Will offsets be the “indulgences” for our LNG sins?

In June 2014, the BC government reported on its progress towards the 2007 Greenhouse Gas Reduction Targets Act, which calls for a one-third reduction by 2020 in GHG emissions (relative to 2007 levels) and an 80% reduction by 2050. The BC government claimed to have met a key milestone: an interim target of a 6% reduction as of 2012. BC has clearly made some progress in its climate action policies, and has received praise for its carbon tax. But there is a big asterisk that must be placed next to BC’s claim, as a full one-quarter of BC’s emission reductions are from offsets.

The topic of offsets is a controversial one, in BC and elsewhere. For critics, offsets are typically compared to medieval indulgences, where the living would pay the Catholic church and in return have their deceased relatives officially pardoned for their earthly sins. Supporters of offsets have spoken to positive impacts on the ground: averted deforestation being the principal outcome of interest in BC.

A scathing 2013 report from the Auditor General raised concerns that BC’s offsets, purchased by the now-defunct Crown corporation Pacific Carbon Trust, do not represent real reductions in emissions elsewhere. This regime was doubly controversial in that all public sector organizations in BC are required to pay $25 per tonne of carbon emissions (above and beyond the regular carbon tax) to the PCT, at a time when public services are already badly squeezed. And the PCT was able to buy their offsets for much less than $25, accumulating a surplus over several years of operations. PCT functions and its surplus have since been rolled into the Ministry of the Environment; public sector organizations still have to pay the $25 per tonne fee.

The 1 million tonnes in offsets to bridge BC’s emissions gap is relatively small, but as BC considers its more ambitious 2020 and 2050 targets, its use of offsets may grow substantially. Furthermore, as the province juggles previous climate action commitments with its top economic priority of developing an LNG industry, there have been rumblings that offset purchases may be used in order to make LNG operations meet a “carbon standard.” Thus, it is appropriate to get the offset regime right, if it is to exist at all, before scaling it up.

The big question is whether BC’s purchase of offsets actually facilitated the emission reductions that enable the province to claim both that it has achieved a “carbon neutral government” and that it has met its 2012 interim GHG target. In theory, an offset involves reducing emissions elsewhere to compensate for your own emissions that cannot be reduced. For example, when purchasing an airline ticket, one may be asked to purchase a carbon offset for a small additional fee. That money is supposed to go to projects elsewhere that reduce carbon emissions, thereby making their flight “carbon neutral.” There may even be economic efficiency advantages to doing so, as those offsets may be achieved at reduced economic cost than the originating flight.

There are, however, major differences between offsets in theory and in how they have been utilized in practice. Because climate change is caused primarily by human use fossil fuels – extracted and combusted for energy, which releases carbon dioxide into the atmosphere – at the broadest level, a “true offset” must take carbon from the atmosphere and put it back underground. Here’s the magician’s trick: in order to create a wider scope and a market for offsets, the definition has been broadened to include measures that  prevent future emissions than would otherwise have occurred.  This requires that a hypothetical baseline for “business-as-usual” to be calculated, and raises issues of measurement and verification to determine whether an offset really would not have otherwise happened (called “additionality”).

The offset industry argues that sophisticated accounting standards have been established with rules to evaluate offset projects. But it is also clear that a lower bar is better for business. One widely cited study found that 40% of international offset projects (though the UN’s Clean Development Mechanism) did not meet the additionality test. An inquiry into international offset projects found numerous conflicts of interest and uncertainties in the process that make the system an elaborate shell game. Such is the potential for manipulation and fraud that INTERPOL last year released a Guide to Carbon Trading Crime.

BC’s offset regulation has adopted a lower bar than what we see in the UN’s Clean Development Mechanism (CDM). Whereas the CDM does not allow averted deforestation as a legitimate offset, BC does. Forests are important stores of carbon, to be sure, as about half of a tree’s mass is carbon. Deforestation in the global south has been cited as a major contributor to climate change (about 20% of annual global emissions). But to make avoided deforestation into an offset is to say yesterday we had an emitter and a forest, and tomorrow we have an emitter and a forest but that emitter is now carbon neutral because we did not liquidate the forest.

And if we are counting forests and carbon storage, the BC government is ignoring its own data, which show that net deforestation and changes on forest lands (including the impact of the mountain pine beetle) have been a huge carbon source. In BC, those latter emissions were about 42.9 Mt CO2 in 2012, a figure that approaches the 48.6 Mt from BC’s combustion of fossil fuels for energy.

The 2013 AG report looked at two cases representing 70% of the “carbon neutral government” claim. In one, the Darkwoods project, a hypothetical “baseline” situation where a forest would have been clearcut was claimed, with the value of that carbon monetized and sold to PCT (more from Ben Parfitt on this here). In the second case, funds went to oil and gas company EnCana, supposedly for a technical improvements in its practices that reduced some of its emissions. Other PCT projects have been criticized of being of dubious benefit. For example, energy efficiency improvements at the Whistler Resort and Spa and the Sun Peaks resort. In these cases it is hard to prove that these are not “free riders” — companies working the system to their advantage for projects already in the works.

Even if they fail the carbon test, one interesting place for research is to what extent those offset expenditures have had benefits in BC – in particular, the value of conserving, stewarding and sustainably managing BC’s forests. Public funds can and should flow to conservation and forest management activities as part of modern carbon stewardship, and could be financed out of carbon tax revenues. This is one way that recognizes the value of carbon in standing forests rather than only seeing value in their transformation into forest products.

But that should not be used to justify emissions as being “carbon neutral”. So as we look down the road towards an LNG industry that threatens to completely blow BC’s GHG targets, be wary of claims that offsets will absolve our carbon sins.

Topics: Climate change & energy policy, Environment, resources & sustainability, Fracking & LNG, Privatization, P3s & public services, Provincial budget & finance, Transparency & accountability