A DANGEROUS DISTRACTION - WHY OFFSETTING IS FAILING THE CLIMATE AND PEOPLE: THE EVIDENCE - FRIENDS OF THE EARTH INTERNATIONAL
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A dangerous distraction Why offsetting is failing the climate and people: the evidence
Foreword
Negotiations to prevent dangerous
“Negotiators must recognise About this report
climate change are moving
that offsetting does not
painfully slowly, despite the science This report has been prepared
work, will not work and
demanding urgent carbon cuts. for Friends of the Earth England,
that it must be scrapped.”
Developed countries are reluctant Wales and Northern Ireland’s work
to set themselves reduction targets on international climate justice. The
consistent with what the science Offsetting is now a dangerous report is for decision makers, media
demands and provide necessary distraction. Negotiators must recognise and campaigners thinking through
financial flows to developing countries. that it does not work, will not work and robust, workable and fair solutions to
To compound this failure, they are also that it must be scrapped. Instead the climate change ahead of the UN talks
seeking to continue and extend the world needs developed countries to cut in Copenhagen in December 2009.
use of offsetting. their own emissions first and fast and There is a growing and credible
This report provides the evidence pay up for adaptation and mitigation in body of evidence and opinion that
to show that offsetting does not work developing countries. This course of offsetting is not working; that it
and will not work. Offsetting does not action is not a threat to the well-being is undermining efforts to prevent
lead to promised additional emissions of people in developed countries; it dangerous climate change and
cuts in developing countries; it is a vital step towards new jobs, new supporting sustainable development;
delays essential structural change in industries, a healthier global economy that it is profoundly unjust, and that it
developed-country economies; and and a safer and more just world. cannot successfully be reformed.
it institutionalises the idea of cuts in This report draws together some of
either the north or the south, when Andy Atkins the key evidence to ensure this view
science demands reductions in both. Executive director is fully reflected in public debate and
As importantly, the report reveals Friends of the Earth England, international talks. It focuses on the
the inequalities of the offset approach Wales and Northern Ireland UK as an example, but the lessons are
– an approach that allows people in applicable to all developed countries.
rich countries to carry on polluting
while requiring unfair reductions in
developing countries.
Authors Acknowledgements
Simon Bullock Many thanks to everyone who gave help and advice in the writing of this report,
Mike Childs in particular:
Tom Picken
Larry Lohmann, Cornerhouse www.thecornerhouse.org.uk
Editorial team
Payal Parekh, International Rivers www.internationalrivers.org
Editor: Adam Bradbury Tim Jones, World Development Movement www.wdm.org.uk
Design: Luke Henrion
Helen Bird, Will Bugler, Richard Dyer, Owen Espley, Tim Jenkins,
Cover image: Corbis Ben Newsome, Mary Taylor, Anna Watson, Helen WolfsonContents
Executive summary 4
1. Climate change: the scale of the challenge 6
2. The political context: why decisions on offsetting are important 7
3. Offsetting: what is it and how significant is it? 9
4. Why offsetting doesn’t work 13
4.1. Less Carbon is Cut: Reductions in one place, not both 13
4.2 Many projects in developing countries would have happened anyway 13
4.3. No guarantees of emissions cuts 16
4.4. Offsetting delays necessary infrastructure changes in developed countries 18
4.5. offsetting Undermines low-carbon development in developing countries 20
5. offsetting and injustice 24
6. Summary: Why offsetting cannot be reformed, why it should not be
expanded, and why it should be scrapped 26
7. recommendations 28
7.1 financial transfers to developing countries 28
References 30
Further reading 31
A dangerous distraction Friends of the Earth 3Executive summary
Tackling climate change urgently requires major cuts For these reasons offsetting must
in global greenhouse gas emissions. At Kyoto in 1997, not be expanded at Copenhagen.
New proposed offsetting schemes
as a step towards this goal, developed countries agreed must be dropped from negotiations,
targets to cut their emissions. Embattled negotiators and existing offsetting mechanisms
introduced offsetting to offer some flexibility in the way need to be scrapped.
This report analyses offsetting,
these targets could be met.
using mainly the example of
the largest scheme, the Clean
The theory was that offsetting would In practice offsetting is having a Development Mechanism (CDM).
allow developed countries to meet part disastrous impact on the prospects However, this analysis is largely
of their targets by paying developing for averting catastrophic climate applicable to the other types of
countries to deliver greenhouse gas change. It is vital that the inherent and offsetting as well.
reduction projects. systemic flaws in the approach are
Since then offsetting has grown recognised ahead of negotiations.
quickly, in particular in the form of These problems cannot be dealt with Offsetting is not
the Clean Development Mechanism by simply reforming CDM; instead reformable
(CDM). Despite many well-publicised completely new approaches are Offsets are a swap of an emissions
problems1, CDM offsets are now needed that are effective and just. cut in developed countries for a cut
predicted to deliver more than half of in developing countries. But action
the European Union’s planned carbon in both is needed. Failure to cut in
The five central arguments
reductions to 2020. developed countries also results in
against offsetting are that it:
delays in essential infrastructure
Offsetting in general is poised for changes necessary for deeper cuts in
further expansion, potentially bringing 1 counts action in developing
the future. Offsetting results in fewer
onstream many more offset credits: countries as part of the cuts
emissions cuts. No amount of reform
• into forests, through proposed promised in developed countries,
can alter this.
offset-based REDD mechanisms although the science is clear that
The problems of proving
(Reduced Emissions from action is needed in both developed
“additionality” – that the developing
Degradation and Deforestation). and developing countries.
country project would not have
• into sectors that the CDM does 2 cannot guarantee the same
happened without CDM – are inherent.
not currently cover, such as cuts as would have happened
The US Government Accountability
nuclear power. without offsetting.
Office says it is impossible to know
• under new sectoral frameworks. 3 is causing major delays to urgently
with certainty whether a project
needed economic transformations
is additional.
Offsetting has gone from being in developed countries.
