The Carbon Reduction Commitment – A New Role for Environmental Managers

The original version of this article appeared in the April (No. 76) issue of the IEMA journal 'the environmentalist'.

On 12th March the UK Department for Energy and Climate Change released the draft user guide for the Carbon Reduction Commitment (CRC). In this article, we provide an introduction to the CRC and explain what it means for environmental managers.

In a recent newspaper interview, Energy and Climate Change Minister Joan Ruddock asserted that the government had thoroughly announced this impending legislation and that businesses are well aware of their obligations. Based on feedback from Carbon Clear’s ongoing winter and spring workshop series, we are not so sure.

Approximately 20,000 UK firms will have to submit a CRC information disclosure to the Environment Agency by Summer 2010, while roughly 5,000 will have to pay registration fees and participate in the full scheme.

CRC information notices and registration requests are sent to the billing address on record with each company’s electricity provider. As a result, government information on the CRC is now landing on the desk of the facilities manager or the accounts payable department, not with the energy or environment manager.

Despite its innocuous-sounding name, companies should not take the Carbon Reduction Commitment lightly. As with any new regulatory requirement, failure to prepare poses serious financial and reputational risks. At the same time, environmental managers are well-placed to help their companies use the CRC to achieve real emissions reductions, cut costs, and identify new sources of competitive advantage.

The CRC in A Nutshell
The Carbon Reduction Commitment is designed to help the UK Government meet the 80% greenhouse gas reduction target set out in the Climate Change Act. It is a mandatory, auction-based emissions trading scheme targeted at large, non-energy-intensive companies - supermarkets, office blocks, and the like. Every company, charity, and government body with at least one half-hourly electricity meter needs to be aware of the CRC.

Like the EU Emissions Trading Scheme (EU-ETS), the CRC uses market forces and competition to drive corporate carbon reductions at the lowest overall cost (see our article “Emissions Trading, Going Global?” in issue 60 of the environmentalist). In the introductory phase of the CRC (April 2010-March 2013), participants will buy emissions allowances equal to their carbon footprint at a price of £12 per tonne CO2.

But once the CRC enters the “capped” phase in April 2013, government will limit the number of allowances and auction them to the highest bidder. At the end of the recording year, firms that end up with more allowances than they require to meet their obligations can sell them into the secondary market, while firms with a shortfall will have to purchase more or face a punitive fine.

One of the innovations in the design of the CRC is that revenues raised through the Government’s sale or auction of allowances are recycled back to participants via a publicly viewable league table. Companies with a better-than-average league table score may receive more money back than they put in, while those that score poorly will receive less. In addition, we anticipate that customers will use the league table to help identify lower-carbon suppliers of goods and services.

In the first year of the CRC, a company’s ranking in the league table is determined solely by how much of the organisation’s emissions are covered by voluntarily installed automatic metering (AMR), and how much of the organisation’s emissions are covered by a Carbon Trust Standard or Energy Efficiency Accreditation Scheme certificate. In subsequent years, league table rankings will be based primarily upon the organisation’s absolute emissions reductions compared to all other participants, and the relative improvement in emissions compared to company growth.


Your CRC Carbon Footprint
The carbon footprint that an organisation reports under the CRC is only a subset of the total organisational footprint included in an ISO 14064 or WRI/GHG Protocol emissions inventory (see our articles “Whose footprint is it anyway?” in issue 53 and “Counting the cost of outsourcing” in issue 55 of the environmentalist). In particular, the CRC only focuses on what ISO 14064 calls direct and energy-indirect emissions (Scopes 1 and 2 under the GHG Protocol). These are emissions from on-site energy production and emissions from purchased electricity and gas. Supplier and customer emissions are excluded.

Next, the CRC excludes emissions from transport vehicles and the onward supply of energy to other organisations. The next set of exemptions are for organisations that are fully or part-covered under a Climate Change Agreement (CCA) or the EU ETS. Excluding these emissions from the CRC footprint ensures that organisations are not forced to report emissions that are already regulated.

Carrots and Sticks
The CRC could have major financial implications for companies, especially in a challenging economic climate. DECC expects the CRC to lower annual corporate energy bills by nearly a billion pounds by 2020 as companies find the most cost effective ways to reduce their emissions. These savings translate into improved profitability and a stronger economy. Moreover, lower emissions means a smaller outlay for allowances in subsequent years, and the CRC’s recycling mechanism means that companies that perform above average on the league table may get back from the scheme more money than they put in.

On the other hand, getting it wrong poses risks. Approximately 20,000 companies with at least one half-hourly meter will be required to submit an initial Information Disclosure – failure to do so will result in a one-off fine of £1,000. The 5,000 or so organisations required to participate fully in the CRC will face an immediate fine of £5,000 if they do not register by the deadline, and will face an additional fine of £500 for each subsequent day of delay.

Failure to provide a footprint report by the deadline also results in an immediate fine of £5,000, and a further fine of £0.05 per tonne of CO2 per day, rising to £0.10 per tonne of CO2 per day after 40 days. Once the scheme is up and running, failure to provide an annual report results in the same level of fines, plus a bottom ranking in the league table.

Where emissions are incorrectly reported, a fine of £40 per tonne of CO2 incorrectly reported will be levied. Failure to purchase sufficient allowances will also incur a £40 per tonne CO2 fine. Outright falsification of evidence is considered a criminal offence, punishable by imprisonment of up to three years and a fine of up to £50,000.

Implications for Environment Managers
This is only a summary as the CRC guidance document is 84 pages long, and the background consultation document tops out at over 200 pages of detailed explanation. However this brief overview demonstrates how important it is for environmental managers to understand the requirements and to lead their organisations’ response to the CRC.

Under the CRC, environmental management is elevated to a strategic role that, if executed properly, can deliver measurable competitive advantage to the company. But if the requirements are not properly addressed, significant costs will be incurred.

The financial carrots and sticks in the CRC and the reputational spur of a public league table may make a number of otherwise borderline or low-priority environmental initiatives more attractive. For instance, environmental managers may now be able to fast track boiler retrofit or lighting replacement schemes that might otherwise be starved of investment, or get the go-ahead to install onsite renewables where the cost of carbon under the CRC makes them economical.

The CRC may also spur the formation of cross-functional teams that integrate environmental management into every corner of the organisation. For example an organisation’s CRC team might include:

• the environment manager: to identify best practice emissions reduction measures, co-ordinate the team, calculate the organisation’s carbon footprint and manage reporting and record-keeping with the facilities manager;
• facilities: to implement technology-based energy saving measures throughout the company;
• human resources: to help develop a staff “green team” to mainstream low-carbon thinking into the corporate culture;
• finance: to evaluate the trade-off between energy efficiency investments and purchasing allowances, and then find the required cash. For example, a company with a 100,000 tonne CRC footprint will need to come up with £240,000 to purchase allowances during the first compliance period;
• communications: to manage the media response to the company’s public league table ranking relative to its competitors which could be brand enhancing or damaging; and
• a director-level representative to raise the profile and priority of the initiative and report progress to the Board of Directors.

