Drivers atone for exhaust with carbon offsets

As a business and fundraising consultant, Pat Castleman drives about 1,000 miles a month. So when the Mill Valley, Calif., resident heard that she could "neutralize" the greenhouse gas pollutants emitted by her new Infiniti sedan, she jumped at the opportunity.

By signing up with DriveNeutral, a nonprofit launched in October by students at the Presidio School of Management in San Francisco, Ms. Castleman was able to calculate her "climate change footprint," using simple online calculators. To neutralize that footprint, she bought greenhouse-gas emissions reductions, also known as "carbon offsets." Castleman paid $25 to compensate for about five tons of carbon emissions a year - plus a DriveNeutral decal proclaiming her vehicle's carbon-free status.

"I always feel slightly guilty when I'm driving around the Bay Area," says Castleman. "This seemed like a great way to contribute until we can develop alternative energy."

Although the United States is not a signatory of the Kyoto Protocol, an international treaty that imposes mandatory greenhouse-gas reductions beginning in 2008, a growing number of cities, states, and businesses are developing market-based programs to buy and sell pollutants that contribute to global warming. These initiatives include underwriting clean energy technology or purchasing carbon offsets generated by planting forests or recapturing methane gas released from cow manure.

DriveNeutral and its competitors signal a new, consumer-oriented approach to the fledgling greenhouse-gas emissions market. But although most climate-change analysts support the concept of buying individual offsets, they are quick to point out the pitfalls.

"It's 'buyer beware,' " says Mark Trexler, president of Trexler and Associates, a climate services company in Portland, Ore. Without a government-imposed cap on emissions, he says, it's difficult for consumers to know if the pollution reductions they paid for actually took place.

DriveNeutral compensates for pollution from a person's car by participating in a voluntary emissions trading market called the Chicago Climate Exchange (CCX). The 130 corporations, nonprofits, and governments on the exchange are legally bound to achieve annual reductions in carbon dioxide emissions, either by reducing them internally or by buying "emissions credits" from companies that have exceeded reduction targets.

Individual buyers cannot participate in the CCX. But because DriveNeutral is an associate member, it buys blocks of credits and divides them into increments tailored to fit the ecological footprint of an individual automobile. The $25 Castleman paid to offset her Infiniti reflects the current price of carbon, about $1.50 per metric ton.

After purchasing emissions credits, DriveNeutral takes them off the market.

"We intervene, and the overall pool of allowable credits goes down," says CEO Jason Smith. As a result, CO2 emissions decline, while market demand for credits increases, he says.

Over the past two months, DriveNeutral has claimed 600 metric tons in CO2 reductions through 125 car certifications. A for-profit competitor, TerraPass, launched by students at the Wharton School of Business in Philadelphia last year, cites 19,000 tons in CO2 reductions and 2,500 certifications. Carbonfund, a nonprofit that offsets home, office, and transportation emissions, boasts 37,000 tons in reductions.

DriveNeutral's strategy is similar to that of the American Lung Association, which buys and retires blocks of credits on the sulfur dioxide (SO2) emission market. (It's a program that went into effect in 1995 to curb pollutants responsible for acid rain.) But unlike the SO2 market, participation in the CO2 market is voluntary. That's a million-dollar difference, analysts say.

Retail offsets teach consumers about their carbon footprint, says Michelle Manion, climate energy team leader for Northeast States Coordinated Air Use Management. "But there are no established rules for offset projects," she says. In many cases, CCX companies accumulate credits from emissions reductions projects that would have taken place anyway, Ms. Manion says.

For example, a company can earn credits simply by replacing outdated technology or by contributing to wind energy farms already subsidized by federal incentives.

Emissions retailers say they understood the challenges of pioneering a new market. TerraPass uses third-party verification to ensure projects follow "strict rules for additionality," says CEO Tom Arnold. Under the Kyoto Protocol, "additionality" refers to emissions reductions that happen in addition to those occurring under a "business as usual" scenario.

Mr. Smith says DriveNeutral's long-term goal was to build a viable carbon-emissions market. "The availability of low-hanging fruit will quickly diminish," he says.

Easy-to-implement credits stimulate trading, says Melissa McHenry, spokeswoman for American Electric Power, a CCX founding member. "The whole premise is that you can achieve environmental benefits at the least cost." Through a combination of carbon sequestration and power-plant efficiencies, AEP reduced emissions from 166.4 million metric tons to 147.4 million in 2004. Ms. McHenry declined to comment on credits the company had bought or sold on the exchange.

Since its launch in 2003, CCX has traded 4 million tons of CO2 with a value of $8 million. The European Union, which is preparing for mandatory emissions-reductions targets under Kyoto, traded 230 million tons of CO2 in 2005 alone, with carbon selling at $26 a metric ton.

Enterprises such as DriveNeutral aim to respond to federal inaction on global warming, says Ron Nahser, provost for the Presidio School of Management. "We see the potential for a grass-roots movement on the most pressing problem of our time."