GAO Faults 'Credibility' Of CO2-Offset Market

By STEPHEN POWER


WASHINGTON -- The growing U.S. market for carbon offsets -- vouchers that let companies and individuals project an environmentally friendly image by paying others to cut their greenhouse-gas emissions -- is so opaque and loosely regulated that it offers consumers "limited assurance of credibility," according to a federal audit.
The report, expected to be published on Friday, stops short of recommending new regulations. But it suggests members of Congress think carefully before letting companies use offsets as a means of complying with legislation to control carbon-dioxide emissions, which are not currently regulated by the U.S. government.
Estimates vary on the size of the U.S. offset market, with some analysts putting the value of U.S. carbon offsets traded in 2006 at $91.6 million, an amount expected to grow sharply as more companies and individuals seek to lighten their impact on the atmosphere, or at least appear to be trying. Some companies are also betting the offsets they buy now will count toward their obligations under a future mandatory U.S. emissions-reduction system.
As purchases of voluntary offsets have soared in recent years, so have questions about whether money being spent on them funds real emissions cuts. Such offsets, which are often bought by consumers from online sellers, are supposed to represent emissions avoided through projects such as installing wind turbines or planting trees. Skeptics -- including some members of Congress -- have questioned how consumers can know in the absence of federal regulation whether such cuts are actually being implemented, or would have happened anyway.
While the findings of the Government Accountability Office, an investigative arm of Congress, are generally consistent with those criticisms and don't break new ground, they could help influence the design of whatever mandatory program for curbing greenhouse-gas emissions emerges from Washington.
The report says that in purchasing offsets from 33 retail providers, the GAO "did not always obtain sufficient information to understand exactly what we received as a result of the transaction." Because there is no single registry for keeping track of offset projects -- and ensuring that projects are not counted multiple times -- "it is difficult for consumers to determine the quality of the offsets they purchase," the report says.
Some kinds of offsets also are more credible than others, the auditors added. Planting trees, for example, "may not be permanent, because disturbances such as insect outbreaks and fire can return stored carbon to the atmosphere."
The report doesn't call for specific new regulations for the voluntary U.S. market. Instead, it suggests that if lawmakers decide to allow offsets in a mandatory scheme for reducing carbon emissions, they should consider setting clear rules on the types of projects that companies can use and a registry for tracking the creation and ownership of offsets.
Some of the GAO's other findings are likely to add fuel to a long-simmering conflict between Democrats and Republicans over the way that House Democratic leaders have gone about trying to make the Capitol's operations more environmentally friendly. The report finds that because of an error, the House chief administrative officer, Daniel Beard, last year bought $24,447 more offsets than were needed under a broad effort by Democrats to reduce the House's carbon footprint.
"In our rush to demonstrate our green bona fides, we failed to remember our No. 1 mission -- to safeguard the public's money," said Rep. Tom Davis (R., Va.). A spokesman for Mr. Beard acknowledged the error but said the additional credits are in an account with the Chicago Climate Exchange, a voluntary greenhouse-gas reduction and trading system whose members commit to cutting their emissions. The extra credits, the spokesman added, will be used to reduce the House's carbon footprint in 2009.
"We regard the over-purchase as an investment in future attempts to offset our emissions," the spokesman added.
Write to Stephen Power at stephen.power@wsj.com