The problems of proving the
a minor, experimental idea to an 4 does not ensure positive
offset project generates the same
approach which, although it has major sustainable development in, or
level of carbon cuts are inherent.
negative impacts on countries’ climate- appropriate financial transfers to,
Offsetting credits are created against
change strategies, is set to expand developing countries.
hypothetical baselines – they are
further. Countries are clamouring for 5 is profoundly unjust, fundamentally
not and cannot be guarantees of the
even more offsetting opportunities flawed and cannot be reformed.
same level of cuts.
as the world prepares for crucial
climate talks in Copenhagen at the
end of 2009.
4 A dangerous distraction Friends of the EarthThe report finds that: credits are calculated by judging change crisis. Offsetting, however,
action against hypothetical futures is not the tool for this job.
1. Offsetting delivers lower – things that haven’t happened. iv There are severe equity impacts for
greenhouse gas cuts than the developing countries if developed
science says are needed to avert 3. Offsetting delays necessary countries offset even part of
catastrophic climate change. infrastructure changes in developed their targets. Offsetting deepens
The IPCC says that developed countries. It weakens incentives to inequality in per capita carbon
countries need to make major implement strong climate policies consumption between developed
greenhouse gas cuts and in addition or prevent high-carbon investments. and developing countries.
that developing countries need to A switch to a low-carbon model in
make cuts on so-called business-as- developed countries in time to prevent In summary, CDM and other types
usual baselines (emissions levels). catastrophic climate change requires of offsetting are flawed and highly
But offsetting means that action in that they make major investments problematic tools for tackling climate
developing countries can be counted now and over the next 10 years. Yet change. They are a dangerous
as part of the action needed in offsetting means that, for example, distraction from the urgent business of
developed countries. Offsetting EU countries can delay taking strong decarbonising the world’s economies.
therefore institutionalises the idea action until at least 2020. Locking in They are not open to reform (see box
of making cuts in one or the other, their high-carbon infrastructure will opposite), and should be scrapped.
when the science and the IPCC are have severe consequences for the
clear that action in both is needed. global climate and developed- Governments should:
It is incompatible with the IPCC’s country economies. 1. Agree that developed countries
recommendation, and leads to less must reduce their own emissions
emissions cuts. The climate loses. 4. Offsetting is not delivering for by at least 40 per cent by 2020,
developing countries. excluding offsetting.
2. Offsetting cannot guarantee i. In many cases offsetting is not 2. Reject all forms of offsetting:
the same level of carbon cuts helping developing countries take proposals for new and expanded
in the developing country as a low-carbon path. In fact a large offsetting schemes must be
would have been made in the proportion of CDM revenues dropped, and existing offsetting
developed country. are subsidising carbon-intensive mechanisms need to be scrapped.
i. It is almost impossible to prove industries, or projects building 3. Reject plans to introduce REDD
that most offsetting projects would fossil-fuel power stations. offsets, and instead negotiate
not have happened without the ii. CDM can create financial incentives effective and fair mechanisms to
offset finance – ie that they are for developing countries not to protect the Earth’s forests that do
“additional”. The US Government implement strong climate policies. not involve offsetting.
Accountability Office’s (GAO) This is because only projects that 4. Negotiate a new financial
2008 review of offsets said “it is are not required by regulation mechanism under the authority
impossible to know with certainty are supposed to qualify as CDM of the UN Framework Convention
whether any given project is projects. on Climate Change (UNFCCC)
additional”. Without this guarantee iii. The financial flows involved are to ensure adequate financial
the net effect is that greenhouse far lower than those required flows to developing countries
gas emissions are increasing – to adequately or effectively to support their transition to a
because the CDM credit allows support low-carbon development. low-carbon future.
the developed country to continue Developing countries must be
polluting. The climate loses. given far greater support – not
ii. Even if a project were additional, least because of the colossal
it is often impossible to calculate historic debt owed to them by
accurately how much carbon a developed countries, which have
project is saving. This is because overwhelmingly caused the climate
A dangerous distraction Friends of the Earth 51 Climate change: the scale
of the challenge
The need to reduce greenhouse gas (GHG) emissions The Tyndall research indicates the
is desperately urgent. Scientists tell us we are hovering scale of overall reduction required:
which countries will make what
at the edge of dangerous climate change tipping points. proportion of these cuts will be
Despite the UN Framework Convention on Climate decided in negotiations.
Change (UNFCCC) — signed as long ago as 1992 – Recent papers from the Inter-
governmental Panel on Climate
global emissions of GHGs have continued to increase,
Change (IPCC) authors suggest that
and have even accelerated since 2000.
2
even 450 ppmv CO2e will require a
25-40 per cent reduction in emissions
All signatories to the UNFCCC Mitigating the effects of climate from developed (Annex I) countries by
(including the United States) have change is also increasingly recognised 2020 and a 15-30 per cent reduction
committed to the overall objective of as a security imperative. The UK below baseline for developing (non-
the Convention as stated in article 2 National Security Strategy states: Annex I) countries by 2020.5 The
– to prevent dangerous climate change. “Climate change is potentially the ranges summarised by the IPCC are
It is accepted that an average global greatest challenge to global stability “assumed to be achieved domestically
temperature rise of more than 2 and security, and therefore to by both groups of countries”.
degrees compared to pre-industrial national security.”3 This allocation of responsibility
times would cause dangerous and Recent research on climate is itself deeply unjust to developing
tipping points, which identifies the countries, given historic contributions
temperature rises after which for to cumulative greenhouse
“Climate change is
example the Greenland ice sheet gas emissions.
potentially the greatest
melt is likely to become irreversible, Developing countries have called
challenge to global
suggests the 2 degrees target is for greater ambition from developed
stability and security,
prudent.4 Maximising the chance countries in Copenhagen. The
and therefore to
of keeping well below 2 degrees is G77 and China say “much deeper
national security.”
a moral imperative for all humanity. reduction commitments are required
A synthesis of climate models and [...] must reflect their historical
even catastrophic impacts. Exceeding
published in 2006 suggests that a responsibility as well as evolving
2 degrees will create water scarcity
concentration of 450 parts per scientific evidence”.6 Least developed
for billions of people, put billions at
million by volume (ppmv) of carbon countries (LDCs) call on developed
risk of hunger, make hundreds of
dioxide equivalent (CO2e) gives a countries to accept targets of “at least
millions homeless because of flooding
50 per cent chance of not exceeding 40 per ent by 2020”7 and the Alliance
and threaten the very existence of
2 degrees. This should be regarded of Small Island States (AOSIS)
low-lying island nation states through
as an absolute maximum concen- calls for reductions of “more than
sea-level rise.
tration: a 50 per cent chance is 40 per cent”.8
not good odds when the climate is
at stake.
