Climate Action - Assisting business towards carbon neutrality

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Mark Kenber, Policy Director of The Climate Group

Purchasing carbon offsets can set an internal price for carbon, allowing a company to assess the cost of other emissions-reducing initiatives. It can also help companies gain a greater understanding of carbon markets and support existing corporate responsibility policies. But offsetting has also been seen as an easy ‘get-out’ from tougher internal choices with some media casting doubts over the extent to which offsets represent real and additional emissions reductions. This simple 10 step guide is designed to help companies avoid the pitfalls and use carbon offsetting as a useful part of overall greenhouse gas (GHG) reduction strategy.

STEP 1: UNDERSTAND WHAT OFFSETS ARE

An offset is a carbon dioxide equivalent (CO2e) emissions reduction or removal that is used to counterbalance or compensate for emissions from other activities. Offsets can be purchased by countries, companies or individuals to meet their own reduction requirements.

Offsets can either be bought from within the compliance system (under the Kyoto Protocol emissions reductions are bought and sold through the Clean Development Mechanism and Joint Implementation) or in the voluntary market (these are labeled VERs).

The key criterion for an offset is that the CO2e reduction or removal used as an offset would not have otherwise happened, ie is additional to business-as-usual activity because there would be no net reduction in emissions if this were not so. The seller of the offset should be able to prove that the emission reduction would not have occurred if the offsetting payment (in aggregate across the project) had not taken place.

STEP 2: DECIDE HOW MANY OFFSETS NEEDED

The first step is to calculate your organisation’s carbon footprint. The GHG Protocol, developed by the World Resources Institute and the World Business Council for Sustainable Development, and ISO 14064 developed by the International Standards Organisation provide globally recognised standards for measuring and reporting the carbon footprint of an organisation. All emissions necessary for operating a business and those emissions assumed to be under the company’s control should be looked at.

Company targets then need to be set, both for internal reductions and offsetting. These targets should take into account the potential for cutting emissions at source, eg decreasing energy consumption, improving the efficiency of operations, and purchasing renewable energy electricity, and whether the company wants to be carbon neutral overall (net zero emissions including reductions and offsets).
It is also important to consider that, for some organisations, the largest footprint impacts come from working with the supply chain, employees or consumers. Many firms have found that there are a number of emissions-reducing opportunities that also allow for significant cost cuts and/or productivity gains.

OFFSETTING CASE STUDIES

Sky In May 2006, Sky became carbon neutral through measuring, reducing and offsetting its CO2e emissions. After reducing what it could at source through the purchase of renewable energy, reductions in energy use and finding more innovative ways to operate, Sky purchased offsets to compensate for the remainder of its emissions, deciding to focus on voluntary market projects. Carbon credits were purchased in two renewable energy offset projects: a gold standard wind power project in New Zealand and a micro-scale hydro-electricity scheme in Bulgaria.

HSBC HSBC became carbon neutral in 2005, reducing the Group’s contribution to climate change through three different approaches: energy efficiency; buying ‘green’ electricity where possible; and offsetting remaining CO2e emissions. A Carbon Management Task Force directly oversaw the process of finding credible, genuinely-incremental and cost effective offsets. Four offset projects were used to buy a total of 170,000 tonnes of carbon offset credits: a wind farm in New Zealand; an organic waste composting project in Australia; an agricultural methane capture project in Germany; and a biomass cogeneration project in India. The average price per tonne of offset amounted to US$4.43.

 STEP 3: DEVELOP A TAILORED OFFSET STRATEGY

Companies need a robust strategy for purchasing the residual emissions that require offsetting.
Questions to consider during the process
• What are the drivers for offsetting?
• hat are the key audiences to reach with the offset programme?
• ow important is alignment with government and other standards?
• re there particular areas of geographic focus or sectors the company prefers?
• re there particular types of technologies that the company does (or does not) wish to support?
• ow important are sustainable development attributes of projects?
• hat is the budget?

One further important issue to consider is whether to buy offsets from the regulatory (Kyoto-compliant) market, delivered under the Clean Development Mechanism, or from the unregulated voluntary market. A recent report by consultancy ICF International suggests that the voluntary carbon market could expand from 10-25 million tonnes (Mt) of carbon dioxide equivalent (CO2e) in 2005 to a mid-range estimate of 400 Mt CO2e by 2010. This is equivalent in size of about a third of the Kyoto Protocol compliance market in 2006, or the total emissions of Spain or the Ukraine.

Despite the growing enthusiasm, its unregulated nature is particularly susceptible to criticisms regarding the quality of offsets being traded. Of most concern to those wishing to purchase offsets is the environmental and social integrity of the carbon reductions they are purchasing.

Two aspects, in particular, are crucial here:
• Voluntary offset quality, ie that voluntary offsets represent genuine additional emissions reductions
• elivery quality, ie mechanisms that ensure offset buyers get what they are paying for.

Being aware of the key standards in the voluntary offset market (explained further below) will help companies take advantage of the flexibility and competitive prices offered, while ensuring offsets are really delivering the reductions in emissions they claim.

STEP 4: DECIDE HOW TO BUY OFFSETS

Companies should think about whether they want to choose a preferred provider or buy from the market, and whether they want a long term agreement or to buy year-on-year. In addition, companies should also decide who will pay for the offsets. Making individual units pay can provide an incentive for reductions
at source.

