Sustainability reporting part 2: It's an ongoing process not a goal

(This article originally appeared on the 2DegreesNetwork website.)

If you're a committed environmentalist, it’s likely that the push for continuing improvement in sustainability is welcome. But it's also potentially nerve-wracking. It means that, as a sustainability professional, you can never rest on your laurels, and you may have to go back to your board to reset your targets - perhaps more than once, as definitions of "good enough" evolve.

All this becomes easier once you realize that sustainability isn't an end-goal. In an earlier post we discussed the evolutionary nature of carbon emissions and sustainability reporting and concluded that sustainability is a process and a way of working.

Most companies are not in business to consume resources, generate rubbish or emit pollution. They are in business to deliver a product or service to their customers. Resource consumption, waste generation and pollution result from the way they choose to deliver those products and services. Airlines emit carbon dioxide (CO2) into the atmosphere not because they are in the CO2 production business, but because liquid fossil fuels are affordable and have a very high energy density. Commercial farms release vast quantities of nitrous oxide (N2O), a potent greenhouse gas, not because they are in the N2O production business, but because farmers must fertilise and plough their fields.

So what's the best way to set your targets to reduce waste, resource consumption, and pollution?

Airlines could establish a realistic emission reduction target, set it in stone, and make a series of engineering and operational tweaks to achieve that target. However, they will likely not escape continuing criticism from environmental campaigners, passengers and other stakeholders whose concerns about climate change will only grow as they learn more about this threat. Airlines (and their internal sustainability champions) who view sustainability as a way of working instead of a fixed target may take a different view.

Yes, interim targets are a useful way to achieve quick wins and get buy-in across the company. But a company that is fixated on making their environmental performance 10% better will be blindsided by a competitor that innovates to make their performance 10 times better. For an airline 10X better might mean innovating to create a zero-carbon fuel or a designing a completely different type of aircraft.

Whether literal or metaphorical, 10X better means there is no end in sight: you don't know yet how the company is going to achieve its sustainability goal, or the goal so big and long term that you won't be around anymore when it finally gets there. Either way, it means changing the way you think about sustainability. In fact, it may mean rethinking how your company works, as GE did with its Ecomagination initiative.

Each of your company's sustainability achievements is a vital stepping stone rather than an end-point. That doesn't mean it's easy. Acknowledge the hard work required to attain that goal, and celebrate when you've reached it.

Then use that energy to set off towards the next goal. And enjoy the continuing journey.

Sustainability reporting part 1: It’s an evolution not a revolution

(This article originally appeared on the 2DegreesNetwork website.)

It's not easy being the head of climate change or sustainability for a large company. If you're typical, you work with a tiny team and limited budget, and have discovered that making sustainability mainstream can be a long, slow process.

What's more, you're often asked to hit a moving target. Initiatives that seemed cutting edge five years ago are standard practice today. In another five years they'll be considered woefully insufficient.
Take carbon footprinting as an example. In 2007, when Marks and Spencer announced their Plan A initiative, a handful of leading companies measured greenhouse gas (GHG) emissions from their office energy use, plant and equipment, and vehicles. If they looked at their Scope 3 emissions at all, the focus tended to be limited to business travel. By 2012, many publicly listed companies reported their carbon footprint, and the leaders were incorporating their supply chain, customer and product lifecycle emissions into the total. In that same year, CDP announced that they would henceforth give even greater weight to Scope 3 supply chain reporting in their investor questionnaire. Those former leaders that "only" report Scope 1 and 2 emissions would soon find themselves at the bottom of the pile.

We see this progression in the rise of "net positive" initiatives from the likes of Coca-Cola, Kingfisher, Rio Tinto, Ikea and BT. There is something of a sustainability arms race underway. It used to be enough to report on your environmental impact. Then companies began to report about how effectively they were minimizing their impact. But to be a leader today, your targets require you to leave the environment better than when you started.

"Assessing how well companies report their sustainability will remain an evolutionary process just as the actual act of reporting also develops."

You can also see this evolution in Carbon Clear's annual FTSE 100 carbon maturity rankings. In order to differentiate between leaders and laggards, each year we have had to take an increasingly nuanced view of companies' approaches to climate change. To take just one area of focus as an example: Does your company measure and report its GHG footprint? Of course it does. Does it follow ISO 14064-1 or the GHG Protocol? Absolutely. Does it include Scope 1, 2, and material Scope 3 emissions? Probably. Does it seek third party assurance? Er, maybe.

Offsetting is a consideration in our carbon maturity rankings, and a little nuance goes a long way here as well. Does your company use carbon offsetting to achieve cost-effective net reductions? Most likely, yes. Are you fully carbon-neutral for at least Scope 1 and 2, or for your corporate travel? Possibly. Have you declared carbon neutrality against the BSI PAS-2060 specification and gotten third-party assurance for your claim? If you're in the FTSE100 and you’re not M&S, probably not.
And so on. This continuously evolving methodology makes it more challenging to perform time-series comparisons that track a company's movement up the Carbon Clear rankings. Without this evolution, however, most companies would end up bunched together. With little to distinguish one firm from another, the rankings would get less useful over time.

Assessing how well companies report their sustainability will remain an evolutionary process just as the actual act of reporting also develops. Neither reducing carbon emissions nor making your business more sustainable are end goals in themselves. There is always more to be done and it’s all about the journey.

