Pass the Buck

(by Mark Bergin, WorldMag.com) – Actor Leonardo DiCaprio and politician Al Gore took center stage at Hollywood’s Kodak Theater earlier this year to announce that the 79th annual Academy Awards had officially “gone green.”

More accurately, the show paid others to go green, so it wouldn’t have to.

Between the telecast, the Governor’s Ball, and the red carpet event, the Oscars released some 250,000 pounds of carbon dioxide into the atmosphere, equivalent to the energy emissions required to power 16 average U.S. homes for an entire year.

But thanks to the purchase of 250,000 pounds worth of carbon offsets from the Bonneville Environmental Foundation, the socially conscious stars in attendance could enjoy the extravagant production guilt free. To further ease the consciences of event participants, the Academy of Motion Picture Arts and Sciences purchased 100,000 pounds of carbon credits for each performer and presenter, an amount estimated to offset the annual emissions of an average celebrity lifestyle.

Such checkbook environmentalism has become all the rage among Hollywood elites and green-sensitive politicians. Democratic presidential candidates Hillary Clinton and John Edwards both claim to be running entirely carbon-neutral campaigns through the use of offsets. And Gore has invoked offsets to defend the $1,200 electricity bill he pays each month to power his 10,000-square-foot home in Tennessee.

Celebrities and liberal politicians are far from alone in tapping this rapidly expanding carbon market. News Corp. chairman and CEO Rupert Murdoch announced this spring that all of his businesses, including Fox News, would use offsets to become carbon neutral by 2010. Numerous other businesses eager for a green stamp of approval without the economic pain of cutting their energy use are buying up offsets by the millions. Many guilt-ridden SUV drivers have likewise found an avenue to absolve their shame without sacrificing their toys.

The market operates on a simple principle: CO2 emitters pay for environmental projects to sop up or eliminate an equal amount of greenhouse gases. But the real-world outworking of that concept proves far more complicated. Forestation, carbon capture, methane burns: The offset projects are as diverse as the companies and nonprofits that undertake them—and nearly impossible to regulate or standardize.

How do carbon-capture projects work? By trapping CO2 emissions from large sources such as power plants and storing the greenhouse gas underground.

Methane burns place flares at the mouths of abandoned coal mines, scorching the methane gas as it escapes to significantly reduce environmental impacts.

These projects produce verifiable emissions reductions, but measuring their success with enough accuracy to set a market price is sticky business.

Mark Trexler, managing director of consulting for the global carbon-trading giant EcoSecurities, says that in past years offset projects got a near universal free pass from consumers, media, and environmental watchdog groups. Only with the market’s recent eruption have they faced tight scrutiny and questions of legitimacy.

“Up until nine moths ago, you could not point to a single case in the press of somebody called on the carpet for doing bad green. Everybody working in this space was an environmental hero no matter what they were doing,” Trexler told WORLD. “Nine months later, the whole framework of press coverage and how you’re being looked at has shifted 180 degrees. Now, it’s almost assumed that you’re doing something nefarious.”

Such suspicion is not without merit. The 100,000 pounds worth of carbon credits given to participating celebrities at the Oscars came from retail merchant TerraPass, which, according to a BusinessWeek investigation, sells high quantities of offsets from environmental projects that would have happened anyway. In other words, the money spent to offset celebrity emissions may have had zero environmental impact.

Similar stories of other meaningless offsets have surfaced throughout the United States and Europe. Many organizations and companies already engaged in emissions-reduction activity have realized the potential economic benefit of their initially voluntary practices and cashed in.

A New York Times report uncovered a devious practice among some Midwest farmers, who recently began selling carbon offsets from no-till planting, despite having practiced that less labor-intensive method of cultivation for more than a decade. An investigation from the UK-based Financial Times found that the U.S. carbon-credit company Blue Source sells offsets by capturing CO2 and pumping it into depleted oil wells, despite the independent profits that project yields from recovering once abandoned oil.

