Carbon offsetting provokes a powerful emotional response in some people. They just don’t like the idea that you can pay someone else to mop up your carbon emissions. It smacks of indulgence and cheating. Critics say buying an offset while continuing to fly, or drive an SUV, or live in a mansion with all the lights on, is at best hypocritical, and at worst, downright dangerous. It simply avoids the issue, which is that we should be reducing our carbon footprint, and simply encourages the delusion that we can go on living in an environmentally profligate way.

Some even compare offsetting with the Papal indulgences of the late Middle Ages, where Catholics were offered redemptions for their sins in return for donations to the Church – buying their way out of punishment for wrongdoing. Critics say this is exactly what modern-day carbon offsetters are trying to do. They think money will buy them a clear conscience while they continue to fill the sky with fumes.

Certain high profile stories, mainly about celebrities trying to offset carbon-intensive lifestyles, give credence to the criticisms, but it is far from the whole picture. Offsetting is something that is practiced by thousands of individuals and organizations who are neither hypocritical or delusional. Let’s look at the argument more closely.

First, let’s acknowledge that our number one priority must be to reduce our carbon output in every way possible – switching to a renewable energy supplier, insulating our homes, driving less, etc. But let’s also acknowledge that even if this is done with the best intentions in the world, most of us will reach a point where we cannot easily, or perhaps affordably, do much more in the short term. Few of us have lived our lives entirely by environmental priorities, and most of us have woken up to climate change at a point where we inhabit houses or offices, or own cars, or hold down jobs that were never designed with carbon neutrality in mind.

Even if we take whatever steps we can to reduce, recycle and reuse now, and make a commitment that our next car will run on biofuel and that we will fit solar panels to our house, etc., most individuals or organizations endeavoring to go carbon neutral will be left with a residue of current emissions. Now we have two choices – we can ignore them or we can offset.

Ignoring them might avoid having to think through the ethical issues around offsetting, but it is not going to help the planet. On the other hand, offsetting them will ensure that as long as we continue to produce emissions, they will be counterbalanced by a saving or sequestering somewhere else. It is the environmentally responsible thing to do.

We’ve been talking about the residual emissions left after taking a reduction strategy as far as we can. Now let’s go back to the case of the pop star or movie actor who appears to have no immediate intention of giving up flying, or selling their SUV, but who decides to offset. On the one hand, we could cry, ‘Hypocrite!’ and denounce them for trying to buy environmental redemption. Or we could recognize that they have at least acknowledged that their lifestyle has an environmental price. For the wealthy, this price is relatively trivial at the moment if they are simply accounting for their flying or driving, but it is the start of a cultural process – a process of accepting the cost to the planet of our actions, and building this into our economy.

Over time, the cost of carbon will rise and will be factored into all the products and services we consume, and this will begin to have greater impact on our behaviour as the price differential between our old habits and a new greener lifestyle increases. Celebrities have a part to play in highlighting issues such as climate change, and in endorsing the concept that we must pay for our impact on the planet.

We need to be realistic too. Many people are going to continue to take long-haul holiday flights, drive SUVs and run high energy households no matter what anybody says. The process of persuasion and change will be slow. Denouncing people for taking a step towards environmental awareness and carbon neutrality is counterproductive. It will discourage positive action, and polarise the debate. We should be trying to move people on in their environmental thinking, not alienate them.

Some individuals and organisations will no doubt abuse offsetting in order to indulge environmentally irresponsible behaviour, but to condemn all offsetting on this basis is to overlook the best intentions and goodwill of the majority who participate. We are all trying to find a way forward with global warming. We know it will take a combination of many individual, community, corporate, government and international efforts. Offsetting has a role to play. It is empowering at the individual level. And, unlike the Papal indulgences of the past, offsetting can have a real effect in reducing the carbon levels in our atmosphere, and slowing the pace of climate change.

Loss of forests contributes as much as 30 percent of global greenhouse gas emissions each rivaling emissions from the global transportation sector. The Kyoto Protocol’s offset mechanisms allow credits to be given for replanting trees or establishing new forests, which capture carbon dioxide through photosynthesis. But the current policy regimen does nothing to prevent existing forests from being cut down in the first place.

