Select Committee on Environmental Audit Sixth Report


Growth and strengths

32. The voluntary carbon offset market is still a new, emerging market, but it appears to be growing rapidly. The Climate Group told us that the market doubled to trade in approximately 20 megatonnes (Mt) CO2e in 2006, a figure it expects will grow to approximately 400 Mt CO2e by 2010.[39] Defra told us that the market was valued at £60 million in 2006 and that it predicts it to grow to £250million by 2009.[40]

33. One of the strengths of the voluntary market highlighted to us in evidence is its ability to be a source of 'innovation' for the credits and projects operating outside the compliance market.[41] The rules and regulations of the compliance market are strict and often problematic for many smaller projects which do not have the funds, time or expertise to cope with the burden of administration. Methodologies for new project types are slow to develop and evolve. Away from these constraints, the voluntary market is able to develop projects in different countries from where most of the compliance market projects are based, in particular in Africa where currently only 1% of CERs originate.[42] Often, voluntary market projects have more 'value-added' characteristics than those found in the compliance market, such as additional environmental or sustainability benefits.[43]

34. The voluntary market also supports a diversity of projects and can act as a testing and learning ground for new projects wanting to enter the compliance market. This is particularly the case for forestry and land-use change projects. There are very few such projects in the compliance market at the moment, but developers are working on methodologies which they hope will allow them to be part of the CDM. The market also allows for smaller-scale projects to develop, which would otherwise find the costs and administration required for the compliance market too burdensome. Furthermore the Co-operative group told us that:

    Perhaps the greatest benefit of the voluntary market is that it achieves CO2 savings in addition to those achieved under the Kyoto protocol. This guarantees to consumers that their offsetting goes above and beyond what is legally required of governments and industry.[44]

The market is far from perfect however, and recently its shortcomings have been highlighted in the media.[45] It is vital that if the voluntary carbon offset market is going to be seen as a credible and legitimate way to assist with reducing emissions that these problems are identified and addressed.

Current problems

35. Problems with the voluntary carbon offset market fall broadly into two categories, those associated with the offset projects themselves, and those associated with offset provision to consumers. Many of the problems, particularly those relating to projects, apply both to those within the compliance market and the voluntary market. However, these problems often become more significant in the voluntary market as there are no overarching, enforceable standards by which to assess them or mitigate them.


36. One of the problems most commonly cited is project failure. A number of submissions highlighted the case of the mango plantation offset project sponsored by the music band Coldplay and their fans to offset the emissions from their concerts.[46] Here 40% of the plantation died as there was not enough water made available to support the project. Some of this can be attributed to lack of expertise on the part of the project developer. Carbon Trade Watch also told us that part of the problem is that nobody is willing to take responsibility for project failure, particularly where offset companies and project partners work together.[47]

37. Another similar problem is where a project causes an unintended, but detrimental effect on something either inside or outside of the project boundary. For example, if a forestry project used up a significant amount of a local water supply, then this might have an effect on local agriculture and the ability to grow crops outside of the project. As with project failure, this can be caused by a lack of responsibility or 'ownership' of the project which in turn causes bad management of the project, or it can be that the project was either planned badly or implemented too quickly. Similarly 'leakage' can occur when the carbon emission being reduced in one area, for example by protecting an area of forest from deforestation, is displaced to another area. In this example the effect of protecting one area of forest might mean that more trees are consequently felled in another and thus transferring the carbon emission to this other area.

38. One of the major points of contention around all offsets projects, is that of 'additionality'. Only credits emerging from the compliance market or voluntary standards have formally to prove additionality, but it is a concept that should apply to all projects whether explicitly or not. As WWF-UK told us: "additionality is key to the environmental integrity of offsets".[48] Additionality means that a project has to demonstrate that it goes beyond what would have happened anyway. For example, if a project funded the installation of energy-efficient light bulbs in a school in Africa where there was no chance of this happening otherwise, then it could be said to be additional. If however, the Government in that country were planning install such light bulbs in a similar timeframe itself, then the project could not claim that it was additional, or that it went beyond 'business-as-usual'. Proving additionality is a contentious issue and it is not always clear-cut what business-as-usual is, or will be in the future. There are also a number of different standards governing additionality, particularly in the voluntary market where some are stronger and more difficult to meet than others.[49]

39. Calculating an accurate carbon reduction or saving is another problem, particularly so for projects which sequester carbon from the atmosphere. The evidence we received revealed a strong debate around how to calculate carbon savings from such projects and whether or not the science is robust. Another issue, often associated with forestry projects, is that of permanence. For example, during the life-cycle of a tree it will absorb a certain amount of carbon. However, if the tree were to burn down, some of this stored carbon would be re-released into the atmosphere. As with all 'carbon-sink' projects, it is very difficult to guarantee absolutely the permanence of the carbon saving.

