were several hundred of them existing as cottage industries, and while some came in with good intent, that wasn't always backed up with the knowledge necessary to ensure the quality of projects and real emissions reductions," he said.

One bonus of the voluntary market is that it is cheaper than funding emissions cuts in regulated carbon markets, such as the EU emissions trading scheme (ETS) and under the Kyoto Protocol.

These are more expensive because the resulting offsets draw extra demand from big corporates, which can use them to comply with greenhouse gas emissions targets under regulated Kyoto and EU caps.

For example, carbon emissions permits accepted under a U.N.-led scheme under the Kyoto Protocol cost around 19 euros ($26.33) per tonne, compared with a $6.3 per tonne for voluntary permits in mid-2008, according to New Carbon Finance.

In addition, the regulated, U.N.-run market charges approval fees that smaller and perhaps more socially beneficial projects, notably in Africa, cannot afford -- pushing them into the voluntary market.

"If I had 24 euros to spend, I would want 2.5 tonnes of real reductions to be made, not one Phase II EUA," said Hanrahan, referring to more expensive EU allowances under the EU emissions trading scheme. (Reporting by Nina Chestney; Editing by Gerard Wynn and Anthony Barker)