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United States Government Accountability Office: 

Report to the Chairman, Committee on Oversight and Government Reform, 
House of Representatives: 

February 2011: 

Climate Change Issues: 

Options for Addressing Challenges to Carbon Offset Quality: 


GAO Highlights: 

Highlights of GAO-11-345, a report to the Chairman, Committee on 
Oversight and Government Reform, House of Representatives. 

Why GAO Did This Study: 

Carbon offsets are reductions in greenhouse gas emissions in one place 
to compensate for emissions elsewhere. Examples of offset projects 
include planting trees, developing renewable energy sources, or 
capturing emissions from landfills. Recent congressional proposals 
would have limited emissions from utilities, industries, or other 
“regulated entities,” and allowed these entities to buy offsets. 
Research suggests that offsets can significantly lower the cost of a 
program to limit emissions because buying offsets may cost regulated 
entities less than making the reductions themselves. 

Some existing international and U.S. regional programs allow offsets 
to be used for compliance with emissions limits. A number of voluntary 
offset programs also exist, where buyers do not face legal 
requirements but may buy offsets for other reasons. Prior GAO work 
found that it can be difficult to ensure offset quality—that offsets 
achieve intended reductions. One quality criterion is that reductions 
must be “additional” to what would have occurred without the offset 

This report provides information on (1) key challenges in assessing 
the quality of different types of offsets and (2) options for 
addressing key challenges associated with offset quality if the U.S. 
adopted a program to limit emissions. GAO reviewed relevant literature 
and interviewed selected experts and such stakeholders as project 
developers, verifiers, and program officials. This report contains no 

What GAO Found: 

According to experts, stakeholders, and available information, key 
challenges in assessing the quality of offset projects include the 

* Additionality. According to many experts and stakeholders GAO 
interviewed, additionality is the primary challenge to offset quality. 
Assessing additionality is difficult because it involves determining 
what emissions would have been without the incentives provided by the 
offset program. Studies suggest that existing programs have awarded 
offsets that were not additional. 

* Measuring and managing soil and forestry offsets. For projects that 
store carbon in soils and forests, it is challenging to estimate the 
amount of carbon stored and to manage the risk that carbon may later 
be released by, for example, fires or changes in land management. Some 
studies have estimated that projects involving soils and forestry 
could constitute the majority of offsets under a U.S. program. 

* Verification. Experts and stakeholders said that verifying offsets 
in existing markets has presented several challenges. In particular, 
project developers and offset buyers may have few incentives to report 
information accurately or to investigate offset quality. 

According to experts, stakeholders, and available information, 
policymakers have several options to choose from in addressing 
challenges with offset quality. These approaches often involve 
fundamental trade-offs, such as increasing the cost of offsets. 
Nevertheless, some research indicates that including offsets in a 
program to limit emissions could provide substantial cost savings that 
would not be provided by a program without offsets. 

* Additionality. One way to assess additionality is project-by-project 
approval, a lengthy process that considers the individual 
circumstances of each project. Another approach is to group projects 
into categories and apply a standard to the entire group—for example, 
award offsets to all electricity generators with emissions below a 
certain level. While such standards may be less subjective and less 
costly to administer, they may also require a considerable up-front 
investment to collect data for various project types. 

* Measuring and managing soil and forestry offsets. To address these 
challenges a program could, for example, adjust the amount of offsets 
awarded based on measurement uncertainty, or establish a “buffer pool” 
of offsets to compensate for any re-released carbon. 

* Verification. To address this challenge, a program could, for 
example, hold verifiers liable for problems with offsets they have 
approved, contract with independent verifiers, and provide for 
rigorous oversight. 

Experts also identified options that could address multiple quality 
assurance challenges, such as limiting the quantity or type of offsets 
that can be used for compliance. However, limiting the supply of 
offsets could also raise their cost. Regardless of the program design, 
many experts said an offset program should clearly identify goals, 
align incentives with goals, promote transparency, and continuously 
evaluate progress. 

View [hyperlink,] or key 
components. For more information, contact David Trimble at (202) 512-
3841 or 

[End of section] 




Key Offset Quality Challenges: 

Several Options Could Address Key Offset Quality Challenges, but Most 
Involve Trade-offs: 

Appendix I: Scope and Methodology: 

Appendix II: List of Experts and Stakeholders: 

Appendix III: GAO Contact and Staff Acknowledgments: 


Table 1: Descriptions of Offset Programs and Standards GAO Reviewed: 

Table 2: Comparison of Project-by-Project and Standardized Approaches 
to Additionality Identified by Experts: 

Table 3: Eligibility of Select Offset Project Types in Select Programs: 


Figure 1: CDM Project Cycle: 


ANSI: American National Standards Institute: 

CAR: Climate Action Reserve: 

CBO: Congressional Budget Office: 

CCX: Chicago Climate Exchange: 

CDM: Clean Development Mechanism: 

DNV: Det Norske Veritas: 

EPA: Environmental Protection Agency: 

EU ETS: European Union Emissions Trading System: 

ISO: International Standards Organization: 

REDD: Reduced Emissions from Deforestation and Degradation: 

RGGI: Regional Greenhouse Gas Initiative: 

UFS: Voluntary Carbon Standard: 

UNFCCC: United Nations Framework Convention on Climate Change: 

VCS: Voluntary Carbon Standard: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

February 15, 2011: 

The Honorable Darrell Issa:
Committee on Oversight and Government Reform:
House of Representatives: 

Dear Mr. Chairman: 

In the past year, Congress has considered proposals to limit 
greenhouse gas emissions from many sectors of the economy, including 
electric power generation, transportation, and manufacturing.[Footnote 
1] Most of these proposals have focused on market-based mechanisms 
such as cap-and-trade, a system the United States already uses to 
reduce air pollution that causes acid rain. Under a cap-and-trade 
program, the government would place an overall cap on emissions and 
issue tradable permits. Entities covered by the program would have to 
surrender enough permits for all of their emissions at the end of 
specified time periods. Such market-based programs could forestall 
some of the potentially adverse effects of climate change at less cost 
than other options to regulate emissions. However, a program that 
reduces emissions could also increase the cost of activities that 
generate emissions, such as the burning of fossil fuels. As a result, 
cap-and-trade proposals have also included various provisions aimed at 
limiting costs to businesses and consumers. 

One potential cost containment mechanism for a cap-and-trade program 
is the use of carbon offsets--activities that reduce emissions in one 
place in order to compensate for emissions occurring elsewhere. 
[Footnote 2] Examples of offset projects include (1) planting trees; 
(2) capturing greenhouse gases from mines, landfills, and agricultural 
operations; (3) reducing tilling to store, or "sequester," more carbon 
in agricultural soil; (4) installing more energy-efficient equipment; 
and (5) generating renewable energy from hydroelectric, wind, or solar 
power. Such projects produce tradable credits, or "offsets," which can 
be purchased by regulated entities and used to comply with emissions 
caps.[Footnote 3] In principle, allowing the use of offsets would 
provide regulated entities with greater flexibility to make emissions 
reductions at less cost. Regulated entities may find that it is 
cheaper to reduce emissions by purchasing an offset than it is to 
reduce their own emissions or to purchase permits from another 
regulated entity. For example, it may cost less to pay a landfill 
owner or operator to capture greenhouse gas emissions than to reduce 
emissions at a power plant. 

U.S. legislation proposed in the past year would have created a cap- 
and-trade program that allowed regulated entities to use offsets to 
comply with emissions caps, as does the European Union Emissions 
Trading System (EU ETS) and other existing programs that limit 
greenhouse gas emissions.[Footnote 4] Economic research indicates that 
including offsets in a cap-and-trade program could provide substantial 
cost savings. For example, in an analysis of the American Clean Energy 
Security Act, Congressional Budget Office (CBO) estimated that from 
2012 through 2050, the annual net cost of a program allowing offsets 
would be about 70 percent less than a program without offsets. 
[Footnote 5] The extent of any savings is uncertain and would depend 
on many factors, including the design of the regulatory and offset 
programs. Such decisions could greatly influence an offset market 
that, under some past legislative proposals, could become many times 
greater than the largest existing offset market, which involves 
billions of dollars worth of offset transactions each year. 

However, we have previously reported that carbon offsets may also 
compromise the environmental integrity of programs to limit emissions 
and should therefore be carefully evaluated.[Footnote 6] Among other 
things, we identified challenges that can affect the quality of carbon 
offsets. A quality offset is one that achieves its intended 
reductions--in most programs, this means that one offset credit equals 
one ton of reduced or avoided emissions. While definitions vary, our 
review of the literature points to five general criteria for assessing 
offset quality--an offset must be additional, real, verifiable, 
permanent, and enforceable. An offset is additional if it would not 
have occurred without the incentives provided by the offset program. 
Real means that the quantified emissions reductions represent actual 
net emissions reductions, and are not a product of incomplete or 
inaccurate accounting; verifiable means the reductions associated with 
the project can be accurately quantified, monitored, and verified; 
permanent means the emissions stored by a project will not be released 
into the atmosphere in the future, or that there are guarantees to 
ensure that such releases are replaced; and enforceable ensures that 
offsets are backed by tracking systems that define their ownership as 
well as regulations and penalties for noncompliance. 

