Thursday, 6 January 2011

Carbon Neutrality: In From the Cold

(Ed: This article was originally written by Jamal Gore and Suzy Hodgson in October 2009 for the IEMA journal "the environmentalist", but was never published. Nevertheless, its content remains relevant. Enjoy!) 

Companies around the world are increasingly taking action to reduce and offset their greenhouse gas emissions. A few years ago, businesses took pains to publicise their reduction programmes, so much so that in 2007 the term “carbon neutral” gained an official dictionary entry.  However, in more recent years companies have appeared less willing to draw attention to their low-carbon initiatives.

Sorting a market muddle
Some of this reluctance stems from confusion and even cynicism about “carbon neutral” claims.  While most agree that carbon neutrality requires measurement, reduction and offsetting, many claims have been plagued by a lack of transparency.  In one highly publicised example, a computer company was criticised for making its offices and business travel “carbon neutral”, while ignoring the much larger emissions from the manufacture and use of its core product.  Few companies that have gone carbon neutral publicly disclose all aspects of their carbon footprint.

As a result, it has been difficult for stakeholders to understand how organisations’ footprints are measured, and whether internal reductions or offsets have been used to achieve carbon-neutral status.  Without an objective standard and faced with accusations of “greenwash” many companies have understandably wished to keep a low profile.

We think this is a missed opportunity.  By promoting their carbon reduction initiatives, businesses have an opportunity to engage staff and customers and are more likely to stay the course during difficult economic conditions.  

The UK Government and the British Standards Institute (BSI) seem to agree, stepping forward with parallel solutions to address this market failure.  In late 2008, the Department for Energy and Climate Change (DECC) launched an informal process to develop guidance on using the term “carbon neutral”. The main aim was to provide clarity for former Prime Minister Tony Blair’s target to make all Government estates “carbon neutral” by 2012, but also to provide greater clarity for other organisations and serve as a reference to reinforce the Government’s Green Claims Code.

At roughly the same time, BSI began working on a new Publicly Available Specification (PAS 2060:2010) to give guidance on making carbon neutral claims.  BSI was responding to a perceived need from businesses for a consistent approach to carbon neutrality.  BSI intends to serve the interests of a wide range of industrial sectors, both in the UK and abroad, with a PAS that is useful, relevant, and authoritative and potentially serves as a precursor to an ISO standard.

Both the DECC guidance document[1] and the BSI specification[2] have the potential to create a more level playing field for organisations working in this area.  The two documents are generally in lockstep in their references to accepted standards and protocols for carbon footprint quantification and reporting of greenhouse gas emissions (see our article “Whose footprint is it anyway?” in issue 53 of the environmentalist.), and both outline the key stages of carbon management, i.e. determining the subject scope, measuring the footprint, implementing a reduction plan, requantifying the residual carbon footprint, and offsetting.

Setting the scope
 As readers of our previous articles may recall, the boundaries for an organisation’s carbon footprint set the stage for the rest of the carbon management process.  Without a credibly scoped footprint, the organisation’s reduction programme may fail in the court of public opinion.

BSI and DECC take similar approaches to scoping emissions, using the GHG Protocol and ISO 14064 as their starting point.  DECC recommends that at a minimum, emissions within Scope 1 (sources under the organisation’s direct control) and Scope 2 (from purchased energy) be included. In addition, DECC recommends that organisations include their “significant” Scope 3 [other indirect] emissions with guidance for determining significance. 

As DECC does with the word “significant”, BSI provides guidance for determining “materiality” for Scope 3 emissions, stating that “those Scope 3 emissions deemed to be material to the subject shall be included.” To remove doubt about what must be included, BSI states that where the subject is an organisation, “the boundaries shall be a true and fair representation of the organisation’s greenhouse gas emissions (i.e. shall include all emissions relating to core operations including subsidiaries owned and operated by the organisation.)” 

Clearly, “significant” and “material” do leave room for managerial discretion in determining Scope 3 emissions.  DECC and BSI both recognise that organisations will differ in the extent to which they are responsible for, or can influence the emissions of third parties who pollute as a result of the organisation’s activities. Nonetheless, organisations are required to document their decisions transparently. However, differences in interpreting Scope 3 mean that the DECC guidance and BSI specification do not make it easy to rank carbon-neutral organisations in a league table. 

