Offset Developers, Critics Could Both Benefit by Fixes

• Author: Michael Wara
• Position: Assistant Professor at Stanford Law School, where he teaches environmental and property law
• Pages: 53-53

MAY/JUNE 2010 ❧ Page 53

Copyright © 2010, Environmental Law Institute®, Washington, D.C. www.eli.org.

Reprinted by permission from The Environmental Forum®, May/June 2010

Th e fo r u m

ductions would presumably have

occurred anyway, meaning they can’t

of‌fset other emissions). e same

conclusion applies to voluntary mar-

kets, even though they’re not techni-

cally capped.

Additionality is not rocket sci-

ence, but applying it ef‌fectively

requires a policy decision about how

to balance the inevitably compet-

ing objectives. Policymakers have

too often taken the free lunch way

out of assuming we can design a

perfect system, inadvertently setting

a hurdle that no of‌fset program can

ever meet. Critics then play gotcha,

searching out questionable of‌fset

projects, and characterizing the

whole program as fraudulent. at’s

not necessarily any more appropriate

than condemning home pregnancy

test kits because they occasionally

give an incorrect result. e idea of

perfect policy of‌fers a free lunch and

makes for good rhetoric, but lousy

climate change mitigation.

In 1998 we lost the opportunity

to incentivize companies through

federal early-action legislation to

pursue GHG reductions in advance

of regulations. Many in industry

wanted credit for many things they

clearly would have done anyway.

Many environmental groups, fearing

too loose a policy, wanted to allow

credits for virtually nothing. e net

result was a failure to enact policy

that could have materially contrib-

uted to climate change mitigation

ef‌forts.

Are we on the same path with of‌f-

sets, where players concerned almost

exclusively with compliance costs

push to count almost everything as

an of‌fset, while players primarily in-

terested in environmental perfection

push to allow almost nothing to be

counted? Climate change is too seri-

ous a problem for us to again accept

an outcome that serves neither busi-

ness nor environmental interests.

Mark Trexler is Director of Climate Strate-

gies and Markets at Det Norske Veritas

(U.S.A.), a global risk-management rm.

Of‌fset Developers,

Critics Could Both

Benef‌it by Fixes

M W

Carbon of‌fsets, especially

international of‌fsets, of-

fer the promise of reduc-

ing the cost of developed

country greenhouse gas

reduction goals. While promising in

theory, real international of‌fsets pro-

duced by the Clean Development

Mechanism have failed to deliver

because of persistent doubts about

their quality. Are the claimed reduc-

tions real? Have they been verif‌ied

properly? ere has been enormous

debate around these issues but so far,

not much resolution.

Environmental organizations are

justif‌ied in criticizing a slew of proj-

ects that have made it through the

system despite serious questions as

to whether they would credit busi-

ness-as-usual behavior. At the same

time, of‌fset developers are rightly

outraged about high and uncertain

regulatory risks to their projects cre-

ated by a shifting legal and regulato-

ry landscape. ere is cause and ef-

fect here: doubts about quality lead

to changing standards. Ultimately,

since demand for compliance grade

of‌fsets is a political decision, these

doubts need to be addressed if the

CDM or a successor is to endure.

e good news is that both

problems — lack of environmental

credibility for NGOs and high and

unpredictable regulatory risk for

of‌fset project developers — might

be addressed by one change to the

CDM. What the mechanism needs

is a fair and transparent appellate

process that grants standing to a

wide array of interested parties and

that creates precedents that will bind

future decisionmakers.

Today, environmental groups par-

ticipate in the CDM in two ways:

by commenting at the validation

stage of project applications and

by taking pot shots at the overall

quality of the CDM in the arena of

public opinion, often to devastating

af‌fect.

Comments during validation can

be and are routinely ignored. Criti-

cism of already registered projects

cannot create a better system, except

indirectly, and may undermine sup-

port for international solutions to

greenhouse gas emissions. A healthi-

er of‌fset regulatory process, both for

the environment and for project de-

velopers’ prof‌itability, would foster

buy-in on the part of NGOs while

at the same time creating a body of

precedent that would reduce regula-

tory risk for project developers.

Access to an appellate body for

NGOs would give them a real stake

in the CDM and create a sense of

ownership that is currently lacking.

Having NGOs in the system would

also, of necessity, increase of‌fset

quality by providing a powerful

check to project developers and by

empowering the third-party verif‌iers

in their employ.

Of‌fset developers worry about

opening a f‌loodgate of challenges.

Evidence from the Forest Steward-

ship Council and the Marine Stew-

ardship Council, both of which have

appellate review with broad stand-

ing, indicates otherwise. NGOs

have limited resources. Assuming

that appellate decisions would bind

future decisionmakers, the more

likely result is a system with clear,

albeit tougher, rules that would lead

to higher quality of‌fsets created with

lower risk and hence, lower transac-

tion costs.

e NGO and the of‌fset de-

veloper communities would both

be better of‌f in such a system. e

alternative is continued erosion of

public conf‌idence in of‌fsets as a tool

of climate mitigation.

Michael Wara, Ph.D., is an Assistant

Professor at Stanford Law School, where he

teaches environmental and property law.