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.

Carbon Clear's Autumn Breakfast Briefings: Telling the Story

There are only two days to go before the launch of Carbon Clear's autumn Breakfast Briefing series. A good deal of thought went into these sessions, and I like to think they come together to tell a compelling story.  Here's how they fit together.

The first session, on 20 September, will cover the UK Government's new Mandatory Carbon Reporting legislation, which I blogged about a few weeks ago.  I'll be joined at that session by my colleague Vincent Reulet and by Mardi McBrien, MD of the Carbon Disclosure Standards Board.

We'll be talking about why the Government is pushing for mandatory carbon reporting, how this new requirement fits in with other carbon reporting efforts like the EU ETS, the Carbon Disclosure Project and the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), and how companies can both comply with this legislation and use it to gain competitive advantage.  Should be an informative and dynamic event.

A few weeks later, on 2 October, we will be talking about what I sometimes refer to as Carbon Offsetting 2.0.  After the first wave of carbon offsetting in the mid- to late-2000s, there was a lull.  Now, a new crop of companies, from Microsoft to Marks & Spencer, are announcing carbon neutrality programmes.  We'll be discussing how this new round of carbon offsetting differs from the first, and how other companies can benefit.

Then, on 17 October we will be unveiling our Carbon Maturity whitepaper.  Our crack team of consultants has pooled decades of accumulated experience working with over a hundred companies to develop a model of corporate carbon maturity.  We've found that companies at each stage of the maturity curve share certain characteristics and encounter similar obstacles before moving on to the next level.  This applies to both their internal carbon management activities and their carbon offsetting initiatives.  Delegates at this briefing will learn how the carbon maturity model works, and how to benchmark their companies' performance against other businesses.

The breakfast briefing series, then, tells a story.  We start with carbon footprinting and show how it can go from being a burden to a source of competitive advantage.  We then move on to carbon offsetting and show how it has evolved to become a source of real business value for the largest companies.  And then we describe how companies around the world are developing increasingly sophisticated carbon management programmes that deliver benefits for management, employees, investors and the wider community.

I think that's a story that every company should hear. Join us, and help tell the story.

Carbon Clear at the Africa Carbon Forum

This week we're at the Africa Carbon Forum in Addis Ababa, Ethiopia, where I'll be speaking at a training session on Programmes of Activities.  And catching up with old friends and associates.

The Africa Carbon Forum, or ACF, brings together government representatives, private investors and carbon project developers, consultants, academics and NGOs.  The goals: share information, identify carbon project opportunities and figure out how to make the carbon markets work for Africa.

Until recently, it could be argued that the carbon markets were not working for Africa.  According to the UN Environment Program, fewer than 3% of all Clean Development Mechanism carbon credit projects were in Africa, and 4% of all carbon credits.  For a region with 14% of the world's population and a disproportionate exposure to climate change impacts, Africa has clearly been under-represented.

Much of the conversation at the last few ACF meetings has been about how Programmes of Activities, or PoAs, can help change this situation.  PoAs allow you to register carbon credit projects that are made up of a number of decentralised activities that can be rolled out over a period of years.  The traditional project approach was suited only for relatively large, standalone activities, like hydroelectric power stations and landfill gas capture schemes.  Those traditional approaches are challenging for projects that provide benefits to poor, widely dispersed rural communities. PoAs are distributing improved cook stoves, water purification systems, or solar-powered lanterns across an entire country.

Since the adoption of Programmes of Activities, the number of new carbon credit projects in Africa has skyrocketed.  That's good news for people across the continent who lack ready access to clean energy services.

But, like traditional projects, these initiatives must be well-managed and rigorously monitored to generate carbon credits with robust environmental integrity.  Thus my session tomorrow morning.  I'll be participating in a training for organisations that want to manage these far-flung PoAs, helping to ensure that they understand the rules laid out by the Clean Development Mechanism.

I'll say more in subsequent posts about the conversations and presentations at this week's conference.

Carbon Clear Report: Britain’s biggest companies get to grips with carbon reporting

A report published by Carbon Clear shows that most companies in the FTSE 100 are now regularly reporting on their greenhouse gas emissions and showing evidence of carbon footprint  reductions.

The research shows that 93 of the 100 companies had issued a 2010 carbon footprint report by June 2011, and that 44 companies publish carbon data for at least the past 5 years. An impressive 77 companies report carbon reductions in relative or absolute terms over the previous 12 months.

The researchers scored publically available information from each company against 33 reporting criteria. There was a significant range in scores, from the highest score of 97% to the lowest score of just 12%.

The top 10 performers were British Sky Broadcasting, Marks & Spencer Group, Aviva, Pearson, RSA Insurance Group, GSK, Hammerson, Kingfisher, Sainsbury and Tesco. The Supermarket and Publishing sectors in the FTSE100 are best performers, with the Manufacturing, Mining & Metals and Building Materials sectors coming bottom of the league table.

While most companies seem to be making significant progress reporting their carbon impacts, there
were some noticeable exceptions. 16 companies were unable to report any historical emission reductions
and are yet to publish any plans or targets for achieving future reductions.

The research showed that of the 20 companies that offset their emissioons, 85% also report internal carbon reductions. A total of 6 companies are carbon neutral, but none yet to the new PAS 2060 standard for carbon neutrality.

Mark Chadwick, CEO of Carbon Clear, said “Our analysis identified obvious areas of best practice, and others that fell short. To those companies not yet providing accurate carbon data and reduction plans, I’d urge
them reflect on how they can improve their carbon reporting. Frankly, poor carbon reporting not only
presents a clear commercial risk, but misses an opportunity to capture real business benefits through
reduced resource consumption and better interaction with stakeholders.”

The full report can be accessed here.

(Back to the Carbon Clear website)

After the DECC Quality Assurance Scheme

As mentioned in earlier posts, the UK Government is ending support for its Quality Assurance Scheme (QAS) for carbon offsets.  So what happens now?