In November Carbon Clear will be holding a webinar on 'Carbon reporting schemes: Minimize the pain and maximize the benefits', which will explore the different reporting schemes, how they fit together and how to effectively manage your data to minimize your workload. Find out more and register.

Carbon Clear's Third Annual FTSE 100 Carbon Performance Report

It's that time of year.  The results have been announced. The press releases, released.  The winners are crowing and the also-rans licking their wounds.

Each year, Carbon Clear's publication, "Carbon Reporting Performance of the FTSE 100" attracts more attention from the press and from leading corporations.  In a short span of time, this report has become a trusted tool for understanding which companies are taking seriously their response to climate change. The need for such a tool is as important as ever. As I pointed out last year:

"When we talk with large companies, the vast majority speak proudly of their climate change initiatives. In reality, there is a significant spread in the depth and breadth of carbon management programmes in the corporate world."

Our research separates the stars from the wannabes.

A few trends leap out from this year's research results:

• Integrated reporting is becoming mainstream, with just over half of companies mentioning their carbon footprint in their annual report;
• 56 of the FTSE 100 are reporting at least part of their Scope 3 GHG footprint;
• 29% of companies have set carbon targets that go beyond 2020;
• The number of companies that claim to be carbon neutral has increased by 46% since last year.

There are a host of other interesting findings, but for these and the list of top-performing companies, you'll have to read the report.

It's important to point out that this is not a "name and shame" exercise.  Carbon Clear's research provides a useful diagnostic that can help companies benchmark their performance against their peers, address weaknesses, and increase their ambition.

If you're in the FTSE 100 (or even if you're not), we can provide a customised overview that explores your company's performance and helps you plan your next steps.  Please contact the team at Carbon Clear for more information.

(Back to Carbon Clear homepage)

Waking Up to Climate Change Action

Something extraordinary is happening.

After endless debate about whether climate change is occurring and whether we should think about doing something about it, the conversation has shifted.

After decades of refusal by the largest polluting countries to tackle their greenhouse gas emissions, the policy debate is moving forward.

After years in which climate change was relegated to a few pages in companies' CSR reports, businesses have changed their approach.

At every level of society, people are waking up to the fact that climate change is happening, and recognizing that doing nothing is a losing option for nations, businesses and communities.

The headlines tell the story, in no particular order:

• 19 June 2013 - Utility-scale PV costs in the U.S. drop to $3/Watt, and are expected to reach $0.36/Watt by 2017.  This compares to $2.20/Watt for onshore wind, $1.00 for combined-cycle natural gas, and $8/Watt for the coal-fired carbon capture and storage plant under construction in Mississippi.
• 19 September 2013 - Russia urges discussion of geoengineering in upcoming Intergovernmental Panel on Climate Change report.
• 11 September 2013 - UK Astronomer Royal calls for research into geoengineering options as worry grows about the pace of carbon reductions.
• 15 September 2013 - the UK's Liberal Democrat party makes a controversial vote in favor of nuclear power to fight climate change.
• 20 September 2013 - Many electric utilities have looked to carbon capture and storage as a reason to keep building fossil fueled power plants in a carbon-constrained world.  Now that the Obama Administration is rolling out rules limiting emissions, lobbyists are changing their tune.
• 12 September 2013 - Overall Scope 1 and 2 greenhouse emissions have fallen 14% since 2009 at the 500 largest listed companies, even as performance lags for the most energy-intensive firms, according to the CDP.  Importantly, more and more companies include a discussion of climate change risks and opportunities in their annual investor report, instead of in their less-read CSR reports.
• And then there's fracking.

A few themes jump out from these, and many other headlines in the news.

First, the economics of clean energy increasingly make for unlikely bedfellows.  Utilities are arguing against CCS while supposedly "green" political parties are voting in favor of nuclear power and hydraulic fracturing.

Second, serious and respected thinkers are beginning to advocate increasingly desperate measures to address climate change - up to and including radical geoengineering approaches.

Third, the business world is increasingly split on their approach, with one influential group racing ahead to capture the opportunities presented by a lower-carbon economy.

There is an influential, large and ever-growing group of people and organizations that "get it" - they know climate change is a fact of life and are thinking seriously about how to respond.  This is an extraordinary turn of events, and one that will lead to major shifts in how we do business in future.

The message from this steady drumbeat of news headlines is clear.  The need to reduce emissions and tackle climate change is a fact of life, now, not for some point in the hazy future.  Those businesses that have yet to build a robust climate change response into their corporate strategy are missing an opportunity to reduce risk and to build business value.

Don't Wait for "Someone Else" to Fix It

Several years ago I was in Senegal when the car I was in got a flat tire, in the middle of nowhere. We couldn’t get the wheel off because the key to remove the bolts was missing. And it was getting dark.

As it turns out, our problem was short-lived. My Senegalese colleague stood at the side of the road waving his arm and every single car that passed us stopped to help. The road wasn't very busy, but within a few minutes we’d found a driver with a matching key.  We changed the tire and were back on our way.

If you get a flat on I-95 in America, or the M4 in Britain, other drivers will rarely stop. They assume you will have paid for your AAA (or AA) membership, or will use your phone to call a tow truck for assistance. In other words, “Why should I help? Someone else will come along, and they'll be better equipped.”

