Sustainability
Perspectives
Insights for tomorrow’s business
Issue 1. Carbon Management
Overview................................................................ 2
What is the science?............................................. 8
What is the Voluntary Carbon Market?............. 25
Chicago Climate Exchange
Over the Counter Market
Offset Standards
What is Carbon Trading?.....................................10
What does the future hold?............................... 33
Where we are today.............................................. 6
Perspectives on Offsetting................................ 34
What is the Compliance Carbon Market?...........14
Emissions Trading Schemes
Clean Development Mechanism
Joint Implementation
Renewable Energy Credits
Financial Context
What does the future hold?
What are the elements of a good carbon......... 36
management strategy?
Carbon management best practice.................. 41
Final thoughts.................................................... 48
Further reading.................................................. 50
Glossary............................................................. 51
Overview
This booklet will help you:
• Understand the growing carbon trading market and the different schemes in
operation today, including carbon offsetting
• Develop and implement an effective carbon management strategy that benefits the bottom line and the environment by looking beyond carbon offsets.
Where we are today
The verdict is in: human activity is the primary driver of climate change and
rising global temperatures through emissions of greenhouse gases. We are
already witnessing some of the first effects of the changing climate: a warming
world and rising oceans. Scientists estimate that once temperatures rise more
than 2 degrees a ‘tipping point’ will be reached, triggering a chain of major
effects over which we have no of control. The recent Fourth Assessment Report
of the Intergovernmental Panel on Climate Change (IPCC) leaves no doubt that
to avoid the most catastrophic effects of climate change, global greenhouse gas
emissions must decline to roughly 80% below 1990 levels by 2050.
Such large-scale emissions reductions require a move away from fossil fuel, significant improvements in energy efficiency, preservation of the world’s forests
and a fundamental shift in government policies and economic practices to
encourage the shift to a low-carbon economy. While this may appear daunting
at first, reports suggest that about 70% of the reduction can be achieved with
technologies available or near commercial now. Putting a price on carbon and
building the environmental cost of emissions into the economic system are key
to driving the necessary changes. This is where the carbon market comes in. The establishment of carbon trading
encourages the development and adoption of behaviours and technologies that
will enable us to supply the growing demand for energy without increasing
emissions. Sustainability Perspectives 2
Understanding carbon trading and offsets
What is carbon trading?
A company may either be compelled or choose to take part in the carbon
trading market as part of its carbon management strategy. Carbon
trading is effectively an interaction between buyers and sellers trading
the right to emit greenhouse gases. Mandatory government trading
schemes, created as a result of the Kyoto protocol, are known as the
compliance market. There are also an increasing number of organisations that are not legally required to reduce their emissions but wish to
take action to do so. These organisations trade through the voluntary
market, often using a mechanism known as offsetting.
Carbon offsetting involves calculating your emissions and then
purchasing ‘credits’ from emission reduction projects. These
projects have prevented or removed an equivalent amount of
carbon dioxide elsewhere.
UK Govt DEFRA, http://www.defra.gov.uk/
The Compliance Carbon Market
A number of schemes have been created to facilitate carbon trading. Allowance
based schemes such as the European Union Emissions Trading Scheme are
based on the right to produce a certain quantity of greenhouse gases up to a
predetermined level.
Project based schemes such as the Clean Development Mechanism are based on
credits certifying that 1 tonne of carbon dioxide equivalent has been removed or
saved from emission into the atmosphere. The essential requirement is that the
savings are additional to those delivered through business as usual.
The number of organisations required to participate in government mandated
schemes is set to increase in the future with the introduction of the Carbon
Reduction Commitment in the UK. Other national trading schemes are being
introduced elsewhere.
Sustainability Perspectives 3
The Voluntary Carbon Market
The voluntary market has grown rapidly in the last few years, but still
only represents 2% of the carbon market. The debate about the value and
environmental benefits of some of the schemes in the voluntary sector
continues, not helped by the large number of different accreditation and
verification mechanisms available. In light of some of the concerns about
investing in offset projects, it is important to understand what the objectives are in the context of a robust carbon management strategy to see what
alternative emissions reduction opportunities exist.
Developing an effective carbon management
strategy: best practice beyond offsets
Developing a carbon management strategy
While organisations’ size and scope of operations may differ, the underlying process for developing a sound carbon management strategy remains
the same:
• Set the boundaries of the carbon emissions your business will
measure
• Conduct a full carbon inventory of your business operations based
on these boundaries
• Identify carbon-intensive activities that can be avoided
• Reduce carbon emissions where possible and practical
• Replace carbon-intensive energy sources with lower carbon ones
• Explore alternatives to offsetting
Beyond offsets: carbon management
best practices
Once an organization has been through the process of developing
a carbon management strategy, the question remains of whether
to voluntarily purchase offset credits or adopt other measures to
reduce its carbon footprint. A number of best practice alternatives to
offsetting can be considered, according to the objective.
Sustainability Perspectives 4
Objective: Demonstrate to external stakeholders that actions are
being undertaken to reduce emissions.
Best practice: Inhouse emissions reductions achievements are
externally accredited, and communicated.
Objective: Meet self imposed targets of carbon reduction.
Best practice: Use savings from energy efficiency programmes to
invest in internal carbon reduction projects to drive additional savings.
Objective: Motivate employees and encourage behaviour change.
Best practice: Create a direct link between behaviour change
and incentives
Objective: Act as a good corporate citizen and enhance
corporate reputation.
Best Practice: Invest resources in terms of skills, time and money
into closely aligned offset projects that support corporate objectives.
Objective: Enhance brands or products by addressing consumers’
ethical and environmental concerns.
Best practice: Invest in activities to reduce emissions generated outside the direct scope of the company’s operations by the
products or services it provides.
Objective: Risk mitigation: anticipation of the introduction of
legislation, avoiding negative press.
Best practice: Invest in internal emissions reduction schemes.
Final thoughts
Across all sectors of business, organisations committed to reducing
their emissions beyond mandatory limits are finding:
• Improved efficiency
• Cost savings
• Competitive advantage
• Improved employee motivation
• An enhanced reputation
An effective approach to carbon management is not only the responsible thing to do, it also makes good business sense. Our carbon
management discussion in this booklet provides a clear direction
for organisations to address climate change at the scale required to
make a difference, while keeping an eye on the bottom line.
Sustainability Perspectives 5
Where we are today
There is widespread agreement that the climate is changing and
that this will significantly impact our lives and those of future generations unless urgent action is taken. Now that the majority of
the scientific community has reached consensus on the potential
impact and actions required to mitigate human induced global
warming, the debate has moved to who should be responsible for
taking action.
70% [1] of UK consumers believe that government should take the
lead, and indeed some action is being taken with the establishment
of carbon trading markets and mechanisms to limit industrial
emissions. The majority of consumers also believe that business
can have a large influence on limiting climate change. Despite being
sceptical about some commercial ‘green’ claims, they want help differentiating environmentally sound products from others. Consumers themselves are torn between their aspirations as citizens
to avoid climate change, and their individual desire to go on holiday,
have the latest electronic goods and enjoy private transport. Rising
food and fuel prices mean that the focus is shifting from global
concerns to those closer to home, underlining the importance for sustainable and low carbon products and services to become mainstream
choices. 78% [1] of consumers want companies to make it easier to
buy low impact products. A key observation is that individuals are
concerned with fairness, and seek reassurance that they are not the
only people making sacrifices in order to effect a change.
So the role for business is varied: from participating in government
mandated carbon trading schemes, to minimising the impact of
manufacturing operations, developing low carbon products and
services, influencing consumer behaviour and giving them a sense
of collective action as well as individual choice. In order to do any
of these, a business first needs to understand its carbon footprint
(described as how much greenhouse-inducing carbon dioxide a
company is responsible for adding to the atmosphere as a result of
its operations), identify how to effectively manage carbon and then
communicate this in a compelling way to stakeholders. 1.
Tipping point or turning point: social marketing and climate change, IPSOS MORI, July 2007
Sustainability Perspectives 6
As forward thinking companies began to understand their footprint, focus was inevitably drawn to the idea of creating a business
whose operations added no net carbon to the atmosphere, generally
referred to as achieving carbon neutrality. At its most basic, carbon
neutrality means removing as much carbon dioxide from the atmosphere as you put in, achieving net zero emissions. This phrase
gained popularity as several large organisations and brands announced their intention to become carbon neutral. Since it is almost
impossible to have no net impact on the environment, they relied
heavily on “offsetting” as a mechanism to achieve this. Offsetting
involves paying another organization to reduce carbon emissions
on your behalf. At the time this was helpful, energising the debate about the role
organisations and individuals could play in addressing climate
change. However, as universities, towns, individuals and brands
now all claim to be carbon neutral, it has rapidly become apparent
that very different assumptions and actions are being undertaken.
As a result, both carbon neutrality and carbon offsetting have come
under increasing scrutiny as questions are asked about exactly what
they mean, and what they deliver. Phrases such as ‘carbon neutrality’ are viewed with some scepticism, and carbon offset schemes
are being questioned as some fail to deliver the reductions they
promised. Perhaps in order to regain credibility and trust, it is time
to move on, and rephrase the debate and the solutions in terms of the
climate and social science that underpin them. Sustainability Perspectives 7
What is the science?
This guide is designed to help organisations understand the complexity of
the carbon challenge and consider the most appropriate way to reduce their
footprint through a robust carbon management strategy.
Climate refers to the average weather experienced over a long period,
and includes temperature, wind and rainfall patterns. The climate of the
Earth is dynamic, and has changed many times throughout history.
