How does carbon offsetting work with the EU Emissions Trading System?

Translated by Emma Finney

There are many ways to offset CO2 emissions, including the financing of new wind turbines in the global south. But there are more effective measures closer to home. Why is it important to do offsetting projects here in Europe?

For one thing, when working in the global south, the compensation measures usually don’t go into effect in the place where the CO2 has been emitted. It’s additionally unclear if the countries where the projects are done can also count the reduction in admissions for themselves under the Paris agreement, which would lead to double counting. Offsetting projects in developing countries were started with the Kyoto Protocol. At the time these countries had no climate goals, but they do have them now under the Paris Agreement, giving them an incentive to additionally count the offsetting for themselves.

At the 26th Climate Change Conference in November, there was finally an agreement on how past and future emission reductions can be counted and traded internationally. According to this decision, old CERs (Certified Emission Reductions under the Kyoto Protocol) may be converted into ITMOs, or “International Transferred Mitigation Outcomes”. Unfortunately, the practical implementation of trading and crediting the future units of ITMOs is still unclear.

Ideally all CERs should have been cancelled in order not to dilute the Paris climate targets. This is because what counts in the end is not the balance on paper, but instead how many carbon emissions are actually in the atmosphere.

Carbon compensation in Europe

What can you do if you want to offset and reduce greenhouse gasses here in Europe? Why can’t you finance new wind turbines like in developing countries to reduce CO2? In the EU there is a Cap and Trade System. This system limits emissions from the energy and industry sectors as well as the aviation sector and will soon limit emissions from other sectors as well. To lower the emissions in one of these sectors in the EU, you have to work with the EU Emissions Trading System.

In order to emit a ton of the carbon equivalent CO2e you have to buy an emissions allowance. The emissions allowances are auctioned weekly on behalf of governments and can then be freely traded.

What would happen if you tried to finance new wind turbines in Europe through CO2 compensation? The CO2 emissions in the energy sector would decrease. But the cap on emissions trading would stay the same. The emissions allowances that aren’t used by the energy sector can still be used by other sectors. The goal to reach a European-wide reduction in CO2 emissions through offsetting doesn’t work with the financing of new wind turbines.

Of course renewable energy must be financed. Emissions trading should be used for the goal of reducing the carbon emissions in the EU. Luckily the EU has already implemented emissions trading so it can also be used for climate protection. It’s possible to buy EU emissions allowances and then delete them unused as a way of directly lowering the cap. The tons of carbon that would be allowed to be released with the emissions allowance will simply no longer be released. The market decides where exactly in the economy the emissions will be reduced.

The EU flag

Triply effective CO2 compensation

When an emissions allowance for the compensation of CO2 emissions is sold, this has a triple effect:

  1. The CO2 emission in the EU will decrease by a ton of CO2 with every emissions allowance sold.
  2. The price of emissions allowance will increase due to the scarcity. Climate friendlier technologies will become more profitable than climate damaging ones.
  3. The emissions rights are auctioned off by the state. The money that Germany, for example, earns, goes to an energy and climate fund. It is used to fund research and climate protection in sectors that are not yet covered in emissions trading, including building renovation and electric vehicles.

Another big advantage of the offsetting using EU emissions trading is the use of a very secure, existing system. In the global south a lot of project budget goes to certification. Additionally regular travel is necessary to make sure the wind turbines are being used and to what extent, and this travel also creates emissions. In the case of compensation using EU emissions trading the inspection mechanisms are already included in the system. And when you choose a nonprofit provider like ForTomorrow for the compensation, your donation is tax deductible.

On our account you can see the number of emissions allowances (EUA) that we at ForTomorrow have withdrawn from the market for our climate subscribers since the start in March 2020.

Our ETS account statement showing 2721 emission rights
On our account you can see the number of emission rights (EUA) that we at ForTomorrow have withdrawn from the market for our climate subscribers since the start in March 2020.

European emissions trading offers an effective tool for carbon offsetting. With ForTomorrow you can help reduce the CO2 emissions in the EU and directly promote climate protection.