By Leo Peskett and Mari Iwata

The UK Department of Environment, Food and Rural Affairs today released to consultation a set of draft standards for carbon offset schemes. The market in carbon offsetting is growing rapidly among consumers, and increasingly companies, as they look to ‘cancel out’ their carbon emissions by investing in projects that claim to reduce the amount of carbon in the atmosphere elsewhere. In the first 9 months of 2006, the market was valued at about US$2.5 billion.

Ben Bradshaw MP, UK local environment minister, stated during a BBC Newsnight interview on Monday that the proposed standards will allow people to tell “whether they can trust the schemes they are using." Many such schemes advertise themselves as contributing to sustainable development, as well as combating climate change. The standards should therefore aim to ensure a positive impact on both areas, in order to successfully gain the trust hoped for by Mr. Bradshaw.

What does a ‘high quality’ offset look like?
ODI research has looked at standards schemes claiming to deliver ‘high quality’ carbon credits, that are both ‘environmentally and developmentally sound'. ‘Developmentally sound’ in this context primarily means ensuring that the offsets are beneficial to the poor, and generally improve equity.  

There are obviously many factors to consider here but, as outlined in a recent Forestry Briefing, there are three main issues influencing the potential of offset schemes to deliver developmental benefits:

1. The ability of the poor to access the market in the first place. In the Clean Development Mechanism (CDM) market, upon which the UK standards are to be based, high costs for registration and stringent verification requirements are seriously reducing the mechanism’s potential to deliver projects in the least developed countries. This is particularly true for Africa.
2. The impacts of the project on the ground (e.g. income generation, restrictions on land use etc.)
3. The wider ‘add on’ benefits to the host country - for example, by helping build technical expertise for related services, such as the verification of emissions, to host country institutions.  

In developing standards that have a real impact on sustainable development, the following areas are critical:

• The costs of implementation, and who bears these costs.  High costs for higher standards could function as non-tariff barriers, excluding the poor from the marketplace. Transaction costs for small-scale CDM projects are estimated to range between £17,000 and £30,000 for development of the project alone.
• The level of rigour required: Setting standards purely on the basis of what consumers want could result in standards that are too high for many small producers to comply with.  This is an area that the CDM is trying to address through the development of simplified methodologies for small-scale projects.  It is also an issue that could inhibit the forestry sector from engaging with the market, because of the technical difficulties in verifying forest carbon sequestration. This would be unfortunate, as there are significant potential benefits for many developing countries.
• Adherence to local laws: Most standards currently require adherence to local laws.  This is fine where those laws exist and work in favour of the poor, but this is not the case in some countries where application of the law as it stands is likely to be both unjust and profoundly anti-poor.
• Independent oversight: There is a consensus that third party verification will improve the quality of offsets.  Many providers already use verifiers accredited for projects in the CDM market. 
  There are two areas of contention here:
  • most of these are based in developed countries (There are 17 accredited verifiers. 3 are based in developing countries,  two in S Korea and one in South Africa) and;
  • the kind of provider indicated (not-for-profit or private sector); this tends to be an assumption NGOs are more credible than the private sector best in developing standards schemes, but this is not necessarily the case
• Provision of information: Effective implementation of standards is dependent on the provision of information to stakeholders.  If procedures for providing information are not well defined in general terms, it is likely to be particularly hard for the poorest communities to get their voices heard.
• Stakeholder consultation: How can stakeholder involvement be truly representative?  There may be a particular problem in gaining the participation of the poor – as they are often forced into exploiting resources ‘illegally’, and are thus unwilling to openly admit their interests.
• The distribution of benefits: If higher prices are charged for ‘premium’ carbon credits because they are ‘high quality’, how can one be sure that this is reflected in payments to producers?  Some schemes currently do not make any payments to producers, but instead expect them to gain all benefits through related activities (e.g. the sale of non-timber forest products).  Should consumers be asking for fair trade carbon?

The current standards, as released to consultation by Defra, use certified credits (such as the CDM) as a vehicle for ensuring ‘high quality’ offset schemes. There has already been some discussion as to whether this offers the best way forward for offsets. As can be imagined, some of the schemes that would not meet the draft standards are particularly exercised (only four of the many schemes available meet the standards at present - PURE, Global Cool, Equiclimate and Carbon Offsets Ltd). Some of these other schemes have argued that the standards prevent them from investing in valuable, small-scale projects outside Kyoto accreditation. The Defra response, that they will be looking into this "during the consultation period and beyond", indicates that they are aware of this particular issue. They do face, however, a considerable challenge in satisfying the concerns of everyone involved.