Our Approach To Offsets

Climate Clean exists to generate reductions in greenhouse gases and particles by offering customers an easy, affordable way to address climate change. As a result, we have invested significant resources to develop a credible, scientific, and transparent approach to identifying greenhouse gas offsets to include in our portfolio.

We expect the Climate Clean label to stand for real reductions of greenhouse gases and particles. The offset projects that we invest cannot invite skepticism from the scientific or environmental communities.

The Carbon Offset Market

Because of the relative immaturity of the market, there is as yet no standardized carbon offset commodity. Rather, two fundamental markets exist:

Compliance Market

In the compliance market, large emitters in developed countries subject to the Kyoto Protocol can purchase carbon offsets to meet their compliance obligations. These offsets must be certified as meeting standards defined by an international regulatory body (the CDM Executive Board). Criteria and methodologies are defined for specific types of projects (i.e. industrial gas destruction in developing countries). Once these offsets are certified, they can be traded on the European Union Emission trading System (EU ETS).

Voluntary Market

In the voluntary market, businesses interested in reducing their carbon footprint or offering climate-friendly products and services purchase offsets to meet business objectives. Offsets in these markets are often referred to as VERs (Voluntary Emission Reductions). VERs are not regulated, and it is left to the discretion of the buyer to determine the quality of the offsets they purchase. As a result, costs for offsets range from a few dollars on the Chicago Climate Exchange to over $20 for VERs that meet CDM requirements. A number of well intentioned but very misguided groups have been organized to write standards for the voluntary carbon markets – none of these special interest groups have risen to the standards that Climate Clean has adopted. In fact, there is a growing concern that these special interest groups are unwittingly creating a sub-prime carbon disaster. We have witnessed companies selling carbon instruments forward by as much as 30 years!

How can this pricing disparity in the voluntary market be explained? Very simply. The offsets aren’t the same. At one level, all offsets are intended to represent a reduction of one ton of carbon. But it costs money to achieve high levels of confidence that an offset meets the claim of achieving a real, permanent, and additional reduction of one ton of GHG. Hence, the more rigor that is applied to assure the credibility of the offset, the higher the transaction costs and, ultimately, the price.

Think of it this way. The world likely has trillions of tons of offsets available if you sufficiently broaden the definition of what qualifies. As an example, turn off the lights in your room. You just reduced your energy usage. Is that an energy efficiency carbon offset? Of course not. But if it were, offset prices would sure be cheap. Said differently, claiming an offset reduces a ton of carbon and having a scientific foundation that proves an offset reduces a ton of carbon are two very different things.

Without a set of criteria to define what is and what is not an offset, buyers place themselves at risk of being criticized for buying cheap offsets that don’t accomplish any real, credible reductions.

Climate Clean Criteria for GHG Offsets

Climate Clean has developed a science-based standard for all of the offsets in our portfolio. Projects must meet the following key criteria:

    When you buy carbon offsets from Climate Clean, you are assured that your money is invested in high quality clean energy projects that show proven reductions in released greenhouse gases or in forestry projects that capture carbon dioxide. You can be confident that the emission reductions that you have bought to make your car Climate Clean have met internationally recognized and rigorous standards, and are retired automatically on Markit, the world’s largest carbon credit registry. High-quality Carbon offsets should be real, surplus, verifiable and permanent — “RSVP.”

    The offsets must:

  • Have been implemented, and are therefore REAL – Certified GHG offsets must be real, tangible assets. Theoretical projects or planning efforts that represent future, yet improbable projects do not qualify.
  • Result from projects that would not have taken place without revenue from offset sales, a condition known as “additionality” or SURPLUS – Certified offsets must be generated from projects that would not have occurred under the baseline or business-as-usual scenario. In other words, offsets produced from emission reductions must be additional to those that otherwise would occur.
  • Have undergone a stringent design, monitoring, measurement and verification process, so that offsets can be considered VERIFIABLE – with demonstrated transparency as to how and where all investment is utilized. Certified GHG offsets must be quantifiable by standardized, peer-reviewed emission inventory methodologies. Emission offsets that cannot be formally quantified by vigorous methodologies do not qualify. This includes theoretical, non-peer reviewed emission inventory protocols.
  • Satisfy the criterion of being PERMANENT– , so that local and global benefits from the projects are socially, economically and environmentally sustainable. They cannot exhibit temporal discontinuity nor can they include short-term emission reductions followed by an increase in emissions relative to the baseline emission reduction scenario.
    Applicable additionality tests can be found below:

    Additionality Test Test Description
    Legal, Regulatory, or Institutional Emission reductions must be below any legal, regulatory, or institutional requirements. This is the common test for air quality management agencies.
    Technology Emission reductions are realized with technology not likely to be deployed under the business-as-usual baseline scenario.
    Investment A GHG project is additional if the project rate of return is sub-standard without the revenue generated from the sale of GHG offsets.
    Common Practice Emission reductions exceed those that would be expected using “common practice” technologies.
    Timing Emission reductions occur after a fixed GHG reduction program start date. The assumption is that if the project began prior to the GHG program, it was not initiated for the purpose of generating GHG offsets. In general, this test must be accompanied by one of the other four additonality tests.

Layered over these criteria, three further standards are relevant to the business planning and social responsibility compacts of Climate Clean:

  • Emission offsets are cost effective and environmentally efficient – Climate Clean GHG offsets must be cost effective in terms of their cost per ton and the cost per reduction in GHG effects. They must be environmentally superior in reducing the climate forcing burden of Planet Earth. These goals are accomplished by the strategic targeting of high-value projects that have large climate change benefits and relatively low costs. Low-hanging, high-value projects like energy efficiency are an example of the ideal offset opportunity.
  • Emission offsets create shareholder value – Climate Clean offsets must create shareholder value by enhancing both the short-term performance of the company and its long-term health. Emission offsets that create shareholder value will support the development of a robust company strategy, well-maintained assets, innovative products and services, good reputation with stakeholders (i.e., customers, regulators, governments), and the ability to attract, retain, and develop high-performing employees.
  • Emission offsets are based on total upstream and downstream life cycle footprint – Climate Clean offsets must reflect the total life cycle GHG signature of the product to be offset. This includes upstream and downstream emissions. For automobiles and light-duty trucks, fuel production GHG emissions, manufacturing GHG emissions, and vehicle use GHG emissions need to be considered. The exception to this protocol is if the fuel provider and vehicle manufacturer have already offset their production emissions.

Applying these criteria mean that certain sources of offsets may not qualify for inclusion in Climate Clean’s portfolio. One example:

  • Carbon Financial Instruments (CFIs) sold on Chicago Climate Exchange (CCX) – While there may be some high-quality projects within the CCX, it is not possible to buy credits from specific projects, particularly at scale. The lack of transparency with respect to verification, validation, and certification and the resulting ambiguity about the additionality for CFIs make them an unsuitable source for Climate Clean.

Fortunately, there are many projects (representing millions of tons of greenhouse gas reductions) which meet Climate Clean’s criteria. As a result, neither Climate Clean nor our customers should have to settle for low quality.

Climate Clean’s Solution Extends Beyond CO2

One of the unique advantages of Climate Clean’s approach is the focus on reducing all the greenhouse gases emitted by the vehicle, not just carbon dioxide. This is critical because other greenhouse gases have a much more significant and immediate impact on climate change than CO2.

Climate Clean has utilized a Climate Forcing Model and a Vehicle Emissions Signature Model to construct its portfolio. The table below shows the relative presence and impact of the greenhouse gases emitted by vehicles:

Greenhouse Gas % of Vehicle Emissions % Contribution to Climate Change
CO2 84% 36%
Tropospheric Ozone less than 1% 21%
Methane 4% 18%
Black Carbon less than 1% 12%
CFCs 9% 9%
N2O 3% 4%

All greenhouse gases can be expressed in terms of their equivalency to a ton of carbon dioxide. For example, methane is 21 times more potent than CO2 as a greenhouse gas. As a result, Climate Clean will calculate total greenhouse gas and particle emissions for each vehicle and express that in terms of tons of CO2 emitted. Climate Clean will then assure that this many tons of CO2 equivalent are offset through the projects in which it invests.

However, the unique quality of Climate Clean’s portfolio will be that the projects in which it invests will reduce each of the greenhouse gases and particles identified. In this way, the customer will really be achieving “zero emissions” in a way that more effectively addresses the climate crisis and also provides the added benefits of reducing emissions (e.g., black carbon and NOx/VOC precursors to tropospheric ozone) that contribute to local air quality and health concerns.