Some legislative proposals to limit greenhouse gases, if enacted, 
would have involved a number of federal agencies in the development of 
offset quality standards and program oversight. The discussion draft 
of the 2010 American Power Act, for example, would have given the 
Environmental Protection Agency (EPA) primary oversight over domestic 
offsets--except for those pertaining to agriculture and forestry, for 
which the Department of Agriculture would have had primary 
responsibility.[Footnote 7] 

This report responds to your request for a review of offset quality 
issues. This report provides information on (1) the key challenges in 
assessing the quality of different types of offset projects, and (2) 
options for addressing key challenges associated with offset quality 
if the United States adopted a program to limit greenhouse gas 
emissions. To respond to these objectives, we reviewed relevant 
literature and interviewed 13 experts--including economists, academic 
researchers, and experts in ecology and law--selected based on their 
experience, recommendations from persons knowledgeable in climate 
policy issues, and the relevance and extent of their publications. We 
also assessed approaches used in seven offset programs selected based 
on their representation in literature, and interviewed 17 
stakeholders--project developers, verifiers, and program officials--
from these programs. Information from our sample of experts and 
stakeholders cannot be generalized to those we did not speak to. 
Appendix I provides additional information about our scope and 
methodology, and appendix II lists the experts and stakeholders we 

We conducted our work from April 2010 to February 2011 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 


Carbon offsets can be used by entities that are subject to legal 
requirements to limit their emissions, such as utilities or 
manufacturing facilities. Offset programs designed for this purpose 
are called compliance programs. One such program is the Clean 
Development Mechanism (CDM), an offset program established by the 
Kyoto Protocol.[Footnote 8] The CDM allows nations with binding 
emissions targets under the Kyoto Protocol--including those 
participating in the EU ETS--to purchase offsets from projects in 
developing nations without binding targets. The CDM is the world's 
largest offset market, valued at $2.7 billion in 2009, and has 
registered over 2,700 offset projects in 70 countries.[Footnote 9] Our 
prior work found that the CDM provided developed nations with 
flexibility in meeting their emissions targets but that the program's 
effects on emissions were uncertain, in part because the CDM's 
screening process could not fully ensure offset quality.[Footnote 10] 

There are also "voluntary" carbon offset programs, where purchasers do 
not face legal requirements to limit emissions but may buy offsets for 
various reasons. For example, companies may purchase offsets to 
demonstrate their environmental stewardship, while individuals may 
purchase offsets to compensate for emissions resulting from their 
personal travel or consumption of fossil fuels. Because the federal 
government has not adopted binding limits on greenhouse gas emissions, 
domestic purchases of carbon offsets generally fall within the 
voluntary portion of the market. Voluntary programs in the United 
States include private sector programs, such as the Climate Action 
Reserve (CAR) and the Voluntary Carbon Standard (VCS), as well as 
Climate Leaders, an industry-government partnership overseen by EPA. 
Voluntary offset programs represent a relatively small share of the 
offset market--in 2009, the total value of the voluntary offset market 
was approximately $338 million, around one-eighth of the CDM market. 
[Footnote 11] Our prior work on U.S. voluntary markets suggests that 
many quality assurance mechanisms exist but the extent of their use is 
uncertain.[Footnote 12] Table 1 lists the compliance and voluntary 
programs we reviewed. 

Table 1: Descriptions of Offset Programs and Standards GAO Reviewed: 

Compliance programs: 

Clean Development Mechanism (CDM); 
Description: Established by the Kyoto Protocol to the United Nations 
Framework Convention on Climate Change (UNFCCC), the CDM enables 
nations with binding emissions targets under the Protocol to purchase 
offsets from projects in developing nations without binding targets. 
The mechanism is overseen by the CDM Executive Board [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 536; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 

Regional Greenhouse Gas Initiative (RGGI); 
Description: Created in 2005 and implemented in 2009, RGGI regulates 
the carbon dioxide emissions of large fossil fuel electricity 
generators in 10 participating northeastern and mid-Atlantic states. 
Under the RGGI Model Rule, electricity generators can generally use 
offsets to meet 3.3 percent of their compliance reduction [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 0; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 0. 

Voluntary programs or standards: 

Climate Action Reserve (CAR); 
Description: A voluntary offset program that establishes standards for 
the development, quantification, and verification of offset projects 
in North America [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 10.5; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 

Chicago Climate Exchange (CCX)[A]; 
Description: A voluntary greenhouse gas reduction and trading system 
through which members made commitments to decrease their emissions. 
CCX participants could trade offsets generated from qualifying 
emissions reduction projects [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 83.5; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 

Climate Leaders[B]; 
Description: An EPA industry-government partnership where EPA has 
provided technical assistance to companies on how to calculate and 
track greenhouse gas emissions over time, calculate emissions 
reductions from offsets, and incorporate offsets into emission 
reduction strategies [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 0.012; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 

The Gold Standard; 
Description: Certifies projects in the voluntary market, and offers an 
additional quality "label" for projects that have already been 
approved through the CDM. The Gold Standard focuses on renewable 
energy and energy efficiency projects with sustainable development 
benefits for the local community [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 5.4; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 3. 

Voluntary Carbon Standard (VCS); 
Description: Initiated by The Climate Group, the International 
Emissions Trading Association, and the World Economic Forum in late 
2005 to standardize and provide transparency and credibility to the 
voluntary offset market, among other objectives [hyperlink,]; 
Offsets Issued (million tons of carbon dioxide equivalent): 
Cumulative: 52; 
Offsets Issued (million tons of carbon dioxide equivalent): In 2010: 

Source: GAO analysis of offset program documents and information 
provided by program officials. 

[A] According to CCX officials, the part of the program involving 
emissions reduction commitments was discontinued in 2010. However, CCX 
has announced the operation of an Offsets Only program for 2011 and 

[B] Climate Leaders did not register offset projects or issue offsets. 
Instead, the program approved the use of offset tons by Climate 
Leaders partners to meet emissions reduction goals, assuming those 
tons met program criteria. 

[End of table] 

While the project review process can vary by program, it often 
involves the following basic steps: (1) preparing application 
documents, (2) establishing that the project meets eligibility 
criteria, (3) approving the project and registering it in a database, 
(4) monitoring emissions reductions over time, (5) verifying the 
amount of emissions reductions produced over a certain time period, 
and (6) issuing offsets. Existing programs generally have an 
administrative body to oversee offset projects and ensure they meet 
established quality criteria. Other key participants include project 
developers, who identify and perform actions that reduce, avoid, or 
sequester emissions, and third-party verifiers, who ensure that 
projects adhere to relevant quality assurance mechanisms. Figure 1 
illustrates the CDM's project cycle. 

Figure 1: CDM Project Cycle: 

[Refer to PDF for image: illustration] 

Project Preparation (Project developer): 
Develop project design documents. 

Validation (Third-party auditor): 
Evaluate documents to ensure they meet program criteria. 

Registration (Program administrator): 
Formally accept validated project. 

Monitoring (Project developer): 
Evaluate project performance. 

Verification (Third-party auditor): 
Review and verify emission reductions. 

Offset Issuance (Program administrator): 
Distribution of credits for achieved reductions. 

Source: GAO analysis of UNFCCC documents and United Nations 
Development Programme data. 

[End of figure] 

Key Offset Quality Challenges: 

Experts and stakeholders identified five key challenges to assessing 
the quality of offsets in existing programs. First, many experts and 
stakeholders agreed that the primary challenge is assessing whether 
the offset project results in additional emissions reductions. Second, 
emissions reductions from some types of offset projects, particularly 
soil and forestry projects, can be difficult to measure. Third, carbon 
stored through soil and forestry projects may not be permanent. 
Fourth, in some cases it can be difficult to verify that offset 
projects complied with program rules and that emissions reductions 
occurred as expected. Fifth, the types of projects that are the most 
difficult to assess--forestry, international, and certain agriculture 
projects--may make up the majority of offsets in a future U.S. 
program, posing challenges for policymakers designing an offset 

Additionality Is the Primary Challenge: 

According to many of the experts and stakeholders we interviewed, the 
primary challenge to assessing offset quality is determining whether 
offsets generate "additional" emissions reductions--reductions that 
would not have occurred without the incentives provided by the offset 
program. In theory, offsets allow regulated entities to emit more 
while maintaining the emissions levels set established by a cap-and-
trade program or other program to limit emissions. However, if the 
offsets represent emissions reductions that would have occurred 
anyway, net emissions may exceed the cap and compromise the 
environmental integrity of the program. We previously identified 
additionality as a challenge to offsets in 2008 and 2009.[Footnote 13] 

Although each program we examined took steps to ensure the 
additionality of offsets, evidence suggests that non-additional 
offsets have nonetheless been awarded under some existing programs. 
For example, the CCX, a voluntary program, awarded offsets to farmers 
who had practiced the credited activity for years.[Footnote 14] 
Several studies on the CDM also suggest that a substantial number of 
non-additional projects have received offsets,[Footnote 15] although 
some experts reported that the CDM has improved the quality of its 
offsets significantly in recent years.[Footnote 16] 

Experts and stakeholders cited a number of reasons why assessing 
additionality can be challenging, including the following: 

* Difficulty of setting a baseline. Assessing additionality involves 
comparing a project's expected reductions against a projected baseline 
of what would have occurred in the absence of the program. While this 
is not a challenge unique to offset programs--many policy decisions 
involve assessing alternative policies against a hypothetical 
baseline--it may involve a number of assumptions that are uncertain. 
For example, some programs approve offsets for forest management 
practices, such as lengthening harvest cycles to allow forests to 
store carbon for longer periods. An offset program could establish a 
baseline for these projects by assessing historical data about how 
forest owners respond to changes in timber prices and other economic 
variables. However, it may be difficult to account for the variety of 
decisions a forest owner may make that affect the amount of carbon 
stored--for example, not all forest owners may want to maximize the 
amount of timber produced. Assumptions regarding this and other 
factors that affect the amount of carbon stored can have a significant 
impact on the number of offsets awarded, according to some studies. 
For example, one study suggested that the number of offsets awarded 
for a hypothetical forest management project could vary by an order of 
magnitude, depending on the approach used to set baselines.[Footnote 

* Asymmetric information. To evaluate the additionality of a project, 
program administrators must often rely on information provided by 
applicants, and in some cases, this information may be difficult to 
evaluate. One additionality test used by the CDM requires wind power 
developers, for example, to establish that a project either is not 
financially feasible without the revenues from offsets or is not the 
most economically attractive option. This can involve a complex 
analysis including assumptions about the internal rate of return for 
the project, the cost of financing, the relative costs of fuels, and 
the lifetime of the project. Research suggests that it can be 
difficult to verify these assumptions, especially since applicants 
know more details about the project than program administrators or 
verifiers, and may present data selectively to support claims of 