Reductions done right
 Both the DECC guidance document and BSI’s specification require organisations to put in place a programme of internal reductions in order to make a credible claim.  DECC requires three “separate” and distinct management steps - measurement, reducing, and offsetting, specifically stating “a carbon neutral claim consisting only of calculating emissions and offsetting should not be made.”  This requirement addresses those critics of carbon offsetting, who see it as a substitute for reducing emissions within the organisation’s boundaries [see our article “Carbon offsets: a last resort?” in issue 64 of the environmentalist].

BSI takes a different approach. While PAS 2060 requires an ambitious plan for internal reductions, it acknowledges that it may take several years for these plans to bear fruit.  PAS 2060 allows companies to recognise, as part of this longer-term target, reduction activities begun before the carbon reduction claim.  This approach reflects that organisations can often reap significant reductions in the first year, but that subsequent reductions might require significant investment and be realised more slowly.  Requiring a set reduction every year might inadvertently discourage companies from making investments in ambitious long-term emission reduction activities.

Interestingly, neither guidance document specifies a minimum level of internal emissions reduction.  Instead, they require that organisations announce a reduction plan and publicly disclose their progress each year, allowing stakeholders to scrutinise activity and form their own opinions regarding their appropriateness.

Offsets – an essential component
 As for carbon offsets, DECC and BSI acknowledge that, while internal reductions are an important way to demonstrate an organisation’s commitment and set the organisation’s course to a lower-carbon future, internal measures alone are unlikely to lead to zero net emissions. 

Both guidance documents outline the methodology and strict requirements for offsets.  These criteria include requirements that all offsets used to achieve carbon neutrality are:
  • Genuine
  • Additional
  • Without leakage
  • Permanent
  • Independently verified by a third party
  • Transparent (i.e. supported by publically available project documentation on an established registry)

Beyond this point, the two guidance documents diverge.  Recognising the national and international organisations likely to use PAS 2060, BSI does not specify particular offset quality standards, but provides a list of popular schemes that meet these criteria, including the Clean Development Mechanism, Voluntary Carbon Standard, and Gold Standard.  Regardless of the standard, BSI requires organisations to publicly disclose the type and quantity of offset credits used to balance out their residual emissions.  Again, BSI relies on public opinion to drive good behaviour.

DECC, on the other hand, recognises only those offsets that have been accredited under the Government’s Quality Assurance Scheme.  At present, only “compliance” credits from the Kyoto Protocol and the EU ETS can be accredited under this scheme. These credits typically cost twice as much as voluntary credits certified under other schemes – and sometimes even more. While DECC recognises that voluntary carbon credit standards have the potential to meet the criteria for generating quality offset credits, and often provide social and environmental co-benefits, the Department states that it is currently unable to vouch for their quality.  Organisations that wish to use unaccredited offsets are required to demonstrate that they have performed due diligence and met the criteria described above.

Which to use?
As the above points demonstrate, the DECC and BSI documents share a number of common elements: GHG Protocol/ ISO 14064 footprints, a plan for measurable internal reductions, high quality carbon offsets, and public disclosure throughout.

But, the differences between these two documents mean that they are not interchangeable.  DECC is more prescriptive in the timing of internal reductions and the types of offset credits organisations can use to achieve carbon neutrality.  The more flexible BSI approach will appeal to organisations that operate across national boundaries, and to large organisations making significant long term capital investments to achieve their internal reductions, or whose offsetting bill is so large that a reliance on compliance credits might force them to abandon the effort altogether.

On the other hand DECC’s approach, , may be more attractive to organisations that are already demonstrating year-on-year reductions and using compliance credits for their offsetting, or who prefer to rely on an implicit Government endorsement of their lower-carbon initiatives to deal with stakeholder scepticism.  The more prescriptive approach and implied hierarchy of the DECC guidance may offer the impression of increased rigour, even as it excludes some would-be users.

Because these two documents allow organisations to choose the scope for their measurement, reduction and offsetting programmes, they do not facilitate direct comparisons between organisations making carbon neutral claims. Even so, they both have the benefit of making these claims more specific, transparent, and readily verified.  As a result, we expect this guidance help reduce stakeholder scepticism and make it easier for organisations to speak more confidently about their carbon reduction initiatives.

[1] Department of Energy and Climate Change, Guidance on carbon neutrality, 30 September 2009
[2] PAS 2060:2010 Publically Available Specification for the demonstration of carbon neutrality.