“
The scientific evidence is now overwhelming: climate
change presents very serious global risks, and it demands
an urgent global response”
Stern review [2]
The reality
The recent Fourth Assessment Report of the Intergovernmental Panel
on Climate Change (IPCC) [3] leaves no doubt that human activity is the
primary driver of changes in climate through emissions of greenhouse
gases. The accumulation of gases such as carbon dioxide (CO2) and
methane (CH4) in the atmosphere strengthen the greenhouse effect, and
are now at the highest level in history. According to the report, mean global
temperatures are likely to rise between 1.1 and 6.4°C (with a best estimate
of 1.8 to 4°C) above 1990 levels by the end of this century, depending on the
level of emissions. Rising temperatures will trigger many other changes to
the earth’s system: rising sea levels of between 20 and 60cm by the end of
this century, continued melting of ice caps, glaciers and sea ice, changes in
rainfall patterns, intensification of tropical cyclones and species extinction. Food and water supplies, human health, biodiversity and the economy will
be affected, although the scale of impacts will vary considerably by region
and vulnerability. The extent and severity of negative impacts will rise with
temperatures. It is estimated that once temperatures rise more than 2°C
a ‘tipping point’ will be reached, triggering a chain of major effects over
which we have no of control, such as the acidification of oceans.
2.
Stern review: The economics of climate change, HM treasury, UK government 2006
3.
Climate change 2007: AR4 Synthesis report, IPCC
Sustainability Perspectives 8
What needs to be done?
In the absence of an effective international effort, emissions will continue
to grow rapidly over the coming decades. To have a reasonable chance
of keeping global temperature increases below 2°C, global emissions
must peak in the next decade and then decline to roughly 80% below
1990 levels by 2050 if we are to avoid catastrophic climate change. Such
large-scale emissions reductions require a move away from fossil fuel,
significant improvements in energy efficiency, preserving the world’s
natural carbon sinks i.e. forests and a fundamental shift in government
policies and economic practices.
Is it possible?
The good news is yes- reports suggest that it is both economically and technically feasible. About 70% of the reduction can be achieved with technologies
currently or nearly available. Energy efficiency alone could cut demand by
20% [4]. Adaptation is essential to reduce the effects of climatic changes that
are already occuring as a result of historic emissions, but it cannot solve
the problem. Mitigation is the only way to effectively curb climate change.
Putting a price on carbon and building the environmental cost of emissions
into the economic system is a key move to driving behavioural change. The
establishment of carbon trading encourages the development and adoption
of behaviours and technologies that will enable us to supply the growing
demand of developing economies without increasing emissions. The next
decade is crucial to delivering this change. In line with the Stern review
[2] recommendations on the economic impact of climate change, postpon-
ing action will make it more difficult and costly to reduce emissions in the
future, as well as creating higher risks of severe climate change impacts.
4.
Breaking the Climate Deadlock- a global deal for our low-carbon future. The Climate group, July 2008
2.
Stern review: The economics of climate change, HM treasury, UK government 2006
Sustainability Perspectives 9
What is carbon trading?
At a glance:
The Facts:
• Carbon markets are effectively an interaction between buyers and
sellers trading the right to emit greenhouse gases.
• Mandatory government schemes are known as the regulatory or
compliance market.
• Non-legislated trading occurs through the voluntary carbon market.
• Allowance-based schemes are based on the right to produce a certain
quantity of greenhouse gases. One allowance or credit equates to 1
tonne of carbon dioxide equivalent emitted into the atmosphere.
• Project-based schemes are based on credits certifying that 1 tonne of
carbon dioxide equivalent has been removed or saved from emission
into the atmosphere.
Outlook:
• Schemes should be well managed to ensure the environmental benefits are realised.
• Credits should be registered once created to ensure they are not sold to multiple buyers.
• Credits can be traded several times before the final buyer retires them.
“
The aim of the carbon market is to enable companies to
manage the cost of pollution. A correctly functioning
carbon market will penalise heavy polluters and
incentivise reduced emissions, thus ensuring pollution
can be managed at the lowest cost to society”
Greger Flodin, Rabobank
“
Price is the principle facilitator for behaviour change.
You need to make it more financially viable to change
behaviour than to buy yourself out of trouble”
Simon Manley, Converging World
Sustainability Perspectives 10
Development of the Kyoto Protocol
1988/
Intergovernmental Panel on Climate
Change (IPCC) was established to
help governments understand the
science of climate change, key issues
and their implications.
1992/
The IPCC and the United Nations
(UN) established the United Nations
Framework Convention in Climate
Change (UNFCCC) and formally
recognised the threat of climate
change, establishing targets to limit
greenhouse gases in the developed
world to 1990 levels. These targets
were not legally binding.
1997/
The Kyoto protocol was adopted by the
UNFCCC and ratified by many countries.
It created legally binding targets to
reduce Greenhouse Gases (GHG)
by 5% below 1990 levels by 2012.
2008/
Start of the Kyoto time frame.
Currently 177 countries have ratified
the treaty in addition to the European
Union.
2012/
The end of the Kyoto protocol. The
future of carbon trading after 2012 is
currently under discussion.
Sustainability Perspectives 11
Carbon trading is effectively an interaction between buyers and sellers
trading the right to emit greenhouse gases. Mandatory government schemes
have been created as a result of the Kyoto protocol, and are known as the
compliance market. The scope of legislative schemes is largely limited to
heavy industry and power generating companies at present, although there
are moves to increase the number and type of organisations that will be
included in compliance schemes in future.
There are also an increasing number of organisations that wish to take action
but are not legally required to do so. Engaging in voluntary schemes provides
useful experience in measurement and strategic decision making, preparing
an organisation for the time when government schemes expand and participation will become mandatory. These organisations trade through the
voluntary market.
The type of scheme and credits that can be bought are determined by the
need to meet mandatory compliance or voluntary targets. There are two
distinct mechanisms at work to bring about a reduction in carbon emissions
under a carbon trading market.
Allowance-based schemes are based on the right to produce a certain quantity of greenhouse gases. One allowance or credit equates to 1 tonne of carbon
dioxide equivalent emitted into the atmosphere. This is relatively easy to
measure, and technology and expertise are available to validate the quantities
produced, although levels are less easy to predict in advance. Tradable rights
to emit, called allowances, are distributed to producers of carbon pollution.
Companies are free to trade allowances on the carbon market. Project-based schemes are based on credits certifying that 1 tonne of carbon
dioxide equivalent has been removed or saved from emission into the atmosphere. Predicting and subsequently proving something has not happened
is more complicated to measure, therefore elaborate control mechanisms
have developed to verify these credits. The essential requirement is that the
savings are additional to business as usual. For example, if an industry is
legally required to reduce greenhouse gases, then any reductions made would
be considered ‘business as usual’ and not generate credits. The easiest projects
to classify are those that have no other income other than that generated by
carbon credits, such as methane capture in landfill sites.
Sustainability Perspectives 12
Both allowance and project-based schemes should be subject to external
validation and verification processes in order to ensure that the environmental integrity of the scheme is maintained and actual reductions take
place. Credits should also be registered with a central body to ensure they
are only ‘retired’ once (removed from a central registry to keep track of
overall emissions reductions) and not sold multiple times.
2.983 Total Global Markets
2.918 Total Regulated Markets
1.667
1.642
24,6
2006
65 Total Voluntary Markets
2007
Volume of carbon credits
in Metric Tonnes of CO2
Source: World Bank [3] Ecosystem Marketplace and New Carbon Finance [4]
Compliance buyers can only buy compliance credits in order to meet regulatory targets. Voluntary buyers can buy credits from the voluntary and/ or the
compliance market (including those buyers who already participate in the
compliance market and wish to buy voluntary credits). The voluntary market
represents a tiny but rapidly growing portion of the overall carbon market.
4.
Breaking the Climate Deadlock- a global deal for our low-carbon future. The Climate group, July 2008
Sustainability Perspectives 13
What is the compliance trading market?
At a glance:
The Facts:
• Mandatory emissions reduction targets are set for countries, industries
and companies.
• Three main mechanisms were introduced under the Kyoto protocol: the
Emissions Trading Scheme, Clean Development Mechanism and Joint
Implementation. These mechanisms encourage sustainable development
by technology transfer and investment, reducing emissions in other
countries in a cost effective way, and encouraging private sector and
developing countries to contribute to emissions reductions.
• Emissions Trading Scheme (ETS): the largest scheme is the European
ETS that trades in European Union Emissions Trading Scheme Allowances
or EUAs. Companies which exceed their emissions target must offset the
excess emissions by buying EUAs, or pay a fine. Setting an accurate and
challenging cap for CO2 emissions is essential to maintaining the market
price for carbon credits.
• Clean Development Mechanism (CDM) projects are dominated by energy
efficiency and renewable energy projects. The CDM requires emissions
reductions to be in addition to savings achieved through business as usual.
It allows companies in developed countries to invest their money where
it will have greater impact than their own internal emissions reductions
schemes. It provides an incentive for industries in developing countries
to adopt cleaner technology. The credits produce are known as Certified
Emissions Reductions or CERs.
• Joint Implementation (JI) projects enable industrialized countries or companies
to carry out projects in other developed countries and use them against their
targets. Credits are known as Emissions Reduction Units or ERUs.
• Renewable Energy Credits (RECs) can be used to achieve compliance targets.
Outlook:
• The scope and scale of compliance markets look set to increase as new
trading schemes are established in other markets, and governments
extend the scope of regulations to cover more businesses e.g. the Carbon
Reduction Commitment in the UK.
• Giving organisations the opportunity to profit from their actions is a
powerful driver for the behavioural and systemic changes needed in
industry to deliver emissions reductions. Indeed, increasing energy bills
and the rising cost of raw materials means that making energy savings and
investing in future technologies makes good business sense.
Sustainability Perspectives 14
As part of international commitments to reduce greenhouse gas emissions,
developed countries are allocated emissions allowances based on their
agreed national reduction target. The government then allocates these allowances to industry using a ‘cap
and trade’ control mechanism. The benefit of a ‘cap’ is that it sets an environmental outcome, and then the market sets the price accordingly. Each
allowance unit is equivalent to one metric tonne of CO2.
Allowances are distributed freely or through an auction in order to create
market demand and establish the price for a credit within emissions trading
schemes. Essentially allowances are set at a level just below business as
usual and this sets the limit of a companies’ CO2 output or ‘cap’. Companies
then have three mechanisms to achieve the target:
• Make direct emissions reductions, through internal abatement or changing manufacturing processes, releasing surplus allowances which can be
traded for profit on the carbon market through the Emissions Trading
Scheme.
