Domestic or Foreign Projects?

. There is high demand for projects implemented in the consumer’s home country. If these countries are signatories to the Kyoto Protocol and have emission reductions requirements, then it is currently not possible to implement such projects without running into issues of double-counting (see explanation below.) Under CDM, offset projects can only be implemented in non-Annex 1 countries – countries that have no Kyoto obligation to reduce their emissions

Carbon offset projects are implemented on all continents, yet there are some striking trends. China has been the single largest seller of CDM credits, accounting for 60% of the cumulative total. In 2006, 61% of all CERs came from projects in China, 12% from India, 10% from Latin America, and 3% from Africa (Capoor & Ambrosi, 2007; see chart 4). In the voluntary market, 43% of VERs came from projects in North America, 22% from Asia, 20% from Latin America, 6% from Europe and Russia, 6% from Africa, and 3% from Australia (Hamilton, 2007).

CDM Project Location

Project Location and Double-Counting Issues

Some double-counting issues can be addressed through the use of a registry. A universal mandatory registry for all types of offsets could ensure that each offset is sold only once. Such a registry could also ensure that offsets are not also sold as other commodities, such as Renewable Energy Certificates (RECs). But because multiple registries operate independently in the VER market, a project developer could potentially sell the same credits through two different registries. Such fraudulent activity would not be possible if the market used a single registry, or several linked registries, but the differences between the current standards have made efforts to coordinate them thus far unsuccessful.

Other double-counting issues are more difficult to address. For example, many customers want to buy offsets that come from projects implemented in their own country. Whereas the average European produces 11 tons of CO2, and the average American produces 20 tons, the average Chinese or Indian produces just 4 and 2 tons, respectively, so clearly there is a moral imperative for rich nations to reduce their emissions first. But while this seems logical, such a system turns out to be problematic because of double-counting issues. Under Kyoto, 39 developed countries (called “Annex B countries”) adopted legally binding emission reduction targets. If the offsets for a carbon project implemented in an Annex B country are sold in the voluntary market, the reductions will automatically be double-counted: the purchasing individual or organization will claim them, but they will also be counted toward the host country’s greenhouse gas inventory. If a company funds an offset project in an Annex B country, the resulting carbon offsets would need to be retired from that country’s national greenhouse gas inventory in order to avoid double-counting. This is significant because every Annex B country has to implement policies and projects to meet its Kyoto target, but to date no Annex B country has a regulatory system in place that would prevent this kind of double-counting. This means that a voluntary offset project in an Annex B country effectively replaces another set of emission reduction measures that the country would have had to take in order to meet its Kyoto requirements had the reductions not been double-counted . This problem could be addressed if Annex B countries with emission reduction obligations retired AAU credits for all VERs created through the voluntary market. Yet countries are unlikely to approve such a mechanism because it would mean that governments would indirectly endorse VERs. Once accepted as AAU equivalents, they would in effect be equivalent to CERs.

Paradoxically, in high-emitting countries that have not ratified Kyoto, such as the United States and Australia, these double-counting issues don’t exist at the national level. They do exist on a more local level, however: if a region, state, county, or city has enacted an emission reduction target (even just a voluntary one), any emission reductions that are created in that area but then sold as offsets in the voluntary market should not also be counted in that jurisdiction’s emissions inventory.