What are some of the main issues associated with offsets?

EPA Victoria's Carbon Management Principles suggest that businesses first look at opportunities to avoid and reduce their own emissions before considering offsets in order to optimise financial and environmental outcomes.

The following is a brief explanation of each of the key considerations in selecting offsets:

• Additionality
• Permanence
• Leakage
• Double counting
• Timing of emissions reductions
• Monitoring and verification
• Co-benefits.

Additionality

Additionality is a key concept in evaluating whether or not an offset project leads to real and measurable greenhouse gas reductions. To be regarded as a valid offset, a project must be proven to be ‘additional’ to what would have occurred anyway. For example, a routine upgrade of equipment or changes in response to a regulatory requirement cannot be regarded as additional.

Translating the concept of additionality into practice requires establishing ‘tests’ of additionality. Typically these tests address the following types of additionality:

• Financial Additionality: the project needs to go beyond business as usual (BAU) commercial practice. A standard test for this is if the project is financially viable without the offset funding.
• Regulatory Additionality: the project needs to go beyond existing legal requirements.
• Environmental Additionality: the emission reductions cannot be counted toward another emission reduction scheme or commitment.

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Permanence

Some emission reductions may not be secure or may involve a range of risks. For example, this can occur with forestry projects where risks from fire or pest infestation are high, or where carbon offset credits are sold in advance. Offset providers should offer some form of guarantee that purchased credits will be maintained, or customers will be compensated if the project doesn’t deliver the expected emissions reductions.

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Leakage

Changes in emissions that take place beyond the boundary of the project but are attributable to the project activity are called emissions ‘leakage’. New and/or additional emissions occurring off-site need to be quantified and taken into account in assessing the emissions reductions achieved. For example, if a forestry project limits logging in one area, the possibility that deforestation will occur elsewhere should be considered. Offset providers should also consider emissions from project operations (eg. electricity use, transportation of materials, etc.) that could increase emissions relative to the project baseline.

Leakage should be explicitly addressed in calculation of the net emissions reductions achieved by a project.

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Double counting

Double counting can happen when two or more businesses claim the same emissions reduction. This can happen if an offset is sold to two or more entities, or when an entity upstream of the project unknowingly claims the reduction as its own (eg. an electricity generator). The establishment of protocols, and the use of an offsets registry can ensure offsets are adequately accounted for.

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Timing of emissions reductions

Some offset providers generate and sell credits from their projects on an annual basis while others forecast credits over the life of their projects and sell them up-front.

For some projects this is necessary to get project funding, but counting on emissions reductions to occur over the lifetime of a project presents several risks. Regulatory requirements could make some offset projects obsolete in the future. For example, implementing energy efficiency technologies that may be mandated by government in the futurewould no longer satisfy ‘additionality’requirements (see above).

Proper monitoring and verification, and legally-recognised commitments from the offset provider to secure replacement credits if the project doesn’t deliver anticipated emissions reductions can help to mitigate these risks.

Purchasers of offsets may wish to ensure that the GHG impact of their operations are neutralised by offsets in ‘real time’.

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Monitoring and verification

To ensure that the emissions reductions claimed by the project have actually taken place, the emissions should be monitored and verified, in line with a recognised standard.

The verifier should evaluate the project based on an explicit set of criteria that minimise the risk of false emission reduction claims. This should include the ongoing monitoring of the project to ensure that claimed outcomes have eventuated. Use of a third-party verifier is recommended to ensure the integrity of the offset credits.

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Co-benefits

Although the primary goal of offsets is to encourage reduction in GHGs, projects may provide secondary benefits such as:

• reductions of other pollutants
• increase in habitats for biodiversity
• reducing reliance on fossil fuels in the economy
• education benefits from the installation of new energy efficient technologies.

Co-benefits vary between projects and may be an important factor in voluntary offset purchasing decisions.
In going carbon neutral for 2005/06 and 2006/07, EPA Victoria wanted to purchase offsets which aligned with its organisational goals, and provided for environmental benefits beyond greenhouse gas mitigation.

For this reason, in 2005/06 our purchases included a composting project that, on top of reducing methane emissions, also diverted waste from landfill. This offset project was verified by the Australian Greenhouse Office’s Greenhouse Friendly program.  

In 2006/07 our offset purchases included an investment in a wind farm in China, which is reducing the local reliance on coal- powered electricity.  Wind power also has less emissions of a range of air pollutants.

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