• Buy extra allowances on the carbon market to cover excess emissions.
• Buy credits by funding projects that remove the required amount of
emissions in developing countries via the Clean Development Mechanism, or in developed countries via the Joint Implementation scheme
(although the portion that can be offset this way is capped). SELLER
Surplus credits
SELLER
Surplus credits
BUYER
Emissions
cap
Direct or
through
a broker
Direct or
through
a broker
ETS
CDM /JI
Carbon trading transactions
CO2 emissions
emissions over cap
credits
Sustainability Perspectives 15
Emissions trading schemes
The European Union’s Emissions Trading Scheme (EU ETS) is the world’s
biggest mandatory cap and trade system for carbon dioxide equivalents and
it is growing fast. It represents 78% of the value of the world carbon trading
market [5]. The cap is set at about 2 billion tonnes of carbon a year, which
will decrease progressively overtime. The scheme covers some 12,000
energy intensive industrial plants across the EU.
Other markets are developing compliance trading schemes, including
Norway, Australia, Canada, Japan, and the Regional Greenhouse Gas Initiative in the US.
“
The potential size and scope of a structured carbon
emissions market in the US is unequivocally vast. It
is certainly possible that the emissions markets could
overtake all other commodity markets.”
Bart Chilton, commissioner of the Commodity Futures Trading Commission, US [6]
The allowances traded are known as European Union Emissions Trading
Scheme Allowances or EUAs. Companies which exceed their emission
target must offset the excess emissions by buying EUAs. To manage the
trade in allowances, each country has a national emissions allowance
registry detailing accounts of companies included the scheme. A complex
market of brokers and electronic exchanges now exists where “forward
contracts” are traded for delivery at a future date.
Setting an accurate and challenging cap for CO2 emissions is essential to
maintaining the market price for carbon credits. When allowances exceed
emissions, the market reacts accordingly and the price of carbon drops.
This reduces the financial incentive for companies to make reductions.
One of the key challenges for industry is the uncertainty over the long term
future of emissions trading schemes. It is difficult to factor in the financial implications of investing in energy efficient technologies if the future
of trading the savings from these projects is uncertain. Currently carbon
management is largely an accounting exercise, establishing the baseline for
future reductions. However, it is beginning to appear on balance sheets as a
significant liability for some companies involved in the compliance market.
5.
State and trends of the carbon market 2008. World Bank report, Washington DC, May 2008
6.
Carbon trading set to dominate commodities. Financial Times June 25, 2008
Sustainability Perspectives 16
UK Energy Companies:
Energy companies in the UK were accused of making windfall profits
of up to £1.3 billion from the over allocation of allowances at the
start of the EU ETS, and then passing on some of those costs to
consumers through their energy bills.
According to a Radio 4 File on Four documentary [7] in April 2007
the EU ETS caps had been set far too high. A spokesperson from the
campaign group Carbon Trade Watch said:
“
This is one of the biggest scandals of the EU ETS.
It was revealed that there had been massive over
allocation of permits across the board in Europe.
So companies and businesses had actually
been allocated more permits than they actually
needed.”
This meant that energy generators not only had little to do to meet
targets, they also had surplus permits that could be profitably traded.
This surplus led to a crash in the price of carbon credits. In order to
avoid this happening again, the government is planning to auction
all of the allowances to large electricity providers, and set more
stringent reduction targets in phase 3 of the EU ETS.
The reality is that financial incentives are a more motivating mechanism
than imposing carbon taxes in order to drive the behavioural and systemic changes needed in industry to deliver emissions reductions. Giving
organisations the opportunity to profit from their actions is a powerful
driver for change. Indeed, the current climate of increasing energy bills
and rising cost of raw materials and resources means that making energy
savings and investing in future technologies makes good business sense
regardless of the impact on climate change.
Is the EU ETS driving emissions reductions? A survey by Point Carbon in
February 2008 showed that 62% of companies report reducing or planning to reduce emissions as a result of the ETS. However, the verification
of these reductions has not yet taken place [8].
7.
Carbon Trading, File on Four BBC radio 4, June 25th 2008
8.
Point Carbon (2008): Carbon 2008 - post 2012 is now. Røine, K., E. Tvinnereim and H. Hasselknippe (eds.) 60 page March 2008
Sustainability Perspectives 17
Focus on the Building Trade:
Whilst the focus on energy efficiency seems a recent trend, some
industries such as the building trade have been improving energy
efficiency for decades. The key shift from measuring energy in
kilowatt-hours to carbon dioxide in 2005 signalled the alignment
with the climate change agenda.
UK Government regulations require that by 2016 all new buildings
will be ‘zero carbon’ over a year. This means that buildings will
be so efficient in their energy use in terms of heating, cooling and
water systems, that all their energy needs will be able to be met
by renewable sources. Whilst the exact mechanism for this is still
under debate, the principle is not.
“
It is much more expensive to generate electricity
than to save it.”
John Tebbit, Industry Affairs Director
Construction Product Association
The housing analogy is a useful one when considering the different
ways to achieve the end goal of emissions reduction.
• Adding loft and water tank insulation and installing energy
efficient light bulbs are quick solutions to reducing energy loss
where costs are soon recovered.
• Installing efficient boilers and double-glazing requires more
capital investment, and will pay back in the longer term, but does
not affect the appearance of the house significantly.
• Installing solar panels, wind turbines or ground source heat
pumps requires a lot of investment, a long time scale and affects
the physical appearance of the property or garden.
• Moving to a new eco-efficient house is a large financial
commitment reliant on expectations that the cost of energy will
rise significantly, and inefficient housing will be penalised.
However all of these actions depend on how the building is used.
For example, energy savings from installing double-glazing will be
negated if the windows are left open when the heating is on. Education
and behaviour changes are key to delivering the savings. Overcoming
inertia is a big stumbling block and a carrot and stick combination of
government regulation and financial subsidies and incentives are used
to motivate householders to make these changes.
In a similar way, there is a range of activities of different scales that
a company can undertake to reduce emissions. Which of these is
economically viable depends on the timescale and the external
environment, as well as the receptiveness to change behaviour.
The more a government can reassure companies that carbon
trading and emissions reductions are here to stay- the more likely
organisations are to invest in long term schemes.
Sustainability Perspectives 18
Clean Development Mechanism (CDM)
The Clean Development Mechanism (CDM) was designed to facilitate
the flow of capital and technology to developing countries to enable them
develop in a sustainable way. It has two main benefits:
“
People who have been
working in this sector for
• It allows companies in developed countries to invest in schemes in de-
many years have been
veloping countries where the capital will generate more cost effective
astounded by the speed and
emissions reductions.
scale of change. We should
• It provides an incentive for industries in developing countries to adopt
not underestimate what has
cleaner technology that is not yet required by government legislation. been achieved as a result of
the CDM”
Emissions reductions under this scheme need to be independently verified
Greger Flodin, Rabobank.
by the UN in order to receive emissions credits known as Certified Emissions Reductions (CERs). The standards are well defined, and projects must
comply with approved methodologies for calculating baseline emissions,
monitoring progress, reporting and certifying results. Certified Emissions
Reductions can be bought by companies meeting their compliance targets,
but also by voluntary off setters. Gold Standard CERs generally attract a
premium price due to limited supply of projects qualifying for the standard.
Central to the Clean Development Mechanism scheme is the principle of additionality. Projects must reduce emissions by an amount that is additional
to business as usual, or must demonstrate that the project could not have
been completed without the income from selling offset credits. The type of project allowed under the scheme varies greatly. In 2007 the
single biggest category of projects was energy efficiency and fuel switching
(40% of volume supplied) followed by renewable energy (24%) and industrial gas emissions (17%). Other projects include agro-forestry and waste
management [5]. These projects are dominated by China which issues 73%
of the volume supplied, followed by India with 6%. The biggest greenhouse gas emissions source excluded from the CDM are
deforestation and degradation projects. These areas were excluded from
the CDM due to questions about lack of permanence, leakage (concerns that
logging activity was merely displaced elsewhere) additionality and complexity of rights over land and associated income. Discussions are currently
underway to develop methodologies that would allow Reduced Emissions
from Deforestation and Degradation (REDD) projects in the CDM. There is
currently only one reforestation project approved by the CDM [9].
9.
UNFCCC web site: CDM statistics
5.
State and trends of the carbon market 2008. World Bank report, Washington DC, May 2008
Sustainability Perspectives 19
The variety of projects and difficulty in proving additionality means that
some are inevitably better than others. This led to a series of exposés by
the media, highlighting projects which generated huge profits as a result of
participation in the CDM scheme. Whilst the amount of profit made may be
disproportionate to the action, there is no doubt that a potent greenhouse
gas was prevented from being emitted as a result of these projects. Aside
from the question of such projects meeting the wider objectives of the CDM
scheme, the opportunities for new large industrial gas projects are almost
exhausted under current methodologies. Only two industrial gas abatement
projects entered the pipeline in 2007 [5]. In their place, the number of clean
energy projects are emerging as the most common type of CDM project.
Another challenge is the degree to which projects realize the emissions
reductions initially forecast. Research by IDEAcarbon [10],[11] showed that
projects that have already started to issue UN certified credits are delivering
96% of the credits expected at project design stage. However, these figures
are dominated by a small number of large projects dealing with industrial
emissions. More than 300 smaller projects, including biomass in Brazil and
landfill gas in South Africa, were only delivering 70% of what was promised. Ian Johnson, Chair of IDEAcarbon and former Vice President for Sustainable Development at the World Bank, said:
“
Our analysis shows that the concern of many investors
is justified – carbon projects are risky and until recently
these risks have been underestimated. But, the analysis
also highlights the enormous potential in this market.
Well designed projects are delivering genuine emissions
reductions at an increasing scale” Ian Johnson, Chair of IDEACarbon
In order to reassure investors, IDEACarbon has developed an AAA rating
scheme. This joins an increasing number of evaluation methods and
standards over and above the CDM scheme requirements, of which the
Gold Standard is generally acknowledged to be the highest. This identifies projects that deliver emissions reductions, as well as factoring in the
community and social benefits of the project in the host country. The Gold
Standard is endorsed by a number of NGOs.
