(This story is part of a package on the business response to climate change, ahead of a U.N. climate report due on Friday)

By Gerard Wynn

LONDON, May 2 (Reuters) - Companies and individuals who want to pay others to cut carbon emissions on their behalf are not always getting real cuts in greenhouse gas emissions, as a voluntary, unregulated trade in carbon offsets mushrooms.

Groups like Atmosfair, TerraPass, e-BlueHorizons, CO2 Balance, Climate Care and the Carbon Neutral Company are among a plethora of conscience-salving offerings for would-be greens, as growing climate-change awareness prompts people to fund intermediaries to make emissions cuts for them.

But there is ample potential for confusion: some carbon-offset brokers do not verify their emissions cuts through a third party, or else sell cuts that have not happened yet, or sell offsets not directly linked to emissions cuts at all.

However, standards are now emerging based on a separate regulated carbon trade under the U.N.-sponsored Kyoto Protocol.

One tonne of so-called carbon offsets equals one tonne of emissions of the heat-trapping gas carbon dioxide that has been avoided.

The acid test for a proper offset is what is known as "additionality": an offset has to actually cause emissions cuts -- for example by providing financial incentives -- rather than just resulting from cuts that would would have happened anyway.

"We see some offsets that aren't additional and we decline to verify these," said Einar Telnes, a director at offsets verifying firm DNV.

The offset industry is split in two: an unregulated, voluntary market for people concerned about climate change or keen to be seen to be concerned about it, and a bigger, regulated market for businesses and countries seeking to meet binding emissions targets under the Kyoto Protocol.

In the voluntary market a lack of standards means it is perfectly legal to sell emissions cuts which would have happened anyway.

"There is a lot of jiggery-pokery," said one carbon broker who declined to be named. "While there's no standard, one man's offset is another man's joke."

For example, energy efficiency projects have aroused suspicion because -- by cutting energy costs -- they are often profitable anyway, and so the offset the customer buys is not actually triggering any extra effort.

But such offset projects could still tip the balance in favour of emissions cuts, argues DNV's Telnes: they have a role in awareness-raising or in making certain energy efficiency technologies more accessible.

RIGOUR

Efficiency projects cannot always guarantee that their cuts are above what would have happened anyway, noted Jack MacDonald, finance director at project developer EcoSecurities.

"Energy efficiency projects may have sustainable development attributes but have problems with the rigours of Kyoto.

"We would sell these credits if buyers were looking for credits that didn't qualify for Kyoto for whatever reason but were of high quality... (and) produced verified emissions cuts."

Other examples of projects that may not fit Kyoto's criteria were profitable wind or hydro projects, he said.

Even in the regulated market, problems exist.

Under Kyoto some 35 countries face legally binding targets, which they can meet either by emissions cuts at home or by funding these overseas under the so-called Clean Development Mechanism (CDM).

Such CDM projects have to be approved by the local country and a United Nations judging panel: but even then it is still hard to prove whether they offer the all-important "additionality".

"There are situations where some elements of the determination require expert judgement, which by definition is subjective," said Halldor Thorgeirsson, head of carbon trading under Kyoto.

"You could err too far in the other direction and reject projects unless it was 100 percent clear they were additional."

The U.N. panel has so far approved some 900 million tonnes of emissions cuts through to the end of 2012.

STANDARDS

The voluntary offset market is catching up fast with regulated carbon trade, and will sell an estimated 100 million tonnes of CO2 emissions cuts this year, or one-fifth of the amount cut under the Clean Development Mechanism.

For example, Climate Care reckons it will sell nearly 10 times more offsets this year than in 2006, at 1 million tonnes.

CO2 Balance expects to sell 500,000 tonnes this year, up from 15,000 tonnes last year. Its sales of offsets last year had not yet been verified, the company said, and included sales from forestry projects of emissions cuts that had not yet happened, and may not happen for 40 to 50 years.

Britain is one of the few countries to propose standards, using the CDM model.

"This is a rigorous process and verified," British Climate Change Minister Ian Pearson told Reuters.

"(The new code means) if people want to buy a Kyoto-standard offset they are able to. As with any financial product, buyers need to be aware."

(Additional reporting by Alister Doyle in Oslo)

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