Such practices are not illegal, but they severely undermine the credibility of a U.S. market that remains almost entirely unregulated. In Europe, due to the ratification of the Kyoto Protocol’s requirements for significant emissions reductions, some regulation measures have taken effect to ensure what is termed “additionality”—namely, the extent to which carbon-reducing projects would not happen without carbon-offset funding.

In the United States, carbon trading is wholly voluntary. Individual participation depends on personal environmental convictions. Corporate involvement hinges on public-relations benefits, i.e., making green by being green. The current credibility gap damages that public-image incentive.

Over the past several months, criticisms have surfaced from some of the world’s most prominent environmentalists. Earth Day founder Denis Hayes has compared carbon-offset abuses to the Catholic Church’s sale of indulgences before the Reformation, calling for a modern Martin Luther.

Scores of critics echoed that analogy when the Vatican recently accepted a large donation of carbon offsets to become the world’s first carbon-neutral sovereign state (see sidebar).

But most environmentalists, including Hayes, remain committed to the idea of carbon trading, even if the real-world practice needs reform. Trexler says the viability of the voluntary market turns on the reliability of particular projects. And with the recent surge of media and consumer scrutiny, the number of projects lacking additionality are likely to decrease.

Part of the fierce commitment to a carbon-trading scheme stems from how well the market-based approach worked to phase out lead from motor fuel in the 1980s and to curb the sulfur dioxide (SO2) emissions responsible for acid rain in the 1990s. Unlike motor fuel and SO2, however, greenhouse gases come from every individual, home, and business on the planet, generating an unprecedented regulation headache.

But former New Jersey Gov. Christine Todd Whitman, who served as administrator for the Environmental Protection Agency early in the Bush administration, says a government-regulated carbon-trading scheme in the United States is inevitable—just not while George W. Bush remains in office. She told WORLD that the current system, in which 47 states have taken varied independent action to reduce emissions, far exceeds the potential regulation headaches of standardized federal action.

Whitman praises the Chicago Climate Exchange (CCX), the only legally binding greenhouse gas trading system in North America, for its stabilizing force in the carbon market absent a federal scheme. CCX has already lured such prominent companies as Ford, DuPont, and IBM, as well as six U.S. cities and the states of Illinois and New Mexico, into accepting voluntary caps on their carbon emissions.

Should these contractually obligated CCX members reduce emissions beneath their required caps, they can bank or sell the difference as allowances—a type of carbon credit far more abundant and important than offsets on the global carbon-trading scene.

The redistribution of carbon allowances provides the only potential mechanism for many European businesses to meet Kyoto’s targets. But, like offsets, the system’s real-world outworking has proven highly problematic. Set the number of allowances too high, as the EU did for 2005 and 2006, and emissions may actually increase. Set the number too low, and the economy could suffer dramatically.

Veronique Bugnion, managing director for the North American branch of the emissions consulting firm Point Carbon, believes such difficulties can and will dissipate with tighter, more standardized controls. She told WORLD that UN regulations have largely alleviated fraud and additionality concerns throughout 5,500 offset projects in 110 countries slated to generate 2 billion tons of carbon reductions for the Kyoto market by 2012. Such relative success on that massive scale convinces Bugnion and many other carbon-market insiders that today’s practical problems with allowances and voluntary schemes are solvable.

Still, some theoretical problems remain. Offsets and allowances can create undue expectations with rapid, initial progress as emitters pick off the low-hanging fruit first. But inexpensive and relatively pain-free measures obscure the more difficult reality ahead—that businesses and individuals must eventually trim their own emissions rather than plant trees halfway around the globe. “We will be moving up a supply curve,” Trexler admits. “If demand for this stuff continues to increase, these things will become more expensive. There’s a certain amount of low-cost coal-mine methane that can be burned, but at some point, you run out of that.”

Indeed, to exact the sweeping global emissions reductions Al Gore advocates, the former vice president may at some point need to personally adopt the lifestyle sacrifices he preaches to everyone else.

Copyright ©2007 WORLD Magazine, 8/4/07 issue.  Reprinted here September 11th with permission from World Magazine. Visit the website at www.WorldMag.com.