Strategies for Avoiding Lower-Quality Offset Credits

Ownership of emission reductions

Major carbon offset programs have rules and procedures in place to ensure that the emission reductions are not double counted and that there are no competing claims to the emission reductions for which they issue offset credits (see Exclusive Claim to GHG Reductions). Nevertheless, there are steps credit buyers can take to help ensure they have an exclusive claim to a credit’s emission reductions. Recommended due diligence questions include the following.

For any project type…

  • Once the offset credits are retired, is the purpose of the retirement clearly indicated, irreversible, and unambiguously designated in a carbon offset program registry? Carbon offset programs generally try to ensure that the purpose of any offset credit cancellation or retirement is clearly indicated in their registry systems, so that only one party is able to make a legitimate claim to the retirement. This process prevents any “double use” or “double selling” of offset credits, where more than one party claims that a retirement was made on their behalf. If you as a buyer control the offset credits directly (e.g., you control the account in which they are held in a program’s registry system), then clearly indicating an exclusive claim to the credit upon retirement is usually straightforward. If you are a retail purchaser, then you should ask to see proof of retirement on the relevant registry from your retail provider. This can be provided in the form of certificate numbers or transaction IDs that match the quantity purchased.
  • Are programs taking into account all voluntary or mandatory emission reduction targets in the jurisdiction(s) of the project? Although carbon offset programs usually take pains to avoid crediting emission reductions that are covered by official GHG mitigation targets, in some cases they may ignore voluntary targets, other non-binding commitments, or commitments that countries have made but subsequently abandoned. In Copenhagen in 2009 and Cancun in 2010, for example, many countries made voluntary commitments to reduce GHG emissions. In most cases, the rationale for GHG offset programs to ignore these past commitments is that the countries have not followed through in achieving them, and they have been superseded by Paris Agreement pledges to start in 2021. See Carbon Offsets After 2020: The World Under Paris for more information.

Finally, a project’s emission reductions may in some cases occur at sources covered by corporate voluntary GHG reduction commitments. In these cases, a company could count emission reductions caused by an offset project toward their own voluntary goals. Although this may not pose any direct legal issues – and programs will usually police these kinds of overlaps – it still constitutes a form of double counting that should be avoided. Buyers should therefore ascertain that emission reductions do not occur at sources subject to any corporate reduction commitments.

For project types where ownership is a particular concern…

  • How high is the risk of competing claims to indirect emission reductions? In most cases, a project type will be flagged as higher risk for ownership conflicts where it involves indirect emission reductions – i.e., reductions that occur at sources not owned or controlled by the project owners. Claims to these emission reductions are inherently riskier because there is always a chance that the entities who do own or control the sources may claim the reductions as well. Major carbon offset programs generally try to police conflicting claims by having project owners legally attest to having an exclusive claim to credited reductions. In many cases, however, it is difficult if not impossible to determine exactly where indirect reductions occur, making the truth of such attestations difficult to verify. From a due diligence perspective, the key question is whether the owners of the indirect emission sources are likely to try to claim any reductions. Related questions to ask include:
    • Have the owners of the indirect emission sources (or potential sources) adopted any voluntary emission reduction goals? If so, they may effectively count any reductions caused by an offset project towards their own goals.
    • Are the owners of the indirect emission sources subject to any legally binding requirements to reduce emissions? Programs will usually avoid crediting reductions that could occur at regulated sources, but it may be worth examining whether relevant legal requirements have been fully surveyed.