The first point to recognise is that this isn't the end of the world for the voluntary carbon market. Few serious companies participated actively in the scheme, and even those sold relatively few QAS approved carbon offset credits. In terms of quality control and integrity, the QAS was obsolete before it even launched, having been overtaken by the Code of Practice launched in 2008 by the International Carbon Offset and Reduction Alliance (ICROA).  The ICROA Code is followed by some of the largest carbon offset retailers around the world and governs the types of carbon credits sold, the way carbon footprints are calculated, the reduction advice given to customers, and the way members and their customers communicate a company's "carbon neutral" status.  It should be no surprise to learn that Carbon Clear is a founding member and has actively led the evolution of the Code.

Last year the British Standards Institute launched a carbon neutrality specification that mirrors many aspects of the ICROA Code - but not the QAS.

The second point is that the end of the QAS helps unshackle the voluntary carbon offset market.  The original planners of the QAS sent mixed messages, describing the characteristics of a quality carbon credit, and then rejecting VCS and Gold Standard credits even when they were shown to meet those criteria.  What is more, subsequent Government guidance documents all pointed to the QAS as the arbiter of quality, despite rising criticism from indsutry.

VER credits from VCS, Gold Standard and elsewhere offer a number of benefits over the QAS approved varieties.  First, these credits are directly traceable to specific projects that often provide co-benefits unmatched in the compliance credit world.  Voluntary offset customers want credits that help them communicate their environmental and ethical credentials to stakeholders.  It's much easier to accomplish this objective with an improved cookstove project in rural Malawi than a faceless industrial gas destruction project in China, or even more-faceless European allowances from a German steel mill.  What is more, these VER credits are often half the price of compliance credits - and sometimes even less.  One wonders how many customers were discouraged from offsetting by these mixed messages from the QAS.

By announcing that Government would now look to the carbon markets to establish best practice, DECC is removing a barrier to the adoption of carbon credits that meet these and other quality standards. Companies that previously offset through QAS-approved credits will be in a better position to engage with their stakeholders, and DECC is to be applauded for this bold move.

Indeed, I expect the UK voluntary carbon credit market to experience a renaissance as a result of DECC's decision.  As always, Carbon Clear is here to help.

Government Abandons Shunned Carbon Offset Assurance Scheme

The Department of Energy and Climate Change (DECC) has announced that it will close its Quality Assurance Scheme for Carbon Offsetting. The move will be welcomed by the vast majority of carbon offset providers and customers who declined to participate in the scheme since its outset.

Despite a consultation exercise in 2007 and 2008 to which many carbon offset market participants responded, the Quality Assurance Scheme refused to include popular carbon offset credits certified by organisations such as the Gold Standard and Verified Carbon Standard.

Providers of these verified emission reduction (VER) credits argued that DECC’s refusal to approve these credits was confusing and counter-productive, as these credits tend to be most popular with voluntary offset customers and meet all of the conditions laid out by DECC for quality carbon offset credits. What is more, these carbon credit types provide much needed finance for clean energy and forestry projects in the developing world. As a result, members of the industry body ICROA declined to apply for accreditation under the Quality Assurance Scheme. [Carbon Clear is a Founding Member of ICROA.]

Only nine other organisations participated in the scheme, and many of these providers offered VERs alongside the scheme’s approved credits, leaving consumers and businesses confused when comparing different carbon offset schemes. Despite initial projections, the scheme was never able to become self-sustaining, requiring DECC to part-fund the scheme.

In a statement, DECC announced that “the carbon market has moved on substantially since the introduction of the QAS and DECC now believe it is for the market to set best practice for carbon offsetting”. DECC confirmed it will no longer provide financial support for the Quality Assurance Scheme and that it will close on 30 June 2011.

Mark Chadwick, CEO of Carbon Clear says, "Carbon Clear is internationally recognised as a best practice provider of carbon offset credits, and by working with us businesses looking to ensure that their carbon offsets are certified, real and permanent can offset with confidence."

Carbon Clarity: Another Way to Think About Offsets

As part of my occasional series on increased "Carbon Clarity", I’d like to suggest an approach that may help understand how carbon offsets work. 


I've noted many times before that companies and organisations are going beyond compliance to measure and reduce their greenhouse gas emissions, so let’s start with the organisation’s carbon footprint.

While even the most basic carbon management initiative will include a plan for tackling emissions from the company’s own operations and their purchased energy (Scopes 1 and 2), the main carbon footprint standards don’t explicitly require organisations to measure emissions from suppliers, partners, customers and staff. One – dangerous – way to reduce Scope 1 and 2 emissions is to simply outsource those emission-intensive activities to a third party.  A firm could sell off its delivery fleet and hire a courier company to make deliveries on its behalf.  You can make a causal link between the organisation and these emissions, but they’re caused – and controlled – by someone else.

However, companies that ignore their Scope 3 emissions are missing an important opportunity to engage their stakeholders, or worse, are potentially exposing themselves to reputational risks. in the example above, the firm that hired the delivery company isn’t reducing emissions, it is simply shifting the burden to someone else.  Best practice is to take responsibility for those outsource emissions.  My company Carbon Clear is not alone in making this argument: the BSI’s PAS 2060 carbon neutrality standard requires organizations to include their Scope 3 emissions whenever possible, and the latest revisions to the GHG Protocol are also focused on ways to include more of these third-party emissions.

What happens when a company works to reduce their Scope 3 emissions? Generally speaking, they are promising to devote resources to measuring and reducing part of someone else’s Scope 1 and 2 carbon footprint.  They can then take credit for helping make those reductions happen.

This sounds a lot like the definition of carbon offsetting.  An offset is a purchased reduction from outside the organisation’s boundaries, used to count against the organisation’s own footprint.  In both cases, the company is paying for a reduction from a source beyond their immediate control.

To be clear, carbon offsets are not exactly the same as Scope 3 emission reductions. The original emissions from, for example, a factory in India were not included in the organisation’s carbon footprint (unless the organisation happens to own or purchase supplies from that factory).  The purchased reductions from switching fuel sources at that factory therefore would not count as a reduction within the Scope 3 footprint; while the reductions are real and would not have happened without that payment, they're outside the footprint.

Nevertheless, the effect on the environment and the message the company sends to stakeholders are the same.  Both offsets and Scope 3 measures are “outsourced” emission reductions.  The company has leveraged resources to make real, measurable cuts outside its organisational boundaries. As a result, the company has made a greater impact in the fight against climate change than it could have with a more inward-focused approach to reducing carbon.