Cellphones were not very common in Senegal at the turn of the millennium. Neither were professional roadside assistance companies.  As a driver you knew that if someone was broken down on the side of the road, they needed your help.  And you knew that if your car broke down you would have to turn to other motorists for assistance.

When it comes to climate change, too many of us pretend that we're all driving down I-95 or the M4 with a cellphone and paid-up roadside assistance.  We continue on our way, confident that someone else will take care of it.

Too many companies and individuals make only token efforts at carbon management. More and more businesses may measure their carbon footprint, but scratch below the surface and you'll find the exercise confined to a small team - and for a worryingly large number of firms, data quality remains an issue.  Fewer than one in ten FTSE 100 companies use carbon neutrality to take immediate responsibility for their greenhouse gas impact, with many making pledges to get around to it sometime in the next 35 years. And efforts to spread carbon management throughout the corporate value chain are only just beginning.

When it comes to the corporate response to climate change, we can't pretend that token gestures will be enough.  In reality, we're all driving on that lonely road in turn-of-the millennium Senegal. Tackling climate change is every company's responsibility.  Don't wait for "someone else" to deal with it.

The Shale Gas Panacea (Part 2) - Does the UK have '43 Years of Gas'?

In a recent blog post, I provided a canned summary of the reasons shale gas has become such a burning issue.  That previous article covered issues surrounding potential environmental impacts, the relative attractiveness of shale gas compared to coal, and the potential for fugitive methane emissions.

In this post, I want to explore what exploitation of shale gas might imply for our efforts to transition to a low-carbon economy.

As a thought experiment, if we were to suddenly replace all the UK's coal consumption with natural gas, we would reduce greenhouse gas emissions by 42 million tonnes, a saving of nearly 10% from the national footprint total of 458 million tonnes CO2e.

Leaving aside the potential environmental impact of extracting this much shale gas, could we do it?  One would think so, judging from breathless headlines like this one in the UK from The Times:

Let's dig into that "43 years" statistic.

The Times article summarizes the findings from a British Geological Survey (BGS) report on the Bowland-Hodder Shale Formation in northern England.  According to the BGS, the mid-range estimate for the total gas in place in the Bowland Shale Formation is 1,329 trillion cubic feet (37.6 trillion cubic meters).  However, not all of that gas will be recoverable at a reasonable price using foreseeable technology.  A reasonable guess might be that 10% will be recoverable - call it 130 trillion cubic feet.

2012 gas consumption in the UK was approximately 3 trillion cubic feet - a figure that has actually declined slightly since 2000, as utilities burn more coal to produce power.

Divide the recoverable gas estimates (130 tcf) by current consumption (3 tcf/year) and you get 43 years. Not exactly cutting edge analysis, but easy to explain.

But is this number useful for anything besides headlines?

The first assumption we might question is that gas consumption will remain constant for the next four decades.  In the U.S., an influx of cheap gas has encouraged utilities to reduce coal consumption and shelve plans for new coal-fired generation; gas consumption increased by one-third in less than a decade.  If, as we expect, shale gas in the UK is cheaper than conventional gas supplies, gas consumption will rise to displace at least some of the UK's coal-fired power plants.  If gas were to completely replace coal and energy consumption otherwise stays flat, natural gas use could rise by nearly 50%, as indicated in the EIA chart below:

If, as expected, electric vehicles make significant gains over the next few decades, then natural gas use could rise still further as gas-fired electricity displaces petroleum.  Even this simple analysis shows that natural gas use could rise dramatically - even if overall UK energy demand does not increase.

However, the Office of National Statistics expects the country's population to rise 30% over the next four decades. Without significant efforts to improve reduce energy demand and shift to renewable energy sources, this projected population increase makes the assumption of constant gas demand even more untenable.

At this point in the analysis, we are piling guesses on top of guesses.  Coming back to our original question, yes, we could completely displace UK coal consumption and drive significant emission reductions, but not for as long as the headlines would have you believe.

And what happens once we've used up that shale gas bounty? Either we lurch back to a heavy dependence on coal, causing greenhouse gas emissions and air pollution to skyrocket, or we switch to lower carbon sources of power like PV, wind, wave, and geothermal - or nuclear.

Interestingly, it would likely take 15-20 years to fully build out renewables on a truly massive scale, along with the electricity transmission and smart grid infrastructure required to make best use of decentralized and intermittent renewable resources. Likewise, it would probably take 20-30 years for nuclear power to stage a significant comeback in the United Kingdom. Whether we employ renewables, nuclear or both is an important debate, but on for another day.

The shale gas revolution, should we choose to exploit it, has the potential to buy us some time.  If we can resolve the far-from-trivial environmental and other challenges facing hydraulic fracturing, we can achieve significant greenhouse gas emission reductions today, even as we build a longer-term low-carbon energy infrastructure for tomorrow.

The Shale Gas Panacea (Part 1)

If you want start an argument, just ask a group of environmentalists what they think about shale gas.

Then pass the popcorn.

Conventional natural gas is pumped from vast underground pools like the deposits found under the North Sea, in Russia and in Saudi Arabia.  Geologists have long known that there was also a huge amount of gas and oil trapped in tiny bubbles in sedimentary rock called shale, spread across vast territories around the world.  However, traditional drilling techniques could not access this gas in a cost-effective manner; by comparison, it was far more cost effective to build and operate a drilling rig in the North Sea than drill for shale gas in Montana.

