What's Holding Back Carbon Markets?

As Planting Empowerment prepares for future offerings, selling carbon could be an important part of early returns for tree owners. I was recently asked to write a 500 word or less essay on the main obstacles to the expansion of the carbon market, and possible solutions. In researching the topic I read (skimmed actually) EcoSystem Marketplace's State of the Voluntary Carbon Market 2009, which is the source of the statistics. Here is my response...

In 2009 private businesses comprised 66% of the volume of transactions in the voluntary market, but only 29% of those credits were retired. The greatest motivation (35%) for purchasing was resale and investment. If the carbon market is to grow substantially - and businesses are to get serious about using offsets to meet their environmental goals - then compliance markets are necessary. Compliance markets would help set a price on carbon (Nike's recent announcement that it has abandoned purchasing carbon offsets points to this). Regulation is also necessary to establish standards for offset projects (both regulatory and voluntary). One possible alternative to an unwieldy nationwide cap-and-trade bill is the formation of regional compliance markets. A number of these have already formed, including the Regional Greenhouse Gas Initiative (RGGI) and Western Climate Initiative (WCI).

On an individual level, carbon offsetting has remained tepid (2% of total 2009 voluntary market volume). This could be due to a number of things: the recent recession forcing people to cut back on "luxury" items, negative publicity surrounding the carbon market, or because people are already scaling back on their consumption/energy use and feel little motivation to offset. Considering that carbon offsets are optional purchases (i.e. not mandated), they must connect to consumers somehow. Consumers desire a connection with the products they own - they want to part of the the story that that product tells. Purchasing a carbon offset is different in that there is nothing tangible obtained. Indeed, in our minds we are actually purchasing away something. To the extent that most purchasers will never lay eyes on the project that sequestered their ton of carbon, there is no physical evidence of our reduced carbon footprint (aside from a PDF certificate maybe). After purchasing an offset from an online reseller, I was left with the vague sense that I did a good thing. It was underwhelming. To be fair, there are transactions out there that have a more personal connection, but if offsetting is to be widely embraced, then customers must feel some personal involvement with how their emssions are offset. When I know that purchasing an offset helps to conserve a river where I fish, my personal motivation is in line with my environmental goals. An interesting comparison is the DC bag tax that went into effect in January 2010, and is designed largely to fund the cleanup of the Anacostia River. Although more stick than carrot, the outcome of this project may provide some insight into local carbon capture projects.

There are many other considerations. Some are technical - from our perspective leakage is the biggie. Leakage happens when a carbon capture project in one location simply pushes the carbon emitting somewhere else. To mitigate this we stipulate in our contracts that payments to landowners may not be used to destroy more forest. Another idea is to keep a cushion of carbon credits to guard against leakage. Some of the considerations are more philosophical - Do offsets prevent us from living more sustainably? How will developing countries embrace (or not) carbon capture projects? We'll discuss these in upcoming posts.