Carbon Offsets

As climate change dialogue enters the mainstream, many of the world's nations, corporations, and individuals have set the goal to become carbon neutral. In the short term, directly reducing carbon emissions to zero is an impossible task. Thus, a key mechanism to achieve carbon neutrality is the use of carbon dioxide offsets. In this post, I want to briefly examine carbon offsets, their applicability to urban carbon neutrality, and the role they may play in Taiwan's low carbon city plans.

What is a Carbon Offset?

In theory, carbon offsets are a wonderfully simple concept.* Any emitter of carbon dioxide (a state, corporation, or individual) can "offset" his CO2 emissions by investing in a project that will reduce an equal amount of carbon dioxide. Thus the carbon emitter mitigates his CO2 emissions indirectly through a financial investment. Measured in tons of carbon dioxide equivalent (CO2e), carbon offsets include investments in afforestation, renewable energy, and energy efficiency. Carbon offsets require accurate estimations of carbon emissions and often take place under cap-and-trade programs (such as the European Union's Emissions Trading System). Another key aspect of carbon offsets is the notion of "additionality." In order to effectively reduce CO2, carbon offsets must direct investment towards projects that would not have otherwise been carried out, thus it must be "additional."

While the idea of carbon offsets is straightforward, its implementation is complicated. There are several different standards of carbon offsets operating under a porous regulatory framework. Ensuring that a theoretical amount of carbon will not be emitted is an inherently difficult task. Planting 100 trees may reduce a designated amount CO2 when extrapolated over 20 years, but what happens if they are destroyed or harvested after 15? It is also difficult to prove additionality; there have been cases where carbon offsets are diverted towards projects already supported by other investment mechanisms.

Carbon offsets are playing an increasing role in the global climate change dialogue

At best, critics charge carbon offsets with being inefficient and misguided attempts to reduce global CO2 emissions. At worst, offsets represent fraudulent manipulation of customers good intentions. In 2007, The New York Times reported on the Vatican's ambitious carbon offset scheme, "The Vatican Climate Forest." By planting trees in a 37 acre tract of land in Hungary's Bukk National Park, The Vatican would become the world's first carbon neutral state. However, as revealed by The Christian Science Monitor, the project has been marred by scandal and presents a cautionary tale for those relying on carbon offsets as the lynchpin of a carbon neutrality strategy. Nearly four years after the Vatican's announcement, the future of the project remains in doubt, no trees have been planted, and no CO2 has been offset.

Carbon offset industry leaders refute these charges and distance themselves from those who would defraud or mislead customers. Increasing familiarity with the pros and cons of offsets will serve to strengthen consumer confidence over time. Standards are in regulatory oversight are also improving. The British Standards Institute (BSi) has released PAS 2060, a leading carbon neutrality benchmark system. PAS 2060 clearly delineates the appropriate role of carbon offsets in carbon neutrality plans and identifies standards for certification.

*For a more detailed explanation of carbon offsets, please refer to the World Resources Institute's "Bottom Line on Offsets"

Urban Carbon Neutrality

Despite their controversial nature, it is evident that the carbon offsets are growing at a rapid pace. Carbon offsets have been utilized by airlines, banks, and even media conglomerates as individuals and organizations seek to reduce their carbon footprints.

Carbon offsets are also being employed by municipal governments to foster low carbon or carbon neutral city development. Cities can achieve a carbon neutral status by improving energy efficiency, developing higher amounts of renewable energy, and investing in carbon offsets. San Francisco and Salt Lake Cityhave developed offset projects to mitigate emissions from municipal air travel. To leverage support for its offset initiative, San Francisco also inaugurated the Climate Passport program. Passengers at San Francisco Airport can offset their CO2 emissions by directing money toward forest conservation in Mendicino and the San Francisco Carbon Fund. While air travel has been a popular venue for carbon offsets, other cities have implemented a more tangible approach. In 2009, the city of Philadelphia created Erase Your Trace. The initiative allows Philadelphians to calculate their personal CO2 emissions and make a corresponding donation to a local non-profit conservancy. The money is then invested in planting trees across Philly's neighborhoods, keeping the offset local.

Masdar: The world's first carbon neutral city? (photo by Simon)

In many urban low carbon strategies, offsets serve a supplementary role. While other direct avenues of carbon reduction undergo planning, offsets can immediately reduce a city's carbon footprint. In Sydney, the city has shifted resources from carbon offsets to local renewable energy deployment. Once Sydney formulated its own low carbon investment plan, carbon offsets were rebalanced and reduced to reflect its changing priorities. Moreover, carbon offsets can be utilized to promote future low carbon city development. Construction costs for the Masdar Ecocity project in Abu Dhabi are partly funded by the sale of carbon offsets through the Kyoto Protocol.

Here in Taiwan

In Taiwan, recent years have witnessed some progress in the carbon offset market. As a precursor to Taiwan's cap-and trade policy, 266 companies responsible for the bulk of Taiwan's national CO2 emissions submitted their emissions data to the EPA in 2010. Taiwan's industries can now make carbon trades and isolated actors, such as National University of Kaohsiung, have utilized offsets to make events carbon neutral.

However, widespread adoption of carbon offsets has been slow. The EPA has yet to enact a carbon trading scheme or formally endorse any particular carbon offset standard. Jules Chuang, East Asia Principal for South Pole Carbon Management, is optimistic about prospects for carbon offsets in Taiwan but recognizes current barriers. As Mr. Chuang relates, "With both supply and demand unclear, what is needed is a clearer game plan." Ambiguous signals have precluded offsets from becoming a key strategy of Taiwan's low carbon city development. There also exists a general distrust amongst Taiwanese regarding the prudence of investing in CO2 reduction projects overseas.

Taiwan's carbon offset market is growing slowly (photo by David Reid)

Despite its slow start, the carbon offset market in Taiwan is poised to take off. Taiwan has stated a vague goal of becoming a low carbon country by 2020. Achieving a significant reduction in Taiwan's carbon footprint in less than ten years will necessitate the use of carbon offsets. In the near term, Taiwan's carbon offset market needs explicit direction from the government. As Taiwan waits for cap-and-trade legislation to clear its legislative hurdles, the EPA could formally adopt one or several existing carbon offset standards.

EPA support for the carbon offset market would catalyze local and regional initiatives. As a part of Taiwan's low carbon communities plan, several municipal governments are in the process of applying for EPA funding for low-carbon projects. As in Sydney, Taiwanese cities could use offsets as a bridge to carbon neutrality. Moreover, Taiwanese cities should explore strategies to keep offsets reinvested in local communities. Local carbon offsets projects would familiarize Taiwan's public with the concept of offsetting and slowly build acceptance for overseas investment.