* Multiple incentives. According to literature we reviewed, in some 
cases there may be reasons to pursue an activity that are unrelated to 
the offset program. For example, energy efficiency and renewable 
energy projects may be profitable on their own, making it difficult to 
gauge how offset revenue affects these projects' financial viability. 
[Footnote 18] Similarly, conservation tillage is an agricultural 
practice that can earn offsets because it stores more carbon in soil 
than regular tillage, but farmers may also practice it for other 
reasons, such as to help soils retain moisture. One study suggests 
that conservation tillage increased by 3.5 percentage points between 
1998 and 2004 as a share of total planted acres.[Footnote 19] If 
conservation tillage offsets are accepted under a future offset 
program, it may be difficult to determine what portion of future 
increases is attributable to the offset program. In addition, some 
land use practices may be eligible for other federal subsidies or 
policy incentives outside of the offset program, potentially 
complicating additionality assessments.[Footnote 20] 

* Misaligned incentives. Some experts suggested that an offset program 
may create disincentives for policies that reduce emissions. For 
example, under an offset program that allows international projects, 
U.S. firms might pay for energy efficiency upgrades to coal-fired 
power plants in other nations. According to our previous work, this 
may create disincentives for these nations to implement their own 
energy efficiency standards or similar policies, since doing so would 
cut off the revenue stream created by the offset program. For example, 
some wind and hydroelectric power projects established in China were 
reviewed and subsequently rejected by the CDM's administrative board 
amid concerns that China intentionally lowered its wind power 
subsidies so that these projects would qualify for CDM funding. In 
addition, our review of the literature suggests that in some cases an 
offset program may unintentionally provide incentives for firms to 
maintain or increase emissions so that they may later generate offsets 
by decreasing them. This potential problem is illustrated by the CDM's 
experience with industrial gas projects involving the waste gas HFC-
23, a byproduct of refrigerant production. Because destroying HFC-23 
can be worth several times the value of the refrigerant, plants may 
have had an incentive to increase or maintain production in order to 
earn offsets for destroying the resulting emissions.[Footnote 21] 

Measuring Emissions Can Be Challenging for Agricultural Soil, 
Forestry, and Other Types of Offset Projects: 

As we have previously reported, it can be difficult to accurately 
measure emissions from some types of offset projects, particularly 
soil and forestry projects.[Footnote 22] An offset program needs 
accurate measurements of emissions to ensure that it awards an 
appropriate number of offsets. According to our review of the 
literature, the most straightforward way to measure emissions is 
through direct monitoring. For example, a project can run methane 
collected from a landfill or coal mine through a meter to measure the 
quantity collected and destroyed. Similarly, power plants can install 
monitors to measure their carbon dioxide emissions. However, direct 
monitoring is not feasible or cost-effective for all types of offset 
projects, and does not capture the effect that some projects have on 
emissions elsewhere. Types of offset projects with measurement 
challenges include the following: 

* Land-use offsets. Land-use offset projects seek to absorb greenhouse 
gases or reduce emissions by affecting various natural processes. For 
example, trees absorb carbon dioxide from the atmosphere as they grow, 
and soils store carbon. However, the precise amounts stored or emitted 
due to an offset project may be uncertain because some of the 
underlying natural processes are complex and not fully understood. The 
amount of carbon absorbed by agricultural soils, for example, depends 
on the local climate, soil type, vegetation, and past land management 
practices. While precise methods for measuring carbon in soil samples 
are well established, the level of carbon will vary across a parcel of 
land, and changes due to the project may be small compared with the 
total level of carbon in the soil. Accurate estimates can therefore 
require extensive sampling, which may be prohibitively costly for some 
offset projects. Carbon storage projects also require ongoing 
monitoring to assess whether the stored carbon is re-released. 
According to literature we reviewed, estimates of emissions from land- 
use offset projects can be more uncertain than those of other 
projects. For example, the uncertainty of a meter that measures 
methane captured from a landfill may be less than plus or minus 1 
percent, whereas uncertainties of the amount of carbon stored in 
agricultural soils range from plus or minus 6 percent to plus or minus 
100 percent.[Footnote 23] 

* Dispersed projects. Offset projects that include many small sources 
can also be challenging to measure. For example, estimating emissions 
reductions from a project that distributes energy-efficient light 
bulbs would require assessing light bulb use among recipients and 
estimating the associated energy savings. According to our review of 
literature, one option is to collect information from a sample of 
recipients; however, this can cost more and may involve sampling 
errors or other errors compared with projects where emissions are 
directly monitored using a meter at a single point. 

* Projects prone to leakage. The net effect of some types of offset 
projects may be challenging to measure because of the potential for 
emissions to increase elsewhere as a result of the project. This is 
known as leakage. For example, avoiding wood harvest in one area may 
simply displace harvesting and its emissions to another location. Some 
studies that assessed different project types in different regions 
suggest that leakage may be significant, although there is 
considerable uncertainty about the extent of leakage and the factors 
that cause it. Estimates suggest that between none or almost all of 
the emissions reductions from some types of land-use offset projects 
could be negated by increased emissions elsewhere.[Footnote 24] Other 
types of projects may also be at risk. For example, energy-efficiency 
projects may save resources that are ultimately spent on activities 
that increase energy use elsewhere. 

Some experts suggested that measurement costs can affect the viability 
of certain types of projects. The measurement stringency or degree of 
accuracy required in a program can affect the costs of offset projects 
and make some types of projects unviable. Some stakeholders reported 
that a program will need to balance the benefits of accurate 
measurements with the costs. Such a balance will shift over time as 
new techniques and approaches are developed. 

Carbon Stored in Soils and Forests May Not Be Permanent: 

As we have previously reported, projects that store, or "sequester," 
carbon carry the risk that the stored carbon will be re-released into 
the atmosphere, known as a reversal.[Footnote 25] The risk of reversal 
is most commonly associated with projects involving forestry and 
agricultural soil sequestration. In these types of projects, reversals 
can occur as a result of human activity, such as logging or changes in 
tilling practices, or from natural events such as fires, storms, or 
insect infestations. 

Addressing the risk of reversal is important because a reversal can 
negate the environmental benefit of the project. Carbon dioxide can 
remain in the atmosphere for a long time--up to thousands of years, 
according to the Intergovernmental Panel on Climate Change.[Footnote 
26] In the context of an offset program, this means that a project in 
which trees planted in one year but destroyed 30 years later would 
convey a minimal environmental benefit compared to a project that 
captured and permanently destroyed methane emitted from a landfill. 

Verifying Offset Projects Presents Challenges: 

According to our review of literature and interviews with experts, 
verification is an important aspect of an offset program because 
participants may have limited incentives to report information 
accurately or to evaluate quality. Verification involves confirming 
that the project complied with program rules and that estimates of 
emissions reductions are reasonable.[Footnote 27] In most programs, a 
third-party auditor conducts the verification, which can involve 
checking that emissions reduction calculations are correct and site- 
visits to verify information with independent measurements and 
observations. The verifier may also review the assumptions underlying 
the assessment of additionality. According to our review of 
literature, verification may be challenging because sellers of carbon 
offsets may have little incentive to report information accurately to 
program administrators, and buyers may have little incentive to 
investigate the quality of offsets. Unlike buyers of other 
commodities, like oil or corn, buyers of offsets may not care about 
the quality of the offsets they buy and may be primarily interested in 
lowering their compliance costs by purchasing lower-cost offsets. This 
is partly because under some designs, buyers may not be liable for the 
quality of offsets they purchase after those offsets have been issued 
by a program.[Footnote 28] 

On the basis of our review of the literature and interviews with 
experts, we identified several challenges to verifying offset 
projects, including the following: 

* Projects in developing countries and those involving complex 
measurement techniques can be difficult to verify. Some experts and 
stakeholders suggested that offset projects in developing countries 
can be difficult to verify because of varying legal frameworks, lack 
of available documentation, or other reasons. For example, some 
verifiers reported that it is sometimes difficult to verify whether 
project developers have legal ownership of land used in a project. 
These challenges can vary considerably depending on the country 
hosting the project. Some verifiers noted that projects involving 
forestry and agricultural soils--in the United States or in other 
nations--can be more challenging to verify, since they often involve 
complex measurement methods. To verify emissions reduction claims in 
such projects, a verifier must assess the reasonableness of the model 
or estimation technique used, as well as the data used in the model. 

* Incentives and conflicts of interest may complicate verification. 
Many experts and some stakeholders reported that misaligned incentives 
and conflicts of interest may affect the quality of verifications. In 
most cases, third-party verifiers are selected and paid by project 
developers. This may give verifiers an incentive to further the goals 
of the developer--earning offsets at low cost--over the goal of 
ensuring the quality of offsets. 

* Specifying verification criteria can be difficult. Some stakeholders 
suggested that the verification criteria used in some programs have 
been unclear or subject to interpretation. This can make verifications 
difficult, as verifiers must make subjective judgments as to the 
reasonableness of assumptions and may interpret program guidelines 
differently than program administrators intend. For example, according 
to CDM documentation, about 7 percent of projects authorized by third- 
party verifiers in 2009 were subsequently rejected by the board that 
ultimately approves CDM projects. According to one study, this is 
partly because the CDM rules for additionality were unclear or 
ambiguous, which led to different interpretations between third-party 
verifiers and the CDM board.[Footnote 29] In addition, the CDM's 
guidelines do not establish a level of confidence required in a 
verification, known as a materiality threshold. Two verifiers we 
interviewed suggested that without such a threshold, verifiers may 
spend considerable effort investigating potential errors that would 
have a negligible or no impact on emissions reduction estimates. 