A Model for the Rest of the World
The UK is the first nation to implement a national beyond-Kyoto cap and trade emissions scheme. It is unlikely to be the last. Just two days before DECC released their guidance document, the U.S. Environmental Protection Agency announced that it is planning its own emissions reporting system.

This reporting scheme, a precursor to national cap-and-trade, targets approximately 13,000 facilities (rather than organisations) across all sectors, responsible for between 85-90% of the country’s greenhouse gas emissions. As proposed, the regulation requires the reporting of only direct GHG emissions (scope 1) but is asking for public comment on including energy indirect emissions (scope 2) among other aspects in its lengthy 1,410 page proposal. The final rule is expected within the year, followed by a cap and trade scheme to be in place by 2012. EPA’s enforcement action could result in a fine of up to $32,500 per day for violators.

Our informal enquiries indicate that other nations are watching the UK and USA closely to determine whether some version of the CRC or the imminent USA programme will work in their own countries and how a global system of reporting and trading of GHG emissions may function in a global marketplace.

Conclusion
Government regulation on corporate carbon emissions is not the only reasons firms may wish to support green initiatives in the midst of an economic downturn. As we described in our article “The end of the low-carbon agenda” in issue 72 of 'the environmentalist', environmental programmes also help to demonstrate the company’s commitment to sustainability, improve staff morale and retention, and attract new customers. Regulations like the Carbon Reduction Commitment provide an added incentive, and help environmental managers quantify the potential risks and benefits in a language that other parts of the company can easily understand.

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

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)

The End of the Low-Carbon Agenda?

The original version of this article appeared in the February (No. 72) issue of the IEMA journal 'the environmentalist'.

The emergence of corporate greening and corporate carbon reduction coincided with an unprecedented global economic boom. But does companies’ renewed focus on survival and the bottom-line mean they will abandon their low-carbon initiatives?

Recent evidence from both the United Kingdom and United States indicates that cash-strapped consumers are changing their buying behaviour. The growth of the UK organic food sector has fallen by 73% as shoppers cut costs. In the USA, organic producers are also witnessing slower than usual growth. Electric vehicle sales have stalled on both sides of the Atlantic, and Britain’s Nice Car Company has filed for administration. And according to Autodata, US hybrid vehicle sales in November 2008 were 53% lower than in 2007, compared with a 37 per cent drop in overall car sales.

Consumer items such as organic food or hybrid cars can cost at least 15% more than their “less-green” counterparts. For increasingly cost-conscious consumers, it appears this price premium is too much to bear. Gloomy retail sales across Europe and the USA underscore the lack of consumer and business confidence in the economy.

Are corporations taking a similar path? What does the financial crisis mean for the low-carbon agenda?

Making it pay

Companies struggling to get working capital loans or meet payroll may find it hard to justify long-term investments in energy efficiency, renewable energy, and greener manufacturing techniques. Many firms plan to defer new investment until their cash situation becomes clearer. When they do spend, they expect a clear payback.

One form of payback on environmental investment may come in the form of increased sales.

InfoPrint Solutions Company, a joint venture of Ricoh and IBM, has offices in 36 countries around the world. InfoPrint has focused on sustainability as a key component of their “triple bottom line” since hiring Joe Czyszczewski as chief sustainability officer in November 2007. The company has differentiated itself from its competitors in the printer market, by shifting its efforts from selling printers, to offering “work flow solutions”. As Joe, puts it, “we can look beyond the printer at the end-to-end supply chain and full life cycle.”

A recent InfoPrint's pilot study shows that a greener option can help them meet customers’ preferences for less direct mail, while providing clear energy and environmental benefits.

When InfoPrint surveyed over 1,100 consumers, 40% responded that the paper inserts accompanying “must read” documents such as bills are “always impersonal and irrelevant”, and a further 86 percent said they “never purchased a product or service after receiving a separate promotional document.” Infoprint has tackled the problem of “junk” inserts with tailored promotional information printed directly on customers’ bill statements. Paper usage can be reduced by 33% while increasing the mailing’s relevance to their clients’ customers. And since these inserts are pre-printed in bulk, the associated energy and environmental impacts of printing at an offset press, transport and waste can be avoided.

According to InfoPrint’s research, 43% of American households receive between one and three account statements, 39% receive between four and six statements each month, and 13% receive between seven and nine each month by post. We calculate that reducing the weight of each statement sent to American households by 3 grammes would save an estimated 20,233 tonnes of paper and 50,583 tonnes of CO2 – roughly equivalent to 15,000 return flights between New York City and London.

InfoPrint’s venture was launched with great fanfare at the height of the economic boom. Just over one year on, InfoPrint is a telling case study. Rather than scaling back, cutting staff, and allowing sustainability to slip down the list of priorities, the company has set its sights firmly on profit and sustainable growth tied to greener products and services.

Save Carbon – Save Cash

Initiatives which reduce energy and resource consumption and waste can contribute directly to cost savings. These cash-conserving measures are unlikely to be ignored in an economy when companies are squeezing every ounce of efficiency out of limited resources.

Marriot Hotels announced a five point environmental strategy to help address climate change in 2008, with a key goal to green their $10 billion supply chain. On his “CEO Blog” Bill Marriott on 6 January 2009 says, “Because of our size and scale, we can ask our vendors, ‘How can you make your products more environmentally friendly?’ And they've come up with some great solutions that don't cost any more money, which is good news in the current economy.”

As part of their “costless greening” programme, Marriott is introducing pillows stuffed with filling made from recycled bottles, and about 500 of their hotels are trialling “coreless” bathroom tissue, which “should save about 119 trees, 3 million gallons of water and 21 tons of packaging waste every year.” If Marriot rolled out “coreless” bathroom tissues in all of its hotel rooms, we calculate that the carbon savings could be an estimated 221 tonnes. And if recycled plastic instead of a virgin plastic product becomes the filling of choice in all of Marriot’s 2,900,000 pillows, the carbon reductions could amount to 11,300 tonnes annually.

Staying Competitive

Firms that choose to abandon their green initiatives may find themselves in a minority.

Eighty percent of corporate sustainability executives surveyed from across North America plan to maintain or increase levels of sustainability-related spending in 2009, despite the current economic conditions, according to Panel Intelligence's Quarterly Sustainability Tracking Study. Their November 2008 survey found that despite a declining U.S. economy and lower oil prices, corporate investment in energy efficiency remains strong.

