Carbon credits (legitimate carbon credits -- more on that in a moment) are really the only way, under current law, to increase the amount of sustainably-produced electricity in the grid. All electricity gets pooled together, regardless of how it is produced, and there is no way for any single customer to buy sustainable electrons from any single producer. If that was the case we could choose to pay a little more for sustainably-produced electricity in the same way we might pay a bit more for organic apples, thus increasing demand and driving up the market. But because in any given region there is only one grid, one pool of electricity, and one distributor to buy from (your electrical utility company), what has to happen instead is an increase in the ratio of sustainable to polluting electricity production. The trick is to figure out a way for market forces to dictate that ratio. Enter carbon credits.
Carbon credits are a legal construct that allow market forces to work in the electrical grid system`s monopoly distribution infrastructure. Under the law, when a producer uses a renewable method of generating electricity (say, a wind farm), it produces two saleable commodities: the electrons that get dumped into the pool, and the environmental benefit of sustainable production. Carbon credits represent the environmental benefit portion and can be sold separately to anyone who wants to buy them.
This system does a number of things: it creates a paper trail by which to measure increasing demand for renewable electricity; it establishes a whole new market in which entrepreneurs can create wealth (carbon credit sales and trading); it creates incentive for producers to use renewable production methods, since doing so actually gives them two income streams from one product. Most importantly for electricity customers, it increases the ratio of renewable to polluting electricity in the pool, since distributors are obligated under the law to buy electrons from sustainable producers first.
When you buy enough carbon credits to offset your electricity consumption, what you have done is increase the amount of renewably-produced electricity in the pool by the amount of your offset. Indirectly, your electricity consumption really is carbon-neutral, and is recognized as such by the law.
Obviously there is all kinds of room for scam in this system, since it is necessarily indirect and is still in its infancy. The best way to make sure you are buying legitimate carbon credits is to only buy ones that are Green-E certified. Green-E visits producers of all sorts and audits their operations according to a fairly strict set of standards; the costs of getting audited and of licensing the Green-E logo to use as a "seal of approval" are quite high, offering significant economic and legal disincentives to scammers, and providing what is currently the best way to protect carbon-credit buyers against fraud.
Still though, because the market is so new, it`s smart to research any carbon-offset retailer to make sure you`re not getting ripped off or inadvertently participating in something truly ugly.
I spent a good couple of weeks researching all of this before deciding on an offset retailer. I ended up going with NativeEnergy`s wind offset program — I purchased enough carbon credits to offset just under 100% of my electricity usage from last year (I am a home-based business, so this offsets both my work and home usage), and I am making adjustments in my lifestyle so that my electricity usage this year comes in under my offset purchase. It`s actually a pretty fun self-challenge to examine my electricity bills when they come in to make sure I`m under, and to figure out what else I can do to increase the margin between my usage and my offsets. The cost of offsetting my electricity usage: a "whopping" (sarcasm!) $4 per month.
Anyway, if you have any interest in reading about my personal research into all of this, you can check out this article at my blog: Journey Into Green: The Deregulated Electricity Challange.
On a more on-topic note, the carbon credit market offers a nearly infinite number of ways for innovative entrepreneurs to make money by doing good. Some of the things that have crossed my mind include:
- Setting up an auditing company to compete with Green-E, perhaps by establishing a more strict set of standards
- Setting up an auditing company that focuses on some niche, for example, packaging manufacture (a horrendously wasteful industry)
- Launch a publication that monitors developments in the carbon-offset industry
- Become a trader on the Chicago Climate Exchange
- Become an independent broker representing companies on the CCX
- Become a carbon credit retailer like NativeEnergy
- Become a one-stop-shop reselling credits from a bunch of different retailers, the way some insurance sales folks sell policies from a bunch of different companies
In any event, this post has gotten huge and I should stop rambling. I just wanted to clear up what appeared to be an undeserved bad rap for the whole of the carbon-offsets industry.
Thanks for reading,