Memorandum submitted by Carbon Offsets
Ltd
Carbon Offsets Ltd was set up in 2006 to help
people reduce their climate change impact through:
— direct action to reduce their own
emissions; and
— offsetting those that they are not
able to avoid.
Carbon Offsets Ltd supplies carbon offsets in
an ethical, efficient and economic way.
We are a young, dynamic, value-driven organisation,
with an established record in: carbon offsets, environmental management,
the aviation industry, commodity trading and business start-ups.
Based in the UK close to London, we have wide international experience.
SUMMARY
— The emissions reduction/carbon offset
market needs to be well controlled, but that does not mean one
size fits all.
— Some emissions reduction projects
are small, community based schemes with a high level of associated
sustainable development benefits. Such schemes cannot realistically
bear the cost and time delay of full CDM certification.
— The current two tier system (compliance-
based and voluntary) should be maintained. However, agreed standards
should be developed and the voluntary market should be subject
to more regulation to ensure that its greater freedom is not abused.
— There is a risk of missing the opportunity
to engage the public in climate change action by offering emissions
reduction projects with which they can easily relate.
— Whatever process is used, additionality
will be key—and problematical.
— Carbon Offsets Ltd would be happy
to participate in a Working Group to develop appropriate standards.
1. Background
The basic argument for carbon offsetting/carbon
emissions reduction projects is that the cost/price of bringing
about a reduction in carbon emissions varies widely. The cost
of reducing carbon emissions is lower for society as a whole if
the emission reductions (eg in terms of energy efficiency improvements
or the development of renewable energy) are carried out in areas
where the emission reduction cost is relatively low, and then,
through trading, offset against emissions for which the direct
reduction might be, or be perceived to be, relatively high.
Originally the market place was entirely voluntary—but
small. This changed, however, with the development of the EU-ETS
and decision that the Kyoto CDM and JI mechanism units (CERs and
ERUs respectively) should be fungible with the EU-ETS unit, the
EUA. The concept of offsetting was extended to the compliance
market—not only to trading within the EU-ETS itself but
also with Kyoto signatories from the developing world and economies
in transition.
This led initially to two parallel markets,
the compliance market (with EUAs, ERUs, and EUAs) and the voluntary
market with its Verified Emissions Reductions (VERs).
Some concerns have been expressed however as to the
reliability of the VER market, including, in particular in relation
to the quality of the projects supported (eg additionality and
actual performance), the avoidance of double selling and the clarity
of information in the market place. As a result, DEFRA has decided
to promote the use of compliance based instruments to meet the
needs of some, or all the voluntary (non-compliance) requirements.
2. What is the role of the Voluntary market?
Demand:
Voluntary demand for carbon offsets arises when
the concern regarding the climate change impact in a certain field
is not being sufficiently satisfied by compliance based action.
In this case either individuals, through their own concern for
the environment, or businesses, driven by their own desire to
be seen to be acting responsibly, will seek opportunities to offset
their carbon emissions.
There is a danger that such action can foster
a sense of business as usual in terms of the level of emissions
generated. Such offsetting always needs to be seen and promoted
as part of a solution, alongside active steps to reduce emissions
directly. At the same time, the offsetting activity can foster
greater carbon emission awareness. On balance, this voluntary
demand for carbon offsetting is desirable, providing a funding
stream that can be deployed to reduce carbon emissions.
Being voluntary, the demand is affected not
only by price, but by other more subjective factors in terms of
whether the project is "attractive".
Supply: The prime aim of the market is to
supply carbon emission reduction projects that meet the additionality
test, are quantifiable, have been measured and externally verified—and
sold only once.
Initially, until the CDM and JI processes were
established, all projects were VERs. Since the emergence of the
Kyoto processes, the majority of emissions reduction tonnage has
shifted to the compliance market.
The CDM project development and approval process
has been developed with the aim of addressing the above objectives.
