The Sellers

Between the buyer of offsets and the project that is the source of the offset, there are wholesalers and retailers. Hamilton et al. (2008: 29) estimated the total number of voluntary offsets sellers at 316. Developers of projects were in the majority, with retailers, wholesalers and brokers less important. However, brokers were handling much more business than hitherto, being responsible for almost 50 percent of the volume of trades.

Not-for-profit (NFP) sellers will offset CO2e on behalf of a business or individual in return for a tax-deductible donation. NFP sellers include NGOs that take philanthropic tax-deductible donations, thus appealing to individuals who cannot claim a business deduction. NFP organizations such as NGOs are mostly interested in simply retiring offsets. A company, on the other hand, will be indifferent between making a tax-deductible donation or a payment to a for-profit (FP) company, which is a business expense. The rules on tax deductibility of offset expenditures will vary from country to country, however.

Unlike NGOs, companies may be more interested in the purchase of the rights to the carbon offsets so that they can be traded on the market. A distinct trend is the increase in the volume of trades handled by FP sellers, as opposed to NFP sellers. This may be explained by the rise of brokers and retailers in the market at the expense of NGOs and developers. However, there are examples of NFP and FP sellers complementing each other as project developers. With the help of FP companies, an NGO purchased conservation easements on the Great Plains, which meant that it could then sell the ensuing carbon offsets (Ducks Unlimited, 2008).

With the exception of credits sourced within the Chicago Climate Exchange (CCX) or the EU Emission Trading Scheme (ETS), which are country- or region-specific, offset projects can be initiated anywhere in the world. Most transactions, in terms of tonnes of CO2e sold, were in Asia (39 percent), followed by North America (27 percent) and Australia and New Zealand (7 percent). Forestry was an important type of offset in Canada, the US and Australia and rather less important in Asia and Latin America (Hamilton et al., 2008: 33; Figure 16). Offsets sold in the voluntary market can also be sourced from the regulated markets, the CCX or the CDM. The mechanism of the CCX is illustrated in Box 3.1. In the case of the CDM, offsets are from projects that have not been officially registered or issued with CERs.

The volume-weighted average prices per tonne of CO2e in the non-CCX voluntary offset market rose from $4.10 in 2006 to $6.10 in 2007. This increase in price may be accounted for by the fact that more offsets are being verified according to third party standards, which increase their costs, and by the fact that the share of the more expensive renewable energy sectors is increasing (Hamilton et al., 2008).

BOX 3.1 THE CHICAGO CLIMATE EXCHANGE (CCX) AND FORESTRY OFFSETS

Full members of the CCX make a voluntary but legally binding commitment to reduce CO2e. Phase I required an annual reduction of 1 percent from baseline, which is the average of annual emissions from 1998-2001. Phase II, from 2007, requires a 6 percent reduction below baseline, which is the average of annual emissions from 1998-2001, or the single year 2000. Volumes and values traded doubled between 2006 and 2007 (see Figure 3.3).

Trade is in allowances, issued to members according to their baselines, or in offset credits generated by projects. Members who exceed their goal may sell their emission allowances. Members who fail to meet their goal must buy allowances or purchase project-based offsets.

Projects of less than 10 000 tonnes of CO2e are registered and sold through an Offset Aggregator.

Participant members are project developers, offset providers, offset aggregators, and liquidity providers, the latter by trading in the exchange. CCX offsets are issued retrospectively for the year in which the CO2e reduction took place. This is in contrast to most voluntary forestry offsets that are bought and sold on the basis of carbon sequestered over 30 to 100 years in the future.

Verification of the baseline and increased carbon stocks is by dependent third parties. Avoided deforestation is catered for as well as afforestation. To cover the possible losses of forest carbon, a 20 percent pool is held in reserve which, given no losses, is released to project owners at the end of the program. Landowners contract to maintain the land in forest for at least 15 years from the enrolled date (CCX, 2008b). At the end of 2008 the price had fallen to $1.60, due partly to a fear that CXX credits would not comply under a cap and trade scheme mooted by president-elect Obama.

Bellassen and Leguet (2007) found that about half the retailers specialized in selling offsets while half provide offsets along with services such as calculating emissions and reduction methods, or they link to the provision of supplementary benefits such as sustainable development or forest protection. Sixty-three retailers, brokers and wholesalers of voluntary offsets were in the US, while the United Kingdom, Australia and Canada hosted a total of 47. The concentration of voluntary business in the US is

101 100

I 96

Reductions Phase I and II

Reductions Phase II only

Reductions Phase I and II

Reductions Phase II only

All members 6% below Baseline by 2010

Phase I reductions

Phase II reductions

CXX Program Committment Period

All members 6% below Baseline by 2010

Source: CCX (2008a).

Figure 3.3 Reduction schedule of CO2e for Chicago Climate Exchange (CCX) members explained by the absence of large-scale regulated markets, while the UK has long been a hub for financial service providers. It is perhaps an indication of the rate of growth in the number of providers and the difficulty of determining their numbers and location that Ribon and Scott (2007: 42) listed 18 organizations in Australia compared to the seven listed by Bellassen and Leguet (2007: Appendix 1: 29).

European retailers had as many projects in developing countries as in their home countries, while retailers based in non-European countries tended to concentrate on their home markets. Projects were concentrated in North America (44 percent), Asia (22 percent) and South America (20 percent) (Bellassen and Leguet, 2007: Figure 13). Of 84 retailers, 43 sold forestry offsets and, of these, 32 specialized in forestry (Bellassen and Leguet, 2007: Appendix 1: 29).

As well as retailers there are wholesalers, including the World Bank and US investment company Climate Wedge. Sellers of offsets also include companies, such as oil companies, who sell offsets as a supplement to their product.

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