The Green Options Interview: Erik Blachford, CEO of TerraPass
Erik Blachford is the new CEO of TerraPass, a carbon offset company. When a consumer buys a carbon offset to offset the emissions from their driving, a trip, or even a wedding, TerraPass uses that money to fund renewable energy products.
Erik has never been a full-time environmentalist, although he is member of a few national organizations. In a former life he was the CEO of Expedia, although he left the company before its partnership with TerraPass was established. Erik is excited about the new venture, explaining on a recent blog post,
“Back in Internet pre-history, at the dawn of online travel, nobody knew you could even check airline ticket prices online, much less book tickets. Now almost half of all travel is booked online. I think we’re at the beginning of another explosion in consumer awareness, this time in the voluntary carbon markets.”
I spoke with Erik by phone on May 25th.
Green Options: How do you respond to carbon offset skeptics? For example, the argument that offsets are just an easy way for people to pay off their pollution without much sacrifice.
Erik Blachford: I hear that argument a lot, but it’s not accurate as to what TerraPass does. People who buy carbon offsets aren’t just sitting back afterwards and thinking they’ve done their duty. These people are active in other ways, too: they’re very in tuned to the problem and the other solutions. Furthermore, carbon offsets are a voluntary enterprise; no one is forcing someone to buy carbon offsets.
However, there is also a lot of talk about common umbrella standards for carbon offsets, and I think TerraPass and our customers would be better served with them. Our industry needs consumer protection standards. Right now it’s unregulated, and the consumer has to be very cautious. Consumers are taking the initiative and doing the research on which carbon offset programs are legitimate, but they shouldn’t be expected to do all of the work.
GO: What makes TerraPass different from other carbon offset companies?
EB: Terra Pass focuses on helping the individual consumer reduce emissions, rather than only large corporations. We want to help individuals take action to reduce their carbon footprint. We’re also very accessible. The company has a blog where we can communicate with customers and get their feedback and ideas.
GO: You support a number of different renewable energy and efficiency projects. Why did TerraPass get involved in biomass? You don’t see that as a carbon offset very often.
EB: It’s great to be able to work with biomass providers. Energy from biomass is produced by capturing methane from sources like cow manure and burning it. We’ve set up contracts with them, buy credits and register them on the Chicago Climate Exchange (CCX). We are very careful to ensure that our carbon offsets are not counted twice.
GO: I don’t see tree planting – a very popular offset – as a TerraPass option. Why not?
EB: Trees plantings are popular offsets because they’re intuitively appealing. But the science doesn’t hold up enough for us to sell them. Some science is based on the average age of a tree being 80-100 years, but that’s just not always the case. And when the tree dies and rots, that carbon dioxide goes back into the atmosphere. There are some carbon offset programs that focus on the conservation of forests rather than tree planting, and that’s an interesting avenue that TerraPass may explore in the future.
GO: What percentage of carbon offset costs goes to the projects?
EB: We don’t break that out, because we don’t think offsets are commodity products, which is what that kind of breakout would imply. We are more focused on our pricing to consumers, which is competitive though not rock bottom, because it reflects the work we put into researching our projects thoroughly and sticking to principles like matched maturity of credits. We could probably sell offsets for a lower price if we we’re willing to sell credits from previous or future years, to buy blind on the CCX, or to buy forestry projects, but we have decided not to do any of those.
GO: How do you assure customers that their money is making a real difference?
EB: We make sure that the customer knows what we’re doing. We publish a verification report each year and we use three protocols to verify our credits: Green-e certifies our wind power projects, SES certifies our biomass, and First Environment certifies our landfill gas projects.
GO: What are some challenges and advantages of the U.S. carbon market?
EB: The U.S. didn’t sign onto the Kyoto Protocol, so one challenge is that the idea of carbon offsets is still fairly new here. There’s a general awareness of the issue, but carbon offsets still feel more exotic to people than they really are. It’s just a lack of awareness that we need to work on.
However, an advantage is that the American consumer is generally very open to new ideas and is very action-oriented. They want to take responsibility and do something, so the mindset of the consumer is right for a carbon offset market.
GO: TerraPass is well-known for its relationship with Expedia. How do you see that relationship evolving?
EB: We’ve got a great relationship with Expedia. It gets our brand out there and we look forward to continuing our relationship.
GO: I’ve got to say, it’s difficult to find the TerraPass option on Expedia’s site. It kind of gets lost in the shuffle of offers for car rentals and zoo passes.
EB: Expedia has many different lists of add-ons for their trips, so TerraPass is lumped with many other options. But we’re really happy to have the brand out there.
GO: If you could partner with any other company or entity, who would it be?
EB: That’s a really good question, but my answer is going to sound really funny. I really want to partner with the federal government. Global warming and emission reductions are a national problem. We need federal action and federal standards to solve it.
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June 4th, 2007 at 4:54 pm
Blachford says their pricing “reflects the work we put into researching our projects”. Really?