This is the process that the world has accepted for Kyoto based
projects—and it can be argued that such a process provides
the most reliable assurance available that the project satisfies
the necessary criteria. This process comes however at a cost—estimated
at between 50 and 250 thousand dollars (Krolik, T. (2006) "The
Argentine Carbon Fund Helps Developers Dance the Dance",
The Ecosystem Marketplace, www.ecosystemmarketplace.com/ )
There are two main sources of VERs, namely:
1. Small projects, for which the CDM process
cannot be justified. Such projects are often community based,
and bring with them wider sustainable development benefits. As
such, they tend to prove more attractive to individuals who are
voluntarily deciding to offset their emissions.
2. Projects/parts of projects that were originally
intended for the CDM process. Such projects can give rise to VERs
in a number of ways, eg:
— A methodology may not be approved,
even though the project has serious merit.
— The country concerned may not have
ratified Kyoto (eg Turkey).
— There could be "pre registration
credits" eg if a scheme does not meet the Prompt Start deadline.
— A project developer may not be prepared
to wait for the year or so to get the CDM approval.
Whilst elements of category 2 above can be debated,
the merits of category 1 are difficult to dispute. It is important
to ensure that such projects can be encouraged and fostered. The
Voluntary/VER market is one which should be encouraged—but
it would benefit from standards and an appropriate framework within
which to operate.
3. What impact will the voluntary carbon offset
market have on the compliance market if the former continues to
grow as steadily as it has done over the last few years?
The Voluntary Market has been growing steadily
in recent years because a significant and growing proportion of
society finds that Government (in the UK and elsewhere) has not
taken sufficiently robust and timely action to address climate
change.
To date the bulk of the offsetting by individuals
(and to a lesser extent companies) has been in relation to aviation.
It has recently been decided to bring aviation within the EU ETS
from 2011. This will help to reduce the pressure for voluntary
action—but only so long as a hard line is taken by European
Governments in reducing the cap. If that hard line is taken, then
voluntary action in relation to aviation is likely to reduce,
whilst voluntary action in relation to some other sources of carbon
emissions is likely to increase if there are people who are dissatisfied
with the rate of Government action in relation to those sources.
4. Ought there to be a compulsory UK or European
accreditation scheme for carbon offset projects or companies?
If so, how should this operate?
One approach to providing assurance regarding
good projects that are too small to support the CDM/JI certification
process is to adopt an accreditation scheme at the level of the
vendor company, rather than the project. Standards need to be
established for projects—but in a way that caters for small
projects. For such projects, the customer can be assured partly
through the application of those standards, but also through the
knowledge that the carbon offset provider is a member of the accredited
scheme.
The objective, we believe, should be to achieve
the greatest environmental benefit at least cost. The imposition
of costly process on small projects will inevitably make them
less attractive to consumers. This could affect the level of public
support for offsetting and would consequently reduce the impact
of such projects in other relevant areas of sustainable development.
5. Whether there is enough clarity within
the offset market to allow customers to make informed choices
based upon robust information about different schemes at different
prices?
The use of a price per tonne of carbon emissions
reduction is widely used—but is not ubiquitous. The use
of such a measure could be part of the regulation of carbon offset
providers. If there are other sustainable development benefits
associated with a project, then these can be clearly listed, justifying
a higher price in the eyes of some customers.
6. Whether there is sufficient data available
to guarantee accurate amounts of carbon or other GHG mitigation
in the sorts of schemes which offset projects finance?
The word guarantee is a legalistic view which
tends to override materiality. Normal auditing techniques such
as sampling should be permissible. The market would benefit from
clear standards in relation to verification, though there are
risks in delivery of carbon dioxide reductions even in the best
CER projects.
In conclusion, we believe that the government
should not only act to regulate the market in CERs but it should
protect the responsible market in VERs through appropriate steps
such as a code of practice and kite mark.
Carbon Offsets Ltd would be happy to participate
in any Working Group established to develop such a code of practice
and kite mark.
January 2007
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