5.
State and trends of the carbon market 2008. World Bank report, Washington DC, May 2008
10. Carbon credit schemes fall 30% short of projections, report claims. Guardian, June 25th, 2008
11. IDEACarbon
press release
Sustainability Perspectives 20
The CDM has been criticized for a lengthy and expensive registration and
approval process. Currently two thirds of projects are going through registration, which can take up to two years. However it is envisaged that the
CDM will be reviewed, improved and reformed to encompass a broader
range of smaller projects. As more experts are trained to process and
verify applications, more projects will be released.
Despite the criticism, there is little doubt that the CDM has been instrumental in creating the incentive for many emissions reductions projects
that would not otherwise have taken place. For example, the opportunity
for wind sector development in India was under discussion for many
years, hampered by debates about the relatively high cost of wind energy
for low-income consumers. The CDM gave the impetus for these plans to
be implemented. Landfill methane capture is another example of emissions reductions that would not otherwise have taken place.
Joint Implementation (JI)
In contrast to CDM projects, Joint Implementation, or JI, projects enable
industrialized countries or companies to jointly carry out emission reduction projects with other developed countries and use them against their
targets. The same principle of additionality applies.
The credits generated are called Emission Reduction Units or ERUs. The
majority of the projects are in Russia (36%) and the Ukraine (33%), reflecting the opportunities in the oil, gas and power sectors. The volume of
credits generated in the Joint Implementation sector has nearly tripled in
2007 and value has increased to $499 million [5]. The JI projects undertaken differ from the CDM. Projects targeting
methane dominate the market (47% of volumes transacted), followed
by renewable energy (37%) and industrial gas abatement (23%). This is
a change from the pattern in 2006 when clean energy represented two
thirds of the volume traded [5].
5.
State and trends of the carbon market 2008. World Bank report, Washington DC, May 2008
Sustainability Perspectives 21
Renewable Energy Credits (REC)
These credits can be used to achieve compliance targets and can also be sold
as voluntary offsets. They are created by the generation of one megawatt
hour of electricity from a renewable source such as solar, wind, biomass or
geothermal. Renewable Energy Credits enable organisations in developed
countries to purchase renewable energy even if it is not locally available.
The REC market operates separately to the carbon markets in countries
such as the US, Canada, Europe and Australia.
Financial context
Financial trading of compliance credits is hugely complex and influenced
by many factors. The market involves project developers, wholesalers, retailers, brokers as well as electronic energy and emissions exchanges such
as the European Climate Exchange. CER credits (from the Clean Development Mechanism) can be substituted for EUAs to meet European Union
Emissions Trading Scheme targets. To add complexity, trading is usually
undertaken in forward and futures contracts, where the price is set now
but allowances and payment don’t change hands until an agreed date in
the future. Emission permits issued can be saved for subsequent years
(banking), or future year’s permit allocations can be brought forward for
use in the current year (borrowing).
The lack of a link between the EU Emissions Trading Scheme and the
United Nation’s Kyoto carbon offsets market is cited as a reason for the difference in price between CERs and EUAs, even though both have the same
value for compliance in the EU market. It has recently been announced
that the EU registry will be linked to the UN’s International Transaction
Log in October of this year. This is expected to facilitate trade of issued
CERs across Europe.
The ranking of credits by price can be summarised as:
EU Emissions
Trading Scheme
(EUA)
CDM Certified Emissions
Reductions
(CER)
Joint Implementation
Emissions Reduction
Units (ERU)
Voluntary Emissions
Reductions
(VER)
Chicago Climate Exchange
Carbon Financial
Instruments (CFI)
Non - compliance credits for reference
Sustainability Perspectives 22
What does the future hold?
All United Nations Framework Convention on Climate Change (UNFCCC)
member countries have agreed to negotiate a sucessor to the Kyoto protocol,
giving some long term security to compliance trading schemes. Future regulation is expected to become more extensive. A number of regional or national trading schemes will be launched in the next few years.
E.g. the first US cap and trade programme, the Regional Greenhouse Gas
Initiative (RGGI) will begin in 2009. Creation of new trading markets, and
increasing links between existing markets will drive demand for credits,
however it is anticipated that many of the compliance buyers in existing
markets may well have already bought a significant portion of the credits
needed to meet their Kyoto targets. The price for credits is generally expected to rise in the future. However, the
IEA (International Energy Agency) recently stated that the cost of carbon
dioxide emissions would need to be at least $200 a tonne to deliver the incentive for industry to invest in radical new technologies such as hydrogen
fuelled vehicles [12], vs a price for EUA of €25 today (Aug 2008).
12. IEA proposes much higher carbon offsets, Financial Times June 6th, 2008
Sustainability Perspectives 23
The European Commission is discussing Phase 3 of the EU ETS covering
2012 –2020 period. A number of lessons from phase 1 are being incorporated, including:
• Tightening the cap for overall emissions for the EU to 21% below 2005 levels
• Proposing to include the aviation sector (currently 3% of EU emissions)
• Auctioning all allowances to the power sector by 2013
• Reducing the level of free allocation to zero in 2020
In the UK a new carbon trading scheme for non energy-intensive organisations is being introduced in 2010. The Carbon Reduction Commitment (CRC) scheme covers electricity and gas consumption for companies
whose emissions fall outside Climate Change Agreements and the EU ETS,
including large business and public sector organisations, such as universities, retailers, hotel chains and local authorities. Offsetting is specifically
excluded from this legislation as the focus is on driving and rewarding end
user efficiency. This is an interesting change in focus from the basic premise
of the CDM where investment flows to the most cost effective emissions
reductions projects, to investment being reallocated to the most effective
emissions reduction projects. UK 2010:
The Carbon Reduction Commitment (CRC)
•The Carbon Reduction Commitment is a mandatory emissions
trading scheme aimed at improving energy efficiency and reducing
emissions. Companies whose energy use in 2008 is more than
6,000 MWH per half hour will need to purchase carbon allowances
to cover their emissions. There will be an introductory three-year
phase in which carbon allowances will be sold at a fixed price of
£12/tCO2. In the second phase, there will be a cap on allowances,
and all allowances will be auctioned.
•The revenue raised will be recycled to participants proportional
to their 2009 emissions adjusted by a bonus or penalty related to
their performance in the CRC league table. An improved league
table performance, translates into a direct financial return. An ‘early
action’ metric will be developed to give some recognition to good
energy management implemented before the start of the scheme.
So the more energy you save, the more you earn.
http://www.defra.gov.uk/
Sustainability Perspectives 24
What is the voluntary trading market?
At a glance:
The Facts:
• The voluntary carbon market is growing rapidly and is expected to
continue to do so in the future.
• It consists of the Chicago Climate Exchange, a voluntary cap and trade
scheme, and the wider Over The Counter (OTC) market of all other
credits generated outside a regulatory system.
• Voluntary credits are generated by a diverse range of projects of varying
quality and scale in both the developed and developing world. These
include renewable energy, reducing industrial emissions, community
energy and efficiency projects, and biological sequestration.
• Projects are generally considered to have a wider range of
sustainability benefits than compliance projects, and are often smallscale community based initiatives.
• Reduced Emissions from Deforestation and Degradation projects
(REDD) are largely excluded from Kyoto markets; while this is under
review, changes to the regulatory framework are not expected until 2012.
• The majority of buyers are businesses, whose primary motivations are
corporate responsibility and public relations/ branding.
• A wide variety of standards exist: the highest quality is generally thought
to be the Gold Standard VER. As the market evolves, it is expected that
the VER (not Gold VER) will become the standard of choice. An industry
body known as the International Carbon Reduction and Offset Alliance
(ICROA) has been established to share best practice.
Outlook:
• The UK government will launch a quality assurance mark to guide
voluntary offset purchasers, however it will limit the credits it
recommends to those generated by compliance schemes at present.
• Key principles in evaluating offset projects include: additionality,
avoiding carbon leakage, permanence, verification, transparency
avoiding double counting, immediacy and proportionality.
The voluntary carbon market refers to all trade that is outside a regulatory market. It includes companies who wish to reduce carbon emissions
over and above any legal obligation, as well as individuals wishing to offset
emissions created by their personal lifestyle. Transactions in this market
are generally referred to as offsetting. Offset buyers are not actually reducing emissions; they are only preventing a net increase.
Sustainability Perspectives 25
Carbon offsetting involves calculating your emissions and
then purchasing ‘credits’ from emission reduction projects.
These projects have prevented or removed an equivalent
amount of carbon dioxide elsewhere.
UK Govt DEFRA, http://www.defra.gov.uk/
Voluntary buyers have a number of options to offset their emissions by
purchasing credits from a number of sources:
• Purchase credits generated for compliance schemes
• The Chicago Climate Exchange (CCX)
• Credits sold outside the regulatory market or CCX are generally referred
to as the ‘voluntary offsets market’, increasingly known as the over the
counter (OTC) market
A report by Ecosystem Marketplace and New Carbon Finance [13] valued
the international OTC market at $258 million in 2007. The total
voluntary market was worth $331 million, representing only 2%
of the overall market. The Chicago Climate Exchange (CCX)
The Chicago Climate Exchange (CCX) is described on its website as:
The world’s first and North America’s only active voluntary,
legally binding integrated trading system to reduce
emissions of all six major greenhouse gases (GHGs), with
offset projects worldwide. [14]
The Chicago Climate Exchange is a voluntary cap and trade scheme that incorporates both allowance based credits (generated as a result of the members
emissions reductions), or projects based (from qualifying projects). Credits
can also be sold to non-members as offsets. CCX Members make a voluntary commitment to meet annual GHG emission reduction targets. These
are achieved through a legally binding compliance regime. CCX Members
commit to a reduction schedule that requires year 2010 emission reductions
to be at least 6% below baseline. The market is small, but growing, and transaction volume doubled from 2006 to 2007.