* Competence and supply of verifiers may be inadequate. Some 
stakeholders we interviewed suggested that there has been a limited 
supply of qualified verifiers. Following spot checks of some 
verifiers, the CDM suspended four verification firms from 2008 to 
2010, in part because of concerns over the skills and experience of 
staff.[Footnote 30] Two stakeholders said that the shortage of 
verifiers is especially acute in developing countries or for more 
technically demanding project types such as avoided deforestation. 
[Footnote 31] The CDM has taken various steps to improve its 
verification system, and these challenges may be alleviated in the 
future as verifiers and program administrators gain experience with 
the verification process. 

These challenges have raised verification costs, according to our 
review of literature and stakeholders we interviewed. One stakeholder 
said that verification can be the single largest cost of developing an 
offset project. According to information collected by the CDM, costs 
range from $13,000 to $54,000 to initially register a project and 
$7,900 to $32,000 to periodically verify emissions reductions in that 
program.[Footnote 32] According to two stakeholders involved in 
verifying CDM projects, these issues have driven up verification costs 
in the CDM and contributed to a growing backlog of projects. 
Verification costs could cause some otherwise high-quality offset 
projects not to be undertaken because they are not financially viable. 

The Most Plentiful Types of Projects May Also Be the Most Challenging 
to Assess: 

Experts and stakeholders generally agreed that for some types of 
offset projects, quality is relatively easy to assess. In particular, 
many suggested that projects that have one emissions source and 
involve the metered destruction of greenhouse gases--such as methane 
flaring from landfills and coal mines--generally produce high-quality 
offsets. These projects take place at a single location; permit easy, 
reliable and continuous monitoring of emissions; and are not at risk 
of re-releasing emissions. However, offsets from such projects were 
forecast to be a small portion of total offsets in recent legislative 
proposals.[Footnote 33] Further, EPA's review of recent draft 
legislation suggests that the potential emissions reductions from 
these activities may be limited, and therefore may do little to reduce 
the cost of a future U.S. program to limit emissions. For example, 
EPA's analysis of the American Clean Energy and Security Act estimated 
that allowing landfill, coal mine, and natural gas system methane 
projects as offsets would decrease the cost of emissions by only 2 
percent relative to a program without these projects. 

According to our review of the literature, the types of projects that 
are particularly challenging to assess--including forestry, 
international, and some agricultural offsets--may account for the 
majority of offsets. In 2009, CBO estimated that most offsets under 
proposed U.S. legislation would result from forestry and agricultural 
practices, with most domestic offsets coming from the forestry 
sector.[Footnote 34] CBO also estimated that international offsets 
would comprise slightly over half of all offsets from 2012 to 2050. 
Efforts to reduce deforestation in developing countries could be a 
particularly significant source of offsets, given that up to 20 
percent of global greenhouse gas emissions results from tropical 
deforestation. However, forestry offsets pose key challenges for 
measurement, leakage, and permanence, and have therefore had a 
relatively limited role in existing offset programs thus far.[Footnote 

Several Options Could Address Key Offset Quality Challenges, but Most 
Involve Trade-offs: 

According to our review of the literature and interviews with experts, 
policymakers have several options to choose from in addressing 
challenges with offset quality, but many of these options could 
increase the cost of offsets and may involve other trade-offs. 
Nonetheless, addressing these challenges may be valuable since 
offsets, in principle, could substantially lower the cost of a program 
to limit greenhouse gases relative to the cost of a program without 
offsets. The extent of these savings will depend partly on the quality 
assurance mechanisms used to address offset quality. On the basis of 
our review of relevant literature and interviews with experts, we 
identified several options that address challenges associated with 
additionality, measurement, permanence, or verification. We also 
identified steps that could address multiple offset quality challenges 
at the same time. Finally, we identified four overarching principles 
that experts generally agreed could enhance offset quality. 

Several Options Could Specifically Address Additionality, Measurement, 
and Other Key Challenges: 

On the basis of our review of relevant literature and interviews with 
experts and stakeholders, we identified several options to address 
specific challenges to offset quality. Many of these options involve 
trade-offs--most notably, more stringent quality assurance can 
increase the cost of offsets. These options are not mutually 
exclusive, and some experts suggested that a program will likely need 
to employ a combination of options depending on the type of offsets 
allowed under the program. 

Options for Addressing Additionality: 

There are several options to assess additionality, although many 
experts we interviewed stated that it may be practically impossible to 
ensure that all offsets are additional at the project level. Still, 
all of the programs we examined included additionality as a criterion 
for offset approval, and all took certain straightforward steps to 
increase the likelihood that issued offsets are additional. For 
example, all of the programs we reviewed seek to accept only those 
projects that achieve emissions reductions beyond what is already 
required by law or regulation, and all require that projects be 
initiated after a certain date (e.g., the start date of the program). 
The assumption behind both of these requirements is that projects that 
cannot meet them were likely motivated by something other than the 
incentives of the offset program. 

All the programs we examined also take one of two approaches to more 
thoroughly assess the additionality of offsets--a standardized 
approach or a project-by-project approach. With a standardized 
approach, a program establishes a standard way of assessing 
additionality for each type of offset project and uses it for all 
projects of that type. One way to do this is for a program to review 
comparable projects and establish a performance level or set of 
technologies that would be considered additional. For example, a 
performance level for international electricity projects might reflect 
the most efficient method of producing electricity that is in use in a 
given region. Projects that exceed that performance level would then 
be considered additional. Alternatively, a program could identify 
technologies or practices that are generally additional. For example, 
after reviewing current livestock manure waste management practices in 
the United States, CAR decided that any project that installed a 
system to capture and destroy methane gas from manure treatment or 
storage facilities could be considered additional and defined a 
baseline methodology for all such projects.[Footnote 36] Therefore, to 
demonstrate additionality under CAR, a project developer simply has to 
show that an approved methane collection system has been installed. 

In contrast, with a project-by-project approach, additionality can be 
assessed differently for each project--even projects of the same type--
so as to consider the unique circumstances of each project. For 
example, CDM program documents show that livestock methane capture 
projects generally have to (1) conduct either an investment analysis 
to show that methane capture was not attractive without revenue from 
the sale of offsets, or demonstrate that offsets allow the project to 
overcome some prohibitive barriers; (2) demonstrate that methane 
capture is not already common practice in that area; and (3) define an 
appropriate baseline from which offsets would be awarded. Table 2 
compares these two approaches. 

Table 2: Comparison of Project-by-Project and Standardized Approaches 
to Additionality Identified by Experts: 

Project-by-project: Program examines the unique circumstances of each 
project to assess additionality; 
Standardized: Program establishes an approach to assessing the 
additionality of each project type, which is then used for all 
projects of that type. 

Project-by-project: Projects that can demonstrate they have lower than 
acceptable financial returns without revenues from offsets are 
considered additional (investment analysis, CDM); 
Standardized: Installing a system to capture and destroy methane 
emissions from livestock manure treatment or storage facilities is 
considered additional (CAR). 

Programs using this approach: 
Project-by-project: CDM, Gold Standard, VCS; 
Standardized: Climate Leaders, CAR, CCX, RGGI, VCS[A]. 

Project-by-project: Flexible and can be tailored to specific 
circumstances, easy to update with changing conditions; 
Standardized: Less subjective, provides certainty for developers, may 
be less costly to administer. 

Project-by-project: Can be more costly to administer, uncertain for 
project developers, subjective, may award non-additional offsets; 
Standardized: Not appropriate for all types of projects, needs to be 
updated, may exclude some projects that could generate additional 
offsets, may award non-additional offsets. 

Source: GAO analysis of program documentation and interviews with 

[A] Several programs also have mechanisms to consider projects outside 
of their primary standardized approaches, including Climate Leaders, 
CCX, and VCS. 

[End of table] 

The choice of approaches to address additionality involves three basic 
trade-offs, according to on our review of relevant literature and 
interviews with experts and stakeholders: 

1. Stringency versus cost. Regardless of the approach that is used, a 
more rigorous assessment of additionality can be more costly to 
implement and exclude some projects that could have produced 
additional offsets, according to some experts. Two experts we 
interviewed estimated that relatively lenient offset standards could 
mean that nearly half of issued offsets are not additional. On the 
other hand, these experts estimated that stringent offset standards 
could greatly reduce non-additional offsets but exclude a significant 
number of potentially additional offsets from the program.[Footnote 37] 

2. Up-front costs versus lower overall administrative costs. Some 
experts and stakeholders suggested that a standardized approach may 
reduce administrative costs overall but may also involve higher up- 
front investments than a project-by-project approach. For example, the 
verification to register a project can cost a project developer 
between $13,000 and $54,000 and can take over 250 days in the CDM's 
project-specific process, while the same step involves minimal cost 
and approximately 4 to 12 weeks under CAR's standardized approach. 
However, developing a standard can involve up-front costs for 
collecting and evaluating information to assess business-as-usual 
activities, and for soliciting and considering public comments on 
proposed standards. Although a project-by-project approach may be more 
expensive to operate over time, an expert suggested that it can be 
established more quickly and at lower initial cost. This is because 
the program administrator would not need to establish specific 
standards for assessing additionality for each type of offset project, 
although general offset criteria for all projects would still be 

3. Flexibility versus objectivity. While standardized approaches are 
more objective to implement than project-by-project approaches, they 
are less flexible, according to some experts and stakeholders. Some 
stakeholders were concerned about subjective and inconsistent 
decisions that have occurred in some programs that use a project-by-
project approach, and these concerns would likely be reduced under a 
standardized approach. However, once a standardized method is 
established, it may allow little flexibility in assessing whether a 
given offset project meets the standard. This lack of flexibility 
might mean that some projects with the potential to generate 
additional offsets will be excluded, and some non-additional projects 
will be included. 

Recognizing these tradeoffs and that the suitability of a given 
approach may depend on the type of offset project, many experts 
recommended a hybrid approach that would use elements of both project- 
by-project and standardized approaches, and that would be tailored to 
each offset project type. For example, a standardized approach may 
work well for project types where sufficient data on relevant industry 
practices are available, while a project-by-project approach may be 
better suited to less common project types. 