The survey found that eighty-two percent of respondents rated energy efficiency as the most important area of current focus and investment, and that corporate spending on sustainable waste management initiatives is expected to grow by 20 percent in 2009, the highest percentage increase of any subcategory. Cost savings, revenue generation and brand strength are the most important drivers of environmental and clean technology initiatives.

Preparing for the future

More companies also recognise that failing to maintain their low-carbon initiatives could prove costly in the long run. Environmental initiatives are a key tool for engaging employees and maintaining morale in challenging circumstances. Customers and stakeholders are unlikely to believe that environmental improvement is “part of the corporate DNA” if green initiatives are cut whenever the economy slows.

Government is even less likely to show understanding. In the UK, the Government has introduced the Carbon Reduction Commitment, with a performance league table and compliance costs equivalent to about 11% of companies’ energy bills. Meanwhile, regional greenhouse gas emissions trading systems have been rolled out in North America, with most analysts expecting the incoming Obama Administration to introduce a national cap-and-trade scheme during the next year. Firms that abandon their carbon reduction programmes in the short term are likely to find their costs increasing down the line.

Challenges and barriers

It is clearly in companies’ long-term interest to continue pursuing a low-carbon agenda. But in a difficult economy, cash is king. The inability to borrow for capital intensive investments may prevent companies from taking measures that provide clear and lasting benefits. As discussed in our previous the environmentalist article (issue no. 68), low-carbon investments also tend to have disproportionately high employment and societal benefits. A case could therefore be made for government incentives to encourage businesses to go green.

Governments have an array of financial and policy tools to stimulate continued investment in lower-carbon business practices. These include tax incentives, direct subsidies, regulatory clarity that levels the playing field for different technologies, and direct government procurement that generates economies of scale and drives down the cost of green technology for businesses.

As Deere & Company CEO Robert Lane notes, “There need not be an inherent contradiction between government and business nor a perpetual dependence. Public policies can provide useful "pump priming" for new, evolving industries, creating the infrastructure needed for markets to develop and businesses to grow.” Deere proved to be ahead of the curve as these remarks are not recent – they were made in October 2006.

Conclusion

Climate change will not wait for the economy to recover. It is up to us to make the most of the opportunities that present themselves and take action now. Lee Scott, Jr., President and CEO of Wal-Mart Stores, captured this spiriti in his remarkes to the National Retail Federation on 12 January 2009, when he said, "If we as a country want to get through this time...and position ourselves to prosper and lead in the years ahead, then we need to tackle the hard issues. We cannot afford to postpone solving these problems."

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

The CRC: One Year and Counting

The UK's Carbon Reduction Commitment comes into effect on April 1st, 2010. For the 5,000 companies and public bodies covered under this mandatory cap-and-trade scheme, the countdown clock starts now. For the 20,000 organisations with a half-hourly meter required to submit a CRC Information Disclosure, the clock starts now.

Carbon Clear is working to help companies understand the implications of the Carbon Reduction Commitment and position themselves for competitive advantage. We have been running CRC briefing workshops throughout Winter and Spring 2009 to help our clients prepare, and I'll be posting on this blog our upcoming article on the CRC, to be published in a forthcoming edition of "the environmentalist" journal. For those who can't wait, you can find our top-level overview here.

The CRC could have significant financial and reputational implications for your business. And the clock is ticking.

(Carbon Clear homepage)

Peak Oil: Will We Freeze or Roast?

When I was in graduate school in the early 1990s, M. King Hubbert was a name known only to fellow energy nerds. Now, he's so popular you can get regular news alerts.

Hubbert developed a mathematical model describing how production from an oil well or entire oil producing region tends to increase at a predictable rate, until it hits a - predictable - peak and then declines. Hubbert used his model to predict the year of peak oil output for the United States, and it has been used more or less successfully for other oil producing regions since then.

In addition to forecasting output growth for particular regions, the Hubbert Curve and peak oil theory can be applied to oil production for the world as a whole. But as recently as 2005, the International Energy Agency (IEA) dismissed the concept. Mainstream energy agencies tended to assume that oil production could increase indefinitely as new investment and technology are brought to bear. If a peak exists, they argued, we are nowhere near it.

This matters because when the world's leading climate scientists prepared their 2007 report on global warming trends and impacts, they turned to the IEA for their best estimates of fossil fuel consumption. The IPCC works by consensus, and its reports tend to refer only to the most authoritative sources. The IEA estimates showed that conventional fossil fuel use would continue to grow without end, and this prediction is reflected in all the pessimistic warnings about global temperature increases and climate change.

Times have changed. The IEA is now predicting that we will reach global peak oil between 2020 and 2030 (more pessimistic scenarios argue that we reached the global peak last year). So oil production will top out much earlier than anticipated.

Less petroleum production means fewer petroleum-related greenhouse gas emissions. In fact, manyindependent models suggest that, once peak oil (and coal) is factored in, we simply can't burn enough traditional fossil fuels to reach the worst-case global warming levels.

Let me repeat that: Most climate models that incorporate peak oil theory predict a temperature rise of less than 2 degrees Centigrade. A major change to be sure, but far less than the IPCC's "business as usual" scenario for global warming.

So, this is good news, isn't it? Climate change is solved because fossil fuel production will decline sooner than predicted, right?

Not so fast. What are we going to use for our vehicles when the oil starts to run out? Shall we simply switch off the lights and freeze?

In 2006, Alex Farrell and Adam Brandt, researchers at the University of California at Berkeley's Energy and Resources Group, published a paper that examined the cost, availability and climate change implications of substitutes for conventional petroleum. These are liquid fuels derived from heavy, difficult to process resources like tar sands, oil shale, and coal.

The Berkeley team found that it would be commercially viable to produce synthetic petroleum from these heavy fuels at oil prices of less than US $50 per barrel. What's more these resources are so abundant that they would keep pump prices relatively low.

In other words, peak oil means less petroleum, but not an end to fossil fuels. For those who worry that peak oil means society will collapse into "Mad Max" - style anarchy, that's good news.

The bad news is that these fuels have a much greater climate change impact than conventional oil. Using tar sands and heavy oil results in about 50% more CO2 per unit of energy than regular petroleum. Synthetic fuels made from coal nearly doubles the greenhouse gas emssions, and using oil shale could result in up to 3X the emissions per unit of energy. To quote the authors:

"Overall...the oil transition is not a shift from abundance to scarcity: fossil fuel resources abound. Rather, the oil transition is a shift from high quality resources to lower quality resources that have increased risks of environmental damage, as well as other risks."

Sadly, peak oil is not the solution to climate change. If anything, a poorly planned response to peak oil could accelerate global greenhouse gas emissions growth.

There is an alternative. We have the technical know-how to produce energy from low- or zero-emission sources. Solar, hydropower, wave and tidal, wind, and geothermal energy are clean sources of hydrogen and electricity, and carefully chosen biofuels can provide high energy-density liquid fuels.

