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    The truth about offsetting

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    I was at a friend’s 40th the other night and got into one of those stupid arguments that you sometimes get into with other drunk people, where it’s clear the other person is just spouting all this tired, debunked nonsense about an industry or practice that you know intimately. And yet, because you are both drunk, neither of you can get your point across.

    There is a huge public confusion about both how offsetting works, and how the offsetting industry regulates itself. Recent high-profile announcements from the ACCC on the issue have, for the moment, increased public uncertainty. There is no universally accepted definition of the term “Carbon Neutral” other than general mumblings of “measure, reduce, offset”, as if offsetting was not actually a form of reduction.

    Here’s what people don’t get about carbon offsetting. Done properly, or as the European Trading Scheme showed us so vividly, done pretty ordinarily, carbon trading schemes actually work. Emissions in the EU have started to drop. As acceptance of the idea spreads, you can expect to see that rate of improvement accelerate. The idea is catching on. I was in China recently at a carbon trading conference and the overwhelming message from that event was that the trading of carbon abatement certificates is working, volumes are rising and the rules are hardening.

    There are currently around 15 kinds of Carbon Credit, tradable in different geographic areas, within a variety of schemes. Now that Australia has joined the Kyoto club, however, we can expect the Australian National Emissions Trading Scheme to be docked to the European Emissions Trading Scheme. Our free trade agreement with the USA could be instrumental in bringing America into a post-2012 Kyoto plan, making, by around 2015, a true new global commodity market worth more money than money itself.

    That’s the grand view, and it’s certainly nice to just relax back into my Chesterfield, Monte-Christo burning in my right hand as the open fire throws long, dancing shadows across the floor, strum my fingers like Monty Burns and breathlessly mutter, “Excellent.”

    From a more ground-level view, however, it is the eventual fate of all carbon credits to be “retired” or “surrendered”. In essence, these terms mean the same thing, the technical difference being that a Kyoto country can count some of these credits towards its national total if it’s been surrendered, but not if it’s been cancelled. When a credits meets its end it can no longer be traded; it has reached its ‘end user’. Depending on the credit, you can now be certain, in a legally-provable chain of custody, that a tonne of CO2 has been either removed from the atmosphere – or it has been prevented from entering the atmosphere – on your behalf.

    Behind all of the highfalutin big talk about carbon economies, the bottom line with the buying and retiring of carbon credits is that they have taken something that was a classic economic eternality and brought it into the tent, so to speak, by ascribing it as a cost to business-as-usual. The moneys raised by this are channelled towards specific projects: Chinese wind-farms, Brazilian forests, Australian re-vegetation, rollout of solar-ovens in the developing world, changing light-bulbs, large-scale solar projects and more.

    By allowing the connections between end-users and projects to be mediated through quantifiable units of exchange, projects get a much wider and more reliable source of finance, and businesses get to outsource their emissions reduction. Most businesses don’t make their own pens, so why should they be forced to take on complicated emissions reduction strategies that may simply not be cost-effective.

    If you run a factory with 12 fridges, each with around seven years left on their usable life, it’s crazy to replace them now for slightly more energy-efficient ones. It’s better just to offset these and look for bigger cherries to pick. It’s typically much more economically efficient to outsource forestry or large scale solar farms than to try to do it yourself. Just try explaining that to a belligerent drunk person while you are similarly pixillated.

    Dave Sag is the CEO of Carbon Planet, a global carbon emissions company that builds emissions calculators and retails carbon credits to the general public and business alike. www.carbonplanet.com

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