Two technological breakthroughs changed all that.  The introduction of horizontal drilling meant resource extraction companies could drill a network of wells covering a huge area from a single drilling site, without displacing overlying farms, fields and even towns.  Hydraulic fracturing, or "fracking", meanwhile, provided a means of crushing  shale rock using high-pressure fluid, without strip mining the area.  Once the rock is crushed, any pockets of gas or oil trapped in the rock would flow out along the path of least resistance - typically back along the tunnel created by the drill.

Suddenly, it became possible to extract tremendous quantities of shale gas and shale oil, overturning common assumptions about the availability of fossil fuels.  As a result of the shale  gas boom, natural gas prices in the United States are a fraction of the international gas price.

By 2015, the U.S. is expected to overtake Saudi Arabia as the world's biggest gas producer as  energy companies tap the Marcellus, Bakken and other shale basins.  In the UK, meanwhile, analysts are reporting breathlessly about the potential of the Bowland Basin, which some claim can supply the  country with gas for the next 43 years. I'll be taking a closer look at that number next time, but for now let's agree that there's a lot of gas down there.

Why might this be good news for environmentalists? Per unit of energy, natural gas has a much lower greenhouse gas emissions intensity than coal or oil.  In the United States, an abundance of cheap shale gas is ruining the economics of coal-fired power plants. In 2005, gas accounted for 19% of the country's electricity production; in 2012 this figure was 30%.  Largely as a result, America's greenhouse gas emissions are falling rapidly - even before President Obama's proposed regulation of power station emissions comes into effect.  Here in the UK, low prices for EU ETS permits reduce the incentive for power station operators to reduce emissions; it's cheaper to burn coal and buy a permit than use expensive gas. In addition to its CO2 emissions, coal combustion also releases mercury into the environment and contributes more to ambient air pollution than does burning gas.  A massive influx of cheap gas could reduce output at the UK's coal-fired power plants, and force operators to shelve plans for new coal-fired generation. A cleaner environment and  lower greenhouse gas emissions would be the result.

Why might the fracking revolution be bad news for environmentalists? For one thing, we need to be clear about what fuel shale gas is displacing.  Not all that American coal is staying in the ground: as demand for coal falls in the U.S., its price has plummeted.  As a result, it has been cost effective for some European utilities to buy (relatively) cheap American coal instead of  more expensive European and Middle Eastern gas.  Coal imports from the U.S. were up 23% in 2012.  Seen at a global level, shale gas production may be displacing...gas, not coal.

In addition, hydraulic fracturing is not a tidy process.  The hydraulic fluid is a potent  chemical brew and has the potential to contaminate local groundwater supplies.  Changes to  underlying rock formations have led to a spate of earthquakes in some areas after the  introduction of fracking.  And many environmentalists are concerned that the gas may not always  flow as intended - unplanned releases of inflammable gas can pose a safety hazard, and with a 100-year global warming potential 21 times greater than CO2, natural gas releases from fracking could undo some of the benefit that comes from displacing coal. Other studies argue that this fear is overblown, and energy companies have both the capability and financial incentive to minimise leaks.

While this debate will rage on, I predict that there will be some fracking in the UK, and it will continue to grow in the U.S. The question, then, is whether we can mitigate potential harmful environmental impacts, and use this resource boon as wisely as possible.

We'll return to this issue in a subsequent article.

Obama's $2.7 Billion Climate Science Salvo

 

 Last week U.S. President Obama announced a new initiative to spur action on climate change.  Unlike previous efforts, this Climate Action Plan bypasses a legislature that has been largely paralyzed and relies on existing legislation and the President's executive authority.

There has already been a great deal of commentary about this new plan, and especially the proposal to regulate emissions from new and existing power plants.  I discussed the power plant proposals last year and will return to this issue again.  Today, we'll focus on a component of the Climate Action Plan that has received much less attention: science.

Many of the remaining critics of robust government action to reduce greenhouse gas emissions argue that the science is still not solid enough to provide a foundation for decisions that will fundamentally alter the U.S. and global economy.  President Obama has provided a two-fold response.  First, in his speech he made a strong moral argument in favor of the precautionary principle:

So the question now is whether we will have the courage to act before it’s too late. And how we answer will have a profound impact on the world that we leave behind not just to you, but to your children and to your grandchildren.

As a President, as a father, and as an American, I’m here to say we need to act. 

This moral call to arms is important - we need to act on the courage of our convictions.  But it probably won't silence the critics, even if it turns out that the United States is able to cost-effectively make the transition to a low-carbon economy and create tens of thousands more green jobs.

The President's second response to the remaining critics of climate science, then, was a masterstroke.  The Climate Action Plan announces over $2.7 billion of funding to develop "actionable climate science".  Government agencies will provide research grants to better understand and document climate change risks and impacts, make more and better government climate science data freely available, and provide toolkits that boost climate resilience.

For climate change skeptics, the President's response is a classic example of the adage, "be careful what you wish for".  The Climate Action Plan threatens to unleash a tsunami of new data.  The Office of Management and Budget's peer-review process for publication of important scientific research is in some cases more rigorous than  for scientific journals.  The peer reviewed scientific literature showing a positive link between human activity and climate change impacts vastly outnumbers publications showing the reverse.  Thus, it's likely that the deluge of new research resulting from this "actionable climate science" initiative will tilt scientific and popular opinion even further away from those who advocate business-as-usual.