Research by the UK’s Tyndall
Centre for Climate Change Research
has suggested that to achieve this
requires global CO2e emissions to
peak in 2015 and fall by 4 per cent a
year thereafter. The emissions cuts
this trajectory involves should be seen
as the minimum required.
6 A dangerous distraction Friends of the Earth2 political context: Why decisions
on offsetting are important
Developed countries (those listed in Annex I of The main offsetting proposals
the UNFCCC) agreed targets to cut their carbon on the negotiating table involve:
emissions up until 2012 as part of the Kyoto Protocol’s • moving away from project-based
first commitment period. There is a legal requirement CDM to larger sectoral approaches.
for developed countries to set further targets for • lifting bans on types of projects
that can be included, such as
subsequent commitment periods after 2012. The
nuclear power.
Protocol allows developed countries to use offsetting • extending offsetting to forest
as a way to meet those targets. The CDM runs to 2012 carbon trading through REDD
in its current form, and is set to continue beyond that mechanisms.
date with amendments subject to further negotiations. The effect of such an increase in
The UNFCCC is deliberating proposed changes to the supply of offset credits would be to
the CDM and considering new offsetting schemes further weaken the economic incentive
in the run-up to the Copenhagen climate talks in to make real domestic emissions
reductions in developed countries and
December 2009.
9
transfer the responsibility of reducing
emissions to developing countries,
The talks in Copenhagen are a crucial The focus of the CDM reform
albeit with some financial recompense.
opportunity to forge a stronger global discussions, however, is to reduce
Offsetting has become one of
agreement to prevent catastrophic regulation of the CDM and increase
the central parameters that inform
climate change. the supply of credits. Other proposals
developed countries in defining their
It is widely acknowledged that there aim to create entirely new offsetting
ambition, with the expectation of
are many failings with the CDM (see schemes. Consequently, the thrust of
avoiding much of the carbon-reduction
sections 4 and 5): some concerns negotiations is creating space for even
effort. This abuse of the UNFCCC
come from the problems in ensuring less real action on climate at a time
mechanisms threatens to make
additionality or proving carbon when there must be more.
a mockery of science-based
reductions; some concerns stem
target setting.
from the fact that poorer developing
“Negotiators are clearly
countries are effectively excluded
indicating that they want
from any financial transfer through the
to see more of the CDM, not
CDM; and some concerns are about
less. Parties to the Kyoto
the lack of sustainable development
Protocol only recently
benefits and the harm that some
agreed that the mechanism
projects cause to local communities.
would continue beyond 2012.”
Yvo de Boer, Executive
10
Secretary, UNFCCC, April 2009
Annex I Parties include the industrialised countries that were members of the Organisation for Economic Co-operation
and Development (OECD) in 1992, plus countries with economies in transition (the EIT Parties), including the Russian
Federation, the Baltic States, and several Central and Eastern European States. A dangerous distraction Friends of the Earth 7EU strategy for increasing The overall EU strategy is to shift
offsetting around half of its own emissions
• The EU climate and energy reductions responsibility to developing
package established a framework countries through offsetting, thereby
to allow more than half of EU avoiding an equivalent domestic effort.
emissions reductions responsibility In addition to the offsetting
up to 2020 to be offset to strategy, the EU is also proposing a
developing countries. sectoral trading scheme. This would,
• The European Commission for example, set a global cap on
strategy paper, Towards a emissions from steel manufacture.
Comprehensive Climate Change Steel plants that make greater
Agreement in Copenhagen, states emissions cuts would be able to sell
that the EU seeks to align policy spare permits to plants that do not
with other developed countries have enough permits to cover the
in “generating demand for pollution they have released.
offset credits”.
• The EU has also proposed new In practice this scheme is likely
sectoral offsetting mechanisms to suffer the same problems that
for agreement in Copenhagen.11 continue to bedevil the EU Emissions
Sectoral crediting is intended Trading Scheme:
to allow whole sectors in • politicians setting the cap too high,
certain developing countries to leading to little or no reduction
generate carbon credits through in emissions.
supposed reductions in their • an excuse for allowing development
sector’s emissions growth. This of more carbon-intensive
is in essence an expanded CDM, infrastructure on the premise that
creating a higher volume of credits cuts will be made elsewhere.
than project-based CDM against a • huge windfall profits for
hypothetical baseline. polluting industries.
Considering the EU’s current
proposed reduction target is only
20 per cent by 2020, securing a
steady supply of offset credits
would effectively halve an already
dangerously low ambition and
undermine an already weak policy
framework. These problems are likely
to be exacerbated by EU proposals
to allow Member States to bank
credits (ie buy credits now and
use them later).12
8 A dangerous distraction Friends of the Earth3 Offsetting: what is it and
how significant is it?
Offsetting is the process In the subsequent 12 years CDM What types of offsetting are there?
whereby developed and other types of offsetting have,
despite major and well-publicised CDM is the largest offset mechanism,
countries pay developing problems, become much larger accounting for more than four in every
countries to deliver mechanisms. For example, the five tonnes of carbon offsets traded.
