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Designing Away The Problems of Offsetting
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Offsetting is the practice of paying for an environmentally beneficial process in one place in order to balance environmental harm done elsewhere. It can be a powerful tool, but it's also controversial. How do we know, for instance, whether the good we're funding is in fact equal to the damage we're doing? What if that damage is severe and permanent -- for example, the destruction of a natural wetland and the extinction of the species which live there -- and the new good provided (say, an artificial wetland) simply cannot balance out the damage done? What if the idea that we can offset our actions leads us, in a process similar to energy rebounds, to actually do more harm than we otherwise might have? What if, in short, offsetting doesn't work?

Because we're very interested in how to shrink our own organizational footprint here at Worldchanging, we decided we would ask one of our partners in that effort, Dr. Ron Dembo of ZeroFootprint (the folks who are offsetting our book tour), to explain how we might grapple with both the problems and promise of offsetting as a tool for building sustainability. He wrote the following with Clive Davidson:

It is impossible to write anything about offsetting these days without prompting a flurry of responses that point out its problems and pitfalls. Travel offsetting just encourages people to fly more, critics complain. Or energy emissions offsetting does nothing to discourage energy waste, while offsetting book production undermines paper recycling, and so on.

Many of the criticisms are valid, but that doesn't mean we can simply abandon offsetting. If we did, the underlying problems wouldn't simply disappear. And some of the alternative solutions that are proposed are even more idealistic and unworkable – everybody should stop flying, for example. Given the scale of the problem that we face with climate change, and the urgency of the task to tackle it, we can't afford to ignore offsetting and what it has to offer.

However, we should be clear eyed about the problems, and look for ways in which we might fix them. One approach is to create a framework that acknowledges the dangers, and packages offsetting schemes so that they include mechanisms to negate the dangers. Instead of just looking for a quick fix to assuage our guilt about the environmental damage we are causing, we can develop programs that effectively offset the emissions of generating electricity or producing paper that at the same time include incentives to reduce the underlying cause of the emissions. What is more, if done properly, such schemes can be self-financing.

Many of the difficulties that people raise about offsetting schemes could be classified as 'moral hazards'. Moral hazard is where an action has an unintended and negative outcome – fire insurance encourages certain people to commit arson for instance, or a government guarantee discourages a financial institution from acting prudently.

Offsetting schemes for the carbon emissions of flights or car journeys can have the moral hazard of encouraging people to believe that they can fly or drive as much as they like with environmental impunity. Just how crazy this can get was demonstrated recently when Cootes Transport Group, one of Australia's largest trucking companies, signed up to BP's Global Choice fuel emissions offsetting scheme, and its managing director Vin Stenta concluded: “The more kilometers we travel, the more we help Australia's environment.?

Offsetting schemes for company or household energy use can have the same effect. We at Zerofootprint have first hand experience of this because we recently switched to a green electricity supplier, at our Toronto offices. Although we now know that our power now comes only from renewable sources, there is no built-in incentive to reduce our energy use (we pay a fixed fee). We could, if we were so inclined, be as wasteful as we want with a clear conscience that we are not creating emissions. But that would make us a poor role model – there aren't enough renewable resources in Canada for all companies and households to switch to green suppliers for a start - and would ignore all the other emissions that are generated in the process of bringing us our electricity.

Offsetting can never be an excuse for riding roughshod over the basic environmental principles of reduce, recycle, restore. Ideally, offsetting should kick-in after these principles have been explored, if not exhausted, or where applying these principles has its own costs – recycling paper still requires the use of energy and chemicals, for example.

A number of organizations, including large global corporations such the HSBC and BP, are now attempting to go 'carbon neutral' - reducing their theoretical carbon emissions to zero. Offsetting is an integral part of most of these projects, but moral hazard applies here as well. In a recent briefing paper by the UK financial firm Standard Life Investments on company schemes to achieve carbon neutrality, it warns investors that such schemes “have the capacity to disguise the failure to achieve actual reductions in overall greenhouse gas emissions,? and that, “carbon neutrality without absolute reductions in emissions will not on its own stabilize atmospheric concentrations of CO2 (carbon dioxide).?

Offsetting must be accompanied by incentives to tackle the underlying issues if it is to avoid moral hazard. It should be the condition of buying an offset that the user also commits to conservation and one of the three 'Rs' of sustainability – reduce, recycle or restore. Offsetting the emissions associated with electricity generation should require that the office or household reduce its energy consumption, for example. Zerofootprint currently offers offset schemes that are tied to a requirement for conservation, renewal, recycling and restoration.