(To the Carbon Clear homepage)

Carbon Clarity

If you do an internet search for the phrase "carbon management", you will find a range of companies offering their services.  Rather worryingly, a number of these appear to have some confusion as what carbon management really is.  For example, one company seems to suggest it is basically a quick carbon footprint measurement followed by carbon offsetting.  Another seems to think carbon management is basically energy management with an emissions coefficient thrown in to get an equivalent amount of carbon dioxide.

Climate change is one of the most important issues facing the planet, so the more people engaged in carbon management the better - so long as they're doing it right.  Doing it wrong risks wasting time, energy, and money, and potentially delaying the transition to a low-carbon economy.

In this post, we'll discuss what carbon management is, what it isn't and why that difference is so important.

At Carbon Clear, carbon management is all about clarity. Carbon clarity means having the right information and using that information to make good decisions.

More specifically, we view carbon management as a systematic process to identify and address the risks and opportunities presented by climate change.

The basics of our approach are straightforward enough.  As they work through the process, clients who engage our services learn:

• What is my climate change exposure?
• How will my business be affected by climate change?
• How can my business adapt to gain commercial advantage?
• Will my processes need to change in a low-carbon world?
• Are we prepared for these changes?
• What can I do now? What do I need to do?
• What do my stakeholders expect and how can I address them?
• How do I measure success?

So far, so good - nothing that should surprise anyone who has worked with us before.

But there's a difference between saying and doing.  There are a lot of tools out there and a lot of specialist providers who have a hammer in search of a nail.  It's the first part of the definition that gives our approach to carbon management its clarity and power.

Note in particular the use of the phrase "systematic process".  At Carbon Clear we find that it is often counter-productive to pre-judge where a company's greatest exposure to climate change risks and opportunities will lie.  Perhaps the greatest risk is their exposure to energy prices that incorporate a rising cost of carbon.  Perhaps the risk lies in supply chain disruptions caused by increasingly severe weather.  Perhaps the risk is reputational, as the news media, customers and investors punish climate laggards and reward pioneers.

Limited tools can result in limited thinking.  Many larger companies already employ half-hourly energy meters and legislation like the UK's CRC Scheme means the number of meters in use is growing.  Companies can therefore deploy software that enables them to track energy consumption and engage in long term energy planning and targeting. Despite their power, however, these tools are not enough. As we have pointed out before, carbon management involves people throughout the company, from energy managers (the natural users of these software tools), to the HR director, the chief financial officer, and the communications manager. Each of these players will process information in a different way and have a different definition of a successful outcome.  At best, this diversity makes an energy-focused software tool a difficult sell.  At worst, it potentially leaves a company blind to all the other greenhouse gas emission sources in their business and to the other ways that climate change can affect them.

Similarly, unless we understand the resources and constraints available to the company, it may be premature to specify in advance the actions they should take to tackle those risks and opportunities.  Just as a physician will discuss all the options before sending a patient off to surgery, a carbon management professional should help a company understand the choices and trade-offs available to them.  The universe of possibilities is vast: should they invest in energy efficiency, renewable energy, demand management, supply chain optimisation, fuel switching, improved transport management, employee and customer engagement, corporate restructuring, new product development, etc, etc...? The answer, of course, is "it depends".

And within each of these categories lies a potentially bewildering number of specific approaches.  Within the category of energy efficiency should the focus be on improved metering, lights, motors, insulation, load management, user behaviour or some other solution? What's the trade-off between investing to optimise existing equipment and undertaking a retrofit before the current equipment has reached the end of its useful life?  And who decides?

Carbon clarity means using clear, systematic thinking to cut through these complex variables to find the right carbon management solutions for your company.  As the examples above illustrate, carbon management isn't a single tool.  It isn't just a carbon footprint, and it isn't a gadget you can buy.  And while carbon credits may play a role, carbon management isn't just (or even mainly) about carbon offsets.

At Carbon Clear, we're your carbon management partner.  We provide carbon clarity to help you change climate change from a risk to an opportunity. And we help you choose the tools that will translate those opportunities into results.

(Carbon Clear homepage)

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.

Conclusion

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.

(Back to the Carbon Clear homepage)

Carbon Taxes vs. Cap-and-Trade

In 2009, the promise of serious climate change legislation in the United States and the scheduled UN Climate Change summit in Copenhagen helped to focus attention on the tools governments can bring to bear to reduce greenhouse gas emissions. We've talked in the past about the potential for massive government subsidies to bring about a rapid transition to a lower-carbon economy. But with coffers emptied by bank bail-outs, few Western governments seem serious about this approach.

Instead, there has been a marked increase in discussion about the merits of cap-and-trade mechanisms versus carbon taxes. (See this post for a discussion of how cap-and-trade works). To be more accurate, there have been a lot of comments on blogs, news sites and NGO websites arguing that carbon taxes are a superior solution compared to setting a cap and letting polluters trade amongst themselves.

One argument claims that cap-and-trade will not lead to actual emission reductions. Another is that cap-and-trade has been subject to manipulation and lobbying by special interests that weaken its effectiveness. Yet another is thatinvestment bankers and speculators will use a cap-and-trade system to reap vast profits. A tax on carbon - preferably at the well-head, mine mouth or port would in theory avoid this turn of events.

My considered view is that these arguments are misinformed, at best. First, the theory.

Economists use a demand curve to illustrate the relationship between the price of a product and the quantity of that product customers are willing to purchase. An idealised demand curve might look like the figure below:



There is a finite pool of carbon that can be released into the atmosphere without triggering potentially catastrophic global impacts. However, the cost of emitting greenhouse gas emissions has historically been borne by society as a whole, not by polluters. Polluters, faced with a low or zero carbon cost, have been consuming far too much of the total allowance (Q1 on the illustrative demand curve).

There are two ways in which we can force polluters to move up this demand curve and reduce their consumption.

A cap sets a limit on the quantity of carbon (Q2) and watches the price rise to the appropriate point on the curve (P2) as polluters invest in emissions reduction technology and buy or sell their allowances. A tax, on the other hand sets the price (P2) and watches demand shift in response as polluters make investments to lower their tax bill. In theory, both achieve exactly the same result. So much for the first argument - in theory, a carbon tax and a carbon cap can achieve exactly the same emission reductions at exactly the same cost.

