Select Committee on Environmental Audit Sixth Report


1.One of the clearest messages we received in our evidence was that there is a lack of general understanding about the voluntary carbon offset market. We hope therefore that this report, in bringing together the background, context and issues in the voluntary carbon offset market, will serve beyond its primary purpose as a report to Parliament to which the Government needs to respond and will help to assist and promote understanding and debate in this area. (Paragraph 4)
2.We support the view that it is primarily individuals who have to take steps to avoid and then reduce their own carbon emissions. In parallel to this, however, we believe that the voluntary carbon offset market does have a role to play both in reducing carbon emissions and raising awareness of climate change issues to the general public. Moreover it can provide a much-needed source of funding for the development of low carbon technologies and innovations in developing countries. (Paragraph 23)
3.There are many divergent and often loud opinions about the role of the voluntary offset market. Both individuals and businesses are very likely to be confused by the mixed messages available. They need clear guidance about the extent to which offsetting can help meet their responsibilities to reduce carbon emissions. We recommend strongly that the Government grasps the opportunity to show leadership here. It must set out its own view on the role that the voluntary offset market can play in reducing emissions and why offsetting is a positive thing. The view should be unambiguous, well-publicised and prominent in all Government communications concerning offsetting and climate change. (Paragraph 24)
4.If the voluntary offset market is going to fulfil its potential as part of the drive to reduce carbon emissions and raise awareness about climate change then there needs to be a considerable increase in the numbers of individuals choosing to participate. (Paragraph 25)
5.We urge the Government to explore measures which would incentivise businesses to encourage their individual customers to offset. We recommend that Government make it compulsory, for more carbon-intensive activities, for associated businesses to offer offset services either themselves or through a provider. In connection with this it should be mandatory for individuals to be given a compulsory-choice option for offsetting when procuring such goods and services. (Paragraph 25)
6.There is clearly a need for more research to be done in understanding what exactly encourages people to reduce their emissions; on the extent to which the practice of offsetting has an effect on such behaviour; and on how much it can play a role in educating people about climate change (Paragraph 28)
7.We recommend that the Government commission independent research to evaluate and understand the behaviour of individual consumers in the voluntary offset market and publish it as soon as possible. (Paragraph 28)
8.The biggest-spending consumers in the voluntary offset market are businesses. As with individuals, the motivation for offsetting varies: some companies argue that they recognise the threat of climate change and try to act responsibly; but also some of the motivations for offsetting here will be strategic—they might be to meet Corporate Social Responsibility (CSR) obligations, to generate goodwill, or to attract the growing number of customers attracted by environmental action. It is important that the Government seeks to understand better the reasons why businesses use the voluntary carbon offset market and what motivates them. We recommend that the Government commission independent research in this area and publish it as soon as is practicable. (Paragraph 29)
9.Claiming 'carbon neutrality' is clearly a growing draw for businesses and will consequently change the behaviour of some companies and bring them into the voluntary carbon offset market. We recommend that Government engage in a dialogue with business to develop a consensus definition of what 'carbon neutral' means. It is essential that standards should be developed to allow for audit and verification of this status to bring legitimacy to any claim to be 'carbon neutral'. (Paragraph 31)
10.The Government must ensure that, by means of its proposed code or quality mark, or by other related measures, greater transparency is brought by offset providers to what is anyway a complex and currently an opaque market. Without transparency consumers will have little confidence in purchasing or otherwise dealing in offsets, confidence that the market needs in order to grow. (Paragraph 44)
11.Although we have not produced a formal response to the DEFRA consultation on establishing a voluntary code of best practice for the provision of carbon offsetting to UK customers, important and often contentious issues and considerations raised in the course of our own inquiry overlap in many areas with the questions raised by the consultation. We have conducted a detailed and comprehensive inquiry into the voluntary carbon offset market and we expect therefore the Government to take serious and active consideration of the conclusions and recommendations of this report in the further development of its code. (Paragraph 46)