Research does not deliver instant results, but it's good to see which way the wind is blowing.  Across the globe, businesses are beginning to assess their own climate-related risks, impacts and opportunities - often as part of their annual CDP disclosure process.  The new climate research agenda from the U.S. will provide further tools to help businesses understand their climate change exposure and take action.

This article was originally published on the 2degrees Network.

The New Normal

David Kadlubowski/The Arizona Republic, via Associated Press

I think we have had more than enough "teachable moments" around climate change.  On Sunday, June 30th, 19 firefighters died fighting a wildfire in Arizona, the greatest number of firefighters lost in a single incident since September 11th, 2001.

Fires are a fact of life in the arid American southwest, but they are growing more frequent, hotter, and more severe.  The reason: a warming planet.

As Climate Central reports, Arizona's average temperature has been rising by 0.72 degrees per decade since 1970. When winters are cold, precipitation falls as snow, which seeps into the soil as it melts.  When winters are warmer, more precipitation falls as rain and runs off into streams and rivers.  Less water seeps into the soil, leading to the drier conditions that help fires spread.  The warmer winters also give the growing season a head start, leading to thicker undergrowth that can serve as kindling.

The New York Times notes that wildfires in the first decade of the twenty-first century covered on average twice as much U.S. acreage than in the 1990s.  This figure is expected to increase as hotter, drier weather becomes commonplace with rising global temperatures.

As I've said before, this is what climate change looks like.  Welcome to the new "normal".

It is too late at this point to completely avoid damaging climate change.  However, we still have an opportunity to reduce emissions and forestall the most catastrophic impacts.  We don't need any more "teachable moments" - now is the time to take action to control our carbon impact.

The 'Critical Decade' and Unburnable Carbon

There has been a massive disconnect between the concerns about catastrophic, multi-billion dollar climate change impacts and the types of measures that most governments propose for tackling the challenge.

In the U.S., for example, the Environmental Protection Agency's climate change impacts website features a photo of a town submerged by floodwaters:

and yet the agency summarizes its approach to fighting climate change as a collection of  "common sense measures to reduce greenhouse gas pollution", and encourages people to take steps "such as walking or biking to work".  The message seems to be, yes we are facing a catastrophic, life-changing threat, but everything will be fine if we make a few small changes here and there.  One gets the feeling they're not telling us something.

Australians have a reputation for speaking plainly. Even so, the language in a recent report from the Australian Government's Climate Commission was unusually bracing:

"[M]any consequences of climate change are already evident, and the risks of further climate change are better understood. It is clear that global society must virtually decarbonise in the next 30-35 years. This means that most of the fossil fuel reserves must stay in the ground." [emphasis mine]

Such frank language on climate change is rare from a government agency. It represents what one former U.S. politician called "an inconvenient truth". It is even more extraordinary coming from the world's leading coal exporting nation.

Extraordinary claims require extraordinary evidence. Fortunately, a number of organizations have already done the math.

Our atmosphere is finite - if the entire atmosphere were a sphere at standard air pressure, it would be just 2,000 km across.  The illustration below gives a good sense of the limited volume of the Earth's atmosphere.  When we change atmospheric chemistry by releasing billions of tonnes of greenhouse gases, we change how it absorbs and re-radiates heat.

Climate scientists agree that if we are to have fighting odds of keeping temperature increases this century below 2 degrees C (meaning climate change will be bad but not totally catastrophic), total greenhouse gas emissions between 2000-2050 cannot exceed 1,000 gigatonnes CO2e.

1,000 gigatonnes (1 trillion tonnes) seems like a lot - until one recognizes that 13 years in, we have already used 40% of that allocation.  That means we can only emit another 600 gigatonnes over the next 37 years.  At the current rate (which is increasing, not decreasing), we will surpass the 1,000 gigatonne threshold in 2028. This is, as the Australians put it, the "critical decade" for slowing growth and embarking on the path to zero emissions.

Just how high could emissions go if we do nothing? According to the International Energy Agency, world fossil fuel reserves are approximately five times greater than our 2 degrees emissions allocation, not counting further emissions from deforestation, land use change, and chemical processes.  That would mean temperatures that are five degrees or even higher than today's.  Think an ice-free Arctic, dust bowls across the American midwest, methane releases from the permafrost and potentially runaway climate change.  In other words, business as usual will take us far into uncharted territory.  As the Australian Climate Commission notes with characteristic bluntness: "It is clear that most fossil fuels must be left in the ground and cannot be burned."

With international climate change negotiations once again at an impasse, it is time for more frank language. Barring a technological miracle in the next few years, expect other governments to begin echoing the Australians' clear messages.

However, there is no need for businesses and communities to wait. Carbon Clear has found that organizations that take action beyond or in advance of government compliance schemes can gain first mover advantage in the race to decarbonize.  It is clearer than ever that a low-carbon transition is upon us.  How will you spend the rest of the "critical decade"?

State of the Voluntary Carbon Markets Report Launched

The State of the Voluntary Carbon Markets 2013 has been published today (30 May) at the Carbon Expo conference and exhibition in Barcelona.

The report aims to assess the current situation of the voluntary carbon market by surveying key market players and examining trends and experiences over the past year.

