	The U.S. Voluntary Market Is Growing Rapidly with Limited Federal Oversight

Over 600 organizations develop, market, or sell offsets in the United  States, and the market involves a wide range of participants, prices,  transaction types, and projects. While the exact scope of the U.S.  voluntary market is uncertain because of a lack of complete data, available  information shows that the supply of offsets generated in the United States  has increased by about 66 percent over the last 3 years, from about 6.2  million tons in 2004 to about 10.2 million tons in 2007. The Federal Government Plays a Small Role in the Market

While no single regulatory body has oversight of the U.S. voluntary carbon  offset market as a whole, offset transactions are subject to applicable state  fraud and consumer protection laws, which are generally enforced by each  state’s attorney general. A Variety of Quality Assurance Mechanisms Are Available and Used, but Information on the Credibility of Offsets Is Limited

Multiple quality assurance mechanisms are available and used to ensure  the credibility of carbon offsets available for purchase on the U.S.  voluntary offset market, but a lack of centralized information makes it  difficult to estimate the extent of their use. Participants in the offset  market face several challenges to ensuring the credibility of offsets,  including problems determining additionality, and the availability and use  of many mechanisms for verification, and monitoring. Several  stakeholders said that there is no correct technique for determining  additionality because it requires comparison of expected reductions  against a projected business-as-usual emissions baseline (also referred to  as a counterfactual scenario). Information Provided to Consumers Offers Limited Assurance of Credibility

The information provided to consumers about offset projects and quality  assurance mechanisms offers limited assurance of credibility, according to  certain stakeholders and analysis of documents obtained through the  purchase of offsets. Both Increased Federal Oversight and the Use of Offsets in Climate Change Policies Involve Trade-offs between Cost and Credibility

Increased government oversight of the voluntary market could address  some concerns about the credibility of offsets by standardizing quality  assurance mechanisms and registries, and this could encourage new  projects and help protect consumers. Offsets could lower the cost of compliance, encourage  investment and innovation in sectors not required to reduce emissions,  and provide time for regulated entities to change existing technologies. However, if the offsets used for compliance are not credible, the  environmental integrity of a compliance system may be compromised. For  example, unregulated facilities may devise new ways to limit greenhouse  gas emissions because they could sell offsets in the compliance market. Appendix I: Objectives, Scope, and Methodology

This report examines (1) the scope of the U.S. voluntary carbon offset  market, including the role of the federal government; (2) the extent to  which mechanisms for ensuring the credibility of voluntary carbon offsets  are available and used, and what, if any, related information is shared with  consumers; and (3) the trade-offs associated with increasing the oversight  of the U.S. voluntary carbon offset market and incorporating offsets into  broader climate change mitigation policies.
Why GAO Did This Study

Carbon offsets--reductions of greenhouse gas emissions from an activity in one place to compensate for emissions elsewhere--are a way to address climate change by paying someone else to reduce emissions. To be credible, an offset must be additional--it must reduce emissions below the quantity emitted in a business-as-usual scenario--among other criteria. Assessing credibility is inherently challenging because it is difficult to make business-as-usual projections. Outside the U.S., offsets may be purchased on compliance markets to meet requirements to reduce emissions. In the U.S., there are no federal requirements and offsets may be purchased in the voluntary market. GAO was asked to examine (1) the scope of the U.S. voluntary carbon offset market, including the role of the federal government; (2) the extent to which mechanisms for ensuring the credibility of offsets are available and used and what, if any, related information is shared with consumers; and (3) trade-offs associated with increased oversight of the U.S. market and including offsets in climate change mitigation policies. This report is based on analysis of literature and data, interviews with stakeholders, and GAO's purchase of offsets.

What GAO Found

The scope of the U.S. voluntary carbon offset market is uncertain because of limited data, but available information indicates that the supply of offsets generated from projects based in the United States is growing rapidly. Data obtained from a firm that analyzes the carbon market show that the supply of offsets increased from about 6.2 million tons in 2004 to about 10.2 million tons in 2007. Over 600 organizations develop, market, or sell offsets in the United States, and the market involves a wide range of participants, prices, transaction types, and projects. The federal government plays a small role in the voluntary market by providing limited consumer protection and technical assistance, and no single regulatory body has oversight responsibilities. A variety of quality assurance mechanisms, including standards for verification and monitoring, are available and used to evaluate offsets, but data are not sufficient to determine the extent of their use. Information shared with consumers on credibility is also limited. Participants in the offset market face challenges ensuring the credibility of offsets, including problems determining additionality, and the existence of many quality assurance mechanisms. GAO, through its purchase of offsets, found that the information provided to consumers by retailers offered limited assurance of credibility. Increased federal oversight of the U.S. voluntary market could enhance the market's transparency and improve consumer protection, but may also reduce flexibility, increase administrative costs, and stifle innovation, according to certain stakeholders. Including offsets in regulatory programs to limit greenhouse gas emissions could also lower the cost of compliance, according to recent EPA analyses and economic literature. However, some stakeholders said that concerns about the credibility of offsets could compromise the environmental integrity of a compliance system.