But what is the reality?

As America's attempts to pass climate change legislation illustrate, the theoretically elegant cap-and-trade model is unlikely to make it unscathed through the meat-grinder of special interest politics. No politician, after all, wants to alienate potential voters or donors. The House and Senate climate change bills have introduced a bevy of set-asides, subsidies, free allowances, and other measures to ease the sting that would be felt by politically influential constituencies.

Do these concessions make the resulting cap and trade legislation less effective?

Yes, but the legislation is still projected to drive significant emission reductions, and without some concessions to special interests, it is unlikely the legislation would pass at all. The same holds true in Europe. The first phase of the EU ETS gave away allowances for free and make a number of other concessions in order to ease passage. In both the EU and the US, the aim is to gradually tighten the provisions over time and close loopholes in order to drive greater emission reductions.

Would a carbon tax be preferable, as some critics of cap and trade argue? With a carbon tax, there are no allowances to give away for free, and you don't have commodities brokers making money trading carbon credits.

So is it better? France provides a useful case study, as the government there announced a carbon tax just last autumn.

Within weeks of the initial announcement a French magistrate struck down the plans. It seems the legislation exempted companies covered under the EU Emission Trading Scheme despite the fact that they are responsible for the lion's share of the country's emissions, and their EU allowances had been given away for free. In addition, other sectors, like transport, received subsidies or rebates that reduced the impact of the tax.

What is more, a report comissioned by the government recommended that the carbon tax be set at €32 per tonne CO2 equivalent in order to drive significant reductions, and increasing to €100 per tonne by 2030. The French government, however, decided to reduce the tax rate to €17 to make it more palatable politically. Faced with a setback in the courts, the French are already at work to close some of these loopholes. It is a safe bet, however, that the government will continue to make concessions to special interests.

There's another challenge with carbon taxes. As impossible as it may seen in the wake of a rancourous Copenhangen conference, using carbon taxes instead of national caps makes it more difficult to secure international consensus on climate change policy.

The main reason is that nations will disagree on the appropriate carbon tax rate to achieve their individual reduction targets. Imagine if instead of pledging to achieve a reduction target, each country pledged to impose a domestic carbon tax. The U.S. might argue that India's carbon tax is set too low to drive a low-carbon shift, while the Japanese might not believe, for example, that the Australia will keep its promise to raise carbon tax rates during an economic downturn. The EU, meanwhile, might argue that China is keeping its carbon tax rate low to benefit local industry, and impose a punitive import duty to reflect what it feels is a more accurate price for Chinese carbon in products.

As for bankers and speculators profiting from climate change legislation, someone is going to have to lend companies the money to invest in all the new technology that will lower their carbon tax bill. It is not a tremendous stretch to imagine those loans collateralised against the anticipated future tax savings, and then securitised and sold off to third parties.

It appears, then, that the critics are right. A theoretical carbon tax is indeed superior to a (real world) cap and trade system that has loopholes for special interests. In fact, a theoretical tax is perfect, except for one problem - it has to work in the real world. It is not clear that a real-world carbon tax would offer much improvement.

Scrapping all the work done to date on making cap and trade effective would, at best, delay progress and result in an equally compromise-riddled carbon tax. At worst, it could embolden opponents of rapid action to fight climate change, and cause governments to abandon both approaches in favour of much less effective piecemeal efforts.

We can't afford to make the perfect the enemy of the good.

(Carbon Clear Website)

Beyond Compliance

This article originally appeared in the October 2009 issue (no. 84) of 'the environmentalist', the magazine of the Institute for Environmental Management and Assessement (IEMA).

In the run-up to Copenhagen, governments around the world are proposing carbon reduction targets as part of their negotiating positions. New Zealand has set a preliminary goal to reduce emissions 10 to 20% by 2020; Japan has set a 15% reduction target – albeit from a different baseline. Meanwhile, proposed legislation in the U.S. sets a 17% target by 2020 and the EU has pledged to reduce emissions 20% by that date.

However, many leading global companies have set their own corporate targets for emissions reductions that make these country pledges seem modest and meagre. Wal-Mart’s climate change strategy sets a 20% reduction target by 2012 and Unilever have set a 25% reduction by that same year. British-French rail company Eurostar set a 25% reduction target for 2012, and reached its goal three years ahead of schedule. Meanwhile, supermarket chain Tesco promised a 50% reduction in its footprint by 2020, and Marks and Spencer pledged to go completely carbon neutral by 2012.

In this article, we explore why large companies commit to such ambitious reduction goals, and consider what this means for carbon reduction both at home and abroad.

Why do large companies go beyond compliance?

Companies embark on carbon reduction initiatives in order to exploit opportunities and to manage their risks, including costs, customer retention, regulation and/or exposure to weather and resource variability.

As described in “The end of the low-carbon agenda?” (Issue 72), many companies are attracted to the lower energy and transport bills associated with driving carbon out of the business. Marks & Spencer, for example, originally pledged to spend £200 million on its “Plan A” eco-initiative, but has since found the programme to be cost-neutral and expects the ultimate savings to outweigh its planned investment. In this context, a low-carbon initiative can engage staff in what would otherwise be a traditional cost-reduction exercise.

Multinational companies face more direct risks from climate change. Long supply chains and inefficient suppliers leave firms vulnerable to rising energy prices – especially as governments regulate emissions in transport. Meanwhile, weather-related disruptions – storms, floods, drought, can threaten companies’ “just in time” logistics networks. Climate change risks are increasingly being incorporated into businesses’ planning strategies. As Unilever states, ‘”there will be serious consequences for our business operations, including threats to our agricultural supply chain and the availability of water in some of our markets. The costs of addressing climate change now, while considerable, are likely to be far less than waiting and allowing the problem to get worse.”

