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Les Leyne: Questions remain about carbon offsets

At the heart of auditor general John Doyle’s report on carbon neutrality are two completely different projects that at first glance have nothing to do with each other.

At the heart of auditor general John Doyle’s report on carbon neutrality are two completely different projects that at first glance have nothing to do with each other.

The one thing they have in common is that they were the final destination for public money that flowed through a transaction that’s supposed to make the public sector carbon-neutral.

Emissions from the entire public sector are tallied and assigned a value. Public bodies pay into a clearing house — the Pacific Carbon Trust — at $25 per tonne (800,000 tonnes in 2010). The PCT then pays money out to private projects where emissions are being curtailed. The deals are done on the basis that the reductions are verified, and are over and above the normal course of business. An emission-reducing project that would have happened anyway doesn’t count.

That’s where Doyle said the two projects — which make up 70 per cent of the offsets bought so far — came up short. One is a drilling refinement used by Encana near Fort Nelson.

The other is the preservation of the 55,000-hectare Darkwoods forest in the Kootenays.

Doyle acknowledged that proving the projects are worthy is one of the most challenging aspects of offsetting programs. He also noted the offset market is relatively young and the concepts are quite complex.

He said both projects started without showing the crucial proof that they needed funding from the PCT in order to proceed.

The environmental basis for the Encana project was that if it didn’t go ahead, there would be continued gas-well flaring, with resulting emissions. But Doyle found that assumed baseline wasn’t appropriate. And the project made economic sense for Encana regardless.

Offsets should not pay companies to do what they had a solid business case to do already under the rules, Doyle said.

The Darkwoods forest was purchased by the Nature Conservancy, and the offsets weren’t a critical factor, he said. The premise was that if the forest weren’t conserved, it would have been logged for maximum financial return.

So preserving it eliminated potential CO2 emissions, which was worth carbon-offset credits.

The offset value was the difference between the emissions through wholesale logging and the emissions with preservation.

But Doyle found the whole premise flawed. The “liquidation logging” was never a realistic prospect. Any logging would have been constrained by law. The conservancy was legally obligated to conserve the forest as soon as it bought it, in any event.

So the project overestimated the emission reduction and overstated the carbon offsets, he said.

Doyle said the PCT was not a prudent purchaser of offsets in that case. The trust did note that the logging scenario — what it called the “rape and pillage” option — wasn’t very conservative. But it didn’t adjust the calculations. Doyle faulted it for a lack of skepticism and common sense. “PCT’s main concern seemed to be with justifying that rules were adhered to, and less in assessing whether the results made sense.”

The trust paid $4.5 million to the Darkwoods project and $1.6 million to the Encana one. Doyle said it overpaid Darkwoods. The pricing system was 80 per cent higher than the average global price for similar projects.

It all adds up to a critical slap delivered to an innovative program.

It feeds into widespread skepticism about schools and hospitals having to fund corporations’ greening efforts. The extraordinarily bitter argument that ran through the audit further inflamed the reaction.

But Doyle noted B.C.’s version of carbon offsets isn’t the only one with problems. A study of one of the biggest programs in the world found 40 per cent of the projects looked pretty iffy.

The PCT responded by citing multiple levels of verification and certification by independent bodies on each of the projects in question. The warfare between those validators and Doyle’s audit team got a lot of attention.

Somewhere in all the fallout there’s a question of whether offsetting in general is a valid concept.

It held a lot of promise and still has a lot of believers. But it’s caught up in a political storm and it will take an election to determine the outcome.