Manipulating the system

The Federal Trade Commission should be aggressive in making sure consumers understand carbon offsets and take a harder look at renewable energy certificates, or RECS, according to a letter signed by nine state attorneys general.

The AGs cite the potential "to manipulate the system" and make the usual plea that feds make sure offsets aren't being double sold - in other words, make sure that if a project cuts emissions by 1 million tonnes, the offsets sold from that project don't total more than 1 million tonnes. Critics cite double selling as a major drawback of retail offsets programs.

They also want clarity on RECs:

The states also demanded that the Federal Trade Commission consider whether renewable energy certificates-proof that energy was generated by a renewable source-should count as a valid offset. The certificates may not qualify as offsets because renewable energy does not always displace traditional energy sources.

The United States requires power companies increase the portion of their output from renewable energy. Many would argue this is a legal mandate, therefore it doesn't meet the standard for 'additionality' and wouldn't qualify as an offset. The FTC could put an end to RECs as an offset, but this won't dent the booming renewable energy business -- although it might cut into offset brokers bottom line. Which isn't necessarily a bad thing.

“We don’t want carbon offsets to become the 21st century version of snake oil and patent medicine.”

Done correctly, carbon offsetting has the potential to cut emissions, reward innovation and send price signals that allocate capital to the most cost-effective projects. It's a great concept, but offsets have no intrinsic value without proper monitoring and verification.

The Fair Trade Commission recently began a series of workshops that put the spotlight on the booming trade in voluntary offsets. They covered many of the problems exposed in a great Businessweek article early last year on offset projects, which boils down to lack of verification and transparency.

It now seems Congress, or at least two Republicans, have taken notice and they requested the Congressional investigative arm, the General Accountability Office, bring sanity to the situation.

“Carbon offsets provide a potentially valuable way for individuals to make direct, personal commitments to environmental quality, but without transparency and reliable evidence of honesty, they seem poised to betray their purchases’ good intentions ... We don’t want carbon offsets to become the 21st century version of snake oil and patent medicine.”

In some cases, it might be too late. Ask Saab.

The automaker launched a curiously named Grrrrrreen campaign (why six Rs?). Australian consumer protections regulators are taking legal action after finding that "its claims of planting 17 native trees would not provide a carbon dioxide offset for any period other than a single year’s operation of any motor vehicle in the Saab range."

It's not just the pushers offering suspiciously sourced offsets that are causing trouble, but it's fair to argue offsets are a victim of their success and imitation. At the moment, it's often just too cheap to buy offsets, thereby having no impact on consumer behaviour. If offsets don't increase the cost of owning and driving a Saab enough to make a Prius a comparable alternative, the offsets probably aren't properly valued.