Introduction to Renewables – Part Two

By Patrick Ngai, CPA, Audit Manager
ASL Renewable Energy Group

Welcome to Part Two of our Introduction to Renewables.  Last time (Introduction to Renewables – Part One), we discussed what exactly a renewable certificate is and how it is used to address greenhouse gas (GHG) emissions.  This time around, we will talk about carbon offsets – the other, more direct method to address GHG emission.

What is a Carbon Offset?

Greenhouse gas can be tackled by three major methods. First, it can be captured and destroyed (an example of this would be a methane gas capture project at a landfill). Second, greenhouse gas can be trapped and stored (an example of this would be a forestry project). And finally, greenhouse gas can be mitigated when energy is generated using a renewable source, rather than fossil fuel. Regardless of the type of facility or project, a carbon offset is created when it eliminates, or mitigates, one metric ton (about 2,200 lbs.) of carbon dioxide emissions. The proceeds from the sale of these certificates are then reinvested back into an emission project or facility for development or maintenance.

What’s the Catch?

Unlike the creation of a renewable certificate, where the deciding factor is the generating resource, the generation of a carbon offset is somewhat complex. A credible carbon offset should be permanent, additional, verifiable, enforceable and real (these five criteria are sometimes referred to as P.A.V.E.R.). The V.E.R. in P.A.V.E.R. is relatively self-explanatory, but the concepts of permanent and additional can be somewhat complex. First of all, a carbon offset should be permanent and not reversible. Among the different types of offset projects, one of the risks encountered for a forestry project is that the GHG is only considered to be temporarily stored. In the event of a fire, the GHG is released back into the atmosphere. Then there is the concept of “additional”. By definition, “additional” means that the GHG emission reduction performed by a specific facility or project must exceed any GHG emission reductions that would otherwise occur in a conservative business-as-usual scenario. To give an example, if a landfill gas project is able to capture and destroy ten metric tons of GHG on a baseline level, then it must demonstrate that it is able to capture and destroy more than 10 tons of GHG in order for it to have additionality.

In a sense, purchasing a carbon offset is a great way to lower one’s carbon footprint. But because of the layers of complexity, one must be very careful in deciding which facility or project to procure the carbon offset from.

In Part Three, we will dive a little deeper into the difference between a renewable certificate and a carbon offset, as well as the different scopes of GHG emission.