Why travel giant Expedia paid a premium for these carbon offsets
Among the many schemes that companies and individuals use to address their personal or professional impact on generating carbon dioxide emissions, buying "offsets" ranks among the most common and controversial.
Some global multinationals such as Disney, General Motors, Barclays, L'Oreal, and Delta Air Lines use this strategy extensively. Between 2009 and 2015 alone, Disney alone invested more than $48 million in reforestation and forest management projects from California to China through its Climate Solutions Fund. The financing comes from the $11 to $14 per metric ton price the travel and entertainment company charges its business units based on their carbon footprints.
Last year, the market was valued around $200 million, and about 17 percent of climate-concerned companies were purchasing offsets, according to data from Ecosystem Marketplace. Naturally, there is no shortage of organizations offering ways for corporate buyers looking to buy carbon offsets in volume — TerraPass and 3Degrees are just two brands with cachet. Colorado even has a home-grown program.
But a much smaller organization is capturing attention — and a new deal with Fortune 500 online travel agency Expedia — by selling offsets that serve the dual purpose of addressing both climate change and global economic inequality.
What makes the system established by non-profit Carbon Offsets to Alleviate Poverty (COTAP) unique is its focus on ensuring that a chunk of the revenue raised by its sales goes directly to the rural communities that own a project. Its projects are all in regions where the average income levels are less than $2 per day. They are certified by Plan Vivo, which requires that these communities share in at least 60 percent of the money.
While most carbon offset sellers brag about having a positive impact in developing countries, COTAP demonstrates that link much more explicitly, said COTAP founder Tim Whitley. For many businesses buying offsets in volume and that are looking to pay the lowest price possible, that's just fine.
"The whole story about indirect co-benefits for local communities is good enough for them," Whitley said. "It's a good story. It's good enough for them, it's not a good enough story for COTAP. We're more into revenue sharing. In certain situations, it's hard to compete on price. Because if you're in the game for the sake of addressing inequality, there are different ways to interpret that. COTAP's interpretation is that you could address economic inequality by giving people money and sharing the carbon revenue. If you're going to be doing that, then you need to talk about the way you're paying projects, and how much the project organizers share."
COTAP pays a price of $9 per tonne to its projects; its own operational margin is around 9.1 percent, according to the Oakland, California-based non-profit's marketing materials. COTAP estimates that it create more than $5 per tonne in direct income. "Our projects create other indirect co-benefits like improved food security, biodiversity, soil quality and reduced erosion," noted Whitley in the press release about the Expedia deal. "But income is the ultimate benefit because beneficiaries can use it to pay for income-generating assets, medical treatment, food or their children's school fees."
Carbon offsets aren't new for Expedia
Since it was founded in 2011, COTAP's primary focus has been on individuals and smaller companies. The deal with its first major client Expedia is pretty specific and modest — the company is offsetting about 1,010 tonnes of carbon emissions related to a large corporate event. The deal was championed for months by an internal organizer, not the sustainability team, according to Whitley, and it took more than a year to orchestrate.
"One of Expedia's core corporate social responsibility values is climate action, so there really was no question about whether or not working with COTAP made sense," said Tony Donohoe, senior vice president and chief technology officer, Expedia Worldwide Engineering. "Travel is a large contributor to carbon emissions and given that we are in the business of travel, anything that we can do to help alleviate the impact, we're on board."
Expedia, which had revenue of more than $8.7 billion in 2016, is by far COTAP's largest corporate customer to date. The company has been allied with carbon offset provider TerraPass for close to a decade; travelers booking flights on the Expedia site can use the service to offset the impact of their air travel.
The money from Expedia's deal with COTAP will help fund grants in more than 60 villages, estimated Mark Poffenberger, a Plan Vivo trustee and an advisor for one of COTAP's development partners in India. Aside from India, COTAP's project partners are in Malawi, Nicaragua and Uganda.
In India, the payments will go toward investments in drinking water systems as well as for programs that support forest fire control. In Uganda, the money will be used (at least in part) to establish loan funds for farmers that are developing their land to help with offsets. "That not only provides short-term cash and need livelihood inputs but also long-term benefits from materials and income that can be enjoyed in the future," said Pauline Nantongo Kalunda, executive director of Ecotrust, COTAP's Ugandian project partner.
So far, Plan Vivo project have channeled about $10 million into the communities they serve, according to the organization's estimates.
The COTAP-Expedia deal includes a side benefit for the Internet company's U.S. employees, a program that matches their personal contributions. "They're able to get a tax writeoff, they're doing something about their personal contribution to climate change, and they're creating — for every $9.90 they donate — $10.80 in community income," Whitley said.
COTAP is talking to other large companies interested in its approach, but the organization doesn’t aspire to the same scale as other carbon offset intermediaries.
"COTAP was not conceived to be the Walmart of carbon markets," Whitley said. "We want the donor, the customer who is motivated by putting the poverty mission on equal footing with their climate action."