13. State of the Voluntary Carbon Markets 2008- New Carbon Finance and Ecosystem Marketplace, May 2008
14. Chicago Carbon Exchange website
Sustainability Perspectives 26
Different types of offset projects
01/
Renewable energy
Creating heat or power from renewable
sources such as wind, biomass, solar,
hydro, geothermal and . These are
often large scale
long term projects.
02/
Reducing Industrial
Emissions
Modifying existing or introducing new
technology to reduce greenhouse
gas emissions. Varying size and
complexity including gas recovery
or destruction, industrial energy
efficiency, low energy lighting, fuel
switching to natural gas or biomas
briquettes.
03/
Community energy and
emissions efficiencies
Designed to change peoples behaviour
by providing new tools or equipment
with relevant education and incentives.
Often involve community benefits as
well, but as a consequence are difficult
to measure and quantify.
04/
Biological sequestration
Any land use change that increases
vegetation or soil capture of carbon.
Projects include: reforestation,
afforestation and preventing
deforestation.
Sustainability Perspectives 27
The Over The Counter Market (OTC)
Almost all credits sold in this market are generated by projects and are
known as Voluntary Emissions Reduction (VERs). These credits are not
regulated, verified or monitored in the same way as compliance credits and
cannot be sold into the compliance markets. The market is growing rapidly,
and trebled between 2006 and 2007.
The types of projects that dominate the voluntary market are different from
the regulatory market. Some argue that one of the main benefits of the voluntary market is to experiment with projects and methodologies outside
the regulatory context. Projects are often small and community based with
sustainable development benefits that can be difficult to quantify. In 2007
the OTC market was dominated by projects from renewable energy (31% of
credits sold), energy efficiency (18%), forestry and land based projects (18%)
and methane destruction (16%). This is a shift from the previous year when
forestry was the biggest sector with 37% and industrial gas represented 20%
of volume market share [13]. Many voluntary offset buyers seem to prefer
obviously ‘green’ projects such as renewable energy rather than investing
in industries that are generating GHG already such as HFC destruction
projects. OTC projects are located primarily in Asia (39%) followed by North
America (27%) [13]. This trend towards projects from developing markets
reflects the opportunity to buy VERs from projects waiting to be approved
under the CDM but which are already generating emissions reductions.
3%
3%
8%
19%
5%
4%
40%
6%
12%
Transaction volume by
type of emissions offset,
TC 2007
Total institution
Events
% institution
Product
On site
Commuting
Electricity
Business flights
Source: Ecosystem Marketplace and New Carbon Finance [13]
Other
13. State of the Voluntary Carbon Markets 2008- New Carbon Finance and Ecosystem Marketplace, May 2008
Sustainability Perspectives 28
Over 170 offset providers [15] have sprung up to meet increasing demand for
carbon credits. Some of these companies are not-for-profit, but many are
businesses, and the proportion of money actually passed on to the project
itself varies greatly once profit and overheads have been considered. The majority of buyers in 2007 were private businesses (79%) of which two
thirds intended to offset emissions immediately. The remaining third were
bought for investment purposes. Credits often pass through a complex chain
of buyers and brokers before reaching the final purchaser. 13% of credits
were bought by NGOs, 5% by individuals and less than 1% by governments.
Demand is driven by the EU and US, accounting for 84% of purchases [13].
The trend for companies to declare themselves ‘carbon neutral’- with no net
carbon impact on the environment- has led to an increase in the number of
companies buying to offset their total institutional emissions. Carbon neutrality has emerged as an increasingly popular idea for companies wishing to
communicate to stakeholders that they are taking real and meaningful action
to reduce their carbon footprint. However the term is somewhat misleading
as carbon dioxide cannot be ‘neutralized’ once it is in the atmosphere, and
in fact the intention is to equal the amount of emissions generated through
investing in projects which absorb or sequester carbon dioxide elsewhere in
the world, allowing a hypothetical zero to be calculated.
Research also indicates that the primary motivation for buyers is corporate
responsibility and public relations above anticipation of regulation and investment [13]. Therefore the quality of projects purchased is key, as buyers who
are purchasing to improve corporate reputation do not want to be associated
with dubious projects. As a result buyers are becoming more demanding,
and requesting detailed information on the management, measurement and
delivery of projects. In order to facilitate this, a proliferation of standards
was launched in 2007; over twenty now exist in the market.
Offset standards
Research has identified that the top choice of standard planned to be used
in 2008 are the Voluntary Carbon Standard (VCS), the Gold Standard, the
VER+ and the Climate, Community and Biodiversity (CCB), and indicate
that 87% of credits are third party verified [13].
15. The ENDS guide to Carbon Offsets, 2008
13. State of the Voluntary Carbon Markets 2008- New Carbon Finance and Ecosystem Marketplace, May 2008
Sustainability Perspectives 29
Principle Voluntary Offset Standards
Voluntary Carbon Standard
http://www.v-c-s.org
This aims to standardise and stimulate innovation in the offset market.
Gold Standard VER
www.cdmgoldstandard.org
This only accepts renewable energy and energy efficiency projects
that also deliver sustainable benefits. It specifically excludes forestry
and land use projects. Originally designed by the WWF and other
NGOs, businesses and governmental organisations to supplement
CDM projects, it is also used to certify voluntary projects. Linked to
VER Gold Standard Registry.
VER+
This certifies both carbon neutrality and carbon offsets, based on
CDM and JI methodology.
Climate, Community and Biodiversity
http://www.climate-standards.org
A set of criteria applicable to CDM or voluntary projects, which allows
land based carbon mitigation projects to be evaluated including their
community and biodiversity benefits.
The desire to reassert credibility of the voluntary sector after increasing coverage of carbon cowboy operators and their unscrupulous practices has also
led to the formation of International Carbon Reduction and Offset Alliance.
The ICROA code was developed by an international industry alliance to set
the best practice benchmark for carbon reduction and offset services and
products. It supports offsets certified under the Clean Development Mechanism, Joint Implementation, the Gold Standard, and Voluntary Carbon
Standard. Spokesperson Edward Hanrahan said the intention was to:
“
Show clear blue water between quality operators and non
quality operators.” [16], [17]
16. New global offset trade group aims to clean up market, Business Green, June 9th, 2008
17. ICROA
Programme and Policy Document
Sustainability Perspectives 30
In addition to these standards, the UK Government has also launched guidelines on criteria that should be met for a project to receive a quality assurance
mark in a scheme to be fully launched later this year. Companies will pay a
fee to apply for the mark and a third party will audit the process. The inten-
“
There is not yet clear
tion is to focus more on the user end, ensuring that accurate calculations
evidence that voluntary
are used and transparent information is available so buyers know exactly
credits offer a sufficient
what they are being sold. Initial recommendations are that credits should be
level of certainty to put the
bought from the regulated market, including EU Allowances (EUA), Emis-
government quality mark
sions Reduction Units (ERUs) and Certified Emissions Reductions (CERs).
against them.”
The quality assurance mark is designed to reassure buyers in the UK that
spokesperson, DEFRA
environmental benefits will result from the investment: verifying the results
of projects that are unregulated or outside the UK is not currently possible.
The government has encouraged the voluntary carbon offset industry to
coalesce around an industry standard with a view to potentially including
voluntary projects in the quality assurance scheme at a later date. The code of best practice issued in Feb 2008 (DEFRA http://www.defra.gov.uk/),
which forms the basis of the assurance mark, includes the following assessment criteria:
• Additionality, meaning that the carbon savings must be in addition to
reductions that would be made anyway
• Avoiding carbon leakage, or emissions avoided on one site simply
being moved somewhere else
• Permanence, ensuring that emissions reductions were not put off
until later
• Verification systems, for emissions measurement and reductions by
an independent body
• Transparency, on the methodologies and procedures used
• Avoiding double counting, ensuring that emissions counted in an
offset product are not counted elsewhere, for example as savings through
an emissions trading scheme
The debate about the most appropriate criteria for evaluating offsets is likely
to continue for some time, but other issues should also be considered:
•Immediacy, purchasing offsets now that will not be realized for a long time
•Proportionality, the Kyoto protocol supports the supplementary principle, which states that emissions trading should supplement emissions
reductions taken by the company, but not exceed them.
Sustainability Perspectives 31
Focus on Forestry:
Reduced Emissions from Deforestation and Degradation projects
(REDD) were largely excluded from Kyoto markets due to the
difficulty in meeting many of the criteria above. For example,
permanence is debated as trees will eventually die and emit
CO2 back into the atmosphere unless a system of continuous
replacement is built into the project. Avoided deforestation
projects are often criticized for merely displacing logging activities
elsewhere in a process known as leakage. Allocation of credits
is complex as forest based communities are often put under
pressure to sign over ownership when negotiating carbon rights.
As a result only one REDD forestry project is included in the Clean
Development Mechanism to date.
Forestry projects have always been popular in the voluntary
market due to the additional benefits of employment, biodiversity,
watershed protection and habitat preservation. The concept is
easily understood by consumers and can be linked to a basic
knowledge of the carbon cycle from school days. Projects include
reforestation (replanting previous forest) afforestation (forest where
none existed before) and avoided deforestation (preventing existing
forest being cut down).
Since deforestation is responsible for 20% of global greenhouse
gas emissions (source UNFCCC website), action clearly needs
to be taken, and the role of REDD projects was discussed by
the United Nations Framework Convention on Climate Change
(UNFCCC) in Bali, Indonesia. A final decision on the regulatory
markets has been deferred to 2009, but the official recognition of
the need to reduce emissions from deforestation by encouraging
voluntary action is expected to have a big impact on the voluntary
market. The development of new technology will also boost
confidence in forestry projects. A study by the World Research
Institute [18] used satellite imagery to calculate forest cover loss and
identify where conservation measures should be concentrated.
• Merrill Lynch announced plans to invest in a REDD project in
Indonesia, managed by Carbon Conservation. [19]
• Marriott International has invested $2m in a deal with the
Brazilian state of Amazonas that aims to secure 1.4m acres of
rainforest. Participating hotels around the world will make cash
contributions to offset the emissions associated with rooms and
meetings. [20]
18. Groundbreaking study finds the ‘hotspots’ most responsible for deforestation. World Resources Institute, July 16, 2008
19. Merrill Lynch and Carbon Conservation sign first commercially financed avoided deforestation agreement. press release April 14th, 2008
20. Marriott and Brazilian State of Amazonas partner to protect rainforest. Press release April 7th, 2008.
Sustainability Perspectives 32
What does the future hold?