The 2013 report shows that the value of the voluntary carbon market increased as a percentage of the total market, mainly because the value of Voluntary Emissions Reductions (VERs) remained buoyant in comparison to Certified Emissions Reductions (CERs).

The report states that during the past year, the private sector has provided $523 million of funding for projects that cut carbon emissions. $80 million of this has been used to fund and develop projects that distribute clean cookstoves and water filtration devices. These projects cut carbon, but also have numerous other social and environmental benefits including creating jobs, improving families’ health, reducing pressure on resources, and reducing household expenditure.

In response to the report, Jamal Gore, Managing Director of Carbon Clear said:

“Carbon Clear has long been a supporter of carbon offset projects that provide jobs, improve health and strengthen communities around the world. As the developer of the Darfur low-smoke stoves project – the first registered carbon project in a conflict zone, we are delighted that demand for cookstove projects has doubled. This growth shows that customers continue to value these types of high-impact, charismatic carbon projects.”

The executive summary of the report is here.

More information about the Carbon Clear Sudan Cookstove Project is available here.

World Bank President: "End Fossil Fuel Subsidies"

Last June I commented on the lack of joined-up thinking when it comes to fossil fuel subsidies.  World Bank President Jim Yong Kim seems to share this sentiment.

According to the Thompson Reuters news agency, Kim spoke out against fossil fuel subsidies during a U.N. meeting of climate and environment ministers in Bonn, Germany.  As he rightly noted, “They are regressive, negatively impact the environment and act as a barrier to progress on clean technology."

The World Bank has long been a champion of free markets, so perhaps it should not be a surprise when the World Bank's President calls for an end to government subsidies.

What is even more noteworthy, then, about Kim's speech, is that he followed up his criticism of subsidies with a call for more government involvement to price greenhouse gas emissions.  Carbon dioxide, nitrous oxide, methane and other GHGs are atmospheric pollutants whose uncontrolled release is causing the planet's average temperature to rise. This in turn is affecting the frequency and intensity of storms, floods, droughts, glacier retreat, the spread of pests and disease and species loss.  For 90% of the planet's population, governments have given a free pass on emissions, by failing to force companies and individuals to incorporate the price of pollution into their everyday decisions.

Kim advocates a change of direction, encouraging governments to adopt one or more carbon pricing mechanisms, "whether this is through a tax on carbon, indirect taxation, regulation or the creation of a carbon market."

President Kim's comments are noteworthy because they come from an institution not known for encouraging governments to meddle in the market.  They bring to mind an observation I and my colleagues at Carbon Clear have made many times before: climate change is that rare global problem that humanity actually has the power to tackle.  We know what causes it, we know what it will take to address it, and we have at our disposal the technological and policy tools to make the transition to a low-carbon future.  We even know how to turn climate change from a challenge to an opportunity.  What we need now is the courage and conviction to act.

An End to Magical Thinking on Climate Change?

Mickey Mouse (c) Disney

Quick quiz: What's the link between the recent measles outbreak in the UK, fiscal austerity as a way to restart economic growth, and the news that global CO2 emissions are about to surpass the 400 parts per million mark for the first time in millennia?

Answer: All three reflect the dominance of magical thinking - or rather, the willingness of citizens and policy makers to make decisions based on supposition and gut feel rather than an understanding of cause and effect or relying on data.

Humans are notoriously bad at math.  It is extremely challenging for most people to identify more than five items in a group without counting them out.  We can rarely perform more than the most basic calculations in our heads.  Statistics, percentages, data analysis - these concepts do not come naturally.

This is a problem because society needs to base its important decisions on sound information.  When we make major decisions using bad information, the results can be catastrophic. As a result, we need to be very careful when we make decisions that affect the rest of society. Science and data are the order of the day, checking and double-checking, not gut feel or wishful thinking.  Unfortunately, that does not always happen.

In 1998, news outlets in the UK reported the results of a study that claimed a link between the measles-mumps-rubella (MMR) triple vaccination and autism.  Other researchers immediately questioned the study, and no one demonstrated a verifiable cause-and-effect relationship between the vaccine and the condition. It didn't matter.  Thousands of parents, responding to screaming headlines, refused to have their children immunised, believing that somehow avoiding vaccinations would make them safer.

Fast forward to 2013.  The original report has been thoroughly repudiated, and the doctor who published the research has been struck off the General Medical Council register. Meanwhile, over 1,000 children have contracted measles, a dangerous and easily preventable illness and many more are at risk.  The British government is now spending vast sums on a massive vaccination "catch up" campaign to halt the spread of measles, as well as mumps and rubella. These are diseases that were nearly wiped out in Western countries a generation ago.  They have made a comeback  thanks to over-reliance on shoddy data, and now all of us are paying to clean up the mess, not least the families of children who have contracted this horrible disease.

In 2010, Harvard economists Carmen Reinhart and Kenneth Rogoff published a research paper claiming a link between countries' national debt levels and economic growth. In particular, they argued that growth falls dramatically when debt levels exceed 90%.  No matter that the paper had not undergone peer review, that other economists questioned the report and that other researchers were unable to replicate the results.  And no matter that it was hard to work out a cause-and-effect mechanism that would kick in only above a certain threshold.  The report was seized upon by fiscal hawks at think tanks and in governments across Europe and in the United States to justify massive government spending cuts.  The resulting "age of austerity" has seen a change of  government in Italy, riots on the streets of Athens, cuts to public services and benefits in the United Kingdom, and across-the-board budget cuts in everything from air traffic control to national parks in the United States.  One might argue that politicians would have embarked on these measures in any event, but the fact remains that this paper provided intellectual cover and was cited far and wide to justify fiscal cutbacks.