projects that purportedly European Union’s climate change Table 1 shows the volume of offset
strategy allows more than 50 per cent
cut carbon emissions carbon traded in 2007.15
of its planned emissions reductions to
– in effect making carbon 2020 to come from offsetting. Table 1: Breakdown of carbon
cuts in developing rather The CDM allows countries with offset trading market, by volume
than developed countries. binding targets under the Kyoto of transactions
16
Protocol to buy credits from developing
countries that do not have Kyoto
Offsetting emerged as a small- Market Transaction
targets and that are implementing
scale experimental idea agreed by volume
carbon-cutting projects. The credits
embattled negotiators in the last hours (million tonnes
are given units of tonnes of carbon
of the Kyoto Protocol talks in 1997. CO2e) 2007
dioxide equivalent (tCO2e).13 Rules
It was intended to give developed have been established that are Voluntary 65
countries some flexibility in meeting intended to ensure genuine emissions
their targets. Offsetting would be reductions – although this report Primary CDM 551
delivered via two mechanisms – the shows that they do not work. Secondary CDM 240
Clean Development Mechanism The current report draws heavily Joint Implementation 41
(CDM) and Joint Implementation (JI). on the experience of the Clean
Its proponents argued that Development Mechanism (CDM), Total 897
offsetting would: for two reasons:
Note: Proposals for mechanisms such as forest offsetting like
REDD and sectoral offsets would lead to major additional future
• be an economically efficient way of • First, the CDM is the world’s sources of offset credits.
making carbon cuts globally. biggest and most established
• transfer money from richer to regulated offsetting mechanism.
poorer countries. • Second, the CDM – and its smaller
• help with technology transfer and companion offset mechanism with
development in poorer countries. other developed countries, Joint
Implementation (JI) – are the only
offsets allowed in the European
Union Emissions Trading Scheme
(EUETS); the latter is the world’s
largest carbon-trading scheme,
accounting for around three-
quarters of the value of traded
carbon in 2008.14 A summary of
other types of offsetting appears in
the table on page 12.
A dangerous distraction Friends of the Earth 9What project types are there? Who hosts the projects and
who buys the credits?
There is a variety of different offset
project types, such as: The four countries predicted to be UK companies are the top buyers
generating the most CDM credits in for CDM projects, according to the
• Sequestration: projects that 2012 are shown in Table 3. 18 official CDM statistics, with more
trap carbon – for example forest than 1,223 projects. These projects
projects. Only a limited range of Table 3: Biggest generators of CDM are not necessarily offsetting UK
forest projects are currently allowed credits predicted for 2012 emissions, however, but the UK is the
under CDM rules. host country for the purchase of the
• Greenhouse gas destruction: Country Percentage emissions; the credits may be sold on
for example capturing nitrous oxide of all CERs to emitters in other countries. The next
(N2O) or hydrochlorofluorocarbons China 53 biggest buyers are Switzerland (544
(HCFCs) emitted from factories, India 16 projects) and Japan (480). 19 The UK
and turning them into more is therefore at the centre of the multi-
Brazil 6
benign molecules. billion-dollar offset market.
• Energy efficiency: for example South Korea 3
fuel switching and upgrades to Note: Africa is predicted to be generating 3 per cent of all CERs The chart below shows the main
by 2012.
power plants. buyers of offsets.
• Energy projects: for example
wind, biomass, solar, coal, gas, 1 United Kingdom of Great Britain
and hydro-electricity schemes. and Northern ireland (29%)
2 Switzerland (21%)
3 Netherlands (11%)
Table 2 shows the six biggest 4 Japan (11%)
categories of projects predicted 5 Sweden (6%)
6 Germany (6%)
to be in the CDM in 2012. 17 7 Spain (3%)
8 Canada (2%)
Table 2: Origin of CDM projects 9 Italy (2%)
10 France (2%)
expected by 2012 11 Austria (2%)
12 Others (6%)
Type of project Percentage of
all CDM credits 12
11
(CERs) (%) * 10
9
Hydrofluorocarbon 17 8
(HFC) destruction
1
7
Hydro-electricity 17
6
Electricity from waste 10
gases or energy
Energy from landfill gas 9 5
N2O destruction 9
Energy from wind 9
power
4
Other 29
Note: Solar power is predicted to be generating 0.1 per cent 2
of CERs.
* Percentage of all credits from the start of CDM up to 2012. 3
Source: http://cdm.unfccc.int/Statistics/Registration/
RegisteredProjAnnex1PartiesPieChart.html
10 A dangerous distraction Friends of the EarthCDM: how significant is it? Proportion of EU emissions allowable through offsetting
The use of CDM is growing rapidly
and is predicted to account for a
significant proportion of overall carbon
reduction targets up to 2020. The UN
Environment Programme (UNEP)
estimates that 5.2 billion CDM credits
(CERs)* will be issued between 2009
and 2020.20
In the EU climate package agreed
in December 2008, sectors outside
the EU Emissions Trading Scheme
(EUETS) – such as surface transport
– can meet 73 per cent of their carbon
reductions required for 2013-2020 by
buying CERs. Some 781 million of
the total reduction effort of 1.07 billion
tonnes CO2e can be met by buying
CERs (see chart, right).
Sectors in the EUETS can meet
The EU has committed 50 per cent of the effort from 2008 to
to reduce its emissions 2020 with CERs, representing
by 20 per cent by 2020; in 1.6 billion tonnes CO2e. It is extremely
practice, however, with likely that all these credits will be used
offsetting it is cutting if available, as CERs are cheaper than
its own emissions by only EUETS credits (known as EUAs).
10 per cent. The EU has committed to reduce
its emissions by 20 per cent by 2020;
in practice, however, with offsetting it
is cutting its own emissions by only
10 per cent. In summary, the high
volume of CERs heavily reduces the
effort required of developed countries
to reduce their own emissions. Probing
the effectiveness of CDM credits
is therefore crucial to determining
whether offsetting mechanisms
are in fact a successful strategy for
preventing dangerous climate change.
* CDM credits are called CERs; 1 CER is deemed equivalent to
1 tonne of CO2e
A dangerous distraction Friends of the Earth 11Table 4: Summary of types of offsetting
Offset (existing and Description Negative impact Conclusion
proposed) on climate
CDM UN regulated projects based Very high. Prevents emissions Reject
approach cuts in developed countries.
CDM gold standard As above, with stronger Very high. Improves CDM’s Reject. More effort is made on
criteria on allowed projects. sustainable development sustainable development and
problems, but still a major additionality than other CDM
brake on developed-country projects, but basic problems
emissions reductions. of CDM unresolved.
A distraction.
