Giving Green's Approach to Recommending Offsets

Summary


In this document, we explain our approach to assessing carbon offsets and determining which ones to recommend. We are searching for offsets where there is a direct, causal, and verifiable link between someone purchasing an offset and a decreased amount of greenhouse gases (GHGs) in the atmosphere.


First, we look at the offset market sector by sector, to determine which sectors are most likely to provide reliable offsets. For sectors that we determine to be likely to produce high-quality offsets, we then search through available projects and recommend those that meet our criteria. We rate offsets using five categories: causality, project-level additionality, marginal additionality, permanence, and co-benefits.


Note that our offset recommendations are not comprehensive - we have not assessed all offsets in the market. (In fact, many offsets do not have any publicly-available information!) We have developed a systematic approach to assessing offsets, and recommend the best ones we find. As our research continues, we expect to find more offsets to recommend.


If any offset providers believe that their project would meet our quality bar using the methods described below, please do feel free to reach out to us!


Sector-level analysis


We begin by conducting offset analyses at the sector-level, since offsets in the same sector tend to have similar strengths and weaknesses. For each sector (such as forestry, renewable energy, etc.), we have produced a sector research report, in which we discuss the logic for offsets in the sector, and determine whether we believe the offsets are likely to be reliable.


We generally proceed by working through the certification process for an example offset. In this process, we show what data must be provided by the project developers, and what assumptions are accepted by the certification agencies. We then discuss whether we believe these assumptions, consulting the literature to validate them.


Based on this analysis, we determine if the sector appears to be promising for high-certainty offsets. If so, we search for specific offsets to recommend.


If we determine that a sector is not promising, that does not necessarily mean that there are no high-quality offsets in the sector. But given our limited research resources, we have simply concentrated our search for offsets on what we consider to be the most promising sectors. We are open to finding high-quality offsets in all sectors, and will even consider offsets in less promising sectors if they seem to be of exceptional quality.


Offset ratings


After performing sector-level analyses, we then analyze and rate specific offsets in promising sectors. We searched for offsets to consider by searching publicly-available websites selling offsets, as well as offset registries. We concentrated our search among offsets that were easy to purchase online and where detailed information on the projects they support was available online.


We rated offsets using five main categories: causality, project-level additionality, marginal additionality, permanence, and co-benefits. These are summarized in the below table.


For each offset that we analyze, we rate each of these categories as ‘High’, ‘Medium’, or ‘Low’. In order to be recommended, offset projects need to make a compelling overall case that purchasing the offsets reduces emissions. However, they do not have to score highly in all categories to do this. We elaborate on this in our explanations of each metric below.


Causality

Causality refers to the extent to which the project actually causes reduced GHGs in the atmosphere. Determination of causality comes from understanding the “counterfactual”, which is what the state of the world would have been like without the project.


However, this can be difficult to determine. For instance, consider a project that protects an area of jungle from being deforested. Determining causality requires answering two questions. First, does avoiding deforestation lead to reduced GHGs? This is a purely scientific question, which can be answered by consulting the literature. It is well-established that cutting down a forest leads to more GHGs in the atmosphere, since the trees no longer absorb CO2, and they eventually decompose, emitting CO2 in the process. This part of causality is relatively easy to establish in this example.


Secondly, would the trees would have been cut down in the absence of the project? If not, then the project is not avoiding emissions. This is more difficult, as it is not possible to know with certainty what would have happened without the project. Offset projects must make the case that their project leads to fewer trees being cut down, and they generally use data concerning deforestation rates before the project or in similar areas. This type of analysis is difficult for an offset certifier to validate, especially since the project developer has an incentive to exaggerate the amount of causality.


Causality is central to an offset being valid, and an offset must have high certainty of causality to be recommended by Giving Green. In cases (such as the forestry example) where changes in human behavior are needed to guarantee causality, Giving Green requires evidence from a rigorous impact evaluation to validate this behavior change. A rigorous impact evaluation provides a convincing measurement of the counterfactual, and calculates the change in GHGs compared to this counterfactual scenario.


Project-level additionality

An offset satisfies project-level additionality if the project it is supporting would not happen without the sales of offsets. This requirement tends to be satisfied for projects run by non-profits who solely rely on offset revenue in order to operate. However, it can be very difficult to determine for projects with multiple revenue streams.


For instance, consider a wind energy project that is considering selling carbon offsets. In many markets, wind energy is cost-competitive with other kinds of energy, and wind energy plants are built and profitable without the need for carbon offsets. In this case, a wind energy project does not satisfy project-level additionality. However, in other markets, a wind energy plant may not be profitable, and therefore would not have been built without an additional revenue stream from offsets. In this case, the offsets would have project-level additionality.


