Carbon offsets are a neat little way of financially incentivizing projects that generate emission reductions. A carbon offset is created when emission reductions from a project have been monitored, measured and then bundled into units of single metric tonnes of Carbon Dioxide equivalent. These carbon offsets can be used to offset the carbon emissions of people and companies. It may seem a bit complicated, but it’s not. It’s really just a great idea that allows people to play a meaningful role in the fight against climate change.
Microfinance refers to the provision of ‘micro’ financial services to the poor, including small loans, savings schemes, and insurance. Microfinance has expanded access to loans in areas where the poorest would otherwise face prohibitively high borrowing costs and predatory lending. The success of microfinance has been aided by high repayment rates (often above 95%). As a result, microfinance has become an important tool in the fight against poverty and has grown rapidly to reach over 150 million people worldwide. Despite this growth, only one third of a percent of these 150 million have received loans for energy. EIC aims to change this.
Climate change refers to changes in climate – from rainfall to temperature. While climate change is a natural phenomenon, manmade greenhouse gas emissions have accelerated the rate of change to a point where erratic and often dangerous climate events are becoming much more common.
Global warming, which refers to an average increase in the Earth’s temperature, is a product of manmade climate change. A warmer Earth may lead to changes in rainfall patterns, a rise in sea level, and a wide range of impacts on plants, wildlife, and humans.
Greenhouse gases are gases in the atmosphere that absorb and emit radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. Greenhouse gases greatly affect the temperature of the Earth; without them, Earth's surface would be on average about 33 °C (59 °F) colder than at present.
Humans are responsible for increased concentrations of 6 main greenhouse gases – with carbon dioxide being the biggest culprit.
Your “carbon footprint” represents the total of all the greenhouse gases you personally are responsible for putting in the atmosphere. The term carbon footprint is named after carbon dioxide, the principal cause of global warming.
Whenever you switch on a light or the heating, take a flight home or drive your car, you are most likely using fossil fuels such as oil or coal, and generating carbon emissions.
THE EIC PROCESS FOR CREATING CARBON OFFSETS
Here at EIC we take a different approach than most people in the carbon offset markets. Most companies love big projects – because companies think big projects mean more profit. Most companies focus on urban areas, where their big projects can sell lots of power to lots of people. Most companies spend tens of thousands, and sometimes hundreds of thousands of dollars going through a UN approved ‘certification’ process that can take years before any value is actually generated by the project.
The current way of doing business is well suited to big projects, sophisticated companies and long term investments. That’s great, and lots of good is coming out of this approach. But too often, small projects which are particularly beneficial to the poorest, and the most isolated, are ignored.
We think there is another way – a way that allows us to reach the most needy and the most isolated.
Here at EIC we deal with projects that are so small that it simply isn’t worthwhile spending hundreds of thousands of dollars to get a rubber stamp from the UN to say our project is ‘certified’. In the marketplace, our carbon offsets are called “self-certified. The carbon offsets we generate have a real, measurable impact but most importantly help us to fight poverty. We think that means something and we think you will too.
This document aims to give you some idea of what we are doing to come up with the carbon offsets we use to reduce your carbon footprint. It’s a thorough (and often boring) process, but hopefully we have written it in a way which doesn’t put you to sleep too quickly!
Step 1: Figuring out what was being emitted by your entrepreneur before you provided a loan
Before an entrepreneur is listed on our website, EIC is provided with comprehensive information on them by our trusted field partner. Information gathered at this stage includes their energy usage patterns, where they live, and the specific energy technology that will be purchased with a loan. This information allows us at EIC to figure out how much greenhouse gas the entrepreneur was emitting before the green energy loan is implemented.
Step 2 : Monitoring emissions during the loan
Monitoring for emissions during the loan is an extremely important part of what we do. Our field partners conduct interviews every 3-4 months with the entrepreneur to gather appropriate information and to ensure that accurate field data is obtained. The focus of these interviews is on energy usage patterns.
Once a loan is fully repaid, the field partner conducts a final interview with the entrepreneur. The specific information gathered at this point focuses on gaining a comprehensive understanding of changes in overall fuel purchasing patterns. All of the interview data is analyzed for consistency and compared to entrepreneur data collected from similar energy projects. In this way, inconsistencies and outliers are easily detected, giving EIC another level of certainty.