12.The recommendations of the IETA Report on 2006 State of the CDM for resolving the issue of a lack of technical expertise in producing new methodologies for new technologies are clear and uncomplicated, yet would resolve an important problem. If the voluntary carbon offset market continues to grow at the rates predicted then the development of new methodologies for new technologies will become increasingly important as those projects considered to be 'low hanging fruit' are exhausted. We recommend that the Government press for immediate action to be taken to ensure that the Methodology Panel can draw upon the advice of experts quickly and easily and that regulators and those being regulated are encouraged to, and are given the means to, communicate in a direct and efficient manner. (Paragraph 60)
13.If Government is determined to encourage the voluntary carbon offset market to move towards the sole use of compliance market credits, then it is vital that this does not draw money away from the least developed regions such as Africa which currently benefit from the sale of VER credits, but which remain largely excluded from the compliance market, in part for methodological reasons. We recommend, therefore, that as a matter of urgency, the Government redoubles its efforts to address the proposals of the IETA report on the 2006 State of the CDM in relation to resolving the disproportionate regional and sectoral distribution of projects: it should help to identify the systematic or systemic barriers to equitable distribution of CDM project activities and promote more regular meetings between the Executive Board and designated national authorities of under-represented regions such as Africa. It should also make a priority its efforts to assist and influence the development of a simplified methodology for projects which support the switch from non-renewable to renewable biomass (Paragraph 62)
14.We applaud the recent work that DEFRA has done to reduce time delays and methodological problems broadly in the CDM. However, still more needs to be done particularly in regard to developing new methodologies. We recommend that the Government take further steps to address the issue of the delay in developing new methodologies by putting pressure on the CDM Executive Board to expand and streamline its methodology development and revision process to make it easier to define and produce methodologies for projects with sustainable development benefits. (Paragraph 63)
15.The strength of the voluntary carbon offset market is its ability to support a diversity of projects: including those that are small; those that bring additional sustainable development benefits; and those found in countries which are currently under-represented in compliance market projects. Despite seeming to have done some work to try to improve the situation here, DEFRA, in its memorandum and in the consultation, fails to explain or even acknowledge that there are problems with these types of projects in the CDM. We recommend that in further stages of developing the code these problems are addressed in an open and transparent manner and that the code is adapted in light of them. Primarily however, we recommend that DEFRA continues and expedites its work on further reform of the CDM in order to break down the barriers that prevent these important project types from succeeding. It should press for reform of the CDM in these areas at every available opportunity at an international level. (Paragraph 64)
16.If the Government is serious about making CERs the credit of choice in the voluntary carbon offset market, then firm decisions about the future of the CDM need to made, and made quickly if further investment in the CDM is not to trail off as 2012 approaches. Consumers need reassurance that investments that they make in projects that take several years to produce the expected carbon savings or reductions will be guaranteed past 2012. The Government needs to expedite decision-making at an international level to resolve officially the issue of a post-2012 CDM. (Paragraph 66)
17.We recommend that the Government push for reform of the CDM to ensure that profiteering from polluting behaviour becomes impossible. Consumers need to be confident that their money is being spent on projects which meet the highest ethical standards. Until this is achieved we recommend that the Government should require offset providers selling compliance market credits in the voluntary market to list the types of the projects from which their credits derive. This should be done as soon as is practicable and regardless of whether it decides to proceed with the proposed code. (Paragraph 67)
18.It is unacceptable that private consumers in the voluntary carbon offset market be put in the position where their money is effectively being spent to purchase permits for large installations to pollute. Until the EU ETS cap is tightened up and becomes more efficient and effective, it is vital that offset providers are required to provide a 'health warning' to consumers about what could happen to their money if they invest in compliance market credits. The Government should take steps actively to dissuade offset providers from providing EUAs to private consumers given that, as we have concluded in previous reports, EUAs from phase I of the EU ETS are as good as worthless in carbon terms, but yet continue to be retailed. (Paragraph 69)