Options for Addressing Measurement: 

According to literature we reviewed, one option to address the 
potential for measurement error is to require project developers to 
incorporate measurement uncertainty into their emissions reductions 
calculations, reducing the number of offsets claimed to those that can 
be measured with a specified degree of certainty. For example, CAR 
adjusts the number of offsets that can be credited to a forestry 
project when measurement uncertainty exceeds a certain threshold. 
Projects measured with high uncertainty receive fewer offsets than 
comparable projects measured with less certainty. Such deductions can 
be a significant amount of potential offsets for some types of 
projects--up to 15 percent for some forestry projects.[Footnote 38] 

Additional options exist for addressing measurement challenges due to 
the risk of emissions leakage, according to the literature we 
reviewed. At the project level, some leakage may be addressed by 
expanding the area of emissions monitoring--for example, for certain 
project types, VCS tracks local "leakage belts" surrounding the 
project area. However, this option does not address any emissions that 
shift beyond a localized region. An alternative is to expand the scale 
of emissions monitoring to the national or international level--for 
example, monitoring emissions in the forestry sector or other sectors 
where leakage is likely to occur. In such a system, adjustments could 
be made if the emissions in a given sector were higher than expected, 
given estimated reductions from offsets. However, it may be difficult 
to isolate the effect of leakage from other factors that affect 
emissions. While some experts characterized leakage as a particularly 
difficult challenge, literature we reviewed suggests that assessing 
the potential for leakage may help policymakers adjust emissions 
measurements appropriately. For example, leakage may often be driven 
by the need to meet agricultural and timber demands. Assessing the 
circumstances of the markets, regions, and countries targeted by an 
emissions reduction program may help provide information on how much 
leakage can be expected, enabling program administrators to adjust 
policies as needed. 

Options to Address Reversals: 

Addressing the risk of offset reversals--which occur when carbon 
stored in trees or soil is subsequently re-released into the 
atmosphere--is critical to achieving expected reductions under a 
program to limit emissions, according to literature we reviewed. 
Developing a policy to address reversals involves deciding how long a 
project must continue to store carbon, and how to compensate for lost 
reductions in the event that stored carbon is re-released into the 

Under existing offset programs, carbon must be stored for a certain 
period of time, although these "permanence" requirements vary 
significantly. In the voluntary offset program CAR, for example, a 
forestry project must store carbon for 100 years after offsets are 
issued or pay back the offset credits. In contrast, CCX required a 
commitment of 15 years. Given that carbon dioxide can remain in the 
atmosphere for anywhere between 30 years and several centuries, a 
longer time commitment may help improve the likelihood that offset 
projects convey their intended environmental benefit. On the other 
hand, some stakeholders suggested that extended time commitments could 
reduce participation from landowners and renters, who may be unwilling 
to commit to 100-year time frames. A CAR official we interviewed 
noted, however, that CAR had received nearly 140 applications for 
forestry projects, each of which would be subject to the 100-year 

The CDM takes a different approach by issuing temporary credits for 
forestry activities, which can be used for compliance purposes only 
for a certain amount of time. Once a credit expires, the owner must 
replace it.[Footnote 39] New temporary credits can be used to replace 
the expiring credits if the project owner is able to demonstrate that 
the carbon remains stored. According to literature we reviewed, 
temporary crediting avoids the need for ongoing monitoring to ensure 
permanence, and three experts characterized it as the best option to 
address reversals. However, others expressed skepticism that temporary 
credits would be attractive to buyers in the context of a mandatory 
program to limit emissions.[Footnote 40] One expert, for example, 
suggested that temporary credits would create ongoing compliance 
liabilities that offset buyers would be unwilling to carry. According 
to one study we reviewed, alternative forms of temporary crediting 
could address these issues--for example, allowing the private market, 
rather than the administrator of the program, to set contract length 
to meet the different needs of market participants. 

On the basis of our review of the literature and experts we 
interviewed, we identified several other options which, together or 
independently, could help ensure that carbon is stored for the 
specified time or otherwise accounted for: 

* Hold seller or buyer liable. Policymakers could assign liability to 
either project developers (sellers) or offset buyers. In the event of 
a reversal, the liable party would either have to replace the offsets 
or face sanctions for noncompliance. The advantage of holding the 
seller liable, according to experts and literature we reviewed, is 
that the landowner has a greater incentive to avoid reversals. 
Flexibility is another potential advantage to this option, according 
to one expert--a landowner that wanted to use the land for other 
purposes could simply replace the offsets. However, literature we 
reviewed suggests the transfer of liability may have to be established 
through a contract or other mechanism, since land ownership can shift 
over time. Under the buyer liability option, the responsibility for an 
offset reversal shifts along with the ownership of the offset. 
According to some literature we reviewed, this option may give buyers 
a greater incentive to pursue quality offsets, and liability may be 
easier to enforce. However, one stakeholder we interviewed suggested 
that such an approach would significantly dampen program participation 
because potential offset buyers would be unwilling to take on this 
level of risk. An unexpected forest fire, for example, could create a 
significant and immediate financial liability for an offset owner. 
[Footnote 41] 

* Insurance. In the case of buyer or seller liability, private 
insurance markets may help address the risk of offset reversals. For 
example, offset owners could insure themselves through private 
insurance or bonds issued by a bank, and if a reversal occurs, the 
insurer pays for the cost of replacing the offsets. According to one 
expert, one advantage of this option is that some private insurance 
companies may be better equipped to assess risk than the federal 
government. However, another expert noted that, because offsets are a 
relatively new commodity, there may not yet be sufficient information 
to identify risks. This expert therefore recommended against using 
this option until sufficient data exist to allow a private market 
system to work at reasonable cost. 

* Programwide buffer pools. A program could establish a "buffer" pool 
by setting aside a portion of all offsets from new projects to cover 
possible future reversals. For example, the VCS requires land-use 
projects to undergo a risk assessment for non-permanence, which 
encompasses risks of natural disaster, technical failure, and 
political instability, among others. On the basis of this assessment, 
a percentage of the credits is withheld and put into a buffer pool for 
use in the event of reversal.[Footnote 42] According to literature we 
reviewed, a programwide buffer pool can serve as a type of insurance 
against unanticipated reversals. However, determining the appropriate 
size of the buffer pool may be difficult, according to some experts. A 
smaller buffer pool may not provide enough protection against 
reversals, whereas a large buffer pool may require applicants to 
withhold a larger share of their offsets, potentially dampening 
participation in the program. 

Options to Address Verification: 

There are three basic ways to verify offset projects. First, offset 
projects can be verified by independent third-party organizations. 
Nearly all of the programs we examined use this approach. Verifiers 
are generally chosen and paid by project developers, presenting a 
potential conflict of interest. Because of this, the programs we 
reviewed have various requirements governing the relationship between 
the verifier and the developer. For example, all require conflict of 
interest reviews, and some have additional requirements governing the 
relationship between the verifier and the developer. In RGGI, for 
example, verifiers may not have any other direct or indirect financial 
relationship with project developers. Under some programs, such as the 
CDM, third-party verifiers may also be liable for failing to 
adequately verify that emissions reductions have occurred as a result 
of the offset project.[Footnote 43] According to many stakeholders, 
these and other requirements generally prevent potential conflicts of 
interest from affecting the quality of third-party verifications, 
although two experts suggested that such policies may not be 

Second, some experts suggested that a program could itself verify 
offset projects, either directly or by contracting with third parties. 
This could eliminate many potential conflicts of interest by 
eliminating the relationship between project developer and verifier, 
although this is not done in any of the programs we examined.[Footnote 
44] Some stakeholders suggested that having the program select 
verifiers could be problematic because it could add a layer of 
bureaucracy and could reduce market competition, among other reasons. 

Third, one expert and one project developer suggested that project 
developers could certify their own information if a program had strong 
compliance and enforcement provisions to encourage developers to 
report truthfully. For example, the government could conduct random 
spot checks or audit a sample of projects. This would eliminate 
verifications, but could increase the risk of fraud, abuse, and 

In addition to choosing who will verify offset projects, programs face 
additional challenges related to verification. Experts and 
stakeholders identified the following options to address these: 

* Oversight can help align incentives and improve verification. Some 
experts and stakeholders stressed the need for rigorous oversight to 
ensure verifications are effective and meet specified goals. This 
could take the form of accreditation processes to select third-party 
verifiers and ongoing monitoring of verifications including spot 

* Clearly defined guidelines and expectations can facilitate 
verifications. Some experts and many stakeholders indicated that clear 
guidelines and expectations are important for effective verification. 
More specific guidance and more objective criteria can reduce the 
chance that verifiers and program administrators will interpret 
information differently. 

* Standards and training can help improve the competence and supply of 
verifiers. A program can help ensure that verifiers are competent by 
establishing standards or a minimum set of qualifications. For 
example, the CDM specifies that verifiers must have a certain level of 
verification experience before they can serve as team leaders. Some 
stakeholders also reported that training can be useful, although one 
suggested that the private sector can develop necessary training if 
standards are clear enough. 