With Kyoto set to expire in 2012, a new round of talks is under way to develop the next framework for climate change. Experts believe a policy to avoid further deforestation will be a major topic at the conference. But some environmentalists remain wary of forestry climate policy, fearing it will draw attention away from the need to reduce emissions caused by fossil fuels.

The world currently has about ten billion acres of forest. According to the UN Food and Agriculture Organization’s (FAO) 2007 report on the world’s forests, the world lost about 3 percent of forest area between 1990 and 2005, and the net rate of loss has declined since 2000 (the world loses on average 32 million acres per year). Growth in northern hemisphere forest has helped offset tropical deforestation. There is disagreement, however, on the extent to which increases in temperate-zone forests offset the loss of carbon sinking in tropical zones.

Deforestation is caused by exploitation of natural resources, including expanding populations, logging, agriculture, biofuel production, and wildfires. Clearing forests for the production of biofuels is causing major concern, as experts contend that it has a significant negative impact on forests without doing much to reduce greenhouse gas emissions.

The FAO report shows that the greatest overall loss is occurring in Africa, followed closely by Latin America and the Caribbean. Indonesia has the fastest deforestation rate of any single country in the world. When emissions from loss of forests are taken into account, Indonesia could be considered the world’s third-largest emitter of greenhouse gases, according to a recent World Bank report. Indonesia recently has made a show of planting 80 million trees ahead of the Bali conference, but some question the country’s long-term commitment to slowing exploitation of its valuable resources, such as stemming illegal logging.

China’s rapid growth in the production of manufactured goods that need wood also poses challenges. The country’s consumption of forest products leads the world. According to Forest Trends, a nonprofit research group, China’s increasing demand has lead to unsustainable and sometimes illegal logging practices in many of the countries seeing significant deforesting activities, such as Indonesia and Papua New Guinea.

China has a seemingly limitless appetite for cheap wood, says Don J. Melnick, a conservation biology professor at Columbia University. Products made from this timber often wind up in U.S. and European markets. Richard Z. Donovan, chief of forestry for the Rainforest Alliance, an advocacy group, says that right now China is not only adding to climate change by burning large amounts of fossil fuels that emit greenhouse gas but also by being a non-discriminating buyer of wood.

Something big is going on throughout the energy business. It’s a great bubbling of innovation in every part of the industry. This bubbling is the brew of many different ingredients-from the impact of high prices and geopolitical uncertainty to the growing focus on “clean tech” and climate change. Will Innovation Transform Energy?

Though invisible to the consumer, an enormous amount of technological advance is embedded in every gallon of gasoline. Less than 30 years ago, the absolute “deep water” frontier for drilling was 600 feet of water.

Today, companies are working in what is called ultra-deep water, drilling through as much as 12,000 feet of ocean. Explorers can now use a new technology called WAZ-wide azimuth seismic-to “see” deep resources previously not visible through salt barriers thousands of feet below the seabed.

Companies are integrating a wide variety of information

technology capabilities to turn the “digital oilfield of the future” into the digital oilfield of the present, increasing efficiency and output. The large-scale conversion of natural gas into high-quality, diesel-like fuel is getting closer.

What is very visible today in the public’s eye is the innovation in renewables of every sort. Renewables received much attention in the 1970s and early 1980s, but faded away in the face of falling fuel prices and ample supplies. Their rebirth is partly the result of market forces. But it is also driven by continuing technology improvements and by mandates and subsidies from federal and state governments in the United States and the European Union, and by similar programs in countries like India, China and a growing number of other nations.

This year will certainly see the incentives and mandates expanded in the United States, as is already evident with the higher target for ethanol in the State of the Union speech.

The effects of the surge in alternatives are being felt in unexpected ways. Growth in renewables is going so fast that it is straining capacity in people, materials and supplies. If you want to order turbines and blades for windmills or silicon for solar photovoltaic cells today, you may have trouble finding supply. Livestock raisers and dairy farmers in the United States-along with Mexicans for whom tortillas are a staple are complaining about the sharp rise in the price of corn being fueled by rapid growth in corn-based ethanol production.

