Is offsetting suitable for NGO development projects?
Andrew Scott outlines five broad areas of concern
Carbon offsetting cancels out or neutralises the emission of greenhouse gases in one place through the avoidance or reduction of emissions somewhere else. Offsets can be generated by activities such as energy efficiency, renewable energy and forestry projects. The exchange is mediated through a market mechanism, the carbon market, with the sale and purchase of emission reductions in units of tonnes of carbon dioxide equivalent (CO2e).
The carbon market deals in two main categories of offset - Certified Emission Reductions (CERs) and Verified Emission Reductions (VERs). In the certified or regulated market the tonnes CO2e are called Certified Emission Reductions (CERs). These are the units, certified by national government agencies, which are exchanged through the Clean Development Mechanism, established under the Kyoto Protocol. By 2006, the annual amount traded had reached 174 million tonnes CO2e. In the voluntary, unregulated market the units traded are Verified Emission Reductions (VERs), amounting to an estimated 13 million tonnes in 2006.
Both the Clean Development Mechanism and much of the voluntary market seek to channel funds from offsets to projects which provide a sustainable development or human development benefit as well as emission savings. But the record is patchy, at best, and the practice of offsetting has generated a lot of controversy. The offset market, however, is expanding rapidly - anticipated to be worth £ 2 billion by 2010 - and many offsetters are looking for projects which provide social as well as emission reduction benefits.
So, will carbon offsetting help or hinder the fight against poverty? What concerns of principle or practice are there for NGOs engaging with carbon offsetting? There are five broad areas of concern for development NGOs.
Practical issues around verification
These are partly technical. Emission reductions in developing countries can be hard to measure; conversion factors are unknown or at least not standardised. In the case of popular stoves projects, for instance, how do you guarantee that thousands, maybe tens of thousands, of improved cook stoves are indeed generating the required emission reductions? Once they have been made and distributed to households, how do you even know they are all being used? Or that emissions per stove are as predicted, given the variety of fuels and foods being used?
The costs of verification are also a concern. Practical Action, for example, has been quoted £10,000 by one company for the initial validation of each project with a further £5,000 a year for the annual verification of emissions. The verification costs for one micro-hydro project in Peru were estimated to be US$64,000. Can these costs be justified for small-scale projects, where funds for poverty reduction are in great need? Do they exclude small-scale community projects from taking advantage of offset funds?
These verification issues seem to boil down to a question of how rigorous - and therefore expensive - the carbon accounting has to be when the primary objective is human development. This question is linked to concerns about reputational risk and about the suitability of offsetting as a source of funds.
Reputational risk
Offsetting is controversial in part because it does not itself reduce the emissions of offsetters. Some therefore see it as 'all smoke and mirrors'. On the other hand, many organisations want to be perceived as doing something about climate change and engagement with offsetting offers a way to do this. For NGOs, offsetting is potentially a liability if public or peer opinion comes down more strongly on the side of the argument that 'it doesn't do anything to reduce global emissions'. The practice of offsetting, through poor measurement or lax standards, also has the potential to become a liability for those engaging in the market.
Appropriate funding
Is offsetting as an appropriate source of funding for NGO development projects? The income per tonne CO2e can vary - Practical Action has been offered from £2.60 to £6.00 per tonne - so it is not always certain that a given quantity of emission reduction will attract the same level of funding. The price of offsets offered by different companies seems to be correlated with the standards used: the more rigorous the standard the higher the price, but more then goes to cover the verification costs.
The funds from offsets may well not cover the full costs of the project. In the case of one completed Practical Action project the offsetting funds covered 42% of the total project cost. So, offsets are likely only to be co-funding, and the NGO or project implementer has to raise the rest. Apart from the burden this places on the organisation (co-funding for small projects not being particularly efficient fundraising), it raises questions about the 'additionality' of the project. Would it go ahead without the offset funds? For some voluntary offset companies and CDM, the 'additionality' requirement is essential (i.e. the project would only be undertaken if offset funds are provided). For small-scale projects for human development, most NGOs would simply find the funds from elsewhere and offset funds would be regarded as just another funding source.
Conflicts between development and emission reduction objectives
Should offset funds be seen as a significant opportunity, a fourth area of concern is that the design of projects and programmes becomes skewed by the nature of the funding. In one stoves project, for example, the improved cook stove design preferred by the users was not the one that reduced emissions significantly. But because offset funding focuses on carbon counting, not on human development impact, the lure of funding could lead an organisation to dilute its focus on poverty reduction.
Issues of principle or ethics
Offsetting does raise questions of principle or ethics as well as practical questions. For organisations with a participatory, inclusive approach to development, two issues of principle are worth noting. First, carbon offsetting allows emitters to carry on emitting CO2 and by making a financial payment claim carbon neutrality. Carbon offsetting is, in effect, a mechanism that allows the economically powerful to pursue their own interests by exploiting the assets of the poor (i.e. their carbon allowance). It does nothing therefore to redress global inequalities, indeed arguably it serves only to reinforce them.
Even if we accept that carbon offsetting is worth doing, when it comes to small scale development projects, whose offsets are they? Who has the rights to decide whether emission reductions should be sold, and who has the rights to decide how the revenue is deployed? An approach to development that seeks to empower disadvantaged communities would ensure that these rights are held by the community, not the NGO working with them.
Case study: Practical Action's approach
Practical Action has decided to work with more than one offset company, only partly because of the funds on offer. We also want to learn about what is involved so that we can draw lessons about how offset funds might be used effectively for small-scale development projects. At the moment, for the voluntary market, the jury is still out. For CDM, however, it is clear that quite radical changes would be needed to make it work for such projects.
In recognition of these concerns we are now seeing another category of funding emerging, where people or companies are invited to donate to development projects to 'compensate' for their carbon footprint. The projects supported might be for adaptation or mitigation. Practical Action receives funds of this kind from at least one small company and has an arrangement with Warwickshire County Council for the same, though the amounts involved are very small. While this might be regarded by some as a new fundraising opportunity, for others this is little more than 'conscience money' and as such also carries a potential reputational risk. But like offsetting itself, it is likely to expand.