With climate change now a popular concern, companies that voluntarily embark on carbon reduction initiatives are earning a reputation as environmental leaders. The Sunday Times “Best Green Companies” list is widely seen as the benchmark for sustainability leadership in the UK, and a company’s commitment to carbon reductions is one of the main criteria that the newspaper uses to evaluate performance. Companies strive to be on this and other “green lists” because environmental leadership can often translate into increased customer loyalty and sales growth, as well as employee satisfaction.

Anticipating regulatory trends is not a new concept for large corporations. For example, chemical companies have long understood that environmental risk management is essential to their continued profitability.

When the chemical industry launched its Responsible Care code of practice in 1988, only 13% of its practices were required by US government regulation. Four years later, the US government had made 80% of these company-initiated practices a regulatory requirement. Companies that had voluntarily adopted the Responsible Care principles were well placed to comply with the eventual increase of government regulation.

Climate change policy has followed a similar course: despite growing pressure, governments have been relatively slow to adopt emissions reduction targets. Meanwhile, leading companies have seen the advantages of a low-carbon economy. These companies have been steadily measuring, reducing, and offsetting their carbon emissions over the past five years – with telecommunications firm BT launching its carbon reduction initiative back in 1992.

The global supply chain

Unlike utilities and manufacturers, large retailers often have relatively low “direct” or “Scope 1” emissions (emissions from sources under a company’s direct control), and their emissions from purchased electricity and steam are not particularly high. However, these companies maintain extensive supply chains, and influence a carbon footprint that may be 20 to 60 times greater than their direct and energy indirect emissions.

Unilever, for example, reports the carbon footprint from their own factories, offices, laboratories and business travel at approximately four million tonnes of CO2 equivalent per year. Their wider (“other indirect” or “Scope 3”) footprint from sourcing agricultural and chemical raw materials is around ten times larger, and when consumer use and product disposal are included, this footprint can expand to 30 to 60 times greater than their direct emissions. As a result, many companies find that they can achieve more ambitious emissions reductions if they involve their suppliers – and even their customers – in their low-carbon initiatives.

These companies often wield tremendous influence over their suppliers due to their immense purchasing power. Wal-Mart, for example, is the largest single customer of many suppliers around the world. Even Proctor & Gamble, the world’s largest consumer goods maker, counts Wal-Mart as its largest customer. When Wal-Mart asks its suppliers to measure their carbon footprint or identify ways to reduce emissions, they are more likely to get a response than would be a smaller customer. As Marks & Spencer’s Mike Barry puts it, “They know that if they want to want to be pursuing business with us in the future, they have got to come on the journey with us.” To this end, Marks & Spencer has helped its suppliers set up four “green” factories that use significantly less energy and contribute to the firm’s lower carbon footprint.

Not only are these changes pushed up the supply chain, but also down to the end user. After launching their “Plan A” sustainability initiative, Marks & Spencer found that up to 75% of the carbon footprint of their clothing came from washing, drying, and ironing. As a result, the company has begun designing and labelling its clothes for washing at lower temperatures and launched a customer communications campaign.

As described in our article “Counting the Cost of Outsourcing” (Issue 55), many of the emissions from developing countries are attributable to outsourced manufacturing on behalf of Western companies. Indeed, adjusted for exports, China’s carbon footprint is significantly lower than the United States’. 70% of the products sold in Wal-Mart stores are made in China, and the company has supply relationships with 5,000 Chinese enterprises.

What happens when massive Western companies demand that their foreign suppliers go beyond compliance and reduce emissions? It may be too early to tell, but we would expect this supply chain pressure to lead to greater demand for green electricity and energy efficiency improvements at factories in China, India and other developing countries.

There is another source of external emissions reductions that major companies are pursuing: carbon offsets. Carbon offsets are purchased emissions reductions that occur outside an organisation’s boundaries. In this regard, generating measurable reductions by investing in a wind or solar project in China is only one step removed from investing to help an apparel factory in China reduce energy.

Indeed, large corporates in the U.S., U.K. and mainland Europe are embracing carbon offsetting to help them go beyond compliance and achieve net emissions reductions far faster than they could through incremental internal measures. By supporting projects in developing countries that do not have national caps on their carbon emissions, these companies are helping to accelerate the transition to a lower-carbon mode of economic development.

Different paths to a lower-carbon future

It is clearly in large companies’ best interest to announce and pursue ambitious carbon reduction goals. These initiatives can drive significant reductions in thousands of supplier companies in developing countries and provide an incentive for a rapid transition towards lower-emissions practices in those countries.

This ongoing trend raises an interesting possibility. The post-Kyoto climate change negotiations are currently bogged down over the issue of developing country reduction commitments. Developed nations like the U.S. and U.K. argue, correctly, that emissions from China, India and other poorer nations are so large that serious action to fight climate change will be stymied without their active involvement. The developing nations argue, also correctly, that current warming is due to richer nations’ historical emissions and rich countries should demonstrate their own commitment to reduce their footprint before lecturing others.

Wal-Mart, M&S and other companies are showing that it is not either-or. The world economy is so intertwined that actions taken in developed nations can lead to significant emissions reductions overseas. Indeed, while a binding emissions cap would provide the force of law, it is likely that supply chain pressure and demand for offsets will also drive significant cuts.

Major structural change to our carbon-based economy is inevitable as we shift to different ways of meeting our needs while tackling the challenges of climate change. Large corporates have led the way in showing how a commitment at home can lead to a reduced footprint overseas. As pressure mounts on carbon caps in developed countries, we can expect to see it spread into faster action around the world.

Suzy Hodgson, AIEMA, is a principal consultant and Jamal Gore, AIEMA is the managing director at specialist carbon management company, Carbon Clear Limited.

PRESS RELEASE: Total wins 'Environmental Innovation Award 2009'

The following press release features Carbon Clear's fuel card partnership with Total.

Institute of Transport Management, 18 June 2009

TOTAL wins ‘Environmental Innovation Award 2009’

Birmingham 17th June 2009 – Awareness of environmental issues in business and among the general public has reached new heights as a result of a constant barrage of reports and studies into the contribution of human activity to climate change. In the fleet and automotive sectors, companies are facing strong pressure to develop products and systems which reduce emissions at the same time as maintaining high performance and productivity levels. As part of its fleet Awards programme, the Institute of Transport Management (ITM) has been investigating fuel cards as a means of reducing carbon emissions and increasing fleet efficiency. On the basis of information collected by the research team, the Awards Committee is hereby delighted to announce that TOTAL is to be presented with an ITM ‘Environmental Innovation Award 2009’ for its TOTALCARD green product.