Joint Implementation (JI) Capped developed countries High. Scheme is small and Reject. Delays infrastructure
make efforts to reduce cap exists in both countries, changes in country buying
emissions in other but the over-allocation offset, creating carbon lock-in.
developed countries. of emissions for Eastern
European states due to
economic contraction in
the 1990s reduces impact
of real cuts in EU economy
as a whole.
offset-based REDD Offsetting through Very high. Same problems as Reject. Forests could turn
avoided deforestation CDM, but magnified by even into sources of carbon rather
more uncertainty over carbon than sinks within 100 years;
guarantees. Possibly a huge deforestation shifted rather
scheme. than prevented; social justice
problems.
Sectoral Cuts in a specific developed- Very high. Pitched as a Reject. Could create
country sectors are offset by reform of CDM, but suffers regulatory chill; same
cuts in the same sector in most of the same problems, problems with additionality
developing country. and creates potentially far and guaranteed cuts as CDM.
greater get-outs for developed
countries.
Voluntary Includes schemes where High. Quality of schemes Reject. Even worse quality
individuals or companies even lower than CDM. than CDM.
can choose to offset their Creates societal 21 pressures
emissions. and excuse for inaction.
12 A dangerous distraction Friends of the Earth4 Why offsetting doesn’t work
This section outlines three therefore institutionalises the idea
4.2 Many projects
structural reasons why of making cuts in one or the other,
when the science and the IPCC are in developing
offsetting mechanisms are clear that action in both is needed.
flawed and unreformable. Offsetting is incompatible with the
countries would
It also sets out the impacts IPCC’s recommendations. have happened
The US Government Accounting
of relying on offsetting. anyway
Office states that carbon offsets are
“inherently uncertain” and “involve
Before they can be CDM-registered,
fundamental tradeoffs and may not
4.1 Less carbon be a reliable long-term approach to
project proponents have to justify
that their scheme would not have
is Cut: REDUCTIONS climate change mitigation”.24
happened anyway – ie that it is
The issue of distribution of effort is
IN ONE place, central to the UNFCCC negotiations.
additional. Otherwise, the net effect
would be that carbon globally is
not both Taking into account the historical
increasing (as the CDM credit allows
emissions and relative wealth of
the developed country to continue
The IPCC has said22 that keeping developed countries – the basis of the
polluting).
global greenhouse gas concentrations UNFCCC’s “common but differentiated
In practice there are three reasons
low enough to offer the greatest responsibilities and respective
why CDM projects cannot be proved to
chance of avoiding dangerous climate capabilities” – there is a strong
be additional:
change requires major emissions argument that developed countries
cuts in developed countries in should take greater emissions cuts
i) Schemes are already part of
addition to deviation from baselines than those modeled by the IPCC.
that country’s development
in developing countries. It estimates There is a deeply unequal
Some schemes are not additional
that meaningful progress towards distribution of responsibility for
because they use technology that is
preventing dangerous climate change cumulative global greenhouse gas
widely available, or they are already
would mean by 2020 a 25-40 per cent emissions between developed and
common practice. In China more
cut for developed countries, and a developing countries. Inadequate
than 200 large-scale hydro plants are
15-30 per cent reduction on business- commitments from developed
progressing through CDM validation.25
as-usual baselines for developing countries are an unjust response to
They are all claiming that the projects
countries. These cuts are likely to be that historic responsibility – in practice
would not have gone ahead without
inadequate because, according to offsetting exacerbates the inequality
CDM revenues – for example, because
research by the UK’s Tyndall Centre by further diluting developed-country
a coal-fired station would have been
for Climate Change Research, the commitments (see section 5).
cheaper to build. This ignores the
IPCC data on recent emissions were CDM is supposed to be a way of
fact that the Chinese Government is
underestimates23, and in practice making the same levels of carbon
a strong supporter of hydro-electric
they are not being delivered – for cuts as would otherwise happen, but
development, that hydro is a major
example the EU has only a 20 per more cost-effectively. At best it shifts
component in its five-year plans,
cent 2020 target. a carbon cut in a developed country
and that the Chinese hydro-electric
Even this inadequate progress to one in a developing country. But in
industry is expected to grow from
is further weakened by the use of practice it does not even do this.
132-154 gigawatts (GW) of capacity in
offsetting. The IPCC is clear that
2010 to 191-240 GW in 2020 – growth
action is needed in both developed
equivalent to around 20 large coal-
and developing countries. But
fired power stations. Hydro growth in
offsetting means that action in
China is continuing at previous trends,
developing countries can be counted
and there is no evidence that removing
as part of the action needed in
CDM would stop China continuing
developed countries. Offsetting
its strategy of building more dams.
A dangerous distraction Friends of the Earth 13These hydro stations are already validation process[…] Since started, the developers claimed that
big revenue earners; CDM revenue construction began well before without CDM support it was too risky
is a bonus, not the deciding factor. CDM registration, it is clear that “to reach financial closure and […]
Developers stand to gain many extra these projects still would go ahead commence the project construction”. It
millions from applying to CDM, as even if they were not successfully was CDM approved in August 2006.31
does the Chinese Government, which registered as CDM projects.”29
taxes CERs.26
The US GAO says assessing
Wara and Victor analyse the
additionality will become more
Lucrative coke oven Chinese hydro, wind and gas
complex “as host countries begin to
sector. They state that the Chinese
A coke oven project in Lingxi is highly factor the CDM into their planning
Government has recently introduced
economically attractive (saving on efforts and it becomes more difficult
strong policies to support these
electricity costs); many of the steps to identify what would have happened
technologies, to relieve the economic
justifying its claim to be financially without the program”.
and pollution impacts of heavy
unattractive are missing. It had already
reliance on coal in its massive
attracted 70 per cent funding from ii) Proofs of financial viability
increase in power-generation capacity.
the China Development Bank before are thin
They also show that “essentially all”
gaining CDM registration. It is difficult To get CDM support projects have
new hydro, wind and natural gas fired
to demonstrate that this project would to prove that without CDM revenues
capacity is applying for CDM credits.
not have happened anyway – ie that it they would not be financially viable.
