Drawing: the Indian treadle pump backed by Climate Care

Climate Care, the leading UK carbon offset company, has had an eventful few weeks. A few days after receiving an unexpected visit from climate activists who presented management with a basket of red herrings, the company put out a press release claiming that it would offset 1% of the UK's total carbon emissions next year. In sixty projects around the third world, Climate Care claims that it will reduce emissions in 2008 by 6m tonnes, or ten times as much as it has done this year. It is claiming spectacular growth rates. Continuous critical attention from newspapers and sceptical greens does not appear to have dented Climate Care's prospects one iota.

The core problems with offsetting are two-fold:

guaranteeing additionality (ensuring that the investments in carbon reduction wouldn't have happened anyway)
verifying the reductions.

Climate Care fails on both of these two important issues. Though Climate Care is getting increasingly tetchy with its critics, the blunt truth is that the company simply doesn't deliver genuine and quantifiable cuts in emissions. Increasingly, it works as an international development agency rather than as a business balancing one person's emissions with a reduction in another's. Climate Care may do a lot of good around the world, but it doesn't cut carbon dioxide emissions in a reliable or auditable way.

Why then have brands such as Land Rover, the Co-op, British Airways and Barclays linked up with this company? The reasons must include that Climate Care may be the best of the offsetting bunch. The big brands are sensitive to the need to show that they are 'doing something' about emissions. Climate Care isn't damaging the world, and so any connection with the company will not harm these companies. But unless the offsetting industry changes radically, it is eventually going to be discredited. A large company used to high financial reporting standards should not regard Climate Care's auditing standards as remotely acceptable.

The idea behind offsetting In Western countries, emissions reduction can be difficult, expensive or inconvenient. For example, air travel is an important part of modern business. It is proving difficult for companies to reduce the number of flights. Similarly, leisure travellers are generally unwilling to stop using airplanes. The offset company tries to deal with this problem by taking a payment from the traveller and promising to use the money to reduce emissions somewhere else in the world by an amount equivalent to the emissions from the flight.

Offset companies contend that reducing emissions in the less developed parts of the globe is much less expensive than trying to do it in the UK. And, the companies say, the UK is already bound to reduce emissions because of international agreements such as Kyoto. So if offset monies were spent in the UK, other British polluters would have the freedom to emit more.

Offset companies tend no longer to use tree-planting as a mechanism for offsetting. There are too many concerns about whether this genuinely reduces emissions. Instead they tend to focus on projects that cut energy use in the poorest countries.

The basic idea behind offsetting is unexceptionable: it clearly makes sense to focus efforts on reducing emissions in places where the cost of cutting carbon is low. The problems with offsetting, and they are very considerable, largely arise because cutting these emissions is so cost-effective that the cuts would have happened anyway.

The Climate Care business Climate Care has been in business for a decade but growth was slow until recent months. By January of this year it had sold a total of about 400,000 tonnes of offsets, or put another way, about 0.06% of one year's UK emissions. Sales this year have rocketed. It reports that by August 2007 it had sold 1.55m tonnes, though it had only delivered about a million tonnes of these offsets. This is an important and little understood point. Climate Care runs a bank of sixty or so projects. When a customer buys an offset, there isn't an immediate and corresponding flow of new funds into one of these projects. The company now has a reasonably substantial net liability – it has taken more money than it has put into projects around the world.

Climate Care is a company that aims at making money for its shareholders. It takes money from customers, makes a margin, and then tries to put the money to work in projects that reduce emissions somewhere else in the world. Most of its projects are well away from the international business itinerary or tourist track. There aren't many people who are going to visit Climate Care's new hydro-electric dam in Tajikistan. This is part of the problem: no one will ever really be able to tell whether its work has actually reduced emissions below what they would have been anyway.

What should offsetting actually do? A good offsetting company should be like a firm of reliable Midlands accountants. When they say 1 tonne of carbon dioxide is being avoided somewhere in the world, you should feel confident that this is exactly what is happening. When the consumer hands over £14 to cover the sin of travelling to Africa by air, he or she wants boring and responsible people to invest exactly this amount of money in a project that will reliably reduce emissions by precisely two extra tonnes.

Whatever the rights and wrongs of offsetting, this never, ever, happens. Offsetting companies plough money into worthy projects around the world but there is very little evidence whatsoever that this has any direct impact on emissions.

Good offsetting should have two vital characteristics:

the money going in to the project should be additional to other sources of funds and make a genuine difference
the emissions reductions should be verifiable.

As far as I can see, no offsetting projects really deliver these two attributes. Let's briefly look at one of Climate Care's flagship projects – human powered irrigation pumps in India. We should be absolutely clear that these pumps are almost certainly useful and effective. Our complaint is that it is unclear how Climate Care's contribution is either additional or verifiable.

The project In many parts of eastern India and Bangladesh, the water table is close to the surface. Unirrigated land can only produce one crop a year from the monsoon rains; but extract water from the water table, and the farmer can get two or three crops. Food production is increased, and rural incomes are improved. Provided that the water extraction doesn't deplete or salinate the water supply or increase its arsenic content, irrigation is undeniably a very good thing.

Some years ago, a local enterprise invented a simple foot operated pump that could be cheaply installed and which allowed small farmers to irrigate their land. About half a million have now been put into use and thirty thousand new pumps are being put in the ground every year. The alternative is either not to irrigate the land or to use an expensive diesel-powered pump. There's no question that these simple human-powered pumps are a good idea. But it is completely unclear how Climate Care could claim that any money it gives to treadle pump projects could possibly be additional.

Here's a paragraph from the citation of an award given to the Indian developers of the pump:

The cost of a treadle pump and tube well is about Rs 1,200 to 1,300 (£14 to £15), and farmers pay the full cost to the retailer. IDEI (the original developer of the pump) raise awareness among farmers about micro-credit facilities, buy-back arrangements and self-help groups. However, it is generally not a problem to borrow money, because people know that a farmer with enough land to benefit from a treadle pump will be able to repay the loan. In addition, IDEI requires dealers to offer 120 days' credit to farmers, so that farmers have time to harvest and sell their first crop before they have to pay for the pump.

So, the rational farmer doesn't need Climate Care money to install a pump. If there is water under the ground, then it makes sense to buy a treadle pump. Full stop. The incentives are already there and Climate Care is overcoming no obstacles.

But Climate Care's claim is somewhat different. It says that the treadle pump replaces a diesel pump, thus saving carbon. This is a very strange proposition. The cost of the diesel to power a pump for a year is estimated at well over £200 and the hire of a pump at least another £50. No impoverished farmer could possibly pay these sums and the increased value of the crop wouldn't generally warrant the expense.

Climate Care also claims to be making a difference to by extending the use of the treadle pump to new and very poor areas. This may very well be true, but it doesn't result in emissions reductions. The people there could not possibly afford the very significant cost of fuel. It is impossible to verify that any emissions reductions would actually result from Climate Care's money.

The lesson? Don't give money to offsetting firms, who will use much of it to run their operations and and make a profit, give it directly to the charities in the third world instead. But, unfortunately, do not assume that your gift will actually reduce emissions.