And there's an added bonus with this approach. The savings that are generated by the reduction, recycling or restoration can pay for the offsets. Reducing electricity or paper use can pay for offsetting the remaining emissions. This kills two birds with one stone – and the stone is free.

Building in incentives to tackle the underlying problems is an effective way of reducing the moral hazard of offsetting schemes, and it can be done in such as way that it is cheaper for the user. We shouldn’t throw offsetting out. That would be throwing the baby out with the bathwater. An offsetting scheme can be an effective way to reduce our global footprint, but it must be designed well.

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Terrific and informative. I appreciate the explicit recognition of the shortfalls -- the moral hazards -- combined with the practical importance of offsetting. This article would be great for sharing with all kinds of organizations (and individuals) who are or should be interested in reducing their carbon footprints.

Posted by: Stephen A. Fuqua on 6 Nov 06

Thanks for this - a nice summary of pros and cons.

Posted by: Tod Brilliant on 6 Nov 06

It seems a shame that an effort to sequester and prevent the emission of ghgs would encounter resistance among people commited to reducing CO2e. I realize I'm being a little disingenuous--it's clear from the case of Cootes Transport cited above that offsetting can lead to harm as well as good. But I would think that the moral hazard posed by people's willingness to attach a carbon cost to whatever they do, and to voluntarily pay a price to meet that responsibility, is a problem environmentalists would have been happy to have not too long ago. Offsetting also looks like a perfect first step towards a carbon rationing regimen, which would neutralize much of the moral hazard by fixing in absolute terms the amount of carbon emitted and thus making one's excesses much more expensive. At any rate, I don't claim to be an expert (or an economist), so I'll leave it to others to determine whether my hunch is right. But if people want to do the right thing, and they want to pay for it, I don't think we should make it hard for them.

Posted by: Angela Massey on 6 Nov 06

One question this raises for me is reducing impact to zero enough, especially when participation is voluntary and overall infrequent. What if certified offsetting schemes paid back double (or some other multiple), by reducing carbon emissions twice the amount of the original emission? The ludicrous example of Cootes Trucks "helping the environment" by driving more miles might actually be true then . . .

Posted by: Christopher Flint Chatto on 6 Nov 06

The 'moral hazards' need to be understood by the general public through understanding the underlying ecosystem function of our world, that we live as a part of nature, not apart from nature. Essentially, "what goes around comes around" or "what goes up, must come down" or "for every action, there is an equal and opposite reaction" short, karma.

Energy efficiency through constraints from external pressures is inherent in all ecosystem function, but humans seem to ignore the Laws of Nature & Thermodynamics at their own peril by pretending there are no 'external constraints' in our daily living--a moral hazard of classical economic thinking. We essentially are just good at offsetting these constraints over space and time to other countries, other species habitats, or to the next generation.

People use their own 'moral compass' to self-impose constraints, but unless they see themselves as a piece of the puzzle of the larger ecosystem, like a cell in a body, with a purpose in life and a function to perform through cooperation with other 'cells', individual offsetting as a 'feel-good' exercise will be difficult to sustain as a momentum over the long term.

Perception is everything to people, but the reality will be all too real as climate change events are a rebalancing or 'offsetting' of our past thought patterns and behaviour that has ignored our purpose on earth as a functional species within an ecosystem. We need to offset our current actions through cooperation and giving back through 'mutualism', which is embraced by the 3Rs, particularly 'restore'.

Mutualism is a natural response to resource limitations when sharing is the only way all species will survive; competition occurs when resources are plentiful. These pattens operate in natural cycles for all species, including humans. I think we can agree that the former situation is what we now face given our reliance on particular resources as a species and our rapid extraction and pollution of remaining resources.

We cannot drink salt water nor breathe underwater nor photosynthesize sun's energy. We are constrained into a terrestrial-living, air-breathing environment that has limitations of renewal rates and is relatively sensitive to disturbance.

But we are 'opportunistic disturbers', by nature. That is who we are and that's okay. We just need to 'disturb' in the right way that benefits not just ourselves, but the rest of the ecosystem upon which we rely. Disturbance through restoration and giving back is the only way we will truly reach 'sustainability' which sustains other species, our environment and ourselves included.

"Sowing seeds" instead of just "harvesting and counting the crop" is the change that must occur within us to avoid these 'moral hazards' in the first place and to make offsetting really work in the long run.

Natalie Helferty
Ecologist, The NOAH Project

Posted by: Natalie Helferty on 8 Nov 06

A little editorial comment. My friend Janice used to say, "Feed two birds with one seed."

You know, if you're trying to walk your talk...

Posted by: Kathy on 10 Nov 06



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