19.Given the many unresolved problems with the compliance market, particularly surrounding methodological issues and uneven distribution of projects, we urge the Government to take swift action to resolve these problems regardless of whether or not it chooses to it introduce its code. The CDM remains significantly flawed and this needs to be addressed. We recommend strongly that the Government think again about its proposed code: of the options set out by the Government in its consultation it must produce a voluntary code based on all credit types which will recognise the important role that the voluntary market has to play in counter-balancing the flaws of the compliance market. (Paragraph 71)
20.Those who deal only with offsets from outside the compliance market would fall outside the DEFRA scheme. This would, we believe, leave unregulated those portions of the market where there is greatest innovation and greatest environmental or sustainable development benefit—and would also leave unregulated and unconstrained the activities of 'carbon cowboys' peddling flimsy VERs, the phenomenon most likely to destroy the credibility of all schemes, good or bad. This position is one with which almost no-one who gave evidence to us appeared happy. (Paragraph 77)
21.A trustworthy and independent regulatory body will be needed to decide or advise on the quality mark to be awarded to offset companies for their projects and credits. The body involved in assessing companies' projects and credits would need to be authoritative, independent, and well-resourced. The only just and equitable solution to the question of who should pay for such a body, is that industry pay out of its profits for its establishment and upkeep. Appointments to the body would have to be within the remit of Government rather than the industry, and key NGOs may also have a role to play in participating in this function of oversight and approval. (Paragraph 86)
22.Slowing and halting the current rate of deforestation is key to the struggle to avert climate change: continuing deforestation on current scales will not only make more difficult the work to move towards accepted targets but will also present the definite possibility that such targets will never be reached. Anything that can be done through the mechanisms of offsetting—in the voluntary or compliance markets—to preserve existing forests, so long as the projects or methods are robustly grounded in good science and good practice, and allowances or credits made available are properly audited, has to be encouraged. (Paragraph 91)
23.It is essential that no credits should be retired which do not represent carbon savings already made. Credits should all be vintage marked and while future credits may be sold on to others they should not be retired until that vintage date is reached. (Paragraph 99)
24.Although we have some concerns about the timeliness and actual impact of the EU ETS on aviation emissions, we consider it essential that the EU ETS should be structured in such a way as to bring about an early decrease in emissions from air travel, and to enforce a continuing trajectory towards a substantial cut in emissions. (Paragraph 120)
25.Although offsetting alone will have only a minor impact at best on increases in global emissions as a result of air travel, the action of offsetting air travel may encourage better carbon behaviour overall. (Paragraph 121)
26.We support the Government's proposals to require all those selling air tickets within the UK to include in the price offered the cost of an offset, and to retail that offset along with the ticket unless the customer requests otherwise. (Paragraph 122)
27.We welcome the launch of DEFRA's Act on CO2 Calculator and hope that the data, methodologies and assumptions upon which it is based prove acceptable to the airlines. We also note that DEFRA is content for its work to be used by companies in their own proprietary calculators, and we welcome the effect this may have in helping standardize the currently too great range of calculations for carbon emissions from flights. We also hope that where airlines do not themselves offer a carbon calculator they will be happy to refer customers to the Act on CO2 Calculator. (Paragraph 125)
28.We are pleased to see that DEFRA's assumptions for aviation emissions on its Act on CO2 web-site, while making no direct allowance for radiative forcing, do explicitly deal with the issue, and that there are clear statements in its Frequently Asked Questions section and in relevant Action Plans that the effects of aviation on climate are greater than its carbon impacts alone. It is also good to see that the web-site refers to the Government's use of a radiative forcing factor in its own calculations. We hope that such statements appear even more explicitly in whatever calculator is agreed later in the year for use with the DEFRA Code of Practice for offsetting. (Paragraph 127)

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