Scaling up these clean energy technologies at the rate required to compensate for peak oil and limite climate change is a challenge. But as discussed in an earlier article, the required investments by governments, corporations and communities are no larger than other causes on which we have spent billions. The need is arguably as great, if not greater, because poorly planned energy investments made today will have a huge impact for decades to come.

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)

From Credit Crisis to Carbon Crisis

The original version of this article appeared in the November 2008 (No. 68) issue of The Environmentalist

As governments across the globe find a new role shoring up troubled financial institutions, those of us who advocate bold moves towards a sustainable energy transition have taken notice. The USA and the UK committed more than $700 billion and £400 billion, respectively, to the financial bailout. Consider the benefits if equivalent amounts were committed to securing a lower-carbon future.

When the Invisible Hand Gets it Wrong
There has been a major upheaval in the relationship between government and the private sector. The worldwide financial crisis has been sudden, systemic, and severe. The deep-seated belief that competition and free markets led by Adam Smith’s “invisible hand” will promote society’s interests has been shaken.

What happened? Economists argue that the invisible hand does not do a good job handling externalities – situations where private actors pay the cost and society benefits, or vice versa. In these situations government needs to step in. This was the case during the lending freeze, with banks afraid to lend to one another and the credit market on the brink of collapse. With no other solution in sight, governments stepped in to try and rescue the world’s financial system.

While the financial meltdown has been sobering (or punitive depending on your personal stake), the policy flip side is that we have witnessed how quickly events can catapult governments into concerted and coordinated action.


Past Precedents
The energy sector is no stranger to support from governments. Nuclear energy currently comprises about 17% of the UK’s electricity mix, and serves as an interesting example.

Put plainly, the economics of nuclear power would be questionable without governments’ financial support. In both the US and the UK, governments have artificially limited private companies’ legal liability for nuclear accidents. Despite concerns in some circles about another Three Mile Island or Chernobyl, in the US a nuclear power plant’s annual insurance bill might only run to $400,000. This is because Government shoulders much of the burden for catastrophic accidents.

Similarly, the cost of disposing of waste from the UK’s existing nuclear reactors is likely to cost £74 billion, discounted over a whopping 130 years (that's easily more than half a trillion pounds if you don't discount the cost to future generations). These environmental costs clearly fall outside of the time horizon for private sector investment. As a result, most nuclear power plants would never have been built without governments’ pivotal role taking on future liabilities.

Climate change is another area where governments have a critical role to play. Climate change - a “negative externality” from fossil fuel use - has been partially addressed through emissions-trading schemes that allow CO2 to be priced in a regulated market [see our article “Emissions Trading – Going Global?” in the environmentalist issue 60, 16 June 2008].

However, global emissions continue to rise, evidence that the market price of CO2 is not yet high enough and stable enough to encourage significant private investment in abatement measures. Similarly, renewable energy remains a small percentage of the UK’s and America’s energy mix, even though there are compelling environmental reasons and a strong economic basis to increase its use.

According to the Stern Review, the cost to limit severe temperature increases is estimated at 1% of global GDP. Inaction has far greater costs –Stern estimates damage costs from climate change exceeding $70 trillion over time. At an estimated $3.5 trillion, the cost of the global financial bailout looks like loose change in comparison. But private firms lack the incentive and ability to make the required investments on their own.

Investing in a low-carbon future
What would it look like if we could invest even a fraction of the global bailout amount into rapidly building a low-carbon economy? Here are just a few hypothetical examples of what could be done.

In the USA, about 40 million households rely on electric water heaters. For a $282 billion investment, the US government could replace all of these inefficient electric heaters with solar water heaters at no additional cost to homeowners. This investment would reduce CO2 emissions by 48.7 million tonnes each year. Moreover, each household would save about $220 per year, pumping an additional $9 billion per annum into the economy. These savings would likely increase as the price of electricity rises over time.

In the UK, the government has made a commitment to expand the use of wind power to generate electricity. Installing 33 GW of offshore wind would meet 20% of the country’s electricity needs. This measure would cost about £30 billion – a fraction of the British financial bailout – and reduce the need for a new generation of coal fired power plants. Government funding would mean firms would not need to raise expensive venture capital, and could pass the savings on to utility customers in the form of lower electricity bills. Moreover, with most renewable energy projects employing more people per GW of installed capacity than coal and nuclear power plants, such an initiative would boost jobs growth and provide broader benefits to the UK economy.

For an investment of just over $740 billion (1/5 the cost of the global bailout) the US government could target all families earning less than $35,000 and replace half their old vehicles with plug-in hybrids – for free . This investment would reap huge environmental, economic, and social benefits. Each family would save about $840 annually in petrol costs. Fuel savings from this initiative would total nearly $24 billion each year, and would be recycled into the economy. In addition, it would reduce annual CO2 emissions by over 65 million tonnes. With this level of increased household income and reduced emissions, such a government investment provides a reasonable pay-off, while achieving other sustainability objectives.

Meanwhile, in the developing world, two billion people – roughly 400 million families – cook over primitive wood stoves. For an investment of less than $10 billion (about £6 billion), we could replace every traditional cook stove in the world with efficient and cleaner burning models. This move would reduce labour burdens, improve health, help protect the world’s forests and reduce global CO2 emissions by over half a billion tonnes each year.

Conclusion
For these examples, we assumed that governments would pay the entire cost and give the product – electricity from wind turbines, household solar water heaters, hybrid cars, and cook stoves – away for free. We chose this assumption to show that even such radical measures cost less than the recent financial bailout. In reality, even partial subsidies could drive a massive shift towards a low-energy future.

In today’s challenging economic climate, the private sector has neither the resources nor the appetite to even contemplate this scale of investment. Nevertheless, the public benefits - cost savings, job creation, combating climate change, and reduced dependence on imported fossil fuels - are huge. Because governments enjoy a longer time horizon, they can realise these benefits by acting creatively on a grand scale.

The financial bailout was justified because the threat to private banks put the entire global economy at risk. But we face other threats as well. The social, environmental and economic risks from climate change are vast. The measures we have proposed here are merely illustrative, but they show that we have the means to make fast and meaningful reductions in global greenhouse gas emissions.

What we need now is the will.

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

New Carbon Clear Website Launched

Carbon Clear's new corporate website is now up and running. The site provides increased functionality, much more detail about our carbon offset projects, and a clearer description of Carbon Clear's range of carbon footprint and carbon reduction services to companies.

There are still a few tweaks and additions to come over the next several days - including a Frequently Asked Questions page and a comprehensive glossary for all the "carbon jargon" you're likely to come across. So take a look, and check in again over the next few days as we continue to improve the site. And as always, let us have your comments and suggestions.