There is a risk that the development of regulations and standards in order
to improve credibility of the voluntary market will slow down development
and kill off smaller projects. This will reduce the speed and innovation of
the market, which many feel is its strength. It is generally expected that there will be a consolidation of standards, and
many feel that VERs will become the leading standard to guarantee carbon
reduction. Smaller more niche standards will probably remain for specialist areas e.g. Plan Vivo standard for forestry projects.
There are a number of possible futures for the voluntary market. Some
argue that the increasing cost of credits will drive companies to find
technological solutions to reduce emissions internally, and therefore the
demand for voluntary offsets will decline. Others argue that the voluntary market will be incorporated into the
compliance market, as the criteria, scope and scale of projects included in
schemes such as the Clean Development Mechanism (CDM) increase. The
CDM is currently considering how to incorporate forestry projects into its
methodologies although this is unlikely to reach the market until 2012.
Project developers may prefer to produce credits for regulated schemes as
they generally earn a higher price.
Another scenario is that inappropriate use of offsets by companies, coupled
with negative coverage of some dubious-quality projects, will undermine
confidence in the market as a whole. This will deter other companies from
associating themselves with reductions schemes viewed as an easy way out
of their own obligations.
Despite these various scenarios, it is generally agreed that the voluntary
carbon market will continue to grow in future. Companies and individuals
will continue to invest in projects that have wider sustainability benefits,
greater human interest and community benefits as well as delivering emissions reduction. However the onus remains on individual buyers to make
informed choices and select high quality projects where the environmental
benefits of the project are realized.
Sustainability Perspectives 33
Perspectives on Offsetting
Instead of acknowledging
“
The offsetting mechanism
“
Offsetting might be a part
the uncomfortable but
is fine as a means of
of the story, but it is much
necessary truth that we
capping total emissions
preferable to focus attention
cannot responsibly persist
and providing a trading
on direct action by reducing
with our current lifestyle,
environment. It is the
energy use or replacing
climate-conscious people are
application that has been
energy sources”
being encouraged to believe
inappropriate. The price of
Dax Lovegrove, WWF
that with offset schemes they
carbon is too low, and there
can continue as they were,
is a culture of zero guilt
as long as they pay money to
with no incentive to change
absolve themselves of their
behaviour”
responsibility to the climate
Simon Manley, Converging World
Carbon Tradewatch
“
“
I like to use the analogy that
Given the scale and
humanity is in a sinking
complexity of the climate
needed to get to a low carbon
boat, with water pouring
change challenge, we
society, carbon offsetting
through a huge hole in its
see a continuing need
is a start, but in the greater
side. We have to fix the hole
for voluntary regimes to
scheme of things almost
– the role of politicians and
complement and extend
irrelevant. The emphasis
scientists. But we also have
the impact of regulated
should be on energy
to bail the boat to buy time
responses to climate change.
reduction and efficiency, and
for this to happen. Carbon
The Carbon Neutral Company
changing peoples behaviour”
offsets are the boat–bailing.
In the context of the actions
Greger Flodin, Rabobank
Let’s embrace them as a
crucial transition tool”
Mike Mason, Climate Care
Sustainability Perspectives 34
The debate about the pros and cons of carbon offsetting generates a great
deal of passion, and has raged long and hard. However, there are some key
points to present on either side.
FOR
AGAINST
• Emissions reductions occur where the cost is
lowest, often in developing markets. Going for
the ‘low hanging fruit’ means that the easiest
savings are made first, delivering the most
cost effective emissions reductions before
moving onto longer term or more complex
projects.
• Offsetting is a distraction from the main
task of reducing industrial emissions in
developed countries. It enables companies
to abdicate responsibility for reducing their
own emissions.
• Investment and technology are channelled to
developing markets which otherwise would
not have been available.
• Offsets incentivise action in countries and
companies that are not legally required to
make emissions reductions by governments
or industry bodies.
• Businesses can use the price of offsets to
influence internal financial decisions.
• The voluntary carbon market provides people
with a way of increasing awareness of their
own carbon footprint, which may lead to
changed behaviour.
• Voluntary projects are often small scale
and deliver additional sustainability and
community benefits, often to the very poor.
• Projects in the voluntary sector allow
innovation and experimentation, which can
then be applied to compliance markets.
• It removes the incentive for a company to
identify more complex and costly solutions to
its own internal emissions production.
• Offsetting is a one-off cost requiring
neutralisation on an annual basis, but
investing internal projects delivers long-term
benefits.
• It does not actually reduce an organisation’s
emissions baseline in the developed world.
• The voluntary carbon market is small and
unlikely to have any significant impact in the
long term.
• The voluntary market reduces the pressure
on governments to introduce new legislation
to enforce emissions reduction.
• Focus has shifted to making money rather
than reducing emissions.
• The quality of third-party voluntary offsets is
difficult to verify compared to direct company
action to reduce emissions.
Sustainability Perspectives 35
What are the elements of a good
carbon management strategy?
At a glance:
Outlook:
Companies need to develop a robust strategy to manage carbon, including the following key steps:
• Set Boundaries: clearly defining the scope of direct and indirect
emissions included in the strategy.
• Measure: conduct a transparent and verifiable analysis process to
identify areas of greatest emissions within the chosen boundary.
• Avoid: reconsider business processes, products and services to avoid
high carbon activities such as business travel, or high carbon products.
• Reduce: emissions should be reduced through energy efficiency measures.
• Replace: high energy carbon sources with low energy ones, investigating renewable or onsite energy sources.
• Explore offsetting and other alternatives.
A robust and well-defined carbon management strategy is needed to identify
the scope, scale and priority of reductions that are under an organisation’s
control. Offsetting should be viewed as one of a number of options that are
available to a company to reduce its footprint, however the general consensus from experts is that it should be used as a last resort.
Regardless of the type or size of organisation, or the exact methodology
or tools used, there are some basic principles that are valid for all carbon
management strategies:
• Set the boundaries of the carbon emissions your business will measure
• Conduct a full carbon inventory of your business operations based on
these boundaries
• Identify carbon-intensive activities that can be avoided
• Reduce carbon emissions where possible and practical
• Replace carbon-intensive energy sources with lower carbon ones
• Explore alternative solutions
Sustainability Perspectives 36
Set the boundaries of the carbon emissions your
business will measure
A set of guidelines developed by the World Resources Institute and the
World Business Council for Sustainable Development are outlined in the
Greenhouse Gas (GHG) Protocol [21]. This is widely used as a tool to classify
emissions as scope 1, 2 or 3. The GHG Protocol states that Scope 1 and 2
must be included in an organisations boundary when evaluating emissions
in order to avoid double counting.
The area most debated is scope 3 emissions from activities not directly controlled by the company e.g. employee commuting, business flights, product
use and disposal, and carbon emissions generated by the supply chain. As a
result reporting on Scope 3 is optional.
Upstream Emissions
Corporate emissions
Downstream Emissions
Production of
electricity consumed
On-site fuel
combustion
Distribution of products
Production of
raw materials
Company-owned
vehicles
Retail
Processing of
purchased materials
Business travel
Product use
Transport of
purchased materials
Employee commuting
Product disposal
Outsourced corporate
support services
Setting boundaries for carbon management
scope 1
standard boundary for carbon management
scope 2
ideal boundary for carbon management
scope 3
21. www.GHG protocol.org
Sustainability Perspectives 37
Most companies define their boundary as Scope 1&2 plus business travel
from Scope 3. However, those who wish to demonstrate clear leadership on
the climate agenda are finding that consumers and investors are increasingly expecting them to influence scope 3 emissions through their dealings
with suppliers, contractors and retailers in order to justify a leadership position. Particular care should be taken to communicate goals in the context of
the emissions included, and to choose something meaningful, proportionate
and relevant to the stakeholders and their experience of the organisation.
Measure: Conduct a full carbon inventory of your
business operations based on these boundaries
It is impractical for a company to collect data and analyse every aspect
of its operations and emissions, especially when looking upstream and
downstream. Organisations should conduct a transparent analysis process
to show exactly what has been calculated and how, and findings should
ideally be verified by a third party. Areas of risk and opportunity can then
be identified in order to pr ioritise actions and investment areas. Wellestablished credible reporting mechanisms are critical for investor and
stakeholder’s confidence in the process. Finally, realistic reduction targets
should be set and agreed, with clear timescales and measures in place to
track progress. Ideally the target selected should take business growth into
account rather than an absolute target. Companies such as the Carbon
Trust and Envirowise offer advice to UK businesses on calculating carbon
footprints, waste management and reducing environmental impact. Timberland
Clothing and shoe retailer Timberland discovered that 79% of the
emissions from a lifecycle analysis of its footwear were derived from
the livestock used in the production of leather. [22]
Many companies strive to calculate every last emission so they can communicate a goal of ‘carbon neutrality’. Since the variety of assumptions
and methodologies used to determine this end point is so great, the term is
increasingly viewed with scepticism, and is becoming meaningless.
22. Getting to zero- defining corporate carbon neutrality. Forum for the Future, clear air- cool planet 2008
Sustainability Perspectives 38
Avoid: Identify carbon-intensive activities
that can be avoided
The first practical step should always be to avoid carbon intensive activities. This may involve re-evaluating strategies and business processes.
Business travel is the most often cited example of avoided emissions. Less
well-known measures could include phasing out carbon intensive products
or services to simplify consumer’s choices.
Consumers Favour Edited Choices
In the World Environment Review, a survey of UK consumers [1]
showed that consumers were, broadly speaking, in favour of editing
out unsustainable choices by removing them from sale rather than
complex financial measures to influence positive consumer choice.
The research found high levels of support for banning incandescent
light bulbs (78%) and only allowing water efficient shower heads to
be sold in retail outlets (65%).
