Making Carbon Credits Count: World Energy Upgrades Green Exchange Marketplace

7/30/09Follow @wroush

If you worry about contributing to global warming–and who doesn’t?—there’s more than one way to go green. You can take actions to reduce your carbon footprint,which, for a big company, might mean doing things like building a LEED-certified office building or buying hybrid vehicles for your corporate fleet. Or you can buy carbon offsets, also known as carbon credits, which allow you to cancel out your own emissions by paying someone to take action that reduces or avoids carbon dioxide emissions somewhere else. Many utilities and other companies are legally required to purchase such offsets to meet “renewable portfolio” standards, and thousands more organizations and individuals do so voluntarily.

For cleantech entrepreneurs around the world, selling carbon offsets has become one of the major ways to finance green-energy projects. But there’s a problem: it’s not always easy to know whether a given offset is real—that is, whether it truly brings about new reductions in carbon emissions, or whether it subsidizes carbon-saving activities that were already underway. The national media have had a field day exposing examples of so-called “rip-offsets,” carbon offsets that turn out to have no “additionality,” to use the green energy jargon. The Washington Post, for example, ran an expose in 2008 charging that some of the $89,000 spent that year by the U.S. House of Representatives on carbon offsets for House office buildings went for no-till farming projects in North Dakota (the practice leaves more carbon trapped in soil than regular plowing) that farmers would have pursued anyway because they save fuel and increase crop yields.

Carbon credits would be one of the major commodities traded under any national cap-and-trade system for tackling greenhouse gas emissions, so there’s some urgency to figuring out how to assure buyers of offsets that they’re getting what they paid for. Several independent organizations offer carbon offset verification services, but for buyers, it’s still hard to assemble all the information needed to make an informed decision. Or at least, it was until Worcester, MA-based World Energy (NASDAQ: XWES) launched the World Green Exchange.

Unveiled in February 2008 and significantly upgraded in April of this year, the World Green Exchange is a free online marketplace where carbon-offset customers can not only price the various options, but peruse all the documents establishing their green bona fides, starting with additionality. World Energy says it set up the exchange as a more transparent alternative to the larger and more established Chicago Climate Exchange, the marketplace where many of the carbon credits criticized as rip-offsets originated.

My first story about World Energy, back in May 2008, focused on the company’s work to execute the first-ever online auction for greenhouse gas emissions allowances. Massachusetts and nine other Northeastern and mid-Atlantic states, collectively known as the Regional Greenhouse Gas Initiative (RGGI), had hired World Energy to help conduct the auction, which was widely viewed as a dress rehearsal for the rollout of a national carbon cap-and-trade system. But RGGI auctions are restricted to power plant owners, and World Energy has also been busy developing the World Green Exchange, which is open to anyone selling or buying carbon credits. Last month, I had an in-depth interview about the exchange with one of its architects, Kenneth Ivanic, the vice president of environmental markets at World Energy. A partial transcript follows.

Xconomy: What were your main design goals for the World Green Exchange?

Kenneth Ivanic: One of the things we excel at is bringing liquidity and transparency to a closed, opaque market. When we looked at the green markets, we saw a real need to counter the “rip-offsets,” but also to help bring people together. To do that, we looked at the key variables that people need [before buying carbon credits]. The first thing, obviously, is transparency—they have to know who is behind the projects. If they know each other ahead of time, they can go over things like credit risk before they spend a year trying to make a deal. The next thing was … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Chris

    The statement that “RGGI auctions are restricted to power plant owners” is incorrect. Anyone willing to fill out and meet the criteria in the auction qualification form (http://www.rggi.org/co2-auctions/information) may participate in a RGGI auction.

    The categories of auction participant anticipated in the qualification form include: Owner of an electricity source, Broker, Environmental group, Financial or investment institution, Energy marketing/trading firm, Individual person, and Other market participant.

    It is true that only electricity sources have compliance obligations under the scheme, but auction participation is not limited as such.