Electricity Generation Decreases in China

Last year, I mentioned on this blog that China had finally passed the United States as the largest greenhouse-gas emitting nation. Among the largest emissions sources in China are coal-fired power stations and construction (the joke is that the construction crane is the national bird).

Now the economic downturn is acting as a brake on China's growth. According to the New York Times, Chinese power generation has declined for the first time since 2002.




Researchers estimate this drop in electrical production will result in 1.9 and 2.6 billion tonnes fewer CO2 emission between 2008 and 2012 than under a "business as usual" scenario.

While this is good news for the climate, we shouldn't necessarily celebrate. You can reduce emissions from electricity generation by using fewer electricity-consuming services (where fewer services means more suffering). You can also reduce emissions from electricity generation by using electricity more efficiently (without the need to suffer). Finally, you can reduce emissions from electricity generation by using lower-carbon power sources like wind and solar.

Unfortunately, China's carbon footprint is shrinking due to more suffering -factories are closing and people are losing their jobs. We could see similar reductions through greater investments in renewable energy and energy efficiency - indeed, China hosts more carbon offset projects than any other country.

There are a host of ways to reach a low-carbon future. It would be a shame if it were associated only with job loss and economic hardship.

(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.

Happy New Year from Carbon Clear

Happy New Year from the Carbon Clear team. In 2008 we helped more companies than ever control their carbon impact. We're looking forward to a great 2009, and hope you are, too.

(Carbon Clear homepage)

Dell, Carbon Footprints, and Boundaries

I saw this one coming.

Dell Computers has been criticised in The Wall Street Journal and other newspapers over its recent "carbon neutral" claims.

Dell made headlines first by setting a goal to become "carbon neutral" and then again by announcing that it reached its target ahead of schedule. However, critics argue that the company's reported footprint only covers a fraction of the emissions associated with their computers.

Dell's carbon footprint includes emissions from its on-site boilers, company cars, building electricity use, and staff business travel. These categories comply with the requirements of ISO 14064, which states that organisations must include emissions from on-site energy generation, own vehicles and purchased electricity. 14064 states that organisations may choose to include third-party emissions from suppliers, customers and other stakeholders. Dell chose not to include these emissions sources, and this decision has landed them in hot water.

As we have noted previously, setting a narrow boundary may result in a smaller reported carbon footprint (and a smaller carbon offset bill), but can represent a false saving. In this case, Dell excluded all of the outsourced emissions from the suppliers who manufacture their computer parts, as well as the energy emissions from consumers using the computers. While these emissions are not Dell's direct responsibility, the Wall Street Journal's criticism stems from the fact that at least some of them are material to the company's business success. What's more, these emissions are so large that excluding them appears to have saved the company money on its offsetting bill. Unfortunately, this decision has had a reputational cost.

As we predicted way back in December 2007: "Much of the pressure to measure carbon footprints comes from investors, customers, and regulators, and they expect this information to be made publicly available. An unreasonably narrow boundary may attract criticism from outside reviewers concerned about potential corporate 'greenwash'."

One point the WSJ gets wrong is their claim that "there is no universally accepted standard for what a footprint should include, and so every company calculates its differently". In fact, the International Standards Organization (ISO) issued ISO 14064-1 in Spring 2006, and companies around the world are using it and the related GHG Protocol to calculate emissions consistently.

Carbon Clear uses these standards to calculate corporate carbon footprints. We employ a number of specialised tools to help companies to determine which third-party emissions are material - and thus should be included in their own footprint, and which they can be relatively comfortable placing outside their boundaries. As was the case with Dell, we are good at anticipating and addressing the problems that stem from incomplete carbon management planning and helping to protect our clients from reputational risk. Our aim, as ever, is to help companies measure and reduce their carbon footprints in a robust and credible manner.

Carbon Clear's View on Radiative Forcing

At Carbon Clear we pride ourselves on work that is backed by sound science and ethics. This is true for everything we do, including our carbon calculations. Effective immediately, we have changed the way we account for the carbon footprint of airplane flights.

There has been a great deal of controversy about the global warming impact of high altitude airplane flights. Most scientists recognise that emissions from burning jet fuel at altitude leads to a greater warming effect than if that fuel were consumed at ground level, but the exact amount o that impact depends on a number of complicated assumptions. This has led to different carbon calculators using multiplication factors ranging from 1.0 to 4.0 to account for this increased warming. Defra, the UK's main environment agency, uses a factor of 1.0 on its online carbon calculator, and the European Environment Agency looks set to follow suit.

Until recently, Carbon Clear has followed Defra's example with an emissions factor of 1.0 - a litre of fuel was assumed to have the same warming impact wherever it is consumed. However, after consulting a range of expert stakeholders, we now base our aircraft emissions factors on work commissioned by the Intergovernmental Panel on Climate Change, or IPCC entitled "Aviation and the Global Atmosphere". The IPCC's work represents the consensus opinion of climate scientists from around the world.

While the IPCC report notes that it is prudent to provide a range rather than a single number, the most likely estimates centre around a Radiative Forcing Impact (RFI) from high altitude flights that is approximately 2.7 times the global warming impact of ground transport. This means that we need nearly three times as much carbon reducing activity to compensate for the effects of customer flights. We will monitor the RFI debate and encourage a policy and scientific consensus so that we can continue to provide the best possible advice to our customers.

Every individual and company has a role to play in tackling climate change. At Carbon Clear we're committed to helping you control your carbon impact.

(Carbon Clear website)

Emissions Trading - Going Global

The original version of this article appeared in the June 2008 (No. 60) issue of The Environmentalist.

Greenhouse gas emissions impose a serious cost. For over a century, the main cost of releasing carbon dioxide (CO2) from factories and vehicles has been borne by the environment, in the form of gradually rising global temperatures and the cumulative impacts of climate change. The 2006 Stern Report suggests that climate change, left unchecked, could cost as much as 5% of GDP.

However, the main emitters – operators of vehicles, factories, and power plants –have rarely had to bear the full environmental cost of their actions. Without clear price signals, polluters have had little incentive to reduce their CO2 emissions.

This situation is changing. Since 2005 governments around the world have been phasing in pricing systems that give polluters a financial incentive to reduce their CO2 emissions. The most popular approach, called cap-and-trade, sets a gradually diminishing quota on allowable greenhouse gas emissions, based on historic performance. Firms that emit more CO2 than their allowance must pay a hefty fine or purchase pollution rights from another firm at a mutually agreed price. Firms that emit less than their allowance can sell their excess allocation. In other words, regulators use market mechanisms to find and implement the fastest and most cost-effective emissions reductions, wherever they occur.