Other Options Could Address Multiple Challenges with Offset Quality: 

On the basis of our review of the literature and experts we 
interviewed, we identified several other options that--used in 
combination or separately--may help address multiple challenges to 
offset quality at the same time. Many of these options involve 
addressing the quality of the program on aggregate, rather than 
attempting to ensure the quality of each offset at the project level. 
This may be necessary because, according to a CBO study, complete 
quality assurance of every project would be prohibitively costly, 
particularly for forestry and other challenging types of offsets. 
[Footnote 45] 

Limiting the Quantity of Offsets Allowed: 

According to our review of the literature, one way to mitigate the 
negative impacts of non-additional offsets, leakage, and other quality 
problems is to simply limit the use of offsets in a cap-and-trade 
program or other program to limit emissions. With this option, the 
emissions reduction program would ensure that only a fixed percentage 
of the emissions permits could be affected by any problems with offset 

All existing emissions reduction programs we reviewed use this option. 
In the EU ETS, regulated entities are able to use CDM credits for 12 
percent of their emissions cap, on average, through 2012. In contrast, 
a draft Senate bill would have allowed a greater number of offsets 
into the program--approximately 42 percent of the emissions cap during 
the first year of the program.[Footnote 46] These percentages are 
based on the total emissions cap, not the required emissions 
reduction. As a result, such limits could mean that regulated entities 
could use offsets for all of their required emissions reductions, 
assuming a sufficient supply of offsets was available. RGGI's 
approach, on the other hand, limits offsets to no more than 50 percent 
of required reductions under the cap, which may avoid a scenario where 
emissions reductions were wholly dependent on offsets.[Footnote 47] 

Restricting the number of offsets allowed would likely increase the 
cost of meeting the emissions cap in an emissions reduction program. 
On the other hand, one expert suggested that while offsets may lower 
the cost of compliance, such savings are irrelevant if offsets do not 
represent actual emissions reductions. 

Limiting the Types of Offsets Allowed: 

Policymakers could also choose to limit the types of projects eligible 
for offsets, excluding the types most likely to pose quality problems. 
While existing offset programs we reviewed allow a wide variety of 
project types, they all also impose some limits on the type of 
projects they accept (see table 3). In some cases, programs impose 
limits because of concerns over the likely quality of offsets from 
certain types of projects. For example, soil sequestration projects, 
including conservation tillage, are not permitted in the CDM because 
of difficulties in accurately measuring the amount of carbon that is 
ultimately absorbed into the soil.[Footnote 48] 

Table 3: Eligibility of Select Offset Project Types in Select Programs: 

Energy efficiency; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: Eligible; 
Gold Stand.: Eligible; 
CAR: [Empty]; 
RGGI: Eligible[B]; 
Climate Leaders[A]: Eligible[C]. 

Renewable energy; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: Eligible; 
Gold Stand.: Eligible; 
CAR: [Empty]; 
RGGI: [Empty]; 
Climate Leaders[A]: [Empty]. 

Forestry: Reforestation/afforestation; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: Eligible; 
Gold Stand.: [Empty]; 
CAR: Eligible; 
RGGI: Eligible; 
Climate Leaders[A]: Eligible. 

Forestry: Forest management; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: [Empty]; 
Gold Stand.: [Empty]; 
CAR: Eligible; 
RGGI: [Empty]; 
Climate Leaders[A]: Eligible. 

Forestry: Avoided deforestation; 
VCS[A]: Eligible; 
CCX[A]: [Empty]; 
CDM[A]: [Empty]; 
Gold Stand.: [Empty]; 
CAR: Eligible; 
RGGI: [Empty]; 
Climate Leaders[A]: [Empty]. 

Industrial gases; 
VCS[A]: Eligible; 
CCX[A]: Eligible[D]; 
CDM[A]: Eligible; 
Gold Stand.: [Empty]; 
CAR: Eligible[E]; 
RGGI: Eligible[F]; 
Climate Leaders[A]: [Empty]. 

Agricultural methane; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: Eligible; 
Gold Stand.: [Empty]; 
CAR: Eligible; 
RGGI: Eligible; 
Climate Leaders[A]: Eligible. 

Soil sequestration; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: [Empty]; 
Gold Stand.: [Empty]; 
CAR: [Empty]; 
RGGI: [Empty]; 
Climate Leaders[A]: [Empty]. 

Coal mine methane; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: Eligible; 
Gold Stand.: [Empty]; 
CAR: Eligible; 
RGGI: [Empty]; 
Climate Leaders[A]: [Empty]. 

Landfill methane; 
VCS[A]: Eligible; 
CCX[A]: Eligible; 
CDM[A]: Eligible; 
Gold Stand.: [Empty]; 
CAR: Eligible; 
RGGI: Eligible; 
Climate Leaders[A]: Eligible. 

Source: GAO analysis of program documents and information provided by 
program officials. 

[A] Indicates that program also accepts proposals for projects from 
nonapproved project types. 

[B] Eligible nonelectric energy efficiency measures in the building 

[C] Commercial boilers, industrial boilers, and bus fleets. 

[D] Only ozone-depleting substances. 

[E] Only nitrous oxide from nitric acid and ozone-depleting substances. 

[F] Projects that reduce emissions of sulfur hexafluoride in the 
transmission and distribution sector. 

[End of table] 

Many experts and stakeholders suggested that project types should only 
be eligible if they meet key quality criteria. Experts and 
stakeholders generally agreed on the characteristics of projects that 
presented relatively few quality assurance challenges: 

* Projects that represent a single, localized source of emissions are 
less likely to necessitate resource-intensive sampling and complicated 
measurement models than projects that cover large areas of land or 
those with multiple emissions sources. 

* Projects with emissions that can be measured directly through a 
meter allow for relatively easy monitoring and verification and are 
generally not subject to leakage or reversals. 

* Projects that do not receive subsidies or generate revenue on their 
own may be less challenging to assess for additionality, since the 
offset is often the only financial incentive for these activities. 

* Projects implemented in the United States may be easier to verify 
than international projects, given that verifiers may be less familiar 
with the legal, political, and institutional infrastructures of other 

Rather than limiting an offset program to only these types of 
projects, however, some experts cited reasons that the government 
should allow some flexibility around offset types. First, the supply 
of offsets from easy-to-monitor, low-risk projects--such as projects 
to capture fugitive gases from landfills or coal mines--may be 
limited. Second, some types of offsets that present quality assurance 
challenges--such as those in the forestry sector--also present large 
opportunities for emissions reductions. Third, imposing higher limits 
on international projects relative to domestic projects could exclude 
many legitimate reduction opportunities, according to some experts. 

Many experts and stakeholders recommended developing a list of 
acceptable project types carefully over time. Some of them cautioned 
against codifying a list of acceptable project types in legislation, 
instead suggesting that the implementing agency choose acceptable 
project types using guidance from scientific and financial experts. 
One expert recommended that the agency initially focus on a set of 
project types that are most likely to produce quality offsets using 
the experience of existing programs and standards, and gradually build 
on that list as more information is collected. 


According to our previous work, one way to compensate for offset 
quality problems is to discount the value of offset credits. This 
could be done in one of several ways, each of which has advantages and 
disadvantages, according to literature and experts we interviewed: 

* Discount all offset projects. Challenges in quantifying offsets 
range from assessing additionality and setting emissions baselines to 
measuring and verifying emissions reductions. While ideally an offset 
program would have measures to address these issues, our previous work 
suggests that even a rigorous approval process can still allow a 
substantial number of offsets that do not meet quality criteria. An 
offset program could seek to compensate for this by estimating the 
percentage of offsets that do not meet quality standards in the 
program overall and then discounting all offsets by that percentage. 
For example, five offset credits could be set as equal to four 
emissions permits in a cap-and-trade program. The burden of the 
discount would be borne by offset buyers, who would then need to 
purchase more offset credits, or by offset suppliers, who would have 
to perform more emissions-reducing activities. On one hand, some 
experts characterized this as a relatively simple approach that may 
help limit the adverse effects of non-additionality or other offset 
quality issues. However, others suggested that determining the 
appropriate discount would be difficult and somewhat arbitrary, and 
others expressed concern that discounting would reduce the chance that 
additional projects would be viable.[Footnote 49] 

* Discount certain project types. This option could be used to 
prioritize certain types of projects over others, such as projects 
whose reductions are relatively easy to measure or verify. These 
projects would receive smaller discounts--or no discount--relative to 
higher-priority projects. For example, some proposals suggest applying 
a greater discount to forestry or international projects. However, 
some experts cautioned that such an approach can impede economic 
efficiency by reducing the overall supply of offsets or by making 
certain types of offsets more expensive. 

* Apply a discount before credits are issued. Under this option, used 
by several existing programs, discounts are incorporated into a 
project's measurement methodologies before credits are issued, as a 
way to target projects for which measurement error, leakage, or 
additionality is a high risk. In general, experts and stakeholders 
supported this form of discounting when it is possible, but some noted 
that leakage and additionality can be especially hard to quantify and 
may be better addressed through other quality assurance options. 

Four Broad Principles Could Improve Quality in Any Offset Program: 

On the basis of interviews with experts and our review of literature, 
we identified four broad principles that could help guide offset 
program design under any approach to quality assurance: 

* Identify key goals and priorities for the program. Identifying key 
goals and priorities can help guide the numerous decisions that will 
need to be made in designing and administering the program. In many 
cases, policy mechanisms designed to increase the quality of offsets 
may also increase their cost. As a result, some experts suggested that 
policymakers should define an acceptable level of uncertainty--or an 
acceptable level of cost--on which to base the choice of quality 
assurance measures. Establishing these parameters may help 
policymakers determine whether specific types of projects can be 
reliably verified within the acceptable ranges of uncertainty, taking 
into account existing methods and technologies. 

* Align incentives with goals. The design of the offset program 
creates incentives that may or may not serve program goals. Assessing 
the incentives created by various program designs can inform design 
decisions and may help improve outcomes. For example, evaluating 
whether the incentives offered by the offset program overlap with 
other incentive programs could help policymakers determine if program 
adjustments--such as offset discounts or limits on project types--are 

* Promote transparency. A program might cover projects from a wide 
range of economic sectors and countries. Clear and transparent 
processes and publicly available information can enable concerned 
third parties to be involved in project oversight, potentially 
improving the quality of offsets. In addition, maintaining 
transparency in the development of procedures and standards can help 
build trust in the program and reduce uncertainty for investors. 

