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Ins and Outs of Carbon Credits

 Man-made climate change advocates call them a way to make your green peace with the environment. Skeptics say they’re a sop for wealthy, guilt-ridden greenies at best - - and potentially fraudulent, at worst.

What are they? They’re carbon credits, and no matter what you think, they’re coming to a checkbook near you.

What, exactly, are carbon credits? Sometimes known as carbon “offsets”, carbon credits are financial mechanisms that enable buyers pays a third party to remove a quantity of carbon (in the form of a greenhouse gas) equivalent to what the buyer emits.

Carbon credits are a burgeoning environmental and economic trend, particularly in the business world. In the U.S. carbon offset volumes, as measured by metric tonnage, grew by 100% from 2005 to 2006, and is expected to double again in 2007. In a recent study by the Conference Board, 75% of companies polled said they were ‘actively computing” their carbon footprint. While only 15% of the companies surveyed were actively engaged in carbon trading, another 40% were considering it.

The Carbon Trading Markets

By and large, there are two types of carbon credit markets, one operating overseas and the other an emerging mainstay here in the U.S.

“Cap-and-Trade” – In 1997, the U.S. Senate voted 97-0 to reject the Kyoto Protocol, which sets limits on the amount of greenhouse gases a country could release into the environment. Countries that did pass the Kyoto treaty now have set caps on greenhouse gas emissions. If a country emits less greenhouse gases than the cap calls for, it receives carbon credits they can turn around and sell on worldwide carbon exchanges. If the country exceeds the Kyoto caps, it must buy credits to offset its extra energy use.

Elective Carbon Credits – The U.S. has a voluntary carbon credit market, where (mostly) companies and some individuals buy carbon credits as offsets to the amount of energy they approximately use. Thus, global warming guru Al Gore can offset the use of his gas-guzzling private jet by buying enough carbon credits to cover the environmental cost of the greenhouse gases emitted from his airborne travels.

Pros and Cons of Carbon Credits

The carbon credits market has its cheerleaders and its critics. Let’s take a look what each camp has to say about carbon trading.

The Case for Carbon Credits

Simplicity – By paying a third-party to remove a quantity of carbon from the environment, consumers can, in theory, achieve carbon “neutrality”.

Awareness – The very existence of the carbon offset market, it’s fast rate of growth, and the amount of media attention the market has received has raised the visibility of the climate change issue. In a politically-charged environment, carbon trading is the most prominent agent of change on the global warming landscape. Corporations are leading the charge. Companies like Expedia, Orbitz, HSBC Bank, and Google all have carbon trading programs up and running. Many more are in the pipeline.

It’s Good Business – In the corporate sector, where most of the carbon trading activity is taking place, carbon offsets can be an attractive option, fiscally and socially. Through efforts to better manage their greenhouse gas emissions, corporations can be rewarded by reduced costs through energy efficiency, superior brand positioning and public relations through carbon neutrality, and energized employees who support climate change initiatives.

The Case Against Carbon Credits

No Measurement Benchmarks – One issue that has yet to be resolved in the carbon offset world is benchmarking, i.e. establishing a certification or monitoring process that quantifies the real value of carbon trading programs. International standards bodies like the U.N. and global warming advocacy groups are trying – so far, in vain – to set up a system where carbon credit buyers know that their investments are producing measurable results. For now, there is no uniform way to see that carbon credit companies are doing what they promised.

Distraction -- Or Worse? – On one hand, the increased visibility of climate change as an issue is a boon to carbon credit supporters. On the other, it could also be a serious distraction, even impediment, to fighting global warming. If consumers surmise that they can pollute all they want, and like a papal indulgence, have their polluting ways “forgiven” through carbon offsets, global warming could become a larger problem.

Class Warfare – Carbon trading may make sense for some consumers, but they’d have to be deep-pocketed ones. Currently, most carbon offset programs are skewed to corporate interests and to the wealthy. If a dockworker in Philadelphia wants to plant a tree in Uganda, the paperwork alone runs into the hundreds, if not thousands of dollars. For working families, that’s probably not an option.

Jury Still Out

While experts agree that putting a price on the cost of carbon is good, the need of having consumers trade potentially harmful environmental practices for carbon offsets is debatable.

It’s a debate that shows no sign of abating.

Carbon Credits: Questions to Ask

The environmental group Clean Air Cool Planet has published a Consumer's Guide to Carbon Offsets for Carbon Neutrality. Inside the group lists key questions potential carbon credit buyers should ask of carbon credit groups:

•    Do your offsets result from specific projects?
•    Do you use an objective standard to ensure the additionality and quality of the offsets you sell?
•    How do you demonstrate that the projects in your portfolio would not have happened without the greenhouse gas offset market?
•    Have your offsets been validated against a third-party standard by a credible source?
•    Do you sell offsets that will actually accrue in the future? If so, how long into the future, and can you explain why you need to 'forward sell' the offsets?
•    Can you demonstrate that your offsets are not sold to multiple buyers?
•    What are you doing to educate your buyers about climate change and the need for climate change policy?


Published Nov 01 2007, 01:06 PM by moneycoach
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