Companies Are Buying Large Numbers of Carbon Offsets That Don’t Cut Emissions

With the boom in renewable energy, many of the credits that trade hands merely represent a transfer of money from one profitable enterprise to another, critics say

By Shane Shifflett of The WSJ. Excerpts:

"With its 34 turbines perched on a hill in southwestern India, the Tuppadahalli wind farm generates green energy—and profits.

The wind farm and three others in India are owned by Acciona SA, an €8.1 billion Spanish infrastructure conglomerate which held an IPO of its renewables business last year. Tuppadahalli is performing so well that an Indian credit-ratings firm upgraded it, citing its strong cash position, modest debt and long-term contracts to sell the energy.

Under the standards set by a 21-year-old United Nations program, however, Tuppadahalli is considered a toddling startup that still needs regular infusions of cash to stay in business. This means it can benefit from a large and growing global market in so-called voluntary carbon credits set up to allow corporations to offset their own greenhouse-gas emissions by funding mitigation projects in other parts of the world.

Last year, Delta Air Lines Inc. bought nearly 300,000 credits from Tuppadahalli for an undisclosed price, representing about 300,000 metric tons of carbon output that would have been added to India’s air pollution had the wind farm’s energy production come instead from traditional power generation. This allowed Delta to get closer to its pledge to curb its own emissions without taking drastic actions to overhaul its existing operations, such as switching away from jet fuel or grounding planes.

Transactions like this undercut the basic concept behind carbon offsets—that they should fund green projects that wouldn’t be possible without the additional cash they bring. Now that renewable energy can stand on its own financially, some investors, researchers and government regulators say companies buying these credits are just transferring cash to other established companies. They say the old U.N. program, which spawned thousands of similar projects and makes up a large chunk of the market for offsets, is draining money from newer initiatives that need it more, such as experiments in capturing carbon directly from the air.

The end result is that companies looking to offset their emissions are buying credits in vast numbers that do little to help neutralize their carbon output."

"China has struggled to use its wind power, which means in practice the credits did little to offset carbon emissions. Some turbines weren’t connected to the power grid and others couldn’t sell electricity as grid operators rejected wind energy in favor of traditional fossil-fuel sources"

"In 2011, Spain’s Acciona applied to the U.N.’s CDM program to create and issue carbon credits from a string of wind farms it was building in India. Construction on the Tuppadahalli wind farm began in 2010 and the next year it was ready to generate electricity, according to Acciona news releases. In 2012, the project was approved by the U.N. to issue credits based on an assumption the clean electricity generated from wind would annually displace an average of 129,000 tons of CO2 by reducing reliance on fossil fuels.

Researchers from Georgetown University, the University of Virginia and the London School of Economics faulted such reasoning. The researchers identified 265 Indian wind-farm projects, including Tuppadahalli, that they said likely should have been denied approval because similar projects were profitable without the sale of carbon credits."