The EU-ETS
The most established CO2 emissions trading system is the European Union Emissions Trading Scheme (EU ETS) launched in 2005 to help European nations meet their commitments under the Kyoto Protocol. EU-ETS focused initially on those large industrial emitters collectively producing almost half of the EU’s CO2 emissions from about 11,500 sources: iron and steel, certain mineral industries (including the cement industry), energy production (including electric power facilities and refining), and pulp and paper.

The trial phase of the ETS ran from January 2005 until December 2007. The second phase of the scheme, launched in January 2008, reflects the EU’s 8% binding reduction target by 2012, and imposes a lower emissions cap than did the first phase.

There are two main ways the EU scheme can expand: by including additional sectors, and by including additional countries and linking to other cap and trade schemes. The EU system is open to cooperation with compatible systems in other countries. This year, EU ETS will undergo its first enlargement when Norway, Iceland and Liechtenstein join.

The European Union is including aviation emissions into the system from 2011 and considering expanding the system to further industrial sectors and other greenhouse gases from 2013. For companies across Europe, the price of carbon is getting higher.

The UK’s Carbon Reduction Commitment
While the EU-ETS is a cap-and-trade system designed to help European countries meet their Kyoto obligations, the UK Government wants to use cap-and-trade to achieve even greater reductions. The proposed Carbon Reduction Commitment (CRC) is a cap-and-trade system aimed at large, non-energy intensive companies whose emissions may not be covered under the ETS. These companies’ UK energy consumption exceeds 6,000 MWh per year – equivalent to an energy bill of around £500,000.

Participating companies would include supermarket chains, hotels, office buildings, and government departments. These businesses account for nearly 10% of the UK’s annual emissions.

Under the CRC, companies will self-report their direct and indirect energy emissions (see our December 2007 Environmentalist article “Whose footprint is it anyway?” for an overview of emissions categories). Companies covered by the CRC will have to purchase their initial allowances and will eventually be assigned an emissions reduction target. Firms can then trade any allowances surplus to their requirements or purchase extra if there is a shortfall. CRC participants will also be able to buy (but not sell) allowances from the EU-ETS instead of from their counterparts within the CRC.

The Government intends to publish a league table comparing CRC participants’ progress in reducing emissions, and will refund all or part of the allowance fees in proportion to each company’s league rankings. It is expected that the need to purchase credits, the promise of a cash rebate linked to performance, and the threat of being branded a climate change laggard in the league tables will provide incentives for rapid emissions reductions.

The carbon price is influencing behaviour. In recent conversations with large companies, Carbon Clear's advisory team has found that anticipation of the CRC is encouraging more firms in Britain to measure their carbon footprint and identify rapid emissions reduction opportunities.

Cap-and-trade in the USA
In December 2007, the Climate Security Act (S. 2191) was approved by the US Senate Environment Committee- the first global warming bill to make it out of any committee in the US Congress. Sources responsible for eighty-six percent of US emissions would be covered by the Bill, with targets to reduce emissions by 18%-25% by 2020, and by 62% by 2050. The Bill contained provisions for selling, transferring, retiring, and borrowing emissions allowances.

The Senate Bill establishes a Carbon Market Efficiency Board to determine the number of emissions allowances under this cap-and-trade scheme and set up allowance auctions. Unlike the UK's CRC, which rebates the proceeds from the sale of allowances, the Carbon Market Efficiency Board would use auction proceeds to support energy efficiency and other low carbon technology investments.

In addition, while the US cap-and-trade scheme is not part of the Kyoto Protocol, it allows up to 15% of a company’s emissions reduction obligations to be met through the purchase of international credits from other recognized trading systems.

While the Climate Security Act ultimately failed in the face of an election-year economic downturn and spiraling fuel prices in the first half of 2008, it generated considerable political support and provides a template for future legislation.

Preventing “carbon leakage”
Across the industrialised world, cap-and-trade schemes and voluntary carbon-neutrality pledges are helping companies incorporate the price of carbon into their business decsions. But the same does not hold true everywhere. Countries with less stringent requirements may see a net gain in heavy industry, where the cost of carbon can have a major impact on profitability. Where this happens, emisions reductions in industrialised countries may be negated by increases in other parts of the world.

Without a global climate change agreement, “carbon leakage” to rapidly growing developing countries such as India and China is inevitable. German Chancellor Angela Merkel has urged EU leaders to back measures to prevent industries such as cement and steel from leaving the EU as tighter limits on CO2 emissions are imposed in the Community after 2012. Two options are under consideration for post-2012 Europe:

1. Granting free emission allowances to industries which are particularly exposed to international competition, or
2. imposing a "carbon tax" on imports from countries with no CO2 emission constraints of their own.

It remains to be seen whether these proposals survive local lobbying and the give-and-take of international negotiations.

Cross-system linkages?
Cap-and-trade systems are operational or under development in Europe, North America, Australia, and other parts of the world. Linking these various cap-and-trade systems could contribute to a global carbon market.

A larger carbon market with an increased number of participants helps to increase liquidity in the market. There are more actors able to achieve lower-cost emissions reductions and more willing to pay a premium for spare carbon credits. Greater liquidity can lead to an improved allocation of resources and more cost effective and rapid emissions reductions overall.

With a larger carbon market, there is less burden-shifting, that is, a lower likelihood of CO2 emissions leaking to countries that lack a strong regulatory framework.

There are, however, challenges to linking the European and US cap-and-trade systems. In particular, how would Europe react to more flexible standards that could cause the price of carbon in the EU to plummet? How readily would the US give up the flexibility required to achieve cost-effective emissions reductions across a large and diverse economy spanning multiple climactic and time zones? And how will both systems accomodate the need to purchase external carbon credits from developing countries that require financial help achieving reductions?

While challenges abound, a broader carbon market can help to accelerate the transition to a low-carbon economy. Without a clear price for carbon, we risk a major misallocation of our resources and threaten to pass on the costs of climate change to future generations.

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

John Holdren to be Obama Science Advisor

The Boston Globe (and lots of other newspapers) reports that Prof. John Holdren has been appointed science advisor to the incoming Obama Administration.

Holdren, a physicist by training, is a professor of environmental policy at Harvard University, director of the Kennedy School's Program on Science, Technology, and Public Policy, and director of the Woods Hole Research Center. He is also a past-president of the American Association for the Advancement of Science.

John was the head of the University of California at Berkeley's Energy and Resources Group, back when I was a grad student there. He taught ER100, the very first energy analysis course I ever took (among many others), and I was honoured to have him as a mentor.

John's appointment is good news in the ongoing effort to tackle climate change. He takes a clear-headed, evidence-based view to understanding environmental and energy challenges, and it's encouraging to know that he'll be at the heart of science policy in the new American administration.

Yesterday's Technology

Yesterday's Financal Times included a story about increased pressure to develop and build clean electric vehicles. These cars emit no pollutants from the tailpipe (in fact, there is no tailpipe), and have a potentially important role to play as we transition to a low-carbon future.

