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Carbon Offset Plan Allows Businesses to Trade Environmental ‘Credit’

March 6, 2008 at 6:20 PM EDT
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As scientists debate how to address climate change, one proposal for businesses creates a carbon credit system that allows emission producing companies to buy credits from companies that use energy efficient technologies as a way to offset overall environmental impact.

JIM LEHRER: Now, carbon credits as a way to clean up the air. NewsHour correspondent Spencer Michels has our report.

SPENCER MICHELS, NewsHour Correspondent: In the San Francisco offices of the financial services firm Cantor Fitzgerald, traders buy and sell stocks and bonds in one room, while just behind them a smaller group trades a new, controversial green commodity, carbon offsets.

BROKER: What we are is we deal with environmental brokerage, and so we do environmental commodities. And so we’re both putting up — you know, we’re matching investors with capital.

SPENCER MICHELS: The idea behind carbon offsets is to lessen the impact of carbon dioxide that people, companies, and vehicles emit into the air. By investing in ventures like hydroelectric power that can reduce overall CO-2 production, or forests, which store CO-2, the original carbon emission is offset.

Buying and selling such offsets can actually be quite lucrative, says Josh Margolis, who runs Cantor CO2e.

JOSH MARGOLIS, Carbon Offset Trader: There’s a tremendous amount of money that can be made or lost, and there are people who are flocking to this business with the idea that they’re going to make a gazillion dollars.

SPENCER MICHELS: This trading floor and others work like commodity exchanges, where investors bet that the price of offsets, now varying between $1 and $3 a ton, will go up or down depending on the demand, and the brokers take a commission on sales.

A growing number of American firms and individuals are buying carbon offsets voluntarily, since the U.S. has no mandatory government program.

Here’s how offsets work. An individual or a company — say, an airline — creates carbon dioxide by burning fossil fuels like jet fuel. The CO-2 is emitted into the air and forms a layer of greenhouse gas that traps heat and contributes to global warming.

Meanwhile, a different company builds windmills, for example, that generate electricity, an activity that will reduce the need for fossil fuel and thereby cut the amount of CO-2 emitted.

The windmill firm sells a credit for the carbon dioxide it has eliminated to the airline company that can’t stop creating CO-2 and uses the money to build more windmills.

Dan Kammen, who teaches energy science and policy at U.C. Berkeley, took us to such a windmill project, which has benefited greatly by the sale of offsets.

DAN KAMMEN, U.C. Berkeley: This farm probably would not be as large as it is if they didn’t have these carbon credits because the profit margin would have been smaller.

SPENCER MICHELS: Kammen says voluntary projects like this are crucial to combat climate change.

DAN KAMMEN: The carbon offset market is critically important because it provides one of the ways to bring in capital and new innovative companies into finding solutions. And this is not something we’re going to solve without the private sector becoming a real dominant player in this game.

SPENCER MICHELS: While trading carbon offsets may improve the environment, it also appeals to companies who want to look green. And it serves as a hedge against future regulation, according to Margolis.

JOSH MARGOLIS: Because they anticipate that they will be required to, they’re buying emission reduction credits now and greenhouse gas offsets now because they believe that their customers want them to. They believe that they can make more money if they sell a greener product.

High demand for offsets

Christina Page
We've bought for this year 250,000 metric tons worth of offsets. It's equivalent to taking 35,000 cars off the road or turning off the Vegas strip for two months.

SPENCER MICHELS: Internet portal Yahoo is one company touting its environmental credentials. Yahoo figures it emits 250,000 tons of CO-2 a year, much of it in electricity used to power its servers.

To reduce its carbon footprint, it provides biodiesel-powered shuttle busses for employees so they won't have to drive to work. And it is trying to reduce power use by, among other things, spurring electricity efficiency competition between employees.

YAHOO EMPLOYEE: This is the electrical energy used by a laptop computer in an hour.

CHRISTINA PAGE, Yahoo: Let's definitely include that one in the final version. That will resonate.



SPENCER MICHELS: But cutting power usage isn't nearly enough. Christina Page, the firm's climate and energy director, says Yahoo spent $2 million in 2007 to buy offsets and become the first Silicon Valley firm that is carbon-neutral by canceling out its CO-2 emissions through offsets.

CHRISTINA PAGE: We've bought for this year 250,000 metric tons worth of offsets.

SPENCER MICHELS: Yahoo has bought carbon credits by supporting a wind farm in India and a hydroelectric dam in Brazil.

CHRISTINA PAGE: It's equivalent to taking 35,000 cars off the road or turning off the Vegas strip for two months.

SPENCER MICHELS: The demand for offsets has led to a growing, unregulated industry of for-profits and nonprofits selling carbon credits. Live Neutral, a nonprofit, sells carbon offsets to clients like Transgroup, a company that works with air, truck and rail companies, big CO-2 emitters.

Live Neutral finds projects to offset those emissions, according to founder Jason Smith.

JASON SMITH, Founder, Live Neutral: We can actually start reducing emissions on an industrial scale today if we can built the fiscal support to make those projects possible. You still have a carbon footprint, but it's something you can do today to take responsibility for that footprint.

SPENCER MICHELS: Transgroup says that it's good business and good public relations to buy carbon credits for its customers.

LIVE NEUTRAL CLIENT: Maybe the next step, from a calculation standpoint, is to work a rail component into our trans-neutral calculations.

Reducing individual impact

SPENCER MICHELS: It's not just companies, but also individuals worried about the environment who are entering the offset market. Bruce and Twana Karney of Mountain View, California, figured out their own carbon footprint using a calculator they found online.

BRUCE KARNEY, California Resident: More than half of it was from flying, about a quarter from driving, and the rest from natural gas and electricity.

SPENCER MICHELS: First, they tried their best to reduce it.