Reduce: Reduce carbon emissions where
possible and practical
The next step is to reduce emissions by becoming as energy efficient as
possible. This includes energy savings from switching off lights, installing
building insulation and adopting more efficient manufacturing processes.
The appeal of this particular step is that improving energy efficiency often
goes hand in hand with cost savings. Given the rising cost of oil, this may
become a key area of focus for businesses in the short term.
Replace: Replace carbon-intensive energy sources
with lower carbon ones
For many businesses, there is a significant opportunity to replace high-energy carbon sources with low-energy sources. Many organisations purchase
renewable energy either from the grid or through renewable energy certificates (although there are questions about additionality since power
companies already have to provide renewable energy). Other companies are
taking direct action and generating renewable electricity on site, or investing
in combined heat and power technology to generate further energy sources.
1.
Tipping point or turning point: social marketing and climate change, IPSOS MORI, July 2007
Sustainability Perspectives 39
London Fire Stations
Eight London Fire Stations have installed solar photovoltaic
panels on the roofs of existing buildings in order to reduce carbon
emissions. The London Fire Brigade is undertaking a range of
measures, including installing Combined Heat and Power units to
service the stations’ hot water requirements, refreshing existing
plant equipment including boilers, replacing inefficient lighting and
introducing a new fleet of fire engines to meet EU emissions targets.
The project was managed by Solarcentury [23] so that the buildings
were functioning normally whilst the alterations took place.
Explore alternative solutions
At this stage, most carbon management strategies recommend offsetting.
“
People simply cannot have a proper carbon management
strategy without some element of offsetting. Of course,
you must go through the hierarchy of options, such as
measurement and reduction, and of course it cannot
represent the only pillar of your strategy. But, for
any individual or organisation, there will always be
unavoidable emissions, and for those, voluntary offsetting
is a worthwhile strategy. I have always approached
offsetting from that position!”
Jonathon Porritt, Forum for the Future [24]
A number of experts suggest that a carbon management strategy must include
offsetting, although many go on to qualify it by stating it should be used as
a last resort. Given the scale of action required, every opportunity should be
taken to reduce emissions. Organisations should expand their focus from
their own footprint to looking at the broader impact of their supply chain
and influence they have in society. Alternative strategies that offer reduction
opportunities should be considered before offsetting, and even then, organisations should approach it in more creative and intelligent ways.
23. London Fire Brigade , solarcentury
24. Jonathon Porrit, Forum for the Future
Sustainability Perspectives 40
Carbon management best practice
Once an organisation has been through the process of developing a carbon
management strategy, the question remains of whether to voluntarily purchase offset credits or not. In order to identify suitable alternatives, it is
important to understand the motivation behind the desire to offset voluntarily. A range of reasons exist, including:
• To demonstrate to external stakeholders that actions are being undertaken
• To meet self imposed targets of carbon reduction
• To motivate employees and encourage behaviour change
• To act as a good corporate citizen and enhance corporate reputation
• To enhance brands or products by addressing consumers ethical and environmental concerns
• To educate the organisation and begin to engage in the management of carbon
• Risk mitigation: anticipation of the introduction of legislation, avoiding negative press
Clearly, some motivations are internal and some external, and this will influence the type and detail of action taken and the reporting required.
When considering if offsetting should be part of a carbon management
strategy, or if alternative solutions may be more effective, additional questions should be considered:
• Is the organisation prepared to commit resources and skills to carbon reduction projects in house or through a third party?
• How important is the potential PR of projects selected- either internally or externally?
• How risk averse is the organisation?
• Is external validation required?
• How engaged and motivated are employees to participate in emissions reductions schemes?
• How quickly do results need to be realised?
At first sight the task of carbon management can seem overwhelming,
but organisations can use basic information such as existing energy bills
or travel costs to make decisions affecting their carbon footprint e.g.
switch to renewable energy sources or change travel policies to reduce
flying. Any savings from energy efficiencies could be reinvested in further
carbon reduction programmes. Once the organisation has a clear picture
of these issues, the following alternatives can be considered, all of which
help educate the organisation and encourage engagement with the goal of
carbon management.
Sustainability Perspectives 41
Objective:
Demonstrate to external stakeholders that action
“
What businesses and consumers both share is a desire
for one credible way to prove an organisation has
reduced their carbon emissions year on year without the
use of offsetting. The Carbon Trust standard is the only
answer to this.”
Tom Delay, chief executive of The Carbon Trust [25]
The Carbon Trust Standard
The Carbon Trust has launched a new green standard that certifies an
organisation has genuinely reduced its carbon footprint and is committed
to further reductions year on year. The Carbon Trust Standard covers
only direct emissions from a company’s fuel and electricity use, as well
as from business travel such as flights. It does not cover the emissions
caused by a firm’s products, supply chain, or sites outside the UK.
Companies pay up to £12,000 for the accreditation depending on their
energy bill. There is no minimum reduction target. Companies can
either demonstrate an annual decrease of 1 tonne of carbon dioxide, or
make relative improvements in carbon emissions, such as compared
to turnover, of 2.5% a year. Firms given the standard must continue to
decrease their emissions in future, or lose their green status.
Best practice: Inhouse emissions reductions achievements are externally
accredited and communicated.
25. Carbon Trust aims to end greenwash by launching company standard, Guardian June 24th, 2008
Sustainability Perspectives 42
Objective:
Meet self imposed targets of carbon reduction
Any savings made from increased energy efficiency should be placed in a
central fund. This can be used to invest in technology to further reduce
emissions that would otherwise not be economically viable. This utilises the
principle of additionality within the organisation i.e. the project would not
have been possible without the investment, and consequently the energy
saving are above and beyond business as usual.
Institute of Public Policy Research:
The Institute of Public Policy Research has recently reviewed its
practices in order to reduce its environmental footprint. A range of
measures is in place to directly reduce emissions, including reducing
flights and raising staff awareness. The process of measuring the
carbon footprint and investigating offsetting options highlighted a
potential alternative: instigating an internal offsetting system.
“
One option we are considering is an internal
offsetting scheme where we would pay to ‘offset’
our emissions into a separate fund, which we
would then use to make improvements to our office
that would help us to reduce emissions. This way
we could ensure that the money is being spent
on genuine emission reduction projects and we
could take actions which we would otherwise
not have the budget to carry out. In addition,
we could set the price of offsetting at a level that
reflects the true cost of emitting carbon dioxide
to the atmosphere - the social cost of carbon
being a likely choice. Clearly, setting up a system
such as this is a great deal more complicated and
time–consuming than going through an offsetting
company, but we think it could be an effective tool
in reducing our total emissions”
Jenny Bird IPPR
Best practice: Use any savings from energy efficiency to invest in internal
carbon reduction projects.
Sustainability Perspectives 43
Objective:
Motivate employees and encourage
behaviour change
Schemes can be developed to incentivise behaviour change in the form of
rewards or penalties.
Scottish and Southern Energy
Since a centrally funded cost centre was set up for train travel, Scottish
and Southern Energy has seen a two fold increase in train use, with
large reductions in car and air travel. A £20 fine is charged for each
flight which goes towards a carbon sequestration fund and ‘no fly’
months have been introduced. Sponsorship for these changes has
come from the Chief Executive to underline the company commitment to
reducing emissions. [26]
Microsoft
Microsoft introduced employee incentives to improve energy efficiency.
Between 2004 and 2007 it saw a 22% improvement in the energy
efficiency of its data centres. In one scheme business units were
charged for the energy consumed by servers rather than the floor space
they took up, which had previously led to the development of very dense
power hungry servers that required a lot of cooling. This has incentivised
business centres to make the servers more energy efficient. Yearly
bonuses for managers are also dependent on year on year efficiency
improvements [27]
Best practice: Establish a direct link between behaviour change and
rewards or penalties.
26. Making advances in carbon management. Best practise from carbon information leaders. IBM and Carbon Disclosure Project, 2008
27. Microsoft pays employees for energy efficiency improvements. Enviromental Leader, July 10th, 2008
Sustainability Perspectives 44
Objective:
Act as a good corporate citizen and
enhance corporate reputation
It is possible to select projects that are more closely aligned to an organisation’s overall goals. In cases where carbon reduction projects closely align
with a company’s strategic and philanthropic goals, it may be more beneficial for a company to directly engage instead of purchasing offsets through
a third party.
Third-party offset projects that claim to support additional community
well-being are unlikely to be accredited by official standards. In contrast,
projects directly undertaken or supported by a corporation can be ‘bundled’
together with other company-supported projects on other areas and used
to generate carbon reduction credits. If it is possible to implement projects
in such a way that it meets the organisation’s corporate goals, as well as
generating offset credits, then a positive cycle of investment is created.
Converging World
The charity the Converging World has developed a new model to
generate maximum benefit for communities in both the developed
and developing world.
“
Converging World offers a more ethical and
effective alternative to offsetting.”
Simon Manley, Converging World
• The charity invests donor funds in clean energy projects e.g. wind
turbines in India. Donations are matched through gearing from commercial lenders to raise more money.
• The revenue from electricity generated is spent on reinvestment in
more clean energy as well as funding development work for local
communities in the host country.
• Credits generated from the production of renewable energy are sold,
and funds generated from retiring the carbon credits are used on
projects to reduce carbon consumption in the UK.
Best practice: Invest resources in terms of skills, time and money.
Sustainability Perspectives 45
Objective:
Enhance brands or products by addressing
consumers’ ethical and environmental concerns
“
It would be far better if companies used the money they
have allocated for offsetting in a social entrepreneurship
programme- using their own skills and expertise to
address the problem by investing in programmes to change
behaviour of consumers or employees.”
Diana Verde Nieto, CEO and founder of Clownfish
Organisations can use their skills and expertise to invest in product development and educational communications campaigns to encourage behavioural
change by consumers. These changes may have far greater impact on energy
efficiency than anything the product or service could achieve on its own.
