Once upon a time, wind and solar energy projects weren’t financially viable on their own. Because the technology wasn’t seen as ready—or the fossil fuel alternatives were more lucrative—renewables needed extra investment (and motivation) to get off the ground.
Often, that would be through carbon offset programs. Individuals and companies would fund these renewable energy projects to offset their own greenhouse gas (GHG) emissions. That gave manufacturers and researchers the time and money they needed to improve and refine technologies, turning solar and wind energy from a futuristic pipe dream into a realistic source of power.
Jump to today, and we’re in the future—these projects are viable on their own, built and operated purely based on the economics. In fact, the International Energy Agency (IEA) recently reported that solar-generated power is the “cheapest source of electricity in history.” Not bad for a pipe dream—and a convincing case study to show how carbon offsetting can provide the seed money to make effective climate action a reality.
Nowadays, if you’re looking to invest in a solar or wind project, you might have more luck on the stock market than in the world of carbon offsets. Verra, one of the four biggest carbon offset programs, has even stopped listing wind and solar projects entirely—because they don’t need the funding.
“Grid-connected renewable energy is now often as profitable as its greenhouse gas-intensive alternatives and no longer dependent on climate finance,” says David Antonioli, Verra’s CEO.
Verra and its competitors (more on them below) are the COOs of the carbon offsetting world, bringing together different types of carbon offset projects and creating standards to measure and regulate them, so that third-party auditors can ensure the effectiveness of these projects and verify they’re sticking to their promises.
They achieve this by directing funding to projects and sectors that are not financially sustainable on their own, Antonioli says. This process is an essential tool in our efforts to combat climate change. Carbon offset programs help companies, governments and people like us support projects that reduce global GHG emissions, but have no other source of funding.
The industry is growing. Voluntary carbon markets (i.e., money going into carbon offsetting that isn’t required by law) are at an all-time high. In 2018, the market had a value of $295.7 million, a 48.5 percent increase over 2016, according to the latest Ecosystem Marketplace State of the Voluntary Carbon Markets Report. Since tracking began in 2006, more than 1.2 billion metric tons of carbon have been traded on the voluntary market.
That’s about equal to the yearly emissions of Japan, one of the five biggest state emitters in the world.
Carbon offsetting is an essential component of global efforts to stop climate change from reaching the scariest projections. But how do you really know where your money is going, or that the carbon offset projects you’re funding are truly effective? That very necessary transparency is where carbon offset programs come in.
Here, we give you a quick history of carbon offsetting and then share our tips for how to choose the best carbon offset programs and how to buy them.
A brief history of carbon offsetting
Carbon offsetting as a significant movement dates back to the Kyoto Protocol, a 1997 UN climate accord and the forerunner to the more recent Paris Agreement. Kyoto laid out a system where industrialized countries agreed to emissions targets, and could trade them just like the regulatory carbon system we have now. The Protocol came into force in 2005, and from there, voluntary carbon markets appeared and began to grow very quickly.
According to third-party auditor Steve Boles, it took the offset industry some time to build its credibility. A former academic and current manager of GHG and sustainability services at the AET Group, Boles has been working in the carbon offset industry since it really began to take off. Much of his work now involves analyzing and verifying carbon offset projects all around the world.
When the recession of 2008-09 hit, the carbon offset industry experienced a downturn like the rest of us. It also faced a reckoning with bad PR, in the form of a series of media stories highlighting some serious problems: think tree-planting projects with dead trees and individual carbon offsets being sold multiple times. The revelations caused a serious crisis for the industry, especially when coupled with the recession.
Things have changed for the better since then.
“The industry didn't just give up on itself,” Boles says. “It did what it should have done in the first place, which was it developed all these different kinds of processes to ensure quality control. And the third-party verification requirement is a huge aspect of that.”
The 4 best carbon offset programs
We mentioned the “big four” carbon offset programs above, meaning the most established and trusted programs on the market:
These programs have a solid track record of performance and accountability.
There are multiple ways you can buy carbon offsets verified by these programs.
Most offset retailers will provide some version of a carbon footprint calculator. This lets you estimate your annual GHG emissions, or what the emissions from something specific like a flight would have been, so you can find the amount of offsets you want to buy.
If you’re looking for ease of use, and to be able to “set it and forget it,” Atmosfair, for one, gives you the option of setting up a regular subscription, so you can buy offsets yearly, quarterly or even monthly. For some subscriptions, you may not be able to pick the individual offset projects to buy into, but will instead get offsets from a variety of projects selected by the retailer. When selecting a retailer, check that their offsets are verified by one of the programs above.
