In December 2006 we launched an inquiry into the voluntary carbon offset market. The voluntary carbon offset market allows companies, public bodies and individuals the opportunity to choose to purchase credits generated from projects that either prevent or reduce an amount of carbon entering the atmosphere, or that capture carbon from the atmosphere.

In the voluntary market, consumers can offset against a particular one-off activity such as a flight, or for something more long-term, such as their annual electricity consumption. Consumers can purchase offsets through either an offset provider, a project directly, or through a company offering offsets as part of their package of goods or services.

This inquiry comes at a time of growing concern about the legitimacy of this market and amidst reports in the media about “carbon cowboys”.

The issues we sought initially to address in this inquiry included: whether there ought to be a compulsory accreditation scheme for carbon offset projects and providers; whether there is enough clarity and transparency of information within the market for consumers; whether the science is sufficiently accurate to measure carbon reductions—particularly in forestry and land-use and land-use-change projects; and whether there is evidence to show that offsetting has an influence on other carbon-saving behaviours of customers. We also sought to examine the relationship between the voluntary carbon offset market and the compliance market.

Shortly after we announced our inquiry, the Department for Environment, Food and Rural Affairs (DEFRA) launched its own consultation on a Code of best practice for the provision of carbon offsetting to UK customers (the code) in January 2007. As a result of this announcement, we extended our own deadline for the submission of written evidence to allow interested parties chance to consider the implications of the proposed code in their submissions.

We received 45 written memoranda and took oral evidence from: the Energy Saving Trust; RSPB; the Corner House; FERN; the CarbonNeutral Company; Climate Care; the Co-operative Group; Energy for Sustainable Development; the Edinburgh Centre for Carbon Management; Sustainable Forestry Management; Virgin Atlantic; Silverjet; the Climate Group; British Airways; Cheyne Capital Management; London Climate Change Services; and officials from the Department for Environment, Food and Rural Affairs. We are grateful to all those who gave evidence or who assisted otherwise with our inquiry.

One of the biggest challenges we faced in this inquiry was getting to grips with the complexities, technicalities, and acronyms of the different carbon markets and the resulting types of credits that they produce. The voluntary carbon offset market is not an island and is intrinsically linked to the compliance carbon market. To help to put this report into context, we will explain the different carbon markets and the credits they produce, as well as the role and current state of the voluntary offset market. One of the clearest messages we received in our evidence was that there is a lack of general understanding about the voluntary carbon offset market.

We hope therefore that this report, in bringing together the background, context and issues in the voluntary carbon offset market, will serve beyond its primary purpose as a report to Parliament to which the Government needs to respond and will help to assist and promote understanding and debate in this area.

Download The Voluntary Carbon Offset Market

PDF format, 2.25MB, 299Pages.

House of Commons Environmental Audit Committee
Sixth Report of Session 2006–07
Report, together with formal minutes, oral and written evidence
Ordered by The House of Commons to be printed Tuesday 3 July 2007

The Environmental Audit Committee

The Environmental Audit Committee is appointed by the House of Commons to consider to what extent the policies and programmes of government departments and non-departmental public bodies contribute to environmental protection and sustainable development; to audit their performance against such targets as may be set for them by Her Majesty’s Ministers; and to report thereon to the House.

Current membership

Mr Tim Yeo, MP (Conservative, South Suffolk) (Chairman)
Mr Martin Caton, MP (Labour, Gower)
Mr Colin Challen, MP (Labour, Morley and Rothwell)
Mr David Chaytor, MP (Labour, Bury North)
Mr Tim Farron, MP (Liberal Democrat, Westmorland and Lonsdale)
Mr David Howarth, MP (Liberal Democrat, Cambridge)
Mr Nick Hurd, MP (Conservative, Ruislip Northwood)
Mr Mark Lazarowicz, MP (Labour/Co-operative, Edinburgh North and Leith)
Mr Shahid Malik, MP (Labour, Dewsbury)
Mr Ian Pearson, MP (Labour, Dudley South) [ex-officio]
Mr Mark Pritchard, MP (Conservative, Wrekin, The)
Mrs Linda Riordan, MP (Labour, Halifax)
Mr Graham Stuart, MP (Conservative, Beverley & Holderness)
Dr Desmond Turner, MP (Labour, Brighton, Kempton)
Mr Ed Vaizey, MP (Conservative, Wantage)
Joan Walley, MP (Labour, Stoke-on-Trent North)

Summary:

The challenge of man-made climate change requires speedy and significant action across all fronts. While the principal need is to reduce emissions directly through changes in behaviour or technological improvements, some emissions, at least in the short to medium term, continue to be unavoidable. Encouragement and assistance must be given to individuals, organisations and companies to offset because robust and credible offsetting can have a useful if limited role in mitigating current levels of, and projected short-term trends in, emissions.