EIC ensures that its data is supported and cross referenced against relevant secondary data. These sources include World Bank, United Nations and Energy Information Administration region specific greenhouse gas emission reports as well as publicly available information from existing carbon offset projects.
Step 3: Using this data to create carbon offsets
At the end of the day, carbon offsets can be hard to understand. They are something that never existed – an emission reduction. The way we figure out how many carbon offsets are created by a particular entrepreneur is by analyzing all of the data collected in Steps 1 and 2 in the context of methodologies set forth by the United Nations or other relevant authorities in the carbon markets. Think of a methodology as a set of rules and guidelines that provide a credible and transparent approach for quantifying and reporting greenhouse gas reductions.
Once the emission reductions have been accurately quantified, they are ready for use as carbon offsets.
Step 4: Cross checks and long term monitoring
Ok, so we have collected the data. Analyzed it. Determined how many carbon offsets have been created. You might think we are done at this point, but we take our information gathering one step further.
EIC has implemented a program that will allow for on-site monitoring by EIC trained volunteers. These volunteers conduct in-depth interviews of randomly selected entrepreneurs. The qualitative and quantitative data produced from these interviews is used to cross check emission reduction work already completed, as well as provide a clearer picture of longer term loan impact.
EIC also hires local independent auditors to conduct random checks on field partners. Among other things, the audit teams ensure that data collection procedures are being appropriately followed by field partners.
Still reading? Wow! Well you obviously love this stuff, so here is a bit more detail on our approach to carbon offsets.
Other considerations we take into account are...
Additionality is one of the most important concepts in the carbon world. Carbon offsets are designed to incentivize emission reduction activity which is ‘additional’ and would not happen in the absence of that incentive. The question of ‘would the emission reductions have happened anyway?’ is often used to explain additionality. If the emission reductions would have happened without the incentive of carbon offsets, it is often not considered additional. A practical example of this is regulation. A business that is required to reduce its emissions because of regulation would fail the regulatory additionality test because their emissions ‘would have happened anyway’.
EIC screens all entrepreneurs to ensure your loans are directed towards green energy projects that are ‘additional’ in every sense of the word. To be honest though, this one is easy since green energy loans to the poor are so rare, and so many people are in need.
Double Counting EIC actively works with field partners and local energy technology suppliers to ensure that no other organization has prior claim to an emission reduction or is attempting to measure and sell those emission reductions from our entrepreneur’s projects. In addition, we have each individual entrepreneur sign a legally binding document granting ownership of all emission reductions to EIC. To ensure a carbon offset is not used more than once, EIC immediately ‘retires’ carbon offsets once they are used to reduce your carbon footprint through a tax-deductible donation. Retiring an offset recognizes it has been used to offset emissions and can never be used again.
Leakage refers to a situation where a green energy loan might actually cause an increase in emissions. For example, a green energy loan may allow for an increase in income which changes the entrepreneur’s energy purchasing patterns to favor more convenient, but higher emission, fuels. (i.e. instead of walking to gather firewood for 4 hours every day, a family can now afford to spend money on charcoal at the local market). EIC is able to identify ‘leakage’ with the data it collects and accounts for this in its calculations.
Permanence is an important aspect of any effort to reduce emissions. Some carbon projects, such as forest carbon sequestration, carry a risk that the carbon sequestered in growing trees might be released in the event of a fire destroying that forest. In this circumstance, the sequestered emissions would be released back into the atmosphere and the emission reductions would not be considered to have been permanent. EIC specifically directs green energy loans to activities which permanently reduce emissions. There is never any chance that an event would cause the release of emissions back into the atmosphere.
Timing issues can also be problematic.
Example: Entrepreneur A is projected to generate 1 carbon offset a year. Carbon offsets from Entrepreneur A are used to offset Person A's emissions before any emission reductions have actually been created. Person A is offsetting her emissions with emission reductions that have not yet happened.
EIC creates carbon offsets from emission reductions that have occurred over the loan term and only once the loan term has finished. In this way, you can be sure that all emission reductions have already happened.