is additional.27 The usual method for doing is this is
Wara and Victor argue:
to show that the project generates a
Other sectors too are looking to
lower Internal Rate of Return (IRR)
offset opportunities to generate extra “taken individually, these claims
than is standard for projects in the
finance. Indian government officials may make sense – because
region, and a higher IRR with the
say India’s rapidly expanding sugar individually any particular power
CDM revenues. But there are wide
industry should seek offset credits, plant utilizing non-coal sources
discrepancies in how different projects
as its ethanol production is displacing probably faces greater hurdles
clear this hurdle.
petrochemicals. As the industry has than new coal-fired generation […]
For example, India’s Tanjavur
expanded at 35 per cent a year for the taken collectively however, these
natural gas power plant claims that
past five years, this activity cannot be individual applications for credit
the IRR without CDM is 15.3 per
deemed to be additional.28 amount to a claim that the hydro,
cent, stating that “all power projects
wind and natural gas elements of
in India are considered viable only
International Rivers states: the power sector in China would not
if the guaranteed returns of 16%
be growing at all without help from
on the capital are ensured”.32 This
“… of 370 Chinese hydropower the CDM. This broader implication
project was registered on 29 May
projects submitted for CDM is simply implausible in light of the
2007. Yet the Kalyani Steels electricity
validation, 77% are expected to state policies described above.”30
generation project registered on 29
start generating within 12 months
September 2006 states: “In the Indian
of their validation comment Gansu hydro project
power sector a 16% return on equity
period...Normally hydropower
International Rivers cites the example has been an established benchmark
plants take at least several years
of Xiaogushan, Gansu, hydro project: for a long time […] this has recently
to build, confirmed by P[roject]
an Asian Development Bank report been revised downwards to 14% by
D[esign] D[ocuments] that provide
into the project in 2003 said it was the Central Electricity Regulatory
a construction start date. This
the cheapest option for expanding Commission.” 33
means that most of the Chinese
generation in Gansu, regardless of If the Tanjavur project had used
hydropower projects in the CDM
CDM revenue, and a priority for the 14 per cent it would have not needed
pipeline started construction
local and provincial government. Yet the CDM revenues to clear the IRR
prior to beginning the CDM
in 2006, two years after construction benchmark. Tanjavur is not
14 A dangerous distraction Friends of the Earthan additional project. expectation from the developing verifiers to check the claims made
It has been widely reported that countries that it would provide by project proponents. In practice,
hydro-power developers routinely the necessary upfront financial these verifiers, who are paid
underestimate the amount of power and technical support for new by the project developers, have
their dams will generate, which has the sustainable development projects strong incentives to approve the
effect of reducing projected revenue that would reduce greenhouse gas projects they check. Further, there
streams, making such projects appear emissions. Today [. . .] it is mostly is scant oversight on the integrity
less financially attractive without functioning to provide additional of the verification process and
CDM revenues. International Rivers cash flow to projects that are no record of punishing verifiers
argues that a typical hydro-power already able to move forward with for misconduct. Lacking any
its [sic] own financing.”38 other source of information about
86 per cent of them agreed individual projects and facing
that “in many cases, The US GAO’s recent review of pressure from both developing and
carbon revenues are the CDM and interviews with CDM developed country governments,
the icing on the cake, but participants found: the CDM Executive Board is prone
are not decisive for the to approve projects. Asymmetries
investment decision”. “Several representatives from the of information are rampant;
cement and auto industries said the incentives mostly align in
they would pursue clean energy favor of approval.
load factor34 is around 50 per cent.
projects regardless of the CDM, “This challenge is made all
But citing Michaelowa35 International
describing the CDM credits as the more formidable by the sheer
Rivers says that as of 1 March 2008
more of a ‘bonus’ than a driver number of projects upon which
the CDM project pipeline contained 82
of investment.”39 the Board must decide. The CDM
hydro plants in China with a load factor
EB, on average, registers about
below 40 per cent and seven with a
iii) Exaggerated claims one project every day as eligible
load factor below 30 per cent.
There are structural reasons in the to generate CDM credits. Thus
These are not isolated examples.
design of CDM approval that mean the Board cannot afford to spend
Analysis by Haya36 suggests that
carbon benefits are likely to be large amounts of time evaluating
three-quarters of registered CDM
exaggerated, additionality claims the complexities of financial data
projects were already complete at the
abused, and sustainable development presented to justify a project’s
time of approval. Developers counter
problems ignored.40 eligibility for CDM credits nor can it
that expectation of CER revenues
delve into a project’s relationship to
was critical for the decision to go
Wara and Victor write: state energy policy. Furthermore,
ahead with the project. Such a claim
the CDM EB faces a financial limit
is not provable in most cases. Indeed,
“The host governments and on the costs it can reasonably
a survey of CDM professionals
investors that seek credit have a impose on individual offset projects.
found that 71 per cent agreed that
strong incentive to claim that their In order to remain viable, relatively
“many CDM projects would also be
efforts are truly additional. The small carbon offset projects cannot
implemented without registration
regulator – in this case, the CDM afford the cost and uncertainty that
under the CDM”; and found 86 per
Executive Board – can’t in many would accompany truly extensive
cent of them agreed that “in many
cases gather enough information scrutiny. Indeed, there is strong
cases, carbon revenues are the icing
to evaluate these claims. These pressure from CDM investors to
on the cake, but are not decisive for
problems of asymmetrical limit such transaction costs and
the investment decision”.37
information are compounded in speed up approval.”41
An Asian Development Bank senior
the CDM, to be sure, because
official said in 2008:
the CDM Executive Board is
massively under-staffed and the
“When the CDM was introduced
CDM system relies on third-party
10 years ago, there was much
A dangerous distraction Friends of the Earth 154.3 No Tanjavur Natural Gas New coal-fired power
Combined Cycle Power Plant, stations
guarantees of Tamil Nadu, India
In September 2007 the CDM
emissions cuts Registered in May 2007, this project board ruled that super-critical coal-
claims to reduce carbon emissions by combustion plants could receive
CDM projects cannot guarantee 180,000 tonnes by being cleaner than CERs. This is more efficient than
carbon cuts, and often exaggerate existing power plants in the region, older technology, but is still highly
claims about the amount they will displacing dirtier power from the grid. carbon-intensive (produces high
cut. This is an inherent problem. Although it is cleaner, it is still a new levels of carbon per unit of electricity
Any system of credits for reductions fossil-fuel power station, average by generated). It is not particularly new
against a hypothetical business-as- western standards. In this case CDM or expensive technology that requires
usual scenario, is inherently prone to is helping India to copy and lock in to CDM help. Even by 2004, over half
questionable claims of certainty. a high fossil-fuel, western development of orders for new coal plants in China
The US GAO reports that path, rather than take a low- were for the super-critical type.