TWANA KARNEY, California Resident: It shows our carbon footprint of 26 tons of CO-2 produced. And so we needed a new car, so we bought a hybrid vehicle, and we insulated the walls.

SPENCER MICHELS: Then, they decided to buy offsets to reduce that footprint even more. And for that, they turned to Northern California utility PG&E.

AD SPOKESPERSON: Climate Smart allows all of our customers the opportunity to zero-out their carbon footprint.

SPENCER MICHELS: The company is using videos and commercials to encourage customers to buy carbon offsets through its Climate Smart program, the first utility to do so.

It adds a small amount to its bills and invests it in forestry projects and in capturing methane, a powerful greenhouse gas produced by cows, and using it to create electricity. Fourteen thousand customers, out of PG&E's six million, have signed up so far, including the Karneys.

BRUCE KARNEY: I like that they were taking manure that would have turned into methane and turning that into fuel to produce electricity. It's a great solution.

SPENCER MICHELS: When you tell your friends, what do they think?

BRUCE KARNEY: California, full of flakes and nuts.

TWANA KARNEY: Yes, my family, many of them live in Illinois. And, you know, I asked my brother, I said, "Are people talking about this out there?" And he goes, "Oh, no, it's a different world."

Government regulation

Laurie Wayburn
Pacific Forest Trust
Forests absorb carbon dioxide through photosynthesis, and then they store it in their tissues, in the woody tissue, and in soil. Old-growth forests, in fact, are invaluable carbon banks.

SPENCER MICHELS: California is the first state to enact its own law to set limits on carbon emissions. It goes into effect next year.

But some of the state's politicians have jumped ahead. California Governor Arnold Schwarzenegger and House Speaker Nancy Pelosi have attempted to offset their frequent air travel by purchasing carbon credits from a small, private redwood forest in the north of the state.

The project is managed by the Pacific Forest Trust, whose director is Laurie Wayburn.

LAURIE WAYBURN, Pacific Forest Trust: Forests absorb carbon dioxide through photosynthesis, and then they store it in their tissues, in the woody tissue, and in soil. Old-growth forests, in fact, are invaluable carbon banks.

SPENCER MICHELS: When trees are cut down, much of the carbon is released back into the atmosphere. And in areas where forests are destroyed to make way for agriculture or development, huge amounts of CO-2 are emitted.

LAURIE WAYBURN: The loss of forests is the second-largest cause of excess CO-2, which is the main global warming gas in the atmosphere.

Calculating the success of offsets

Caitlin Sparks
The Gold Standard
It's a big experiment at this point. But do I think that generating credits from renewable projects that build a renewable infrastructure is a fantastic idea and a powerful tool? Absolutely.

SPENCER MICHELS: Wayburn's group uses carbon credit money to plant some new trees and to better manage the forest for carbon retention.

Planting and sustaining forests is an inexpensive, though controversial way to get carbon credits. There is disagreement on how much carbon trees can capture, whether a newly planted forest will survive, and what kinds of trees should be planted in what climate.

Which brings up the question: How can you know that the offsets you're buying genuinely make a difference?

Various studies and news reports allege that there are outright scams and that some offsets have no effect. The Financial Times reported widespread instances of people and organizations buying worthless credits that do not yield any reductions in carbon emissions and a shortage of verification making it difficult for buyers to assess the true value of carbon credits.

BusinessWeek wrote that TerraPass, a San Francisco firm which sells offsets, claimed its purchases had reduced methane gas emissions, when, in fact, efforts to reduce those emissions were underway before TerraPass got involved. The company declined our request for an interview, but said it was re-thinking its efforts.

Verifying carbon offsets has become an industry itself. The Gold Standard, a nonprofit prominent in Europe, but just getting going in the U.S., certifies the providers of offsets.

Virgin Atlantic Airlines recently announced it would only buy carbon offsets certified by the Gold Standard.

FLIGHT ATTENDANT: Would you like to offset a single journey or your return journey?

SPENCER MICHELS: Caitlin Sparks runs the Gold Standard's West Coast office.

CAITLIN SPARKS, The Gold Standard: There are cowboys looking to make a big profit.

SPENCER MICHELS: Sparks says that, compared to Europe, which has a regulated carbon market, the U.S. is like the Wild West.

CAITLIN SPARKS: Lots of people, I believe, are generating offsets that aren't checked by any third parties. It's a market at this point really riddled with uncertain and fraudulent claims.

SPENCER MICHELS: Sparks doesn't want to see the industry damaged by a few dubious operators.

CAITLIN SPARKS: I think it's a big experiment at this point. But do I think that generating credits from renewable projects that build a renewable infrastructure is a fantastic idea and a powerful tool? Absolutely.

SPENCER MICHELS: Still, there is a lot of cynicism about allowing carbon polluters to continue polluting while paying for credits. A satirical British Web site mocks the whole premise of paying to offset sins.

BRITISH ACTOR: If I said you can pay 2.50 pounds to our new company if you cheat on your girlfriend and we'll pay someone else to be faithful for you.

SPENCER MICHELS: Live Neutral's Jason Smith finds the satire funny, but not quite apropos.

JASON SMITH: Carbon emissions, unlike, say, infidelity, are not a sin. They're an unfortunate byproduct of our day-to-day lives.

So it's not the kind of thing that we are mandated not to do. It's the kind of thing that we've just done too much of. It's gotten out of control, and we need to start taking responsibility for it.

SPENCER MICHELS: The U.S. emitted nearly six billion tons of CO-2 in 2006. Only a small portion of that is offset thus far.

Environmentalists are pushing for strict national limits, or caps, on carbon emissions. If enacted, they could add to the already enormous growth of the offset market.

JIM LEHRER: Two of the people Spencer interviewed will answer your questions about carbon offsets on our Web site at