Most people think of electric cars as either boring, tiny golf carts or racy space-age vehicles like the Tesla pictured here. But the most interesting point in the FT article was the observation that this technology is nothing new.

The first electric carriage was invented between 1832 and 1839, and electric vehicles were widely used in Europe and the U.S. in the late 1800s and early 1900s. In fact, they held many land speed records during this period, and the wives of Thomas Edison and Henry Ford drove electric vehicles. Here's a photo of Thomas Edison with an electric car in 1913:


Sixty-seven years later, an electric car built in 1980 could travel up to 70 miles per hour for 70 miles without recharging. A widespread switch to electric vehicles could drastically reduce our dependence on petroleum, and lead to a huge reduction in greenhouse gas emissions. And there's no technical reason we can't achieve this goal. As one of the people interviewed in the FT story notes, "They could make these yesterday. They could stamp them out if they had to."

The same goes for many other low-carbon solutions. Reducing emissions is not rocket science. At Carbon Clear we're committed to helping companies identify proven, practical emissions reduction approaches, and then rolling them out in a cost-effective way.

The Outsourced Carbon Footprint

The full version of this article appeared in the March 2008 (No. 55) issue of The Environmentalist.

In our last article, we discussed how ISO 14064 provides useful guidance when choosing the boundaries for a corporation’s or organisation’s carbon footprint. In particular, while ISO 14064 only requires that companies include their direct emissions and their emissions from purchased energy, we argued that a more thoroughly prepared footprint will also look at the indirect emissions from the supply chain.

In this article, we explore how supply chain decisions can affect the company carbon footprint. We also look at how outsourcing production to other countries, while justifiable on cost or quality grounds, can have a significant effect on emissions – both negative and positive.

The “Low-Carbon” Service Sector
The UK economy has steadily shifted away from manufacturing and mining to a service economy underpinned by financial and retail-related services. Services, which are responsible for approximately 74% of national output, tend to be less energy intensive than agriculture, mining and manufacturing.

Defra reports that direct UK greenhouse gas emissions have fallen 12.6 percent since 1990, largely as a result of more efficient energy use, a switch away from coal-fired electricity, and the shift to a service-based economy.
















However, the total volume of manufactured goods consumed in the UK has not decreased. In most cases, manufacturers have shifted to outsourced production. In the process they have transferred their – and the country’s – emissions to the international supply chain. For large retailers, the supply chain may generate thirty times the company's own emissions. A similar effect may hold at the national level.

Outsourced Emissions
There are three ways that including the outsourced supply chain can increase a company’s carbon footprint:

1. an activity that had been excluded from direct emissions once outsourcing began must now be reincorporated into the emissions total;
2. transport between the point of manufacture and UK distribution and retail points results in additional emissions that must be included;
3. many countries that have become a hub for outsourced manufacturing emit more carbon per unit of electricity than the United Kingdom.

The last point bears further exploration. According to the International Energy Agency, the average kilowatt-hour (kWh) of electricity in the UK resulted in 472 grams of CO2 emissions in 2004. In the United States, one kWh resulted in 576 grams of CO2. However, in China, each kilowatt- hour resulted in 851 grams of CO2 emissions, and in India the figure was 942 grams. All else being equal, then, outsourced manufacturing can lead to a significantly higher corporate carbon footprint.

On the other hand, all else may not be equal. Lower labour costs in developing countries mean that companies may use less energy-intensive manufacturing techniques, leading to a net reduction in CO2 emissions. In the end, every company and production process requires its own analysis to determine how outsourcing affects the carbon impact of the supply chain.

Measuring Embodied Carbon
The British Standards Institute, working in collaboration with the Carbon Trust and other stakeholders, has developed a draft standard for measuring supply chain emissions. The draft standard is PAS 2050 - Specification for the measurement of the embodied greenhouse gas emissions in products and services.

In order to ensure that different products and services are evaluated consistently, PAS 2050 takes a comprehensive approach to measuring emissions, including, in the words of the document author, “all emissions (or portion of emissions) that are released as part of all processes involved in creating modifying, transporting, sorting, disposing of and/or recycling the product.”

This comprehensive approach requires companies to address their supply chains. For example, a producer of chocolate candy bars would have to include emissions from growing cocoa overseas – including irrigation and fertilisers, transporting the raw cocoa beans to the mill, producing the milk, blending the chocolate, producing the packaging, warehousing and distribution. With major retailers like Tesco pledging to include carbon labelling on all their products, we predict that more and more companies will be working with their supply chain to understand their carbon exposure.

Outsourced Emission Reductions
Outsourcing is not merely an added source of greenhouse gas emissions that companies must add to their corporate carbon footprint. Outsourcing is also a widely accepted way for companies to achieve substantial emission reductions.

Under the EU Emission Trading Scheme (ETS), companies that are not able to meet their binding greenhouse gas emission targets must purchase external reductions in the form of carbon credits – typically classified as European Union Allowances (EUAs) or Certified Emission Reductions (CERs).

Companies that have voluntarily committed to reducing their corporate emissions or making a product or service “carbon neutral” have access to a wider range of external reduction options to accompany their internal reduction measures. In addition to CERs and – less commonly in the voluntary market – EUAs, companies may choose balance out their unavoidable emissions with so-called voluntary emission reductions (VERs). A number of standards have been developed to increase transparency in the voluntary market and ensure that outsourced emission reductions are as environmentally effective as internal reductions.

Conclusion
Companies choose to outsource business processes for a wide variety of reasons: proximity to markets, raw material prices, labour costs, a desire to encourage job creation in poorer countries, access to technical expertise, regulatory and tax regimes, and others. In this article, we have argued that carbon impacts should be an important consideration when managers decide whether and how much to outsource.

Because outsourcing can lower as well as increase a company’s carbon footprint, and because the results can be counter-intuitive, managers may need to undertake a detailed analysis of their supply chain when weighing the carbon cost of outsourcing.

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

Carbon Clear Among Most Recognised Offset Suppliers

A recent report ranks Carbon Clear as one of the top ten most recognised carbon credit suppliers, in a poll of large and multinational companies.















As the report authors note: "The market is clearly becoming better regulated, at least in part through project developers and carbon retailers' efforts to create best practise procedures and also though the UK governments' long awaited best practise guidelines for carbon offset providers. Demand for different types of offsets shift based on factors ranging from availability to price to public perception, and as a result business customers of the voluntary offset markets play a major role in shaping the future of carbon trading."

The poll, commissioned by credit wholesaler EcoSecurities, not surprisingly ranks that company highest. Still, we're pretty pleased to be in the top ten - our experience, reputation and project quality help us stand out from the crowd.
(Carbon Clear homepage)

Whose Footprint Is It, Anyway?

