Carbon Offsets: A Dangerous Distraction

Friends of the Earth explain why offsetting is a dangerous distraction from the urgent business of decarbonizing the world’s economies. CDM and related offset plans can’t be reformed: they must be scrapped.

The following is the Executive Summary of Friends of the Earth’s new report, A Dangerous Distraction, which examines the record of the main offset scheme, the Clean Development Mechanism (CDM). The full report can be downloaded here.

Tackling climate change urgently requires major cuts in global greenhouse gas emissions. At Kyoto in 1997, as a step towards this goal, developed countries agreed targets to cut their emissions. Embattled negotiators introduced offsetting to offer some flexibility in the way these targets could be met.

The theory was that offsetting would allow developed countries to meet part of their targets by paying developing countries to deliver greenhouse gas reduction projects.

Since then offsetting has grown quickly, in particular in the form of the Clean Development Mechanism (CDM ). Despite many well-publicized problems, CDM offsets are now predicted to deliver more than half of the European Union’s planned carbon reductions to 2020.

Offsetting in general is poised for further expansion, potentially bringing onstream many more offset credits:

• into forests, through proposed offset-based REDD mechanisms (Reduced Emissions from Degradation and Deforestation).
• into sectors that the CDM does not currently cover, such as nuclear power.
• under new sectoral frameworks.

Offsetting has gone from being a minor, experimental idea to an approach which, although it has major negative impacts on countries’ climate change strategies, is set to expand further. Countries are clamouring for even more offsetting opportunities as the world prepares for crucial climate talks in Copenhagen at the end of 2009.

In practice offsetting is having a disastrous impact on the prospects for averting catastrophic climate change. It is vital that the inherent and systemic flaws in the approach are recognized ahead of negotiations. These problems cannot be dealt with by simply reforming CDM ; instead completely new approaches are needed that are effective and just.

The five central arguments against offsetting are that it:

1. counts action in developing countries as part of the cuts promised in developed countries, although the science is clear that action is needed in both developed and developing countries.
2. cannot guarantee the same cuts as would have happened without offsetting.
3. is causing major delays to urgently needed economic transformations in developed countries.
4. does not ensure positive sustainable development in, or appropriate financial transfers to, developing countries.
5. is profoundly unjust, fundamentally flawed and cannot be reformed.

For these reasons offsetting must not be expanded at Copenhagen. New proposed offsetting schemes must be dropped from negotiations, and existing offsetting mechanisms need to be scrapped.

This report analyses offsetting, using mainly the example of the largest scheme, the Clean Development Mechanism (CDM). However, this analysis is largely applicable to the other types of offsetting as well.

Offsetting is not reformable

Offsets are a swap of an emissions cut in developed countries for a cut in developing countries. But action in both is needed. Failure to cut in developed countries also results in delays in essential infrastructure changes necessary for deeper cuts in the future. Offsetting results in fewer emissions cuts. No amount of reform can alter this.

The problems of proving “additionality” – that the developing country project would not have happened without CDM – are inherent. The US Government Accountability Office says it is impossible to know with certainty whether a project is additional.

The problems of proving the offset project generates the same level of carbon cuts are inherent. Offsetting credits are created against hypothetical baselines – they are not and cannot be guarantees of the same level of cuts.

The report finds that:

1. Offsetting delivers lower greenhouse gas cuts than the science says are needed to avert catastrophic climate change.

The IPCC says that developed countries need to make major greenhouse gas cuts and in addition that developing countries need to make cuts on so-called business-as usual baselines (emissions levels). But offsetting means that action in developing countries can be counted as part of the action needed in developed countries. Offsetting therefore institutionalizes the idea of making cuts in one or the other, when the science and the IPCC are clear that action in both is needed. It is incompatible with the IPCC ’s recommendation, and leads to less emissions cuts. The climate loses.

2. Offsetting cannot guarantee the same level of carbon cuts in the developing country as would have been made in the developed country.

i. It is almost impossible to prove that most offsetting projects would not have happened without the offset finance – ie that they are “additional”. The US Government Accountability Office’s (GAO) 2008 review of offsets said “it is impossible to know with certainty whether any given project is additional”. Without this guarantee the net effect is that greenhouse gas emissions are increasing – because the CDM credit allows the developed country to continue polluting. The climate loses.

ii. Even if a project were additional, it is often impossible to calculate accurately how much carbon a project is saving. This is because credits are calculated by judging action against hypothetical futures – things that haven’t happened.

3. Offsetting delays necessary infrastructure changes in developed countries.

It weakens incentives to implement strong climate policies or prevent high-carbon investments. A switch to a low-carbon model in developed countries in time to prevent catastrophic climate change requires that they make major investments now and over the next 10 years. Yet offsetting means that, for example, EU countries can delay taking strong action until at least 2020. Locking in their high-carbon infrastructure will have severe consequences for the global climate and developed country economies.

4. Offsetting is not delivering for developing countries.

i. In many cases offsetting is not helping developing countries take a low-carbon path. In fact a large proportion of CDM revenues are subsidizing carbon-intensive industries, or projects building fossil-fuel power stations.

ii. CDM can create financial incentives for developing countries not to implement strong climate policies. This is because only projects that are not required by regulation are supposed to qualify as CDM projects.

iii. The financial flows involved are far lower than those required to adequately or effectively support low-carbon development. Developing countries must be given far greater support – not least because of the colossal historic debt owed to them by developed countries, which have overwhelmingly caused the climate change crisis. Offsetting, however, is not the tool for this job.

iv.  There are severe equity impacts for developing countries if developed countries offset even part of their targets. Offsetting deepens inequality in per capita carbon consumption between developed and developing countries.

In summary, CDM and other types of offsetting are flawed and highly problematic tools for tackling climate change. They are a dangerous distraction from the urgent business of decarbonizing the world’s economies. They are not open to reform and should be scrapped.

Governments should:

1. Agree that developed countries must reduce their own emissions by at least 40 per cent by 2020, excluding offsetting.
2. Reject all forms of offsetting: proposals for new and expanded offsetting schemes must be dropped, and existing offsetting mechanisms need to be scrapped.
3. Reject plans to introduce REDD offsets, and instead negotiate effective and fair mechanisms to protect the Earth’s forests that do not involve offsetting.
4. Negotiate a new financial mechanism under the authority of the UN Framework Convention on Climate Change (UNFC) to ensure adequate financial flows to developing countries to support their transition to a low-carbon future.