Read this article that skewers TerraPass in Business Week:
http://www.businessweek.com/magazine/content/07_13/b4027057.htm
A few quotes
1. $2 a ton
TerraPass typically sells offsets for about $9 per ton of carbon dioxide, or the corresponding amount of methane. The company takes a cut of that $9, but won’t say what the percentage is. A broker that introduced TerraPass to the dairy farmers also took a cut. In the end, the farmers say they each received less than $2 a ton out of the original $9. Darryl Vander Haak, the farmer in Washington, says he’s happy with the $16,000 he earned last year from offset sales. But offsets didn’t factor into his decision to start the methane venture, he adds.
And
2. We would have done this project anyway
All six other project developers selling offsets to TerraPass that BusinessWeek was able to contact said they were pleased with the extra cash. But five of the six said the offsets hadn’t played a significant role in their decision to cut emissions. “It’s just icing on the cake,” says Barry Edwards, director of utilities and engineering at Catawba County, N.C., which installed a system in 1998 to turn landfill gas into electricity to power 944 homes. “We would have done this project anyway.”
HR
June 5th, 2007 at 1:20 am
HR is very good at cutting and pasting.
But, the truth for anyone that really knows TerraPass is that we took those allegations very seriously, and addressed them in a transparent manner. We blogged non-stop during the week the BusinessWeek article, using the opportunity to talk to the world about this complex topic of “additionality”. And we solicited a outside review panel to review one of the projects and agree with it use in our 2006 portfolio.
You can read everything at:
http://www.terrapass.com/additionality
This all occurred while Erik was joining the company, so I can assure you that he was very aware of these details before joining.
The challenge for the US carbon market is mainly one of standards and communication. Its our hope that with leaders like Erik joining green companies, we can have a healthy market that drives environmental change.
June 5th, 2007 at 2:35 pm
Tom,
The key points are:
1. Less than $2 a ton to the farmer
2. Would have happened anyways
What about the other five projects BusinessWeek said would have happened? Why not review these?
Enough said.
HR
June 6th, 2007 at 12:46 pm
HR,
These points have been raised in a bunch of places, and about the carbon offset market in general. They deserve a response.
1. Not many consumers are willing to spend the time and money and energy required to drive into the countryside, find a dairy farmer willing to sell credits, verify those standards against commonly accepted standards, etc. They want to buy offsets in a more convenient way, so they turn to retailers like TerraPass. TerraPass in turn aggregates those purchase orders and buys in bulk from wholesale brokers and project development firms.
For some consumers, how much of the consumer purchase price goes to the end producer of the credit will make a difference in their decision-making (after all, they are always free to source from a wholesale broker if they can aggregate enough demand, or to find a farmer on their own, or not to purchase offsets). It sounds like you might fall into that camp.
Others will simply be happy they have the chance to buy offsets at all, recognizing on some level that some of their money is going to supporting the new businesses making that possible, and making sure that the retail price they pay for their offsets is competitive with other similar alternatives (no forestry, matched maturity, etc).
2. As for the other five projects, as a tiny business the team thought it made more sense to put resources into addressing the main focus of the article, the Tontitown project. We wanted to make sure that our customers understand that we always do our homework up front, and that we are not afraid of going back to check on it if it’s questioned. Sure, we could have gone back to every single project mentioned in the article to prove them out in the same way, I’ll grant you that. But we thought then, and think now, that our customers saw the work we did on Tontitown, and got the point.
Erik
June 6th, 2007 at 8:17 pm
Erik,
My head is spinning with your fuzzy logic. Are you saying:
TerraPass, a member of the Chicago Carbon Exchange, pays less than $2 a ton (and charges $9.00) for several projects that BusinessWeek concluded would have happened anyways.
But these tons are of a higher quality than the audited tons IBM, Motorola and the State of New Mexico buy for $3.40 a ton on the Chicago Carbon Exchange.
WOW!
Do you find the projects first and then have the project registered, or is the project already registered and you buy directly from the project?
June 7th, 2007 at 2:03 am
Hi HR,
To your first question about pricing, the answer is No. I’m afraid I’m going to frustrate you by not telling you what we do pay at wholesale, for competitive reasons. Note however that what we pay at wholesale and what a project developer receives are not necessarily the same amounts. Complicated, I know, but most business distribution chains work something like this.
With regard to the CCX, you are correct in that we do not buy directly on the CCX. We use the registry services of the CCX to execute bilateral trades, to ensure that our credits are not double counted. It’s a quality control mechanism.
If you would like more information on what we do, which projects we buy from, etc, we’ve done our best to lay it out on the website under the “Projects” tab.
http://www.terrapass.com/projects/index.html
Erik
June 11th, 2007 at 4:28 pm
The issue here, though, is that you are charging more than the CCX and claiming the quality is higher, but the projects are merely CCX tons you’ve bought bilaterally.
Was the Waste Management project already on the CCX when you contacted WM?
The parallel is that if I want 100 shares of Microsoft stock, I can call my broker who can go to market and by NYSE approved and certified MSFT shares, or I can buy NYSE approved and certified MSFT shares from a current Microsoft shareholder. In both cases, they are of the exact same quality and my dividend is the same.
Unless you went to Waste Management, developed the project and then merely registered it with the CCX, Terrapass is doing the exact same thing, but charging a lot more (and seemingly paying substantially less).
Hmmm…
HR
July 8th, 2007 at 8:26 pm
It was interesting to hear the perspective of an owner of a emissions.