A longer version of this article first appeared in the December 2007 issue (No. 53) of The Environmentalist.

Public awareness of climate change is at an all-time high, and companies and individuals are under pressure to measure and reduce their carbon footprints. However, we buy goods and services from one supplier and often pass items, whether finished products or waste, on to other people. So how do we know where one footprint ends and another begins? Establishing relevant boundaries around your carbon-emitting activities is a crucial step in calculating your true emissions. Define your activities too narrowly and you offload your rightful carbon responsibilities onto your customers or suppliers. But broaden the boundaries too much and you risk taking responsibility for emissions over which you have little or no control. What is a sensible approach?

A good starting point is the ISO 14064 -1:2006 standard Greenhouse gases- Part I: specification with guidance at the organizational level for quantification and reporting of greenhouse gas emissions and removals. This standard includes formal definitions to help organisations determine where their responsibility begins and ends. Another carbon management standard, PAS 2050 - Specification for the measurement of the embodied greenhouse gas emissions in products and services- can also help an organisation determine where its boundaries begin and end. But before taking a closer look at boundaries, let’s take a step back and think about the overall purpose of carbon footprinting.

Given the recent hype, one might be forgiven for thinking carbon footprinting is simply more corporate “greenwashing”. In reality, developing a reliable and consistent method for measuring greenhouse gas (GHG) emissions helps companies benchmark their performance and identify opportunities to make real reductions in emissions through changes and improvements in business practices and processes. The Carbon Trust outlines the main benefits of carbon management for companies including cost savings, operational efficiency, mitigation of regulatory impacts, capability building, new business opportunities, and enhanced corporate reputation.

In addition, a consistent approach among companies allows customers and other interested parties to make relevant comparisons and use GHG emissions as selection criteria for procurement and purchasing decisions. It also helps companies to evaluate alternative processes for managing GHG emissions and to address corporate environmental targets.

Describing a “Fit for Purpose” Carbon Footprint Report
A credible carbon footprint report is analogous to a credible corporate financial report in that it should give a fair and accurate view of the organisation’s performance and serve as a useful decision making tool for management and other stakeholders. The following principles reflect the thinking that goes into preparing a “fit for purpose” carbon audit report:

a) Relevance - includes emissions sources appropriate to the needs of the intended user
b) Completeness - includes all relevant GHG emissions and removals
c) Consistency - enables meaningful comparisons in GHG-related information
d) Accuracy - reduce bias and uncertainties as far as is practical
e) Transparency - disclose sufficient and appropriate GHG-related information to allow the intended user to make decisions with confidence

When Carbon Clear conducts a carbon audit, the carbon management team applies a 6-step methodology:

1. Identify management’s motivation for measuring the company carbon footprint, and specify key stakeholders
2. Identify organisational boundaries
3. Determine key activities within those boundaries that drive the company’s carbon emissions
4. Measure those activities and apply relevant emissions coefficients to determine the total footprint
5. Identify top-level and detailed recommendations for cost-effective emissions reductions
6. Ensure that carbon footprint results are reported accurately

Without clearly defined, relevant boundaries for GHG emissions, an organisation cannot begin to take meaningful action to measure or reduce their emissions. For example, an office or service-based organisation, which decides to exclude indirect emissions (associated with services and products in its supply chain) might underestimate its footprint by a large factor. For large retailers, the supply chain may generate thirty times the company's own emissions.

ISO 14064 defines four categories of GHG emissions based on management’s control or influence over business activities. These categories are labelled direct emissions, energy indirect emissions, and other indirect emissions.

Direct GHG emissions, as the name suggests, result from activities undertaken directly by the organisation and its staff. These include the operation of company-owned vehicles and on-site power generation, as well as the management of lands and property owned by the organisation.

Energy indirect GHG emissions are the GHG emissions from the generation of imported electricity, heat or steam. The organisation is the direct end-user of the energy, even though the emissions may have occurred at a power station hundreds of miles away.

Other indirect GHG emissions arise as a consequence of the organisation’s procurement activities and other decisions, but arise from sources that are owned or controlled by another organisation. The category of indirect greenhouse gas emissions is potentially huge, and is the most common source of confusion when the organisation attempts to set boundaries for its carbon footprint.

Boundary setting: the ins and outs
A carbon audit is often the initial step in a company’s emissions reduction programme. However, the carbon audit report is also a communications tool, and company representatives may be tempted to set their emissions boundaries as tight as possible in order to produce a smaller footprint. After all, with major institutions basing procurement decisions in part on the bidders’ relative carbon footprints, no one wants to be the biggest polluter.

We argue that this may be a false saving. Many organisations will use their initial carbon footprint as a baseline against which to measure future performance. Exclude too many activities from the baseline and you may lock out a range of cost-effective emissions reduction options throughout the supply chain.

There is a further reason to consider broadening the boundaries of a corporate carbon audit. Much of the pressure to measure carbon footprints comes from investors, customers, and regulators, and they expect this information to be made publicly available. An unreasonably narrow boundary may attract criticism from outside reviewers concerned about potential corporate “greenwash”. In such a case, it is critical that a company clearly states the assumptions and rationales behind its boundary decisions.

Establishing appropriate boundaries for a corporate carbon audit is critical if the corporate world is to do its part to help reduce the severity of climate change. Going beyond direct emissions to encompass indirect emissions can give a company insight into its key emissions sources, and identify a broader range of carbon reduction options. Even better, establishing these broader boundaries can increase the credibility of the carbon audit report itself, and open up new opportunities for engagement with customers and clients.

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

I'm back...

Apologies for the light posting...busy. To make up for it, I'll be supplementing our regular blog posts with some articles that I've written for the IEMA journal The Environmentalist over the past year with colleague Suzy Hodgson.

UK Announces New Department for Energy & Climate Change

Britain's Labour Government on Friday announced the creation of the Department for Energy and Climate Change. The new department, to be headed by Minister Ed Milliband, is the result of a wide-ranging cabinet reshuffle by Prime Minister Gordon Brown.

Many environmental groups have hailed the formation of the new government department, noting that until now one agency had responsibility for sourcing the nation's energy and a separate agency was responsible for dealing with the resultant emissions. The hope is that putting both priorities under one roof will help to align incentives and spur faster action towards a lower-carbon future.

I share their hope, but the simple fact is that climate change is not just an energy issue. Nearly every activity generates greenhouse gas emissions - transport, construction, farming, and the like. One could just as easily argue for a Department for Transport and Climate Change tasked with helping to ensure that the development of the nation's transport infrastructure (third runway at Heathrow, anyone?) was aligned with government greenhouse gas emission targets.

At Carbon Clear, we've found that the most effective approaches to climate change build emissions reduction strategies into every aspect of business or household activity. Our aim is to help companies reduce greenhouse gas emissions wherever it makes sense.