* Incorporate evaluation and continuous improvement into the program. 
Carbon markets are relatively new and less mature than other commodity 
markets, and program administrators will therefore need to be able to 
respond to an evolving marketplace. This may include adapting to 
unforeseen consequences of program policies as well as incorporating 
new technologies and innovations that emerge over time. Experts and 
literature thus recommended that a program develop a process for 
ongoing evaluation and assessment of program policies and outcomes. 
For example, a program could establish an ongoing process to update 
the methods used to establish baselines so that they accurately 
reflect current conditions and technologies. According to one expert, 
a program could also evaluate the effectiveness of its additionality 
procedures by assessing whether projects that had been screened out by 
program policies were ultimately implemented. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees and other interested parties. In 
addition, the report will be available at no charge on GAO's Web site 
at [hyperlink,]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-3841 or Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Individuals making key contributions 
to this report are listed in appendix III. 

Sincerely yours, 

Signed by: 

David C. Trimble: 
Acting Director, Natural Resources and Environment: 

[End of section] 

Appendix I: Scope and Methodology: 

This report examines (1) the key challenges in assessing the quality 
of different types of offset projects, and (2) options for addressing 
key challenges associated with offset quality if the United States 
adopted a program to limit greenhouse gas emissions. To address these 
objectives, we reviewed existing information, assessed approaches in 
seven offset programs, and conducted semistructured interviews with 
knowledgeable persons in two broad groups: experts (researchers, 
economists, and academic experts involved with designing or assessing 
offset programs) and stakeholders (individuals that directly 
participate in or administer offset programs). 

Specifically, we assessed approaches that seven offset programs use to 
address offset quality. We selected programs based on their 
representation in relevant literature and assessed two compliance 
programs--the Clean Development Mechanism (CDM) and the Regional 
Greenhouse Gas Initiative (RGGI)--and five voluntary programs--Climate 
Action Reserve (CAR), Chicago Climate Exchange (CCX), Climate Leaders, 
Gold Standard, and Voluntary Carbon Standard (VCS). We identified and 
interviewed 19 stakeholders from these programs to better understand 
quality issues from multiple perspectives. Stakeholders we interviewed 
included (1) program officials, (2) verifiers, and (3) offset project 
developers. To select a sample of verifiers, we identified seven 
verification firms that worked with at least three of the seven offset 
programs and interviewed representatives from each. To select a sample 
of project developers, we selected the three U.S.-based and three 
internationally based offset developers that had the most projects 
registered with the three largest offset programs in each market. 
Appendix II lists the stakeholders we interviewed and their 

We also selected a nonprobability sample of 13 experts--a group that 
included economists, academic researchers, and specialists in ecology 
and law--based on their knowledge and experience in relevant areas, 
recommendations from knowledgeable persons including agency officials 
and other interviewees, and the relevance and extent of their 
publications. To ensure coverage and range of perspectives, we 
selected experts who had information about key offset types, like the 
agriculture and forestry sectors; came from scientific, technical, or 
economic backgrounds, and provided perspectives from both developing 
offset standards and assessing the quality of offsets. We verified our 
list of experts with other experts that have served on previous GAO 
panels focused on market-based mechanisms to address climate change to 
ensure that we had sufficient expertise. Appendix II lists the experts 
we interviewed, which included agency and international officials and 
researchers. We conducted a content analysis to assess experts' 
responses and grouped the top responses into overall themes. Not all 
of the experts provided their views on all issues, and we do not 
report the entire range of expert responses in this report. Findings 
from our nonprobability sample of experts and stakeholders cannot be 
generalized to those we did not speak to. The views expressed by 
experts do not necessarily represent the views of GAO. To characterize 
expert and stakeholder views, we identified specific meanings for the 
modifiers we use to quantify views, as follows: 

* "Many" represents 6 to 10 experts, and 7 to 15 stakeholders, 

* "Some" represents 3 to 5 experts, and 3 to 6 stakeholders. 

To understand the scope of current and possible U.S. government work 
in carbon offsets quality assurance, we interviewed officials 
responsible for offset-related work at agencies identified as having 
important roles in either existing programs or current legislation. 
These agencies were Energy Information Administration, Environmental 
Protection Agency, Department of Agriculture, and United States Agency 
for International Development. To understand issues related to quality 
assurance in the Clean Development Mechanism (CDM), we met with 
officials of the United Nations Framework Convention on Climate Change 
(UNFCCC), which administers the CDM. We also met with officials of the 
German Federal Environmental Ministry to learn about quality issues in 
the context of the implementation of the CDM on the national level. 
GAO provided a summary of the contents of this report to UNFCCC and 
EPA officials prior to its issuance. 

We conducted our work from April 2010 to February 2011 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 

[End of section] 

Appendix II: List of Experts and Stakeholders: 


John Antle, Oregon State University: 

Michael Gillenwater, Greenhouse Gas Management Institute: 

Alexia Kelly, Department of State: 

Michael Lazarus, Stockholm Environment Institute: 

Jennifer Macedonia, JLM Environmental Consulting: 

Bruce McCarl, Texas A&M University: 

Axel Michaelowa, Perspectives: 

Brian Murray, Nicholas Institute, Duke University: 

Karsten Neuhoff, Climate Policy Initiative: 

Lydia Olander, Nicholas Institute, Duke University: 

Gordon Smith, Ecofor: 

Lambert Schneider, Öko-Institut: 

Michael Wara, Stanford University: 


We interviewed officials from the following organizations: 

Offset programs and standards: 

American National Standards Institute (ANSI):[Footnote 50] 

Clean Development Mechanism (UNFCCC Secretariat and German Federal 
Environment Ministry): 

Climate Action Reserve: 

Climate Leaders (EPA): 

Voluntary Carbon Standard: 

Project developers: 

AgCert International Limited: 

AgraGate Climate Credits Corporation: 


Environmental Credit Corporation: 


World Bank, Carbon Finance Unit: 

Project verifiers: 

Det Norske Veritas (DNV): 

Environmental Services, Inc. 

ERM Certification and Verification Services: 

First Environment, Inc. 

Rainforest Alliance: 

Scientific Certification Systems: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David C. Trimble, (202) 512-3841 or 

Staff Acknowledgments: 

In addition to the contact named above, Michael Hix (Assistant 
Director), Quindi Franco, Cindy Gilbert, Cody Goebel, Tim Guinane, 
Richard Johnson, Erik Kjeldgaard, Jessica Lemke, Susan Offutt, and Ben 
Shouse made key contributions to this report. 

[End of section] 


[1] There are six primary greenhouse gases: carbon dioxide, methane, 
nitrous oxide, and three synthetic gases--hydrofluorocarbons, 
perfluorocarbons, and sulfur hexafluoride. 

[2] This report uses the term carbon offsets to describe offsets 
derived from any of the six primary greenhouse gases. Carbon offsets 
are typically quantified and described in terms of metric tons of 
carbon dioxide equivalent. Carbon dioxide equivalents provide a common 
standard for measuring the warming potential of different greenhouse 
gases and are calculated by multiplying the emissions of the non-
carbon dioxide gas by its global warming potential, a factor that 
measures its heat-trapping ability relative to that of carbon dioxide. 

[3] Although carbon offsets have primarily been considered as part of 
a cap-and-trade proposal, they could be used to limit the costs of a 
variety of programs to limit greenhouse gas emissions. 

[4] The EU ETS, which commenced operation in January 2005, is the 
world's largest greenhouse gas cap-and-trade program. For more 
information on the EU ETS, see GAO, International Climate Change 
Programs: Lessons Learned from the European Union's Emissions Trading 
Scheme and the Kyoto Protocols Clean Development Mechanism, 
[hyperlink,] (Washington, D.C.: 
Nov. 18, 2008). 

[5] CBO, The Use of Offsets to Reduce Greenhouse Gases (Washington, 
D.C.: Aug 3, 2009). According to CBO, this figure includes an estimate 
of the costs involved in an offset program, such as administration 
costs and measures taken to address offset quality, but does not 
provide insight into whether offsets provide the full intended 

[6] See [hyperlink,]; GAO, 
Carbon Offsets: The U.S. Voluntary Market Is Growing but Quality 
Assurance Poses Challenges for Market Participants, [hyperlink,] (Washington, D.C.: Aug. 29, 
2008); and Climate Change: Observations on the Potential Role of 
Carbon Offsets in Climate Change Legislation, Testimony Before the 
Subcommittee on Energy and Environment, Committee on Energy and 
Commerce, House of Representatives, [hyperlink,] (Washington, D.C.: Mar. 5. 

[7] American Power Act (discussion draft), available at [hyperlink,].  

[8] The Kyoto Protocol is an international agreement to limit the 
adverse effects of climate change developed within the United Nations 
Framework Convention on Climate Change (UNFCCC). 

[9] World Bank, State and Trends of the Carbon Market 2010 
(Washington, D.C.: May 2010). 

[10] [hyperlink,]. 

[11] World Bank, State and Trends of the Carbon Market 2010 
(Washington, D.C.: May 2010). Data on voluntary market provided by 
Bloomberg New Energy Finance, Ecosystem Marketplace. 

[12] [hyperlink,]. 

[13] See [hyperlink,], 
[hyperlink,], and [hyperlink,]. 

[14] The farmers earned credits for conservation tillage, an 
agricultural practice that stores more carbon in soil than regular 

[15] One study analyzed documentation from 93 projects that were 
registered from 2004 to 2007, and concluded that additionality was 
questionable in approximately 40 percent of these projects. However, 
the author noted that this figure was based on past performance and 
did not reflect recent improvements to the approval process. See 
Lambert Schneider, Is the CDM Fulfilling Its Environmental and 
Sustainable Development Objectives? An evaluation of the CDM and 
options for improvement (Öko-Institut: Berlin, 2007). Another study of 
222 CDM projects concluded that approximately 26 percent of projects 
in the sample were likely to be non-additional. However, like the 
previous study, this analysis does not reflect recent program 
improvements. See H. W. Au Yong, Investment Additionality in the CDM. 
Technical Paper. Edinburgh, Ecometrica Press (2009). 