The TOTAL Group is a major player in the global petroleum industry and is actively involved in both upstream and downstream operations: oil and gas exploration, development and production, and liquefied natural gas (LNG), plus refining, marketing and the trade and shipping of crude oil and petroleum products. It also produces base chemicals (fertilisers and petrochemicals) and speciality chemicals for both consumer and industrial markets (adhesives, resins, electroplating and rubber processing). The company additionally has interests in coal mining and power generation. On the basis of a clear corporate vision and decisive leadership, the company has grown to become the fourth largest integrated and publicly traded company oil and gas company in the world, able to boast sales of more than £150 billion per year and the second biggest capitalisation in Europe, registering in excess of €130 million.

Its TOTALCARD services help fleet operators to fine tune fleet efficiency through web-based, PIN-protected management systems which operate through a nationwide network. Managers can avail of a thorough yet intelligible analysis of fuel use, including spending, miles per gallon and time of purchase. The system gives managers much greater control over the activities of the fleet, resulting in cost savings as well as a better environmental profile. Indeed, TOTAL is fully committed to exploring the potential for environmentally friendly fuel products, and has recently launched a dedicated green card to assist fleet managers in meeting the latest emissions regulations.

TOTALCARD green enables easy calculation of CO2 emissions, implementation of reduction programmes, access to follow-up reports and carbon offsetting. The emissions calculation is based on fuel expenditure and is available to managers online. Collection of such data forms the background for a three-part CO2 reduction plan: price incentives for advanced fuels which decrease consumption by 3.8 percent; ongoing monitoring of daily expenditure, fuel consumption per vehicle and unusual transactions; comprehensive and practical advice relating to the key principles of investing in advanced fuels and lubricants, vehicle maintenance and driving behaviour. Following implementation of the action plan, managers can access online data on emissions levels, percentages of advanced fuels used and resultant savings. Additional emissions can be offset by the Carbon Clear programme to which TOTAL itself contributes in proportion to the fuel volumes of TOTALCARD green clients.

Announcing the Award to TOTAL, ITM Media and PR Director Mr. Patrick Sheedy said: ‘TOTAL has been successful with the ITM Awards programme in the past, winning fuel card titles since the start of the decade. With its latest product, TOTAL tackles the environmental issue head-on through a dedicated green fuel card. Considering the increase in the burden of emissions regulation on businesses today together with public pressure to improve green credentials, fleet companies really do need a helping hand to reduce CO2 output. Having thoroughly examined the fuel cards currently on the market, the Institute is confident that the strongest environmental offering comes from TOTAL, with its TOTALCARD green. This latest fuel card from TOTAL will be a hugely useful tool for fleet managers who must watch emissions at the same time as keeping an eye on the bottom line. It also underlines TOTAL’s dedication towards ensuring a healthy energy future for the planet.”

Mr. Sheedy concludes: “I congratulate TOTAL on winning this Award and hope that other businesses in the transport industry will pay heed and model their own environmental policies on those of TOTAL. I look forward to witnessing the development of further pioneering products and services from TOTAL in the near future.”

(Carbon Clear homepage)

Conjunction Junction

Time for some definitions:

• and.  (-conjunction used to connect gramatically coordinate words, phrases, or clauses) along or together with; as well as; in addition to; besides; also; moreover.

• or. (-conjunction used to connect words, phrases, or clauses representing alternatives) "books or magazines", "to be or not to be".
  

'And' and 'or' are both conjunctions, but they serve nearly opposite functions.  Compare these two sentences:

1.  "Given the threat of climate change, should our company reduce internal emissions as much as possible or use carbon offsets?"
2. "Given the threat of climate change, should our company reduce internal emissions as much as possible and use carbon offsets?"
   

One little word can result in such a huge change in thinking.  Using "or" when we talk about climate change means we take a suite of viable solutions off the table.  Using "and" enables us to consider a wider range of options.

As I noted in a blog post exactly one year ago, there is no single source of greenhouse gas emissions, and there is no single solution.  We have to seek the most ambitious, fastest emissions reductions possible, wherever they may occur.  When it comes to carbon, we need internal reductions and offsets.

(Carbon Clear homepage)

Total Launches New Fuel Card

(from the  company press release)

Total is launching a new fuel card which will enable fleets to track their CO2 emissions based on actual performance, rather than claimed figures.

TotalCard Green provides fleet managers with real-world fuel consumption reports based on the petrol or diesel bought, and then calculates the fleet’s actual CO2 emissions.

Total, which has 850 filling stations throughout the England and Wales, then offers advice on implementing a CO2 reduction plan (correct vehicle maintenance, use of advanced fuel and lubricants and advice on driver behaviour) and provides price incentives on advanced fuels such as its Excellium product which is claimed to reduce fuel consumption by nearly 4%.

The fuel company will follow up the plan with reports to show the differences in both litres fuel and carbon emissions made by following the plan.

Samuel Vermeersch, TotalCard development manager, said: “We know that more and more companies are looking at ways to reduce their carbon footprint and we strongly believe our card will help them optimise their fuel spending and make carbon management much easier for them.”

As part of the scheme, Total will contribute to the Carbon Clear carbon offsetting pro-gramme, based on the fuel volumes bought with the new card, and offer customers the chance to offset their emissions through the company.

For more information on the card, go to www.totalcardgreen.co.uk

Sainsbury Gets It Exactly Wrong

Like many consumer-facing busineses around the world, Sainbury has embarked on a greening initiative that includes an effort to reduce in the company's carbon footprint.

Earlier this week, Neil Sachdev, commercial director for UK supermarket retailer J. Sainsbury was asked to discuss his view on carbon offsets.

"It just passes the problem to a third party. It makes more sense to focus on energy efficiency, where there are clear economic and environmental savings."

With all due respect, Mr Sachdev has gotten it exactly backwards. Not just a little off target; his view is exactly counter to how offsets work.