There is at the moment very little evidence as to the effect of offsets upon the behaviour of those who purchase them. While it might be the case that offsetting beneficially exposes those who participate in it to a greater understanding of the challenge which climate change poses, it is clearly important that thorough and independent research be conducted into this area as a matter of priority.

The UK has the opportunity to lead the international field in developing robust and helpful guidance and codes of practice at a national government level which will endorse meaningful offsets and assist people in choosing the best way to offset their emissions. The UK’s financial and carbon markets have much to gain from a rapid growth in what is increasingly seen as a vital component of commercial activity and corporate responsibility.

The international offset industry, if managed responsibly, will only grow over the short to medium term as many governments, like the UK Government, develop their own guidance or best practice or perhaps themselves move towards offsetting their own emissions, for their official travel or for their activities, as is the case in the UK.

The recent DEFRA consultation is a well-intentioned attempt to help assist consumers and lend confidence to a market that has recently been assailed by critics for its lack of clarity and integrity. While elements of the market are no doubt less than robust, offsets as a whole currently risk this taint from a few failed projects. The suspicion that always dogs unregulated markets could affect its prospects for growth and curtail its benefits in reducing emissions globally.

The current consultation offers the opportunity for the Government to bring forward measures not just to encourage responsible and robust offsetting but also to set out clear criteria which offsets ought to meet. It must also work with the offset industry, with those businesses interested in offsetting, with those working in the international carbon market, and with NGOs, to establish an independent, authoritative body to vet and quality-mark those providing offsets, their credits and their projects. These criteria must also cover the provision of clear and accurate information by the offset industry to the public without which the act of offsetting will continue to lack the intelligibility the public require. The Government must act quickly, and the costs of this initiative must be borne principally by the offset industry itself which will only benefit from increased market confidence and increased sales.

The current restriction proposed within the DEFRA Code of Practice which limits the approval of credits to those from the compliance market unfortunately risks devaluing projects and credits which are not only as methodologically sound and verifiable as those within the Clean Development Mechanism but which also often carry greater sustainable development benefits outside their principal benefit to the climate. This unnecessary restriction could seriously affect the growth of the Verified Emissions Reduction market.

This market will only prosper if the Government allows for the approval of both Certified Emission Reductions and Verified Emissions Reductions within its scheme as long as they all meet the correct criteria.

Although there is still uncertainty about the future of the Clean Development Mechanism post 2012, the Government must work as hard as possible to improve how it operates over the next few years. It needs to be less bureaucratic, less costly, and less restrictive in terms of the methodologies, and the scale and nature of the projects, which it approves and permits. The Government must also work to ensure that any successor to the Clean Development Mechanism embraces smaller projects, projects in the most poor and unstable countries, and also forestry and land-use projects founded upon preservation as well as planting. Avoided deforestation needs a much greater priority accorded to it both within and outside the Clean Development Mechanism.

In many people’s eyes, offsets are connected principally with forestry projects of one sort or another, although there has in fact been a steady shift away from such projects by many offsetters over recent years, not least because of the reputational damage caused by mediareported project failures. However, some offset companies still retail only forestry credits; and it would be entirely wrong to consider this part of the market as either a cheap or a disreputable one. Some of the most rigorous and environmentally beneficial of all projects come from the stewardship of tropical forests and the well-judged re-forestation or afforestation of land in the tropics. Indeed, figures from the Stern and recent IPCC reports stress the significance of avoided deforestation, but also of reforestation, to avoiding dangerous climate change.

Recent scientific debate about the albedo effect and northern temperate forests and the related debased and largely inaccurate reports that have appeared in the general media have been a distraction from the undoubted good that forests provide for the climate. Wellmanaged forestry projects, while they can be expensive, not least on account of their lengthy timescale and the need to deal with the risks of impermanence and leakage, can be as robust as other projects and invariably carry with them many of the additional benefits and environmental extras that consumers want to buy into. The Government must commit itself to advance the cause of avoided deforestation in particular in international negotiations as a matter of the very greatest priority. It must also encourage and, where appropriate, assist those offsetters who wish to develop strong and worthwhile projects to preserve or increase the area and carbon intensity of our current biological carbon sinks.

The airline industry, in addition to its expected participation in the EU Emissions Trading Scheme from 2011 and its commitment to fuel efficiencies and to technological and ‘procedural’ developments and improvements, must consider itself duty-bound to develop robust and effective policies with regard to offsetting. Currently, the industry has a diverse and generally unsatisfactory attitude towards offsetting. British Airways’ initiative in this area, for example, has been risible. The decision of the industry to back out of discussions with the Government over its proposed Code of Practice may well in part have been motivated by its understanding that the DEFRA proposal was too narrow, but was in greater part down to confected outrage at the Government’s rise in Air Passenger Duty.

It may also be because offsetting only draws attention to the malign effects of air travel on the environment. The industry must engage with the Government and accept that it needs to do more now to mitigate emissions from its planes and to encourage uptake of offsets amongst its customers as a matter of priority.

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