If you prefer picking which individual project or projects you’d like to support, you can do that as well. On Carbonfund.org, for example, you can look through specific projects and see which standard each one is verified under. Note that because of the different needs and costs of individual projects, prices can vary.
There are still other options. Some project developers let you buy directly from them as well as via other retailers. Bluesource is an example of this.
You can even buy directly from some of the programs themselves, such as The Gold Standard.
How to choose a carbon offset project to invest in
So how do you pick a project that best suits your needs?
Boles says when he makes recommendations to his clients, he asks them which of two directions they want to go in: supporting local or regional projects, or contributing toward additional social and economic benefits beyond offsetting carbon.
Typically, Boles says, it’s projects in the developing world that have those extra benefits. For example, one Bluesource project in Kenya, the Paradigm Project, provides efficient cookstoves to people in the region to replace their traditional wood-fired stoves. Higher efficiency means less need for fuel, which translates to less time and money spent gathering wood, and slower deforestation. But beyond that, the project provides local employment, and also frees up the family members usually tasked with collecting firewood—in most cases, women and girls—to do other things.
This is something also emphasized by Antonioli of Verra.
“We always like to support projects that have an additional social benefit,” he says. “Offset projects, especially in the developing world, often are doing much more than just reducing emissions—for example, they are investing in communities and sustainable businesses, thereby creating jobs, and providing stability and other downstream benefits for people and the planet.”
Aldrich of Bluesource notes that U.S.-based projects may not provide as many extended social or economic benefits, but there are still many positives. She points to a pair of nature-based projects in Vermont as examples. “This Burnt Mountain one is a forestry project. It’s really essential in helping preserve habitat and watershed protection,” she says. Another, in Middlebury, helped preserve a forest for education for the local university.
From there, you’ll be able to choose based on what project fits with your needs and values the most. Maybe it’s a project in Kenya to provide zero-energy water filters to eliminate the need to boil water over a wood-burning stove, or perhaps it’s a project in Hawaii to reclaim a former cattle ranch for natural forest.
The important thing is knowing that the benefits promised are actually going to take place, so that you can trust that you’re contributing to a reduction in GHGs in the atmosphere. That’s why carbon offset programs are so important. They give you confidence that the offsets you purchase will help balance out your carbon footprint—and contribute to a better future for all of us.
Carbon offsetting: Key terms to know
Like any industry, the carbon offsetting world has its own insider vocabulary. Before we dive too deep into how carbon offset programs work, let’s review some key terms and concepts.
1. CO2 equivalent
Carbon dioxide is not the only greenhouse gas, but it’s by far the most common, so it’s used as a common unit of measurement. Other GHGs have different strengths when it comes to global warming (this is called their global warming potential). To make things easier to understand, and to put everything on the same plane, the potency of every GHG is measured in comparison to CO2—that is, in its CO2 equivalent.
Quantities are typically measured in metric tons, and you’ll see the whole thing abbreviated as tCO2e, short for metric tons of CO2 equivalent. Methane, for example, is 25 times more potent than carbon dioxide. So if a carbon offset project kept 1 metric ton of methane from being released into the atmosphere, the benefit would be counted as 25 tCO2e.
2. Carbon offset projects
“Carbon offset projects perform activities that are carefully designed to achieve emissions reductions or removals that go beyond business as usual, which means they can be used to legitimately compensate for emissions elsewhere,” says Verra spokesperson Anna Thiel.
In other words, carbon offsetting is like balancing the scales on emissions, with the ultimate goal of preventing an increase of GHGs in the atmosphere (and, eventually, lowering them).
Note that Thiel says some projects are designed to lower or limit the release of GHGs into the atmosphere—think conservation projects that prevent a forest from being logged, or technology upgrades that reduce the emissions coming from a certain kind of industry. Other kinds of projects, such as forest restoration and geological sequestration (essentially, burying gases underground), will actually remove carbon dioxide and other GHGs from the air.
A lot of things happen in the background so that you can trust that the carbon offset you purchase is legitimately making a difference for the climate. For example, each offset will have its own unique serial number. This is to prove that the offset you’ve bought is not also being sold to someone else.
Another thing to note: the type of carbon offset project doesn’t make a difference to its effectiveness—nor does where it’s located. Climate change is a global problem. Wherever GHGs are released, they add to the global total. Carbon doesn’t respect the lines on a map.
