House Carbon Offsets Merit Scrutiny, Lawmakers Say

By Monisha Bansal | July 7, 2008 | 8:23 PM EDT

( - As part of House Speaker Nancy Pelosi's "Green the Capitol" initiative, the House of Representatives bought $89,000 worth of carbon credits in November. House Republicans, however, want more oversight for what they see as a program subject to "deception, waste and fraud."

In announcing the initiative in June 2007, Pelosi said buying carbon offsets would balance out about 24,000 tons of carbon emissions from House operations. "Offsets are credits that are purchased -- in this case, from the Chicago Climate Exchange (CCX) -- to offset carbon emissions through investment in other U.S.-based environmentally friendly projects," the California Democrat noted.

In other words, to supposedly offset or mitigate the 24,000 tons of carbon emissions from the U.S. House, the money is spent to invest in "green" industries that do not produce 24,000 tons of carbon emissions.

Daniel Beard, chief administrative officer of the House, also said he welcomed efforts by the Government Accountability Office (GAO) to examine whether the carbon trading marketplace is "mature enough to substantiate the spending of taxpayer dollars on offsets."

"Oversight and built-in controls of the carbon trading system are needed -- primarily because this evolving marketplace could serve a critical role in helping government organizations and private sector companies have a positive impact on the environment in their efforts to operate in a carbon neutral manner," he said in a statement.

"A regulated carbon exchange market would allow those organizations interested in reducing their carbon footprints to do so without being concerned their investment was not soundly spent or that the legitimacy of an offset purchase would come into question," Beard added.

A November 2007 report by the Congressional Research Service, noted that, "Due to the lack of common standards, some observers have referred to the market as the 'wild west,'" though the report also said "this does not suggest that all carbon offsets are low quality, but that the consumer must necessarily adopt a buyer-beware mentality when purchasing carbon offsets. This places the responsibility on consumers to judge the quality of carbon offsets."

Reps. Joe Barton (R-Texas) and John Shimkus (R-Ill.) wrote a letter to the GAO requesting further investigation into carbon credits.

"Businesses in the United States have been increasingly marketing carbon offset programs and related credit schemes," they wrote.

"With sales expected to increase steeply in coming years, plus the mounting potential for government mandates that would intensify such activity, we are troubled by the potential lack of integrity in the offering of services and products that are difficult for their buyers even to observe, never mind possess," they added.

"These seem to be essentially good-faith transactions in which all the burden is on the customer to sort out the honest promoters from the cheats," they said. "To our knowledge, no proven safeguards against fraud and deception presently exist, making the carbon offset market a ripe target for hucksters.

"It is critical that Congress have full information about the functioning and effectiveness of these programs, both for its consideration of energy and environmental policy, and so that it can minimize any risk to the public of deception, waste and fraud," they said.

Beard, however, noted that the "House's decision to purchase and retire credits on the Chicago Climate Exchange was the right decision and it was made after careful review by all the relevant committees. The decision was directed by the House leadership, and approved by the authorizing and appropriations committees."

While CCX did not return requests for comment, Richard Sandor, chairman and CEO of CCX, said in a statement: "We are pleased to have the Chicago Climate Exchange provide a price transparency mechanism through this auction service to U.S. House of Representatives as part of its 'Greening of the Capitol Initiative.'

"The U.S. House of Representative's purchase of CCX Carbon Financial Instrument contracts highlights the contribution to climate change solutions being made by renewable energy providers, farmers, foresters, ranchers, and others, located across the United States, who are also helping build the environmental and financial institutions that can cost-effectively help address environmental concerns for generations to come," he added.

Environmental groups have also been critical of CCX. A coalition of 19 public interest and environmental advocacy groups advised against joining the Chicago Climate Exchange in a 2006 letter.

The coalition said CCX has "loopholes that do not warrant government support."

"Various loopholes - such as allowing companies to exempt emission from new units - could allow companies to meet their greenhouse gas emissions targets on paper without actually delivering new emission reductions, above and beyond the business-as-usual scenario," they wrote.

"Such provisions allow CCX to 'comply' with their emission caps even if, in reality, they are emitting far more pollution than is permitted by the cap," they added.

"We are not confident that CCX offset investments will deliver real greenhouse gas reductions that compensate for the extra emissions allowed at CCX facilities. The CCX rules do not include an 'additionality' requirement that would ensure that they deliver environmental benefits above and beyond the business as usual scenario," they wrote.

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