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Carbon Retirement: An Option to “Traditional” Carbon Offsets

| Monday November 3rd, 2008 | 3 Comments

Carbon RetirementCarbon offsets have gained wide recognition in the past few years as a means of mitigating ones carbon footprint. With that recognition has come, on the one hand, acceptance, and on the other, suspicion. It seems that in any case, the simple idea of voluntary carbon offsets has become complex in their type and execution. In many instances verifying that your good intentions have actually produced results is nearly impossible. (Fellow TriplePundit contributer Jen Boynton has written several great articles on the subject of carbon offsets – start with Carbon Offsets: Why No Two Are Created Equal)

Carbon Retirement, a small start-up based in London, England and launched last July, seeks to address what most consider the shortcomings (more here and here) of “traditional” carbon offset schemes.

These shortcomings include accountability, additionality (meaning that the money you pay actually achieves something that wouldn’t have happened anyway), double counting, the accuracy of measurement, and the permanence of the offset.

Carbon Retirement avoids these shortcomings by purchasing carbon allowances out of the European Union Emissions Trading Scheme.

How Carbon Retirement works

By using your money to purchase carbon allowances, Carbon Retirement is able to permanently “retire” that allowance from the market, essentially buying carbon out of the market.

When a buyer purchases an offset unit, Carbon Retirement buys a corresponding allowance (EUA), representing the right to emit one tonne of CO2. The EUA is purchased for the spot price on carbon exchanges such as Climex or EXAA. Removing that allowance from the market means that tonne of carbon is never emitted.

Carbon Retirement charges a 10% premium over the spot price to cover costs, and another 5% to account for unexpected volatility on the spot market. They are more expensive than buying traditional offsets – the estimated price to retire one Phase II EUA is £19.84 (currently about $31.46) depending, of course, on the spot price. But, as Joseph Romm says on his blog Climate Progress, that’s the point:

Offsets are like junk bonds or perhaps more appropriately subprime loans. European allowances are the real deal.

The 10% mark-up is all that Carbon Retirement keeps. If the price goes up between the initial offset purchase and buying the EUA on the spot market, Carbon Retirement loses money, if the price drops significantly, the profits are used to buy more allowances.

Phase one vs. phase two

Close observers of the European carbon market may well be concerned that Phase I of the EUA program didn’t go so well. A concern Carbon Retirement addresses on their website:

The price of Phase 1 EUAs dropped when analysts realized in spring 2006 that European governments had allocated so many allowances that the regulated industries did not have to make reductions. This was because the allocation plans were based on estimates of emissions, rather than audited measurements.

The allocation plans behind Phase 2 are based on extensive and credible measurement of the industries’ emissions, and the industries within the scheme will have to make emission reductions. This is why the price of Phase 2 credits remained strong when the Phase 1 credits collapsed. Independent analysts have recently assessed the allocation for Phase 2 and forecast that credits will be scarce.

A ski trip leads to an idea

Dan Lewer, Carbon Retirement’s 25–year-old co-founder and director, came about when he and a group of friends were planning a ski trip to France late last year. An environmentally aware group, they looked into buying offsets for their travel. It was then that Lewer realized there had to be a better way for concerned folks like he (and we) to find a real, verifiable, measurable, and permanent way of mitigating their carbon footprint.

Not only were voluntary offsets complicated and difficult to evaluate, accusations of poor quality and double-counting plagued the marketplace (as it still does.)

“It struck us that the EUA retirement process was one that could address all these problems,” Lewer said. And Carbon Retirement was born.

Lewer didn’t like his options, so he and his like-minded friends went out and made their own. To the benefit of all.

 

 

 

 


▼▼▼      3 Comments     ▼▼▼

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  • Jen Boynton

    Hey Tom, great post! (And thanks for remembering my summer carbon series)
    I’ve been mulling over carbon retirement as an alternative to offsetting for a while now. I honestly can’t decide whether I’m for it or against it.
    The biggest potential downfall with a retirement system as a carbon offset is that if carbon credits are over-allocated in the system, retiring one doesn’t mean 1 ton of carbon will be avoided. It might not have any effect at all on carbon emission.
    It *will* however mean that there are less credits for carbon emitting companies to purchase, which could mean that the price for carbon could be driven up, which would mean (hopefully) that companies will be incentivized to avoid emitting carbon. A retirement purchase also represents a vote for cap and trade and for state wide carbon systems also.
    They aren’t the best choice if you’re looking for precision and instant results with your carbon purchase, though. I’d be interested in hearing other people’s thoughts!

  • http://www.globalwarmingisreal.com Thomas Schueneman

    Hey Jen, thanks for the thoughtful comments. I was hoping you’d weigh in on this.
    I’m hoping others do as well. In fact, Dan Lewer, on the Carbon Retirement website, seeks comments about his system and offsetting in general. I think it’s a good discussion to have.

  • http://www.carbonretirement.com/ Dan Lewer

    Hi Jen,
    You raise a pretty important point for us. If carbon credits are over-allocated, what we’re doing won’t work. Fortunately that’s not a big risk now we’re in phase 2 of the EU ETS. It’s been going for long enough that we have a good view of the difference between the allocation and baseline emissions – unlike phase 1, when there were no official emissions data.
    Carbon Retirement is something we’d like to explore internationally. We’re sure there are opportunities in RGGI, the Western Climate Initiative, any upcoming federal scheme and other schemes elsewhere in the world. But we’d want a good degree of confidence that the allocation is right before selling an allowance retirement service as a carbon offset.
    Best
    Dan