carbon path. The International Finance
“the use of carbon offsets in Developing countries need Corporation is supporting the
a cap-and-trade system can to bypass this western stage of development of the Tata Ultra Mega
undermine the system’s integrity, development, not mirror it. coal-fired power complex in Gujarat
given that it is not possible to In addition, the plant is not India44 – a mammoth 4 GW series
ensure that every credit represents displacing dirty power plant; it is an of five power plants – stating that its
a real, measurable, and long-term additional plant to meet increasing approach involves investment focus
reduction in emissions”.42 electricity demand in the region. on “leveraging Kyoto Mechanisms
Claims that the project will result (Clean Development Mechanism),
Because offset cuts are created in overall lower emissions from the to enhance the attractiveness of less
against a hypothetical business-as- region are refuted in the project’s GHG intensive energy generation
usual baseline, it is impossible to design document itself which states and delivery approaches”. David
ensure that offset credits guarantee that a benefit of the project is that Wheeler, Senior Fellow at the Center
carbon cuts. Not only can it not it will “make coal available for other for Global Development says:
guarantee carbon cuts, in some cases important applications”.43 “instead of supporting critical zero-
it can increase them. emissions energy investments, scarce
international resources are sweetening
a private sector project that will
emit over 700 million tonnes of CO2
during its operating life”.45 To put this
into perspective, the entire targeted
savings announced in the first three
UK carbon budgets, from 2008-2022,
are 800 million tonnes.
In practice, any fossil fuel
project that offers even marginal
improvements can claim CERs.
Yet as International Rivers put it,
“[…] technological advancement
means that a power plant entering
construction today can be expected
to be more efficient than one built
five or ten years ago”.
16 A dangerous distraction Friends of the Earth20 MW coke oven gas project Hydro and wind projects Two impossibilities:
in Lingxi, China Proving additionality and
Other schemes exaggerate the proving carbon cuts
Registered in February 2009 this amount of carbon saved. For example
CDM project claims to reduce carbon wind and hydro projects in China
International Rivers says:
by using waste gas from a coke oven routinely claim to be saving carbon
plant to generate electricity. The because they are displacing dirty
“While baseline-and-credit trading
project says that this “will displace grid fossil fuel from the grid, and compare
may have made sense as a theoretical
power generated by coal-fired power these projects with historical averages
concept to the sleep-starved
plants”. But electricity use is growing of carbon intensity of electricity. Yet
negotiators in Kyoto, applying it in the
rapidly in the region. It will not displace these projects are not displacing
real world has shown it to be fatally
grid power – the coal will still get used.46 fossil-fuel stations, but are additional
flawed. The concept depends on being
stations to meet growing electricity
able to give accurate answers to two
demand. It would be more accurate
inherently unanswerable questions.
to compare the wind project with
“To know a project is eligible, one
the projected carbon intensity of the
must know whether it is being built
region’s electricity. These projections
only because the developers will be
would include wind and hydro projects,
able to sell offsets (ie it is additional).
as they are an agreed part of the
To know how many offsets to grant to
Chinese Government’s strategy for
the project one must know what would
electricity generation, which gives
have happened had the project not
“priority to renewable power when
been built (ie what would the business-
transmitted to the state power grid”.
as-usual, or “baseline” emissions be).
The Chinese Government also says:
“English Journalist Dan Welch
“China will continue to promote
gives a neat summary of the difficulty
the comprehensive cascading
of determining the ‘right’ quantity of
development of water-power-rich
avoided emissions: ‘Offsets are
river valleys. It will quicken the pace
an imaginary commodity created
of constructing large hydropower
by deducting what you hope happens
stations.”47 It is almost impossible to
from what you guess would have
know what the wind project displaces.
happened.’”49
As International Rivers puts it: “If
Windfarms R Us hadn’t built their
The US GAO states:
project, would MegacarbonCorp have
sold more coal-fuelled power, or would
“[…] because additionality is based
Standard Wind have gone forward with
on projections of what would
their project instead?”48
have occurred in the absence of
the CDM, which are necessarily
hypothetical, it is impossible to
know with certainty whether any
given project is additional.”50
A dangerous distraction Friends of the Earth 17Allowing offsetting will have a
4.4 Offsetting major negative impact. For example,
“A policy of relying
too much on purchased
delays necessary the UK’s Climate Change Commitee
credits in the initial years
argued in December 2008 that “any
infrastructure path to an 80% reduction by 2050
could make a stretching
2050 domestic target
changes in requires that electricity generation
unachievable.”
is almost entirely decarbonised by
developed 2030”.52 agreed EU Effort Sharing Directive,
countries The Committee also said that covering the EU’s climate strategy
electricity demand is likely to increase to 2020, allows 73 per cent of all the
Offsets weaken emissions-reduction heavily. This means there is a huge emissions reductions from 2013-2020
targets in developed countries, job to do to transform the electricity in the non-EUETS sectors to be made
and this in turn eases the pressure system. Given lags in putting new via offsets.55 This covers the housing,
on polluters both to invest to cut infrastructure in place, the next five to transport and commercial sectors,
emissions and to avoid investments 10 years are critical in achieving the which could be poised for a revolution
that are high carbon. Polluters are 2030 goal.53 in the generation of decentralised
more willing to make high-carbon This analysis holds for other renewable energy and electricity.
investments if they feel that they can countries within the EU ETS. So
buy cheap offsets to cover them in decisions taken in the next 10 years
forthcoming budgets. are crucial. The massive amount of
Long-term climate stability will offsetting via CDM allowed in the EU
require developed economies to is perhaps the biggest single barrier to
move away almost entirely from decarbonising electricity generation.
technologies that emit carbon dioxide, The EUETS allows 50 per cent of
which requires huge changes in all the emissions reductions in Phase
their infrastructure — starting now. 2 and Phase 3 (2008-2020) to be
Decisions on the mix and relative made via offsets54, covering major
carbon-intensity of a wide range of electricity generation. The recently
power stations will be made in the
coming few years, and these stations “any growth in aviation
will last 40 years. The UK Climate emissions from the expansion
Change Committee said: “A policy of Heathrow would be fully
of relying too much on purchased offset by a reduction in
credits in the initial years could make emissions elsewhere […] it
a stretching 2050 domestic target is simply wrong to say that
unachievable.”51 more planes at Heathrow
means there will be more
CO2 emissions overall”.