The problem is that in a case like this, it is very difficult to verify the actual financial circumstances of the project. In order to get certified, project developers need to provide a financial model where they show that with offset revenue they would be profitable, but without the offsets they would not be. However, the projections of future flows of costs and revenues necessary for such a model rely on a significant amount of guesswork. Additionally, project developers have huge incentives to make a case for additionality. The offset certifiers likely have no way to validate these models, and also must rely on their own guesswork to decide if they believe the project developers’ case.


In our assessments at Giving Green, we accept claims of project-level additionality only when projects rely on offsets for most or all of their revenue stream, or when offsets are crucial to raising private sector capital. Also, the project must not be required by regulations. That being said, we may recommend projects that do not satisfy project-level additionality if they satisfy marginal additionality, as described below.


Marginal additionality

A project satisfies marginal additionality if each additional offset purchased leads to more GHGs being reduced. This is an important requirement for offsets to work as advertised: the purchase of every single offset must cause extra GHG reduction.


To explain the difference between project-level additionality and marginal additionality, we will use a few examples. Consider a landfill gas capture project. In areas where they are not required by law, landfill gas projects generally satisfy project-level additionality since there are no economic incentives besides offset revenues to build them. In general, the project developer foots the bill for the up-front costs of building the system, and then recoups these costs by selling offsets for the emissions avoided each year. Taking the concept very literally, no offsets generated from this project actually have marginal additionality, since the project has already been built. But given that the project was likely built only due to the expectation of being able to sell offsets, one could argue that offsets sold shortly after the project are really contributing to reduced GHGs.


The issue is that the project developer can sell offsets as long as the gas collection system is still operational, and this may continue long after the project costs are paid off. After project costs (including opportunity costs) are covered, additional offset revenue just goes to pad the profits of the project developer. Additional offsets absolutely do not contribute to additional reduced GHGs.


The opposite can also be true: projects can have marginal additionality without having project-level additionality. For instance, consider a for-profit provider of clean cookstoves. The company may have a viable business model, and would exist and sell cookstoves even if offsets were not available. Therefore, they do not exhibit project-level additionality. However, if they do sell offsets, this allows them to lower their prices, therefore selling more stoves. In this case, each additional offset can contribute to additional lowering of stove costs, resulting in more stoves being sold. Therefore, the offsets satisfy marginal additionality.


A significant factor determining whether projects have marginal additionality, is whether they have ongoing activities that can continually be ramped up to remove more emissions, versus being composed of a single large project. For example, a cookstove manufacturer can always use offset revenue to distribute more cookstoves, but a large landfill gas capture project generally can not just expand its operations. Also, a project developer that makes profits is less likely to satisfy marginal additionality, since any offset revenue going to profits cannot be additional.


Another factor that can play into marginal additionality is profits. If the project developer is a for-profit company and is actually booking profits above the opportunity costs of its founders and investors, this is a reason to question marginal additionality. This is because in this case, additional offset purchases simply increase profits and are unrelated to decreasing GHG emissions.


At Giving Green, we view marginal additionality to be critical to the validity of an offset, though we admit it can sometimes be difficult to ascertain. We need to have high confidence in the marginal additionality of an offset to be able to recommend it. Note that this is a higher bar than required by the offset certifiers, whose definition of additionality only includes project-level additionality.


Permanence

An offset provides permanent emissions reduction if there is no chance of undoing the project’s activities. In projects that avoid emissions, this is frequently satisfied in a trivial manner. For instance, if a project incinerates a refrigerant, the GHG is destroyed and emissions are avoided permanently.


But permanence can be more difficult to establish for forestry or other land-use projects. For instance, consider an offset project that prevents a portion of forest from being logged. These gains can be completely undone if, in the future, the jungle is logged or burns down. This is known as a “reversal”.

Offset certifiers have tried to deal with this risk by requiring project developers to keep a certain percentage of offsets unsold in a so-called “buffer pool”. This acts as insurance, and is drawn down when there are demonstrated reversals. But it is difficult to be certain if reversals will actually be reported in the future, and if there will be enough offsets in the buffer pool. For instance, by some estimates, the size of the buffer pool in the offset scheme in California’s cap and trade is insufficient due to increased fire risk.


Giving Green views permanence as an important component of an offset’s validity, and therefore we need a high degree of certainty in permanence to recommend an offset. However, since land-use projects are important and it is impossible to completely verify permanence for these, we may recommend projects with some permanence uncertainty as long as strong, proven methods are put in place to guard against reversals.


Co-benefits

Some offset projects offer additional benefits besides GHG reductions, known as “co-benefits”. For instance, these could include improving the income of poor families, or improving biodiversity.


Giving Green only uses GHG reductions to determine which offsets to recommend, and therefore it is not necessary for an offset to have co-benefits to gain our recommendation. However, as many offset purchasers would like to buy offsets with co-benefits, we highlight them in the analysis of our recommended offsets.

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