This means that reducing GHG emissions or capturing carbon anywhere in the world will have a positive effect everywhere. A metric ton of CO2 removed from the air thanks to a forestry project two miles from your home is just as valuable to you (and to all of us) as preventing two metric tons of carbon from being released by a coal cook stove in rural China.
3. Project developer
The project developer is the organization (and people) on the ground, building and operating a physical project. In the case of forestry, for instance, the developer is the one sending out a small army of students on summer break to plant the trees, which can then start their work absorbing CO2 from the atmosphere. Developers also work at a higher level, bringing smaller owners up to speed with financing and expertise to turn their projects into reality.
One example is Bluesource. “We actually go out and find projects that could develop offsets,” says Lizzie Aldrich, the company’s vice president of business development. They then work with project owners—including landowners, counties or municipalities—to calculate the quantity of GHGs being reduced or removed, and to prepare project documentation for auditors and the standards body that will review the emissions reductions.
4. Carbon offset program
The next layer is the carbon offset program. Offset programs (like Verra, who you met above) develop rules, called protocols, that set out terms for how the whole carbon offsetting process will be managed and accounted for. They’re on top of all the details, making sure all the t’s are crossed and i’s dotted so the projects they vouch for are trustworthy.
5. Third-party auditors
Third-party auditors are the bridge between real work and paperwork. They’re the ones who review a developer’s project to make sure it’s complying with all the protocols and, essentially, is following up on its promises.
Auditors are a mandatory part of the process and are independent from both developers and programs. They operate at arm’s length to make sure the offset process is transparent and truthful. Typically, they are hired by the project developer to verify a project’s legitimacy.
A registry is a user interface and accounting tool—operated and maintained by a program, like Verra or Gold Standard—where you can find information on individual projects such as their goals and prices. It’s an open and transparent system that promotes trust. On the registry, you can see all the projects within a particular program, like the price of offsets, where projects are located and the number of offsets available for purchase.
One confusing point: in the U.S., you might see the word “registry” used to describe what we define above as a program. This linguistic ambiguity is just an unfortunate side effect of a rapidly evolving industry. But in most contexts, an offset registry is a specific term referring to the offset accounting interface specifically.
This is essentially an online shop where you as a consumer can actually buy carbon offsets. Some programs, such as Gold Standard, sell directly to consumers. In other cases, you’ll need to go through a broker or portal to make a purchase. Project developer Bluesource sells some of their offsets directly, while others are listed on retail portals. Aldrich says they are planning to sell more offsets directly in the future once their online platform is further developed.
8. Carbon credits and cap-and-trade
Up to this point, we’ve focused entirely on the voluntary market, because that’s where individual consumers can participate. But there is also a whole other GHG-reducing world called the regulatory carbon market. This is where countries or states set maximum emission limits (caps), usually for corporations, then allow them to buy and sell (trade) carbon credits to make sure they stay within those limits (or pay for it if they don’t).
Credits are different from offsets, in that they are still live assets that can be moved around. An offset is essentially a credit that has been retired, taking it out of the market and lowering the overall available emissions. In the U.S., California is the major regulatory market.
Here’s an example. Let’s say a soap factory has a carbon emissions cap of 50 tCO2e per year. But thanks to technology upgrades they’ve invested in (and have had approved as part of a carbon reduction program), their actual emissions are only 45 tCO2e. This means they have 5 tCO2e worth of carbon credits to sell on the market. A second factory, perhaps a car manufacturer, has a cap of 60 tCO2e per year, but their actual emissions are 65 tCO2e. In order to balance out their extra emissions, they can buy those carbon credits from the soap factory. Not only does this system reduce GHG emissions overall, but the soap factory has been able to bring in capital to counterbalance the cost of their technology upgrades.
These cap-and-trade systems are hugely effective when it comes to climate change, but there aren’t many ways for consumers to have an effect on the regulatory market through direct investment. Instead, changes to that market (such as bringing in, and lowering, emissions caps) are made by governments.
We know, it’s complicated. But that’s not a bad thing.
While the carbon offset industry—and the way it defines and categorizes things—can be complex, that may actually be one of its strengths for effecting real change in the world, notes Aldrich. “The fact that there are so many categories helps drive innovation,” she says. “This allows organizations to support projects that are specific to their operation while still achieving the goal of lowering GHG emissions. It also allows developers to think outside of the box and get creative with the types of emission reduction projects that can be developed.”
Keep up to date with the Good News(letter)
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada, RBC Ventures Inc., or its affiliates.