Poor brick makers in Nicaragua are not razing their country's forests for fuel because they want to; they're doing it because they can't readily access a cleaner alternative. Similarly, the owners of an Indian textile mill would prefer not to use polluting coal or fuel oil to generate heat for their factory, but cleaner alternatives simply may be unfeasible.

People in poorer countries are not emitting greenhouse gases into the atmosphere because they enjoy it. Their pollution is a symptom of energy poverty - their inability to access cleaner sources of energy. The savings from switching to more cost effective and cleaner alternatives are clear.

Additionality - a key concept in the carbon world - means proving that the project would not have happened without the expectation of carbon credit funding. So purchasing carbon offset credits means providing the funds to create projects that would otherwise not exist, and that displace more polluting activities.

In other words, purchasing carbon offset credits means you're not passing on the problem; just the opposite. Using carbon credits means you're passing on a solution.

To be fair, Sachdev was trying to argue that purchasing offsets was a less efficient use of funds than reducing his company's own emissions. But as I've explained previously, it doesn't have to be either-or. Reducing emissions anywhere helps the climate; a tonne of CO2 reduction at home doesn't have some magical climate benefit that an overseas reduction lacks.

In that same article, a representative from beverage maker Diageo referred to offsets as a "last resort". This language implies that it is acceptable to wait to achieve some emissions reductions. Unfortunately, climate change is such a huge problem that we don't have a moment to spare. We simply cannot afford to reduce, then offset. We have to pursue both at the same time.

The planet doesn't care whether your emission reduction is costly or cheap, so long as it happens swiftly. So the real challenge is to find the activities that will generate the most ambitious, fastest, and most cost-effective reductions.

In many cases, energy saving measures at home will be low-cost or actually save money. In other cases, reducing carbon close to home will be relatively expensive. In those cases, it would be more cost effective to help Nicaraguan brick makers and Indian textile mills reduce their emissions instead.

Climate change is too big a problem to fight with one hand tied behind our back. At Carbon Clear, we encourage our clients to do more to help the environment by embarking on a comprehensive reduce-AND-offset programme. It's time for other companies to come on board.

(Carbon Clear homepage)

Paying It Forward

I've worked in countries all over the world and speak a few languages. As a result, I like to think I'm a pretty self-reliant traveler.

But during my most recent trip to Central America a complete stranger helped me out. The specific details aren't important, but what's notable is that a person whom I'd never met before walked up, took the time and effort to make my day a little better, and then walked away.

"Thanks!" I called after her, pleasantly surprised at this small kindness. "Isn't there something I can do to repay you?"

"I'm happy to help," she responded. "Pay it forward instead." And then she was gone.

Paying it forward means helping other people when it's not in your own immediate financial interest. It means going out of your way to make the world a slightly better place - even if you may not see the benefit yourself.

Paying it forward is a concept that is immensely relevant to our efforts to combat climate change.

Will we choose a slightly less convenient mode of transportation or pay slightly more for cleaner energy when the benefits go to future generations or to people in far-flung corners of the world? Will we take action now to avert a danger that may not come to pass in our own lifetimes?

The conventional wisdom is that most people will answer "no" to these questions. Most efforts to engage the public in the climate change debate therefore take narrow-minded self interest as their starting point. Environmental groups strive to document the effects of climate change in our own backyards. Pressure groups lobby government to penalise companies that don't reduce emissions. And companies like Carbon Clear find ways for businesses to see a direct benefit from their carbon reduction measures.

People clearly do act in their own self interest. But many observers worry that these attempts will not be enough to avert the worst effects of climate change. They point out that governments will not enforce tight limits and that companies and individuals may put their bottom lines ahead of the environment. The worriers may be right. But something else is happening.

People are paying it forward.

Around the world, more and more companies and individuals are setting voluntary emission reduction targets, and volunteering to pay for livelihoods-enhancing emissions reduction projects in developing countries. These are clean energy initiatives that are often not included in government regulated carbon trading schemes, and that would not have happened without these voluntary carbon payments.

In Nicaragua, Carbon Clear's customers are helping traditional brick and tile producers reduce their energy costs and protect the country's rapidly shrinking forests. With deforestation responsible for about 25% of global greenhouse gas emissions and a major environmental threat in Nicaragua, new technology is making a real difference to both planet and people.

Our project is not covered under the government-backed carbon credit mechanism. If we were limited to those tools this fantastic initiative in Nicaragua would never have happened. It is only alternative carbon certification schemes like the Voluntary Carbon Standard and Gold Standard - backed by companies and individuals willing to take voluntary action - that enable us to make this contribution to the lives of people in rural communities around the world.

Last year the voluntary carbon market doubled in size, while governments struggle to develop a post-Kyoto climate change agreement. And the voluntary market continues to grow this year despite a global economic crisis.

Something special is happening.

More and more people are paying it forward.

More of us are taking action beyond government regulation and narrow self-interest. That's good news in the fight against climate change, and good news for communities around the world.

(Carbon Clear homepage)

Carbon Offsets: A "Last Resort"?

The original version of this article appeared in the September 2008 (No. 64) issue of "The Environmentalist".

The voluntary carbon offset market trebled in size between 2006 and 2007. Sales have been growing steadily throughout 2008, with no end in sight. Climate change is clearly on the global agenda, and more and more companies are buying carbon offsets to help meet their environmental objectives. Nevertheless, many environmentalists appear lukewarm – at best – on their use. In this article, we explore these concerns and consider the role of carbon offsets in corporate footprint reduction plans.

What Are Carbon Offsets?
Increasing energy efficiency and installing rooftop solar panels are two of the many ways that organisations and households can reduce their carbon footprint. When you spend time and money on these measures at your corporate HQ in say, Liverpool, it’s considered an internal emissions reduction. Paying to enact similar measures somewhere like Lagos makes it an external emissions reduction – a carbon offset. It’s important to bear in mind that emissions reductions help the climate regardless of location. Whether in Liverpool or Lagos, it’s the size of the CO2 reduction that matters to the global climate, not the location.

So why do companies offset? The key idea is simple: some footprint reduction measures cost more than others. All else being equal, it makes sense to focus first on the cheapest and fastest ways to cut carbon, wherever they occur. When Carbon Clear works with companies to cut their carbon footprint, we help them implement a wide array of these internal reductions.