Ocado Supermarket
Ocado, a UK online supermarket, has launched a new initiative to
drive down consumer food waste. Up to 30% of food bought in the
UK ends up in the bin, an inefficiency that results in higher carbon
emissions relating to the production and transportation of wasted
food. The unique business model means that consumers can be
told at the checkout exactly how long groceries will stay fresh. Expiry
dates will be printed on receipts so that meals can be planned to
make sure that nothing goes to waste. Food waste awareness week
combined an educational advertising campaign with online recipe
suggestions for leftover food.
Additional measures to reduce emissions include biodegradable
carrier bags that can be returned to delivery drivers for recycling to
new bags, and use of ‘Combined Heat and Power’ energy sources in
distribution centres [28].
Best practice: Invest in activities to reduce emissions generated outside
the direct scope of the company’s operations by the products or services
it provides.
28. www.ocado.com
Sustainability Perspectives 46
Objective:
Risk mitigation: anticipation of the introduction
of legislation, avoiding negative press
Some companies have invested in credits on a voluntary basis in order to
purchase them at a lower price. This is in anticipation of the introduction of
legislation requiring them to participate in compliance schemes. In the UK,
the legislation goes into effect in 2010 (see Carbon Reduction Commitment
page 23) specifically excludes offsets as a means of achieving the target, so
this strategy may not mitigate risks as expected.
Best practice: Invest in internal emissions reduction schemes.
Sustainability Perspectives 47
Final Thoughts
Companies that respond to the real scale of action required to mitigate
climate change are those that will be seen as future leaders. They will
also be competitively positioned for long-term success. Where does offsetting fit in? In principle offsetting can deliver emissions
reductions at the lowest cost to society. High quality projects can deliver
environmental benefits. However, the misapplication of offsetting by organisations as a way to justify current business practises, combined with
press reports on some poorly managed projects has meant that offsetting is
viewed with increasing scepticism. The fact remains that buying credits to
offset environmental impact is dealing with the consequences, not solving
or avoiding them. In order to take real and meaningful action on climate
change, an organisation should consider the following:
Any action is better than none
Carbon information management can seem overwhelming, but organisations can use basic information such as energy bills to make decisions
affecting their carbon footprint e.g. using renewable energy, amending
travel policies. Once some savings are realised, they can be reinvested to
additional carbon reduction programmes.
A significant step change in response is required
Although a good start, small, incremental improvements are not enough to
mitigate the effects of global climate change. To avert the heavy economic
impact predicted if significant emission reductions don’t take place, organisations and governments should take direct responsibility for achieving
carbon reductions recommended by scientific consensus. Globally, governments are moving to adopt mandatory emission
reduction targets that affect more organisations
A company that aligns itself with the new low carbon economy will have a
competitive advantage over others who are slower to adapt.
Carbon management requires looking beyond offsets
For an organisation to realise the economic, bottom line benefits conferred
on an efficiently operating, low carbon business, it must make changes in
operational and business practices. Purchasing voluntary offsets outside
the context of a robust carbon management strategy merely creates an additional cost to the business, instead of being used as a tool to deliver business
benefits and drive further savings.
Sustainability Perspectives 48
Consider offsetting as a last resort, in a considered
and proportionate way
If purchasing purely to offset emissions, use Gold Standard Credits to
ensure that the environmental benefits of the project are realised. If the
purpose of offsetting is to further overall corporate or brand objectives,
then smaller scale projects can be selected where the investor organisation’s
expertise is used to minimise risk.
Leverage the skills and resources of the business to drive change
Consider using employee skills and expertise to launch social entrepreneurship programmes that will influence behaviour change beyond the
boundaries of the organisation.
Across all sectors of business, from consumer goods to heavy industry,
companies are committing to reduce their emissions beyond mandatory
limits. Significantly, their financial results demonstrate that improved
efficiency and changing business practises can also bring cost savings,
competitive advantage and employee motivation as well as delivering
environmental benefits. The approach to carbon management discussed
in this document provides a clear direction for organizations to address
climate change at the scale required to make a difference, while keeping
an eye on the bottom line.
Sustainability Perspectives 49
Further reading:
What is the Compliance Carbon Market?
1.
Carbon 2008 Post 2012 is now. Point Carbon report March 2008
2.
State and trends of the carbon market, May 2008, World Bank
What is the Voluntary Carbon Market?
1.
State of the Voluntary Carbon Market 2008, New Carbon Finance and Ecosystem Marketplace May 2008
2.
Making the Voluntary Carbon Market work for the poor. Forum for the Future, July 2008
3.
Making sense of the Voluntary Carbon Markets, a comparison of Carbon Offset standards, WWF Feb 2008
Carbon management best practice
1.
Getting to Zero- defining corporate carbon neutrality, Forum for the Future, 2008
2.
Making Advances in Carbon Management. Best practise from Carbon Information Leaders. Carbon Disclosure Project and IBM.
3.
The Carbon Trust three stage approach to developing a robust offsetting strategy
Sustainability Perspectives 50
Glossary
Additionality
CER
JI
This principle dictates that emission reductions are
Certified Emission Reduction.
Joint Implementation.
above those which would have occurred through
A credit generated under the Clean Development
A Kyoto Protocol initiative under which projects are
business as usual i.e. additional to what would
Mechanism (CDM) for the reduction of emissions
established jointly between developed markets
have occurred without the carbon credit incentive
of greenhouse gases equal to one tonne of CO2e.
to reduce greenhouse gas emissions generate
credits called ERUs.. The credits generated go
or investment.
CFI
to the investor country while the emission allow-
Banking and borrowing
Carbon Financial Instrument.
ances of the host country are reduced by the same
The ability to save emission permits issued in
Credit generated through the Chicago Climate
amount.
one year for use in later years (banking), or bring
Exchange. Each CFI covers the emission of 100
forward some of a future year’s permit allocation
tonnes of CO2.
Kyoto Protocol
Participating countries agree to reduce carbon
for use in the current year (borrowing).
CO2e
emissions by a set amount between 2008 and
Carbon dioxide equivalent
2012.
subject to a cap. Allowances are issued up to that
Emissions trading
Leakage
cap, and those organisations emitting less than
A market-based system for regulating the emission
Activities designed to cut greenhouse gas emis-
their quota can sell their excess permits to emitters
of greenhouse gases.
sions in one area lead to the emissions elsewhere.
Cap and trade
An emissions trading scheme where emissions are
needing to buy extra to meet their quota.
ERU
Offsets
Carbon dioxide equivalent, CO2e
Emission Reduction Unit.
Credits issued through projects such as the provi-
A metric to express greenhouse gas potency rela-
A credit generated by the Joint Implementation
sion renewable energy to replace fossil fuel energy
tive to Carbon Dioxide.
Scheme (JI) for the reduction of emissions of
which reduce overall emissions. By paying for
greenhouse gases equal to one tonne of CO2e.
emission reducing activities, individuals and organisations can use the resulting credits to offset
Carbon footprint
A calculation of the amount of greenhouse gas
ETS
their own emissions, either voluntarily or under
emissions associated with the use of power,
Emissions Trading Scheme.
the rules of most emissions trading schemes. One
offset credit equates to an emission reduction of
transport, food and other consumption for an indi-
one tonne of CO2.
vidual, family or organisation. Expressed in units of
EU ETS
carbon dioxide equivalent.
European Union Emissions Trading Scheme.
Carbon neutral
EUA
Reduced Emissions from Deforestation and
A claim that an organisation has no net emissions
European Union Allowances.
Degradation.
of greenhouse gases from all its activities.
Credits generated by the EU Emissions Trading
REDD
Carbon price
Scheme. Each allowance carries the right to emit
tCO2e, MtCO2e
one tonne of carbon dioxide.
Tonnes of carbon dioxide equivalent, millions of
tonnes of carbon dioxide equivalent. Gases are
The economic value placed on the emission of
greenhouse gases into the atmosphere. The price
GHG
equated to Carbon Dioxide potency e.g. one million
is designed to create a disincentive for emissions
Greenhouse gases include: Carbon dioxide CO2,
tonnes of emitted methane, is measured as 23
and incentive to avoid them.
Methane CH4, Nitrous oxide N2O, Perfluorocar-
million tonnes of CO2-equivalent, or 23 MtCO2e.
bons PFCs, Hydrofluorocarbons HFCs, Sulphur
CDM
hexafuuride SF6, as well as indrect gases such as
Clean Development Mechanism.
SO2, Nox,CO and NMVOC
A Kyoto Protocol initiative under which projects
established in developing countries to reduce
IPCC
greenhouse gas emissions generate credits called
Intergovernmental Panel on Climate Change.
CERs. The projects include renewable energy gen-
An international scientific panel informing the
eration, reforestation and clean fuels switching.
UNFCCC on the latest scientific evidence on
climate change.
Sustainability Perspectives 51
Linked by
Clownfish is a communications agency dedicated
to making sustainability tangible for business.
We help brands to:
Put sustainability at the heart of their business and
build integrity into marketing; creating competitive
advantage and engaging consumers.
Improve credibility of communications by facilitating
strategic partnerships with a wide range of stakeholders
including NGO’s and key opinion formers.
Make their brand more sustainable, future proof
and profitable.
We do this through creative strategy underpinned
by rigorous research and a deep understanding of
sustainability. By taking a holistic approach, grounded
in real business needs, we can see the bigger picture;
delivering strategies with a truly global perspective and
genuine local focus. Clownfish is part of Isobar, the
world’s largest digital marketing network.
© 2008 Clownfish. All rights reserved
AUTHOR
Cherry Hirst
Senior Strategist - Clownfish
PHOTOGRAPHS
www.freefoto.com
ACKNOWLEDGEMENTS:
We would like to acknowledge and appreciate the input
and insight provided by the following individuals: Dax
Lovegrove, WWF; Greger Flodin, Rabobank; Simon
Manley, Converging World; Lila Preston, Generation
Investment Management; John Tebbit, Construction
Products Association; Tom Slater, DEFRA; Brian Rapose,
DEFRA; Nick Rowcliffe, ENDS; Jenny Bird, IPPR;
London: 17 -18 Hayward’s Place, London EC1R 0EQ
New York: 3 Park Ave., 25th Floor, New York, NY 10016
+44 (0)20 7780 7030 - www.clownfish.co.uk
Please consider the environment - Think before you print!