National

Carbon Offsets: Government Warns of Fraud Risk

By Christopher Joyce

Published January 3, 2008 at 12:30 PM PST

This story was published more than 16 years ago.

People who want to counterbalance the amount of carbon they emit are buying "carbon offsets." These offsets are used by companies to invest in renewable energy sources, such as solar. Here, solar advocates in Manila participate in a recent parade calling on the government to support more renewable energy.

There is something new to feel guilty about: carbon.

This new form of remorse is found among people who think that their lifestyle — driving, plane trips or maybe just leaf-blowing — adds too much climate-warming carbon dioxide to the air.

The guilty can now buy something called a "carbon offset." Essentially, you pay someone else to reduce or "offset" carbon emissions equal to your own.

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It's a booming new trade, but the federal government is worried that consumers are getting ripped off. The Federal Trade Commission has announced it will investigate the offset business.

For the consumer, buying an offset is pretty straightforward. You go to a broker and pay a few bucks for every ton of CO2 you want to offset. The average amount each American adds to the air is about 20 tons annually.

The broker promises that your money will pay for a project somewhere that will reduce carbon emissions, say, by growing trees that soak up that CO2 or building a solar energy plant.

Pankaj Bhatia of the World Resources Institute, an environmental think tank, says the business is hot. In fact, trade in this offset market is figured to be about $100 million a year and growing fast.

Bhatia's job is to assess carbon footprints — how much carbon you or your business emits. He says he's been very busy.

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"Today, I got a phone call from a group that is managing concerts," he says, "and they wanted to know how they could quantify emissions from the transportation by helicopters of their equipment." The concert promoters wanted to buy offsets to neutralize the CO2 their concert produced.

How Much and For What?

But how do people know they are getting what they are paying for? After all, this is a market that trades in a gas, or more accurately, units of a gas that are not produced.

In the United States, the trading is voluntary and nobody is in charge. That worries people whose job it is to protect consumers.

"Our concern is that because these claims are very hard to substantiate and consumers can't easily tell they're getting what they pay for, there is the real possibility of fraud in this market," says Jim Kohm of the FTC's enforcement division.

Kohm says he does not know yet if there is much fraudulent carbon trading. But he is suspicious. "There's been an explosion in green marketing," he says. "There are claims that we didn't see in the market 10 years ago. Carbon offsets are one of those new claims."

There is a raft of new "carbon-neutral" products. For instance, there are potato chips and rock concerts that are advertised as "clean" because their makers or sponsors have bought offsets to counterbalance their emissions.

What the FTC Is Looking For

One of the things the FTC will investigate is "double selling," Kohm says. "So, for example, if I have solar panels on top of my store and then I sell somebody else the right to claim that carbon scrubbing, I can't then claim the carbon scrubbing for myself, as well."

"And if somebody were selling that two or three times, then that would be a deceptive practice that the FTC would need to take action on."

Another hangup is whether the carbon savings you are buying would have happened anyway. For example, what if a company cuts back on the electricity it uses simply to save money? Can that company then claim it has created an offset and then sell it? Climate experts say no. The offset market, they say, is meant to pay for carbon reductions that would not have happened otherwise.

Some environmental groups say that instead of buying carbon offsets, Americans should do the hard work themselves: use less electricity, switch from coal to wind power, drive less.

But Erik Carlson of Carbonfund, a company that trades in offsets, says it doesn't really matter who cuts carbon, who pays for those cuts, or who profits. "We need a 70 percent or so reduction in emissions," Carlson says. "And, in fact, that's all the planet actually cares about. It doesn't care about methane versus electricity versus this versus coal versus whatever."

But the FTC says it does care about consumers and whether they are getting what they pay for. The commission will hold its first public hearing on offset trading on Jan. 8 in Washington, D.C.