UK transport Minister
18 A dangerous distraction Friends of the EarthBecause they are delaying these
UK Government using trading The UK’s new carbon budgets
changes, offsetting is a major barrier
to justify high-carbon and offsetting
to action to prevent dangerous climate
investment
change. Offsetting makes it far more Under the terms of the Climate
likely that developed countries will Because high levels of allowed Change Act 2008 the UK Government
continue on a high-carbon path, offsets weaken an already very weak has set five-year carbon budgets.
choosing to buy cheap permits cap in the EUETS, very high carbon In doing so the Government has
rather than invest in low-carbon developments are being deemed largely adopted the Climate Change
infrastructure. acceptable by EU governments. Committee’s (CCC) advice, but set out
This is not just a problem for For example: its intentions on offsetting for the first
developed countries. Investment period 2008-2012 only. Offsetting is
• The recent UK Government
in low-carbon technologies would allowed within EU rules in the EUETS
decision to allow expansion of
make them cheaper and more widely sectors, and not allowed in the non-
Heathrow will result in an additional
available for developing countries to EUETS sectors.
180 million tonnes of carbon
take up, and enable them to avoid The CCC recommends two targets
dioxide being emitted. The UK
following the same high-carbon – an interim 2020 target of 34 per
Government’s transport Minister
development path as developed cent cuts in GHGs, and an intended
justified this by stating that aviation
countries. target of 42 per cent if a “global deal”
would soon be part of EUETS, and
For example, rapid take-up of solar, were done at the UN climate talks in
therefore “any growth in aviation
tidal, wave and off-shore wind power Copenhagen in December 2009.
emissions from the expansion of
opportunities will make it far more In the traded sector, for the
Heathrow would be fully offset by a
likely that developing countries will be second two budget periods the CCC
reduction in emissions elsewhere
able to use these technologies rather recommends that offsetting be allowed
[…] it is simply wrong to say that
than follow the high-carbon path of up to EU agreed limits – which allow
more planes at Heathrow means
hundreds of new gas- and coal-fired 50 per cent of the total EU effort to be
there will be more CO2 emissions
power stations. made by offsetting.
overall”.56
Just as offsets weaken the In the non-traded sector for
incentives for industry to avoid high- • A leaked Government document the second two periods the CCC
carbon infrastructure investments, suggests one reason the UK recommends no offsetting under
they also weaken the incentives for Government in 2007 was reluctant the interim target, unless a global
governments to take the radical and to pursue renewable energy targets deal is made – in which case the
urgent action needed. Not investing is that they would threaten the entire difference between interim and
in a low-carbon path has short- and EUETS carbon price. In other word intended could be made via offsetting.
medium-term economic costs, as well trading is used as an argument These proposals mean offsetting
as long-term ones through lock-in. not to adopt a low-carbon strategy, has a massive impact on the likely
when its ostensible purpose is to effort the UK has to make to cut
ensure that countries do.57 carbon at home.58
A dangerous distraction Friends of the Earth 19It is also an economically inefficient Some big CDM projects are
4.5 Offsetting means of funding emissions even for major new fossil-fuel power
Undermines reductions in developing countries. stations such as the Tanjavur plant
Wara estimates that HFC projects (see page 16). It is claimed that
low-carbon in the CDM as of 2006 would these are more efficient than existing
development generate Euros 4.7 billion of credits stations. Yet these projects are
for refrigerant manufacturers, but doing no more than ensure the new
in developing destroying the gases costs less than stations meet the standards of existing
countries Euros 100 million. A similar situation best-practice plants – and those are
occurs for N2O projects, where the extremely inefficient, high-carbon
In practice offsetting is not helping price of CERs is tens of times more intensity plants that might have been
developing countries transform their than the cost of introducing the built anyway.
economies to a low-carbon path. In technology.59 Hydro plants are a major part of
many cases it is locking them in to a For these end-of-pipe technologies, the CDM portfolio. They too are not
high-carbon, unsustainable path. a different mechanism is needed using radical new technology and in
There are four main reasons for this: that gives factory owners the cash many countries are part of existing
they need to install the low-carbon development plans. New technologies
technology, freeing up resources such as solar are expected to account
Offsetting does not help with new to spend on more projects helping for as little as 0.1 per cent of total
technology or innovation, because developing countries, and requiring CDM credits by 2012.
of its focus on cheapest options the developed country to address its
domestic emissions. This would deliver
The biggest source of CDM credits these cuts at far lower cost.
is in applying widely available It is likely that CDM is helping
technologies to clean up greenhouse lock in developing countries to a
gases like N2O and HFC from high-carbon path. For example, the
chemical installations. The technology revenues going to the corporations
to strip N2O from nitric acid plants – a fitting HFC and N2O and fossil-fuel
secondary catalyst to convert N2O efficiency projects and new coal-
to nitrogen and oxygen – is decades and gas-fired power plants – which
old. These are end-of-pipe, old- account for well over half of the
technologies with little other economic, total credits are not going to be
social or environmental value. This is spent on renewable or sustainable
not to say that the projects have no development projects. They are going
value: it is important to prevent these to corporations that are building more
gases from being vented. But using fossil-fuel intensive industries.
the CDM to do it prevents emissions
reductions in developed countries,
does nothing to move developing-
country infrastructure away from
a high-carbon path and distracts
attention from many sustainable
development projects in developing
countries.
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