Criteria for carbon offset

In cooperation with two non-governmental organizations – the World Wildlife Fund (WWF-US) and the Environmental Defense Fund (EDF) – Oeko-Institut has developed criteria for what constitutes a high-quality carbon offset. According to these criteria, the following aspects are particularly important in determining the quality of credits from climate protection projects:

• Additionality: This means that the mitigation activity is only made possible by the revenues of carbon offsets and would not have taken place in their absence. If the project would have been implemented anyway, it does not lead to additional climate protection and thus cannot offset any emissions. Whether a project is really additional is not always easy to check. The decisive factor is whether the project is already economically viable without carbon credits and would therefore be realized in the absence of the financial incentive provided by the credits or whether the project is to be implemented based on existing policy instruments like subsidy programs. Various studies have found that the additionality of many climate protection projects is questionable. There are also mitigation activities, however, where there is a high probability of additionality.

• Old projects: Under the largest offset program – the Clean Development Mechanism CDM of the Kyoto Protocol – there is a very large surplus of credits from old projects, for which there is comparatively low demand. The surplus is so large that the credits are sold at very low prices. In most cases, however, the climate protection projects continue regardless of whether they can still sell their credits. This is because the activities often generate other revenue – e.g. from the feed-in of electricity from wind turbines – and continued operation is therefore more profitable than shutting them down. The purchase of credits from such CDM projects does not lead to more climate protection and is therefore not recommended. However, some CDM projects rely on current proceeds from emission reduction credits. This applies, for example, to the avoidance of nitrous oxide gas in nitric acid production or the use of more efficient stoves for cooking with wood. These projects are worth supporting.

• Quantifying emission reductions: To ensure that every offset credit is linked to a ton of avoided CO₂, it is important that the emission reductions are not overestimated. They must be estimated cautiously, because there are considerable uncertainties in quantifying them. One particular challenge is estimating the reference scenario, i.e. how many emissions would have occurred without the project. In the case of forest protection projects, for example, it is very uncertain how the forest would have developed without the project.

• Avoidance of double counting: Double counting occurs when a single greenhouse gas emission reduction is counted twice in achieving mitigation targets or offsetting. Double counting is a significant risk with voluntary offsetting, especially from 2021. This is because the Paris Agreement, under which almost all countries have climate targets, takes effect then. If emission reductions from mitigation projects are sold in a country, there is a risk that not only the person who purchases the offset credit will be credited with the reductions, but also the country in which the project is implemented. This is because the country can prove lower emissions when reporting on the fulfilment of its climate target. This could result in the country having to make fewer climate protection efforts to achieve its targets.

  Such double counting can be circumvented by countries subtracting the emission reduction achieved through the project when reporting on the fulfilment of their climate targets under the Paris Agreement. To do this, the government of the country in question must authorize the project for international emissions trading under Article 6 of the Paris Agreement and undertake so-called “corresponding adjustments” when reporting on fulfilment of its climate target. If the credits are to be used to offset emissions and double counting is to be avoided, credits must therefore be recorded via such “corresponding adjustments” in the future.

• Permanence of emission reductions: Forest and moorland projects carry the risk that the stored carbon is later released. For example, if a forest is planted and a fire later destroys it, the CO₂ that was absorbed is released back into the atmosphere. Most offset programs address this risk through insurance: all projects must pay a portion of their credits into a fund. If the carbon stored in a project is released again, the harm to the climate is compensated by cancelling the credits in the fund. How well this approach works depends largely on how well resourced the fund is, how broadly the risks are distributed, and the length of time for which it is checked whether the CO₂ is released back into the atmosphere. Some offset programs also use temporary credits or make a general subtraction when quantifying emission reductions. A few offset programs take no measures at all to ensure the permanence of emission reductions. Only offset programs that have a fund to compensate any damage to the environment and ensure that CO₂ sequestration is checked for at least 100 years should be used.

• Promoting transformation to a zero-emissions society: The Paris Agreement aims to ensure that people no longer produce any greenhouse gases in the second half of this century. The transformation to a zero-emissions society requires a profound change in our economic activity and huge investments in future technologies. To achieve this, investments in long-lived technologies that continue to produce greenhouse gases must also be avoided. It is therefore important not to promote projects that continue to use fossil fuels such as efficient coal-fired power plants or new gas-fired power plants. Rather, climate protection projects need to be chosen that promote future technologies that avoid greenhouse gas emissions as fully as possible such as innovative renewable energy technologies.

• Good institutional structures and processes: Offset programs differ significantly in terms of their structures and processes – for example, in terms of how the public is involved in developing rules and approving projects, or how certifiers are accredited and vetted. Programs with transparent and participatory structures and processes can better ensure that rules are robust and adhered to.

• Other environmental impacts and social aspects: In addition to the climate protection effect, it is important that climate protection projects do not have negative social or environmental effects; if possible, they should have positive impacts beyond climate protection. Here, the type of project and how the offset programs check potential negative impacts is very important. For example, projects such as efficient stoves for cooking with wood that improve the living conditions of rural households in developing countries often have comparatively high social benefits. Some programs, such as the Gold Standard or Verra’s Climate, Community & Biodiversity Standards, establish specific requirements with respect to other environmental impacts and social aspects.