1) For governments, it can refer to ways to avoid reducing emissions in their own country by giving money to other governments or to projects in other countries. Under Kyoto, this is counted as a contribution to the target of the paying government.
2) For governments, it can also refer to the buying of permits from other governments who are below their Kyoto target.
3) For individuals or organisations who wish to reduce the impact of their activities (usually flying), it can refer to giving money to an organisation which spends it on energy efficiency, renewables, and forest protection/reforestation.
It does not matter where in the world greenhouse gases are emitted. Therefore, carbon offsets are theoretically more acceptable than, for example, sulphur dioxide offsets, because it matters to acid rain formation and to human health where the sulphur is emitted. That is why cap-and-trade (where a government sets the cap and allocates permits, and organisations can then buy or sell permits if they have too few or too many) is conceptually better for controlling climate change than for controlling other air pollution. (However, paradoxically, cap-and-trade was first used in a major way in the US to control acid rain.)
However, the concept of offsetting was used to introduce major loopholes into the Kyoto Protocol, and is being used in the same way in the Copenhagen negotiations. Offsets in the sense of (1) above are essentially desirable, though have not been well implemented so far. Offsets in the sense of (2) are undesirable and, unless there is an internationally enforceable agreement that sets tight caps, will continue to be what is legitimately dismissed as ‘hot air trading’. Offsets in the sense of (3) are good news if they reduce the damage done by essential flying or other necessary emissions, but bad if they are used to assuage the guilt of those who care a little bit about climate change but do not want to give up flying on holiday.
(1) Paying for clean development
Many billions still live in poverty and, for them, economic development is essential. The USA, Europe and other developed countries and areas got rich by burning dirty fossil fuels. Places like China, India, South Africa and Mexico will attempt to do the same, unless they are helped financially to develop in a low-carbon way. The Kyoto Protocol established the Clean Development Mechanism (CDM) to enable rich countries to pay for projects in developing countries and claim the carbon reduction against their own target. The project has to be ‘additional’ – it would not have happened without the money from the developed nation. The CDM has been widely criticised for failing to implement this ‘additionality’ criterion effectively. This is a fair criticism – there have certainly been mistakes and some deliberate abuse of the system. Less fair is the criticism – usually only implicit – that ‘development’ is part of the problem. Clean development is politically central to controlling climate change, and morally central, because it would improve billions of people’s lives.
The CDM must be reformed and strengthened, but should remain an important part of whatever international agreement emerges from Copenhagen. The EU has argued that, in “advanced developing countries” (the ones that are less poor), the CDM should become based on sectoral agreements, rather than being project based as it is now. This has some advantages, but would require sectors and governments to agree ‘business as usual’ emissions levels, against which clean development could be measured. So ‘additionality’ would still be difficult to judge and there would still be room for abuse.
The top priority for expenditure should be forest protection. Destruction of forests is the cause of about 18% of total global greenhouse emissions, so leaving the forests standing would be the quickest way to protect the climate. Does this constitute development? It does to those who live in them, if they are able to have better lives without having their homes destroyed. Rich countries should pay, as the Brazilian government correctly points out. As well as burning fossil fuels, developed countries got rich by cutting down most of their own forests, so if they want developing countries to behave differently, they must pay.
Forest protection will often include restoration, which will improve the health and durability of the forest and so help prevent climate damage. However, reforestation is more difficult to argue for, on climate grounds. Clearly, it is desirable on biodiversity and landscape grounds, but we have only about ten years to control climate change and, sadly, forests will not grow quickly enough to take enough carbon out of the atmosphere to help significantly. Reforestation should be promoted and supported – as long as it involves good forests and not, for example, palm oil monocultures. However, reforestation should not be included in carbon offset programmes.
(2) Hot air trading
Countries that are below their Kyoto target can sell permits to countries that are above. This is a fundamental part of any cap-and-trade system. The problem is that Kyoto’s targets were nowhere near tough enough and, since 1990 (the baseline year against which targets were set), the economies of Eastern European countries have changed dramatically. Heavy industry has often closed down (with goods often manufactured instead in China). For example, Russia’s Kyoto target is that emissions in 2010 should be the same as in 1990, but the collapse of much of the Russian economy since 1990 meant that emissions in 2006 were in fact 34% below 1990 levels. So other countries buying permits from Russia does absolutely nothing to protect the climate.
(3) Personal offsetting
Flying on holiday should always be avoided. But not all flying is unnecessary. Some work travel is needed (though not nearly as much as happens – the availability of video-conferencing, telephones and emails make much of it a waste of time and money). In addition, many people need to fly to see family, and a trip to a different continent is important for people while growing up, so that they can experience different cultures. In these cases, money should be given to the organisations that offset the emissions. One of the best of these is the German-based Atmosfair, which spends the money on renewable and fuel efficiency projects in Asia, Africa and Latin America. Atmosfair is one of the few offset companies that recognises that flying is more climate-damaging than, for example, driving or using electricity, because water vapour emitted at high altitude also traps heat. Therefore, it increases the money needed to offset a flight to three times the carbon emitted.
An alternative is to give money direct to an organisation that is involved in rainforest protection and the best of these is Birdlife International. It is involved in an impressive attempt to restore and protect the Harapan Rainforest in Sumatra, Indonesia. Harapan is the Indonesian word for ‘hope’. It is in an area that was expected to be felled and replaced by plantations for timber or oil palm production. By preserving the forest from illegal logging (which is a serious threat – legal logging has been prevented by the Indonesian government, which is co-operating in protecting the forest), Birdlife International and its partners are helping wildlife and working with the local government and community to improve rural livelihood. The forest restoration will also help prevent floods and wildfires, so the partnership is an excellent example that it is quite possible to protect the climate while also improving people’s lives, and is well deserving of money.