STEP 5: CHOOSE THE OFFSET STANDARD THAT BEST SUITS YOUR COMPANY

There are a number of offsetting standards that suit different needs. If choosing voluntary offsets, The Climate Group recommends offsets approved under the two main international standards: the Voluntary Carbon Standard (VCS) and the Voluntary Gold Standard. Both deal directly with VER quality, establishing objective verification criteria and procedures and procedures developed through expert panels and public consultation, against which emission reduction projects and the credits they generate can be assessed.

The relationship between the VCS and the Voluntary Gold Standard can be likened to that between standard commodity certification and attribution of premium quality characteristics. The VCS, for example, seeks to assure users internationally that Voluntary Carbon Units represent real, additional, permanent and independently-verified emission reductions. Voluntary market offsets meeting the Gold Standard must do this and meet other goals, including the use of technologies that will be part of the long term solution to climate change (renewable and energy efficiency) and make a positive contribution to sustainable development in the host country, as assessed by local stakeholders.

In addition, the Climate, Community and Biodiversity Alliance (CCBA), a group of NGOs, research institutions and businesses, have created a climate, community and biodiversity (CCB) standard to guide investments in land-based projects, including forestry, range management and agriculture. This standard seeks to ensure that such investments achieve broader ecological and social goals as well as reducing GHG emissions.

If widely adopted, these standards should go a long way to providing much needed clarity and credibility in the voluntary carbon market and help the market grow and contribute to mitigating climate change. The voluntary carbon market should be able to achieve this if it:
• Has the Voluntary Carbon Standard as its basic benchmark;
• rovides, through the Voluntary Gold Standard and the CCB, an opportunity for buyers to invest in high-quality projects that contribute to other social and environmental goals.

STEP 6: UNDERTAKE DUE DILIGENCE ON PROJECTS

Before and after purchasing offsets, companies should complete their own project assessment to ensure they are delivering what they say. Consultants and NGOs can help deal with this. This is particularly important if the offsets are not verified under either of the standards outlined above.

STEP 7: TALK TO DIFFERENT SELLERS

Offset prices generally increase as they go up the offset supply value chain. Average prices charged by offset retailers are US $8.04/tCO2e compared with US$6.03 for brokers, US$5.31 for wholesalers and aggregators, and US$3.88 for project developers. Ask sellers to disclose how much of the company’s money goes directly to the project and how much covers their administrative costs. Companies may want to consider directly developing offset projects. While this increases a company’s exposure to project risk, it should also decrease offset costs and ensure the project characteristics are the ones wanted.

STEP 8: ENSURE OFFSETS ARE RETIRED ON A CREDIBLE GHG REGISTRY

To ensure offsets are not used more than once, companies should require that they are retired on a credible GHG registry. There are several registries that currently offer these services and many offset retailers also operate internal registries that are independently audited.

STEP 9: BE TRANSPARENT ABOUT OFFSET PURCHASES

Any offset strategy should be transparent and publicly communicated. Information to be disclosed should include carbon footprint calculations, emissions reduction activities, the type of offset being used, where offsets have been retired and any uncertainties related to these issues.

STEP 10: REVIEW THE APPROACH TO OFFSETTING ON A REGULAR BASIS

An organisation’s carbon footprint and approach to carbon management will no doubt change over time. The carbon market is also likely to change over time. With this in mind, ensure the company’s approach to carbon offsetting is reviewed on a regular basis to ensure it is still in line with best practice.

THE GHG PROTOCOL AND ISO 14064 PROVIDE GLOBALLY RECOGNISED STANDARDS FOR MEASURING AND REPORTING THE CARBON FOOTPRINT OF AN ORGANISATION.

Author

Mark Kenber is an economist who has worked on environmental issues for over a decade in non-governmental organisations and the public and private sectors. Immediately prior to joining The Climate Group, Mark was Senior Policy Officer at WWF’s International Climate Change Programme, focusing on carbon market and finance issues and coordinating the Programme’s economics-related work. His other experience includes being Director of Planning at Fundacion Natura, Ecuador’s largest environmental organisation, acting as climate change advisor to the Ecuadorian government and a wide range of consultancies. Mark is an occasional lecturer at Sussex University’s Institute for Development Studies and also serves on the advisory boards of a number of environmental organisations.

Organisation

The Climate Group is an independent, non-profit organisation, founded in 2004 and dedicated to advancing business and government leadership on climate change. We are based in the UK, the USA and Australia and operate internationally. Proactive companies, states and cities around the world are demonstrating that cuts in GHGs required to stop climate change can be achieved while growing the bottom line. Using the work of these leaders as a catalyst, The Climate Group works to accelerate international action on global warming with a new, strong focus on practical solutions. The organisation promotes the development and sharing of expertise on how business and government can lead the way towards a low carbon economy while boosting profitability and competitiveness. Focused on solutions and positive collaboration across the government, business and non-profit sectors, The Climate Group acts independently of special interests and political affiliations.

Enquiries

Mark Kenber, Policy Director
The Climate Group, The Tower Building, 3rd Floor, York Road, London  SE1 7NX UK
Tel: +44 (0)20 7960 2970 | Fax: +44 (0)20 7960 2971

Picture credit: Ben Heys/iStockphoto