Fast forward to 2013. The original report claiming a link between debt levels and economic growth has been debunked due to questionable methodological techniques and a particularly glaring Excel formula error.  Even the International Monetary Fund, which championed "structural adjustment" and similar austerity measures for developing countries in the  1980s and 1990s, has begun to rethink its initial support of fiscal austerity.  In the meantime, economic output remains anaemic, unemployment has skyrocketed across southern Europe, and in the UK slow growth means that government debt has risen not fallen.

Whether it's in social sciences like economics and sociology, or in the physical sciences like biology and physics, we can make the most confident predictions when there is a logical link between cause and effect, when the research is subject to peer review, and when other resaerchers using the same data reach similar conclusions. To quote the late astronomer Carl Sagan,

"What counts is not what sounds plausible, not what we would like to believe, not what one or two witnesses claim, but only what is supported by hard evidence rigorously and skeptically examined. Extraordinary claims require extraordinary evidence."

And so to climate change.

Scientists have for decades been researching the link between human-induced greenhouse gas emissions, rising global temperatures, and changes to the global and regional climate. Every ten years, the UN-mandated Intergovernmental Panel on Climate Change (IPCC) publishes a summary of these research findings, along with recommendations for government action.  The IPCC is comprised of thousands of the world's best climate scientists - physicists, meteorologists, chemists, computer modelers.  Their research is published and subject to international peer review.  They flag past errors and describe how they have subsequently updated their findings.  The findings and recommendations represent the consensus view of  over 120 governments, are cautiously worded and full of caveats regarding potential uncertainties.

The IPCC assessments reports are a triumph of science and data over gut feel.  The process is slow, methodical and cautious.  After all, climate change is a global problem that affects almost every aspect of how we live, work and play.  It is important to make sound decisions based on good information.

So what to make of the news that global CO2 concentrations are about to exceed 400 parts per million for the first time since the Pliocene Era, 3.5 to 5 million years ago?

More magical thinking, I'm sorry to say.  Politicians worry that setting ambitious targets to tackle climate change will cause economic hardship and continue to subsidise fossil fuels, ignoring the costs of climate related disasters like heatwaves and drought, floods and storms, and irreparable damage to our forests and other ecosystems.  Journalists looking for balance have given equal voice to a handful of climate skeptics and recognised scientists who quote the peer reviewed IPCC data.  And the general population, unable to see directly the link between their lifestyles and rising global temperatures and lacking any direct incentives to take action, refuses to change its behaviour.

But all is not lost.  The sudden push to vaccinate children in the United Kingdom shows that we can overcome magical thinking to make rational decisions.  The rapid shift in opinion against a once ubiquitous study on debt and economic growth shows that people can change their minds and consider alternatives when new data becomes available.

The IPCC 5th Assessment Report will be released in late October 2013.  As the impacts of climate change become more apparent to people around the world, I'm hopeful that governments, businesses, communities and individuals will review the IPCC findings, abandon gut feel, and seize this latest opportunity to tackle climate change and embrace a lower-carbon future.

Previously: Science- It Works on Mars and on Earth
Previously: Welcome to the Reality-Based Majority

Voluntary Offsets and the Backloading Brouhaha

My previous posts about "backloading" and the EU ETS have focused on the implications for the compliance markets in Europe and elsewhere. In compliance markets, government regulators set the rules governing the supply of emission reduction allowances and offset credits.  They also govern demand by setting the emissions targets that firms must meet by making internal reductions or purchasing permits and offsets.

Now I'd like to focus on what the backloading debate means for the voluntary carbon markets.  The short answer is that backloading will have little direct impact, but the reasons are worth a longer discussion.

The voluntary market is much smaller than its government-created sibling, but it is difficult to overestimate its importance. The voluntary market is self-regulating.  Its carbon offset credits are issued by independent standards bodies, and an increasing number of its largest market makers  follow a Code of Practice governing how they do business.

This self regulation makes the voluntary markets exceptionally flexible and a source of innovation that helps improve the slower and more bureacratic compliance markets.  All four of the protocols initially approved in California's cap-and-trade system were developed initially under the Climate Action Reserve, a voluntary carbon standard. A number of the carbon credit innovations that were pioneered by bodies such as the Gold Standard and the Verified Carbon Standard have allowed the United Nations carbon credit system to expand beyond large, industrial project types like refrigerant destruction, large hydropower and waste heat recovery. The project types favored by the voluntary carbon market, like clean cookstoves, village lighting, forest conservation and water purification can deliver greater sustainable development and have helped bring the benefits of carbon finance to poorer nations.

Voluntary market innovation is not limited to the projects. It's notable that California's fledgeling carbon market California has decided to use for its cap-and-trade transactions two private sector registries that were created for  the voluntary carbon market to - due in large part to their responsiveness, quality and cost-effectiveness.  And when the British government launched a short-lived effort to develop its own voluntary offset quality scheme, the market launched a more thorough and far-reaching system, twelve months faster, and for only one-tenth of the cost.

