Tuesday, 19 February 2013

More on the CRC and Carbon Offsets

One of the reasons participation in the UK's Carbon Reduction Commitment Energy Efficiency Scheme is a poor alternative to offsetting your company's carbon emissions is that the Government has no obligation to use your CRC "tax" payments to spur greenhouse gas reductions. A second reason is because, by DECC's own admission, the £12 per tonne permit price "may have a marginal effect on decisions to invest in energy efficiency relative to overall energy prices".

Pulling back to look at the big picture provides us yet another reason why companies participating in the CRC should not abandon carbon offsetting as a tool to fight climate change: the CRC ignores a huge portion of most companies' carbon footprint.

The CRC focuses on emissions from stationary energy consumption - particularly the use of electricity and gas in buildings.  In traditional carbon reporting parlance, the CRC focuses on Scope 1 and 2 energy emissions.  It does not cover other types of Scope 1 emissions - from refrigerant leaks, from land use and forestry activities, or from burning fuel to power a company's vehicles. The CRC is also silent on most Scope 3 emissions, which come from third party activities undertaken on the company's behalf. This includes taxis, commercial air travel, hotels, and outsourced goods and services.  Finally, even that limited CRC footprint is focused only on a company's UK operations - all emissions from overseas assets are excluded.

From the point of view of government regulators, these exclusions make sense. After all, the UK would risk an international outcry if it unilaterally imposed a carbon tax on company operations in, say Germany or China. And with buildings responsible for the lion's share of UK emissions, there is a strong case for focusing on this area.

For many companies, however, an emphasis solely on the CRC footprint marks a retreat from best practice.  The GHG Protocol and ISO 14064 reporting standards require firms to report all Scope 1 emission sources, not just energy, and recommend further that firms measure and report their Scope 3 emissions whenever possible. Therefore, relying on the CRC footprint would not be enough to demonstrate a firm's low-carbon leadership - even if the CRC were to begin driving investment into emission reductions on a massive scale.

For professional services firms the situation is even worse. Business travel often represents more than 50% of the carbon footprint of a major accounting firm, consultancy or auditor. As a recent  infographic in the New York Times demonstrates, frequent long-haul flights can easily swamp an individual's or company's other emission reduction efforts.  The problem for professional services is that these companies are selling time and brainpower. They are often most effective when they can sit side by side with their clients to solve business problems.  And when their clients are all over the globe, that means they have to travel. A lot. Many of these companies are CRC participants, but their CRC performance says little about their overall GHG impact.

Let me be clear: the CRC has helped us make progress in our efforts to decarbonise the UK economy. It has raise awareness of climate change among finance directors and other corporate leaders in a way that would be difficult to accomplish with voluntary measures alone.  Furthermore, it gives government the tools to drive further reductions in future. However, corporates who wish to demonstrate their low-carbon leadership must go further. They can set ambitious near- and long-term reduction targets that go beyond compliance, and they can invest in verified carbon offset credits that achieve guaranteed emission reductions, right here and now.

Jamal Gore is Director at carbon management specialist firm Carbon Clear. All opinions are his own.

Friday, 8 February 2013

Carbon Offsets and the CRC "Tax"

One of the more surprising findings from Carbon Clear's 2012 research into the carbon performance of the FTSE 100 was the fact that only a small fraction of the country's largest companies offset their  greenhouse gas emissions.  In follow up conversations with some of these firms, representatives gave me a number of reasons why they don't offset, but one rationale has been cropping up with increasing frequency. To paraphrase: "We don't need to offset to demonstrate our low-carbon committment because we're paying the CRC tax."

Such a view might seem reasonable, but falls short of the mark.

The CRC requires large firms that are not covered under the EU ETS to report their energy emissions and pay a £12/tonne permit fee to the Government.  In an ideal world, those accumulated payments would go towards a range of emission reduction activities, from tree planting and forest restoration to incentives for clean energy investment, to support for energy efficiency in homes and offices. However, CRC revenues, estimated at over £1 billion, are not earmarked for green initiatives. The money goes into general revenues.

I'll say that again: There is no direct link between CRC payments and Government spending on emission reduction measures.

At best, the CRC drives emission reductions by helping companies become more aware of their energy consumption, and by very slightly increasing firms' energy bills. These measures will undoubtedly have some impact.  But with energy a relatively minor expense at most companies covered by the CRC, and permit fees equal to only about 10% of electricity costs, these incentives are relatively weak.

Many sustainability experts hoped that the CRC's Performance League Table (PLT) would provide a reputational driver that encourages firms to reduce their emissions, but there is little evidence to suggest the PLT has had much impact.  In its first year, PLT rank was assigned based on implementation of Early Action Metrics that would help a company collect better data, not on emission reductions.

The second round of league table results has been delayed for several months, apparently because so many companies have asked to refile their data with the Environment Agency. What is more, the currently delayed league table will be the last of its kind after Government announced in December 2012 that this element of the CRC will be scrapped. So much for reputational incentives.

All of this makes very tenuous the link between CRC participation and ambitious efforts to tackle companies' climate change impact.  To be clear, the CRC has helped to put climate change and carbon reporting on the corporate agenda in the UK, and many firms will use the increased awareness of their energy consumption to drive savings.  However, most of the resultant savings will be at the margin, and as we have noted previously the vast majority of a company's greenhouse gas emissions will continue unabated, and then remain in the atmosphere for decades or centuries.

There are only two real ways to tackle a company's carbon impact when it matters most - that is, right now.  The first is to reduce net emissions within the company's footprint boundary - through energy efficiency, behaviour change, process improvements, reforestation and other measures.  The second is to reduce emissions outside the company's footprint boundary, at the same rate or greater than the company's own emissions - by supporting verifiable emission reductions from another source. That second approach is called "offsetting".

Taken together, ambitious internal reductions and high quality offsetting form the core of a comprehensive carbon management strategy.

The CRC remains a legal requirement for many UK companies and it can make a contribution to the low-carbon agenda.  But tax or not, the CRC is not a substitute for carbon offsets when it comes to fighting climate change.