Renewables may be called “alternatives,” but they already constitute a considerable business. The one is that is well on the way to becoming conventional is wind power, which has gone through a considerable evolution over the last two decades. Along the way, costs have declined by a factor of ten.

Last year’s worldwide investment in wind and solar is estimated at over $40 billion. Yet, while the prospects for renewables are very large, they also need to be seen in context. In this case, the context is the huge scale of the overall system and the long lead times that are needed to develop any form of energy.

Moreover, these sources eventually have to establish themselves as economically competitive in the marketplace on a large scale. Even with all the advances, they are still a very small part of the overall energy mix. In the United States, wind is 1 percent of total electric generating capacity. But wind and the other renewables will continue to grow.

Underpinning the “great bubbling” is the rapidly growing spending on energy innovation.

A decade ago, I chaired a task force on energy research and development for the U.S. Department of Energy. That was a time of low interest in energy; and, not surprisingly, interest in the subject of our task force was also relatively low. After all, in the aftermath of the First Gulf War, there was little concern about the availability of future supplies. Climate change was hardly on the horizon as an issue. It’s a very different situation today. The reasons are multiple.

Prices and worry about supplies and energy security are important. So is the prospect of the vast growth in energy demand in Asia, which will change the global energy balance. Also looming large are environmental worries and the growing quest to reduce carbon emissions because of climate-change concerns.

All these factors mean that energy is now a major focus for technology investment. Governments and companies continue to be big players, and they are stepping up their investment. Research-and-development spending by the U.S. Department of Energy was $1.8 billion last year and is currently expected to grow by at least 25 percent in 2007-and could be even more with the new Congress.

And now there are new players: venture capitalists. The funding sources that brought immense innovation in information technology and life sciences-and created Silicon Valley along the way-are now honing in on the energy industry. To be sure, some prominent venture firms are standing back, saying that venture capital does not fit the longer time horizon and larger capital requirements of the energy business. But many others see this as their next frontier.

“Clean tech” is the new rubric under which much of this money is flowing, and the flows are increasing significantly. In North America, venture-capital investment in energy reached $2.1 billion in 2006-four times what it was in 2004, according to the Cleantech Venture Network. Venture capital is not merely a source of money; it is also a source of focused, results-driven discipline. This also means a wide diversity of ideas and technologies will be explored.

Inevitably, many of the new initiatives will end up being venture’s version of dry wells. That’s the character of research and development- and venture investing. The kind of surge we’re seeing today comes not only with hope but also with hype. This will remind some of the Internet boom. That boom left many deflated hopes and even more deflated valuations. But it also initiated a transformation of the way the world works.

And, by contrast, in the Internet boom there was often no clear idea of how to make money. It was about “firstmover advantage” and “land grabs.” This time, the opportunity is clear and can be measured against costs and prices in the marketplace.

The innovation frontier in energy is very broad. The systematic application of biology to energy is new, and could end up having a big impact. Ethanol is already being called a “firstgeneration” biofuel, and there is a growing debate as to the biology driven “second-generation” fuels.

Another area that will receive much greater focus is energy efficiency. This is building on a more solid foundation than may be recognized. It’s often said that the United States has made little progress on energy conservation or energy efficiency. In fact, the United States, along with countries like Japan, is twice as energy efficient as it was in the 1970s.

Much technological effort will go into the effort to double once again. This push is not limited to the United States. German Chancellor Angela Merkel has made energy efficiency the centerpiece of her agenda as chairman of the G-8 nations and president of the European Union.

This “great bubbling” represents what is the broadest drive ever for energy innovation. It has the potential over a period of 10 or 15 years to work major transformations in how energy is produced, transported and consumed. But it is not a sure thing.

Two ingredients will likely be required if it is to have this effect. One is consistency-maintaining the level of financial commitment and stability over the cycles. And that gets to the second ingredient: Prices, and what people expect of them, will also be an important part of this brewing future. One way or the other, they will likely add much spice over the coming years.