However, the lowest-hanging fruit may be in someone else’s factory or home. The Kyoto Protocol established the idea of carbon offsetting to help maximise greenhouse gas savings at the lowest cost to the economy. Carbon offsets help organisations with emissions reduction targets to meet part of their obligation by funding emissions reductions in developing countries.


Are Offsets Effective?
Stories like the Financial Times’ May 2007 exposé on a handful of “carbon cowboys” have contributed to the impression of carbon offsets as a potentially ineffective footprint reduction tool.

The reality, of course, is that there are both good and bad carbon offsets. An effective carbon credit can generally pass four key tests:

• The carbon credit comes from a project with real and measurable emissions reductions;
• emissions reductions can be measured against a credible baseline by independent third party auditors;
• the project that generated the carbon credit would not have happened anyway; and
• the emissions reductions are permanent –they won’t be reversed at some point in the foreseeable future.

The most widely respected carbon credit standards include the Clean Development Mechanism (CDM), the Gold Standard, and the Voluntary Carbon Standard (VCS). Each evaluates projects against these criteria, and is administered by an independent not-for-profit secretariat to ensure impartiality. Their ultimate aim is to ensure that each carbon credit represents one less tonne of CO2 in the atmosphere.

Many people worry about carbon offsets with tree planting schemes. In reality, credits from planting and protecting trees accounted for only 15% of voluntary offsets sales last year, with most of those offset sales in the United States.

Meanwhile, carbon offset providers have been working to improve the quality of carbon offsets. Carbon Clear earlier this year helped found the International Carbon Reduction and Offsetting Alliance (ICROA) to encourage best practice in the voluntary carbon reduction industry. ICROA specifies the standards that carbon credits must meet, requires members to offer carbon offsets as part of an integrated “reduce and offset” approach, and obliges members to submit to regular audits to demonstrate compliance with the ICROA Code of Practice. Organisations that choose to reduce internal emissions and offset with ICROA members include Eurostar, Land Rover, Sky, and Ford.

When to Offset
Even where offsets are recognised as an effective way to fight climate change, they are labelled a “last resort”. There seem to be two reasons for this approach. First is the concern that offsets are somehow less effective than internal reductions when it comes to fighting climate change. As Chris Shearlock, environment manager for the Co-operative Group noted recently, “When we build a wind farm in England we’re applauded, but when we build one in India we’re criticised.” But as we have already seen, a tonne of CO2 reduction has the same climate change benefit wherever it occurs, and stringent standards can ensure the quality of purchased reductions.

The second reason offsets tend to be considered a “last resort” is the belief that internal measures somehow demonstrate a greater commitment to fighting climate change. In the 6 May 2008 “EMA in Practice” article of The Environmentalist, the question was raised “whether a company should be purchasing offsets or actually working to reduce emissions of their own operations.” Implicit in this line of argument is an assumption that offsetting comes at the expense of any and all internal emissions reductions. Allowing companies to offset, the thinking goes, means they won’t take action at home.

But is this true? Will a company that can reduce emissions and cut costs by increasing efficiency really forego that option in order to purchase carbon offsets? Our experience is that companies would rather cut their energy bill than incur an extra expense. What is more, having to pay for offsets draws the attention of the finance director and operations manager. Announcing a goal to become “carbon-neutral” and understanding the cost of carbon provides an even stronger business incentive to achieve cost-effective ways internal reductions.

Carbon Clear's view is that the either-or approach to emissions reductions is a red herring that makes it harder for corporate teams to make informed decisions and raises more questions than it answers.

One of these questions is deceptively simple: how much of a reduction is enough? If a company wants to become carbon-neutral, what level of internal reduction is required before they can offset with a clear conscience? Is this level of internal reductions the same for an office-based consultancy, an investment bank, and a heavy manufacturing plant? And with only a decade or two left to achieve major global reductions, how long can companies take to achieve their internal reductions before they can fund additional reductions beyond their boundaries?

The second question is also difficult to answer: how much should it cost?

HSBC’s corporate greening programme includes installation of solar panels on the roofs of their Canary Wharf headquarters and their DirectLine building in Leeds. We calculate that HSBC (or if HSBC is leasing, then whomever owns the panels) is paying more than £100 (€125) per tonne to reduce emissions with PV panels, even using conservative assumptions and taking into account the savings on their electricity bill.

By comparison, economist Nicholas Stern places the 2007 social cost of climate change at around €40 per tonne of CO2 and HSBC could buy high quality carbon offsets for around €20 per tonne. In other words, HSBC could fight climate change six times more cost-effectively by sourcing carbon credits beyond their corporate boundary.

Carbon Clear recommends that companies seek the most cost-effective and credible reductions, wherever they may occur. In many cases, the best reductions will come from internal operational improvements. In other cases, they will come from changes in the corporate supply chain – either by switching suppliers or encouraging existing suppliers to reduce their own carbon footprints. And in many other cases the most cost-effective will come from high quality offsets that achieve external reductions beyond the corporate boundary.

There are other reasons companies may choose to focus on either internal emissions or offsets. Both types of emission reductions bring a wealth of co-benefits beyond fighting climate change. Investing in sustainability initiatives close to the corporate headquarters can help businesses reach out to employees, customers, and other stakeholders. The stakeholder engagement benefits of these high-visibility measures might justify paying a premium for those reductions.

Similarly, investing in emission reduction projects overseas can provide much-needed livelihoods benefits to poor communities suffering energy poverty. Providing clean energy technologies in developing countries can simultaneously contribute to a company’s corporate social responsibility objectives and help local people make the transition to a lower-carbon future.

Conclusion
In July, Sir Nicholas Stern warned that the cost of failing to curb climate change had doubled (Environmentalist News 21 July 2008). Our view is that “last resort” language only serves to limit the range of tools we can bring to bear to tackle this global problem. A multi-pronged approach that includes both internal reductions and carbon offsets can provide the flexibility needed to achieve large, global emissions reductions.

Suzy Hodgson, AIEMA, is a principal consultant and Jamal Gore, AIEMA is the managing director at specialist carbon management company, Carbon Clear Limited.