[16] CDM officials we spoke with cited a number of recent initiatives 
aimed at improving offset quality while streamlining the approval 
process, including (1) developing further guidelines for 
additionality, (2) simplifying methodologies for measuring emissions 
by identifying superfluous requirements as well as requirements that 
needed further explanation, and (3) various initiatives to improve the 
performance and accountability of verifiers. 

[17] Christopher S. Galik, Daniel Richter, Megan L. Mobley, Lydia P. 
Olander, Brian C. Murray, Climate Change Policy Partnership: A 
Critical Comparison and Virtual "Field Test" of Forest Management 
Carbon Offset Protocols, Duke University, October 2008. 

[18] CDM officials we interviewed said that projects that would be 
viable without offset revenues, such as some wind or hydroelectric 
power projects, could still be legitimately considered additional if a 
more financially attractive option--for example, a coal plant--
existed. The number of credits awarded would be measured against 
hypothetical emissions under the most financially attractive 
alternative (e.g., the coal plant). 

[19] National Crop Residue Management Survey, Conservation Technology 
Information Center. See [hyperlink,]. 

[20] Such incentives may include payments for protecting wetlands or 
preventing soil erosion issued through other government programs. 

[21] The CDM credits these projects based on historic baseline 
emissions of HCFC-22, the refrigerant of which HFC-23 is a by-product. 
Some research contends that refrigerant producers may have inflated 
their base year production levels in order to receive more offsets. 
(See Michael Wara, "Measuring the Clean Development Mechanism's 
Performance and Potential" (Stanford University, Stanford, CA: Jan 20, 
2008)). A 2010 CDM Methodology Panel report was unable to state 
conclusively whether this had occurred, although the report 
recommended that the methodology be further revised to ensure that 
this and related issues do not occur in the future. In January 2011, 
member states participating in the EU ETS voted to ban CDM projects 
that destroy HFC-23 and nitrous oxide, although companies will be able 
to use credits for compliance until April 30, 2013. In a press 
release, the European Commission said that allowing such credits can 
create a perverse incentive to continue to produce or even increase 
production of HCFC-22. 

[22] [hyperlink,]. 

[23] The term uncertainty refers to a description of the range of 
values that could be reasonably attributed to a quantity. An 
uncertainty is often presented as "plus or minus" a percentage of the 
estimate, meaning that the actual value could be either above or below 
the estimate by that amount with a certain degree of confidence. 

[24] Specifically, researchers have used a variety of techniques to 
estimate leakage from different offset project types and activities 
that are similar to offsets. The estimates vary widely depending on a 
number of factors such as the geographic scope where leakage is 
considered, the location and type of project that is modeled, and 
other modeling choices. Results of the studies we examined ranged from 
less than 0 to 95 percent of targeted activities moving to other 
locations. See B. Sohngen and S. Brown, "Measuring Leakage from Carbon 
Projects in Open Economies: a Stop Timber Harvesting Project in 
Bolivia as a Case Study" Canadian Journal of Forest Research 34: 2004, 
p. 829-839; D. Wear and B. Murray, "Federal Timber Restrictions, 
Interregional Spillovers, and the Impact on U.S. Softwood Markets" 
Journal of Environmental Economics and Management, 47(2): 2004. 307-
330; EPA, Greenhouse Gas Mitigation Potential in U.S. Forestry and 
Agriculture, EPA 430-R-05-006 (Washington, D.C.: November 2005); J. 
Wu, "Slippage Effects of the Conservation Reserve Program" American 
Journal of Agricultural Economics, 82 (November 2000): 979-992; 
Jianbang Gan and Bruce A. McCarl, "Measuring Transnational Leakage of 
Forest Conservation," Ecological Economics, 64(2):February 23, 2007: 
423-432; and B. Murray, B. McCarl, and H. Lee, "Estimating Leakage 
from Forest Carbon Sequestration Programs" Land Economics 80(1):2004, 

[25] See [hyperlink,]. 

[26] According to the Intergovernmental Panel on Climate Change, about 
50 percent of emitted carbon dioxide will be removed from the 
atmosphere within 30 years, and a further 30 percent will be removed 
within a few centuries. The remaining 20 percent may stay in the 
atmosphere for many thousands of years. 

[27] We use the term verification to refer to both the initial 
assessment of whether a project conforms to a program's requirements, 
sometimes called a validation, as well as the assessment of emissions 
reductions calculations. 

[28] Offset buyers may have an interest in the quality of offsets that 
they purchase if they are held liable for the quality of offsets they 
have purchased under a given program, often termed buyer liability. 

[29] Lambert Schneider and Lennart Mohr, 2010 Rating of Designated 
Operational Entities (DOEs) Accredited Under the Clean Development 
Mechanism (CDM), Report for World Wildlife Fund, (Berlin: Öko-
Institut, July 28, 2010). 

[30] Third-party verification firms must be accredited by the CDM. 

[31] Avoided deforestation projects aim to preserve forestlands by 
establishing contracts, easements, or other legal instruments to 
ensure that a site is not cleared of its timber. 

[32] CDM requires one verification, called a validation, when an 
offset project is approved and registered, and a verification of the 
resulting reductions before offsets are issued. For comparison, the 
median registered CDM project expects to receive 213,000 tons of 
offsets through 2012. In 2009, the average price of CDM offsets was 
$16.6, and at those prices, the median registered CDM project would 
generate about $3.5 million in offset revenues. (See World Bank, State 
and Trends of the Carbon Market: 2010 and United Nations Environment 
Programme Risoe Centre, CDM Pipeline Overview (Denmark: [hyperlink,], downloaded Jan. 24, 2011). However, CDM 
officials noted that verification costs can be substantial for smaller 
offset projects. 

[33] These sources may also be addressed outside of an offset program. 
For example, emissions from many of these sources were excluded from 
offsets in the American Clean Energy and Security Act, which instead 
regulated these sources. EPA's analysis of the American Power Act is 
available at: [hyperlink,

[34] The Use of Agricultural Offsets to Reduce Greenhouse Gases. 
Statement before the Subcommittee on Conservation, Credit, Energy, and 
Research, Committee on Agriculture, U.S. House of Representatives 
(2009), of Joseph Kile, Assistant Director for Microeconomic Studies, 
Congressional Budget Office. Estimates are based on the offset 
provisions of the American Clean Energy and Security Act of 2009 (H.R. 

[35] However, policymakers internationally are now considering the 
inclusion of reduced emissions from deforestation and degradation 
(REDD) in UNFCCC climate agreements. 

[36] Specifically, the Climate Action Reserve found that less than 1 
percent of livestock operations used methane gas collection systems 
and that the main reason for this was that they were not commercially 
attractive without offset revenues. See Climate Action Reserve, U.S. 
Livestock Project Protocol V3.0 (Los Angeles, Calif.: Sept. 29, 2010). 

[37] These experts stressed that such estimates are uncertain and 
depend on the design of an offset program. See Peter Erickson, Michael 
Lazarus, and Alexia Kelly, "The Importance of Program Design for 
Potential U.S. Domestic Greenhouse Gas Offset Supply" (accepted for 
publication in Climate Policy, 2011). 

[38] Specifically, forestry projects that have error rates of plus or 
minus 20 percent. 

[39] According to CDM officials, this process effectively assumes that 
the carbon has been released after a certain period but offers a way 
to extend the compliance value of the offset if no reversal has 

[40] While the CDM allows forestry activities, the EU ETS does not 
allow CDM credits from these activities to be used for compliance with 
its emissions caps. As a result there has been little demand to date 
for forestry projects in the CDM, and the market for temporary credits 
is small. 

[41] According to some program officials, an alternative option is to 
enforce liability provisions only in the case of intentional 
reversals, while having the program administrator take on the role of 
replacing unintentional reversals through a buffer pool. 

[42] Ten percent of a project's buffer is released every 5 years if 
the project is reverified and has the same or lower risk profile. A 
periodic "truing-up" ensures that total portfolio losses over time are 
covered by the buffer pool. 

[43] For example, under the CDM, if excess offset credits are issued 
based on a deficient third-party verification, and certain other 
conditions are met, the third-party verifier must acquire and transfer 
an amount of reduced tonnes of carbon dioxide equivalent equal to the 
excess credits issued to a cancellation account maintained in the CDM 
registry by the Executive Board. 

[44] One aspect of the VCS does involve program administrators 
choosing verifiers. When a new methodology describing an approach to 
monitoring, determining a project's baseline, and other provisions is 
submitted for approval, it gets verified twice--once with a verifier 
chosen by the project developer, and a second time with a verifier 
chosen by program staff. This is a distinct step from verifying an 
individual offset project. 

[45] CBO, The Use of Offsets to Reduce Greenhouse Gases (Washington, 
D.C.: Aug 3, 2009). 

[46] American Power Act (draft bill), §§ 721(e)(1), 722(d)(1) 
(available at [hyperlink,]). In subsequent 
years, the offset limit would have stayed flat while the overall 
emissions cap would have generally declined, meaning that offsets 
would comprise a larger share of the cap over time. 

[47] Under RGGI, each source may cover up to 3.3 percent of its total 
reported emissions in a compliance period with offsets. According to a 
state official, this 3.3 percent metric is generally equivalent to 50 
percent of projected avoided emissions required by the program through 

[48] According to UNFCCC officials, soil sequestration can be taken 
into account in forestry projects, but agricultural soil projects are 
not allowed. 

[49] In other words, because the incremental cost of a non-additional 
offset is zero (compared with the baseline), suppliers would 
presumably be willing to sell these offsets at relatively low prices, 
potentially reducing the number of additional offsets. 

[50] ANSI coordinates U.S. participation in the International 
Standards Organization's (ISO) international standard-setting process. 
This is the process where the climate-related ISO standards were 
developed, 14064-1, 2, and 3 and 14065. In the United States, ANSI is 
an accreditation body and accredits verifiers for different offset 

[End of section] 

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