40. For credits emerging from voluntary projects in particular, verification of the emissions reduction can also be a problem. Verification ensures that the claimed emissions reduction by the project has been achieved. To ensure integrity of the resulting credits this should be done by an independent third party to an established protocol or standard.[50] Many voluntary market credits are verified, but some are not. This means that the claimed emission reduction of some credits emerging from the voluntary market can be 'dubious'.[51]


41. The evidence we received revealed that there was often very low availability and transparency of information from offset providers about the nature and type of credits for sale. RSPB told us that:

Different providers produce varying levels of information about the types of project a consumer is investing in (whether it is one project or several), any certification scheme the project has gone through, any standards that the credit meets, and how emissions savings or reductions have been calculated. It can be unclear what type of credit a consumer is purchasing: whether a consumer is buying a compliance market based credit, or a voluntary market credit. It can also be difficult to gain information about how much money a consumer spends goes towards the project or how much goes simply towards meeting the offset providers' overheads.

42. Another problem in the voluntary market is that the price of an offset for a set amount of carbon can vary depending on the provider used. The quantity of carbon that a consumer needs to offset for the same activity can also be calculated in a variety of ways. WWF-UK highlighted a study in Nature,[53] where three different offset providers calculated three different quantities of carbon to be offset for the exact same flight. This issue was also focused on in the Tufts Report, Voluntary Offsets for Air-Travel Carbon Emissions, April 2007. The difference in prices occurs in the voluntary market as there is no standard approach towards calculating quantities or pricing structures. In calculating the emissions for a flight, for example, some calculations take into account the emissions from the ground vehicles which service the aircraft before take-off, other calculations are taken only from the flight between A and B itself. In the compliance market the United Nations Framework Convention on Climate Change (UNFCCC) lays down standards for calculating emissions. In the voluntary market however there is no such standard and consequently a variety of calculations and prices for what is essentially the same activity. This leads inevitably to confusion for the consumer.

43. Double counting is an issue which can arise when several people try to take the credit for a carbon saving from one project. This can occur unintentionally through bad management of a project with a bad audit trail, or, it can occur intentionally through somebody trying to commit the fraudulent act of selling a credit more than once. To guard against this, compliance market credits are recorded in a registry and are 'retired' once they have been used to offset emissions. In the voluntary market there is no formal requirement to register or retire credits although some of the voluntary standards do have their own registries. In addition to double counting at project level, it can also occur where voluntary reductions are counted against national or international mandatory targets.[54] To guard against this national and international registries are required to keep account of credits.

44. Another issue with offsets is future value accounting. Future value accounting is where somebody is sold an offset today, but due to the nature of the project from which the offset derives, it will actually take several years before the emission saving is made. This can lead to the situation where somebody buys an offset thinking that they have thus offset their emissions, but in reality their emissions would not be fully offset for a number of years. Often the issue is that people do not realise that this is the way some offset projects work. Also, the longer the project takes to make the reduction, the more chance there is that something might go wrong and that the already purchased offset may never actually occur.[55] Some people see future value accounting as a fundamental problem, while others, however, see it as a necessary way to do business and raise project finance. In their evidence to us London Climate Change Services said that investors putting money into a project which they expect will yield emission reductions in a number of years is a valid risk, but that they see it as unacceptable when this risk is passed on to the consumer.[56] It is not always clear however in the voluntary market exactly who is bearing the risk. The need for clarity and transparency in the offset market is paramount. The Government must ensure that, by means of its proposed code or quality mark, or by other related measures, greater transparency is brought by offset providers to what is anyway a complex and currently an opaque market. Without transparency consumers will have little confidence in purchasing or otherwise dealing in offsets, confidence that the market needs in order to grow.

39   Ev128 Back

40   Ev163 Back

41   Ev86 Back

42   Ev75 Back

43   Ev90 Back

44   Ev91 Back

45   "Carbon offsets that couldn't be less green", The Sunday Times, 15 April 2007; "National: Science: How trees might not be green in carbon offsetting debate", The Guardian, 10 April 2007; "Offsetting your carbon footprint takes decades", The Sunday Times, 11 March 2007; and "Companies revolt over carbon offsetting", Independent On Sunday, 25 February 2007. Back

46   Ev17 The Corner House; Ev57 FERN; and Ev185 Carbon Trade Watch Back

47   Ev188 Back

48   Ev231 Back

49   Ev231 Back

50   The Carbon Trust "The Carbon Trust three stage approach to developing a robust offsetting strategy" 17 November 2006 p.13 Back

51   Ev214 Back

52   Ev6 Back

53   Ev232 Back

54   The Carbon Trust "The Carbon Trust three stage approach to developing a robust offsetting strategy" 17 November 2006 p.13 Back

55   Q 140  Back

56   Q 390  Back

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Prepared 23 July 2007