But perhaps the most important point that helps understand what makes the voluntary market special is that its carbon offset buyers choose to buy carbon credits! Voluntary market buyers take action of their own accord beyond or in advance of legislation to tackle their climate change impact. 

This difference more than anything helps explain why the backloading brouhaha has little direct impact on the voluntary market. In the compliance market, emitters tend to reduce their emissions just enough to avoid paying penalties. If they cannot meet their reduction targets, they tend to buy just enough offset credits (called CERs) and allowances (EUAs) to avoid those penalties. And when those firms find they have exceeded their reduction targets? They sell their surplus allowances, even if their footprint is still far above zero.  The economic recession made it very easy for many companies in the EU ETS to meet their reduction targets, nearly eliminating demand for allowances and offsets.  Supply and demand - too many permits and insufficient demand drives CER and EUA prices in the compliance markets towards zero.

Compare that to buyer behaviour in the voluntary carbon market.  The demand drivers for carbon credits could not be more different. Here companies pledge to reduce their net emissions - often
to zero - through a combination of internal reductions and voluntary offset credits. When voluntary customers fail to meet their reduction targets, they must buy more carbon credits to make up the difference.  When they exceed those targets, they buy fewer credits - but they keep buying.  Their reduction goals are sufficiently ambitious that it would be nearly impossible to reduce demand for offset credits to zero - at least for the foreseeable future.

Buyer behaviour in the voluntary market differs from the compliance market in another way.  Absent the carrot and stick of government regulation, buyers use their carbon management programmes as a way to demonstrate good citizenship.  As a result, many companies seek carbon offset credits from projects that do much more than reduce greenhouse gas emissions.  Emission reduction projects that improve local livelihoods help corporate offset customers achieve their broader CSR goals.  After all, which would you rather have on the cover of your CSR report, a photo of an industrial gas destruction project, or a photo of a family enjoying the benefits of solar powered lighting and safe drinking water? It is the value of these co-benefits that helps maintain prices in the voluntary carbon market, even during an economic recession.

With such different motivations for buyer behaviour compared to the compliance market, it is little wonder that the impact of policy measures like backloading would have little direct impact on the voluntary market.

However, compliance market policy failures can have an indirect impact on prices in the voluntary market. Actors in the compliance market have begun to take notice of the relative buoyancy of voluntary prices.  In September 2012 the UN Framework Convention on Climate Change included the following statement in its meeting notes:

"Project participants and others engaged in the [Clean Development Mechanism] will soon be able to voluntarily cancel their CERs into an account in the CDM registry at the UNFCCC secretariat in Bonn, Germany. This could encourage expanded use of CERs for voluntary emission reduction, such as by companies using credits as part of a social responsibility programme, by event organizers wanting to offset their emissions, or even by individuals wishing to reduce their carbon footprint."

Just a few months later Christiana Figueres, the head of the UNFCCC, made the following Tweet:

It appears that a number of people are hoping that the relatively buoyant voluntary market can support CDM  by serving as a source of demand for compliance credits.  This is a great idea in theory.  However, the primary CDM market was created to feed national and regional compliance schemes.  The promise of CDM has mobilised a tremendous amount of climate finance to feed the compliance market.  In 2011, the latest year for which figures are available, CDM was five times larger than the voluntary carbon market.  Since that time, we have seen record issuances of carbon credits on the CDM.

It would be wonderful if demand in the voluntary market expanded rapidly enough to absorb the surplus from the CDM (or at least from the CDM's more community-oriented and renewable energy projects).  The short-term impact of such an influx, however, would be to overwhelm completely the absorptive capacity of the voluntary market, driving prices towards zero and removing incentives to develop new and innovative voluntary projects.  It would be akin to fitting all the passengers from the Titanic into one lifeboat.  Rather than rescuing the compliance market, we would damage the voluntary carbon market, perhaps irreparably.

It's clear, then, that for all its inherent strengths, the voluntary carbon market remains vulnerable to poorly executed attempts to rescue elements of the compliance market. The most robust and sustainable fix for the compliance market's woes remains in the realm of politics. More specifically, national and regional leaders must show the courage to set ambitious reduction targets that accelerate the pace of action to fight climate change.  The depressed prices on the EU ETS show that companies have been able to meet their current emissions reductions obligations more easily than we ever thought possible.  Deepening emission reduction targets will accelerate the transition to a lower-carbon economy and strengthen the carbon markets by driving demand for compliance carbon credits and provide a sustained boost to prices.

Meanwhile, the voluntary carbon markets will continue doing what they do best: driving innovation and providing a vehicle for companies who want to take action beyond compliance to demonstrate their environmental leadership.

(Jamal Gore is Managing Director of carbon management firm Carbon Clear.)

More on Fixing the EU ETS

The other day, I pointed out that the collapse in the carbon price on the EU ETS compliance market was down to politics, not an inherent failing of cap-and-trade.  I concluded by pointing out that we need courageous political leaders willing to take faster action against climate change.

It seems I'm not alone in reaching this conclusion.  Here's the article lead from yesterday's Point Carbon news website:

Of course, the voluntary carbon markets are relatively less likely to be held hostage by politics.  Companies around the world increasingly are going beyond any compliance obligations to set ambitious emission reduction targets and buy quality carbon offset credits that reduce GHG emissions outside their organisational footprint boundaries.  Carbon Clear is committed to helping companies control their carbon impact - we look forward to working with you.