Examination of Witnesses (Questions 1
- 19)
TUESDAY 20 FEBRUARY 2007
MS RUTH
DAVIS, MR
JOHN LANCHBERY,
MR BRIAN
SAMUEL AND
MS BROOKE
FLANAGAN
Q1 Chairman: Good morning, welcome
and thank you very much for coming in. Thank you for your written
submissions as well. Can I start off on a general basis and ask
you to say what you think is the role the voluntary offset market
should play, and in the light of that whether you think it is
something that should be actively promoted? I would like to hear
both of you on this.
Mr Samuel: From the Energy Saving
Trust perspective my first point would be that what we actually
require is for individuals to take action and save carbon rather
than to rely on other methods to do so. So it is important for
individual actions. That said, once people have taken those actions
open to them there may be a role to play for offsetting those
emissions that they cannot do by other means. So we believe that
once action has been taken there is a potential role for offsetting.
Ms Davis: If I can pick up on
behalf of the RSPB, two or three things really. I think our major
scepticism about the role that voluntary offsets play is the overall
message that is associated with those going out to the consumers
of those offsets, and with the best will in the world it is very
hard to convey to people when they are buying an offset that they
are not actually neutralising their impact on the global environment;
they, I think, quite understandably, think that what they are
doing is buying something which means that they are relieved from
the responsibility of taking further action. And the science is
telling us that we cannot have an either/or solution; we cannot
have action somewhere else in the developing world and no action
in the developed world—we have to have both. The voluntary
market does not give that very, very important message to its
customers.
Q2 Chairman: Are you saying that
it is actually harmful thing in that case?
Ms Davis: In terms of its overall
messaging, yes, I think it can be, and I think if you look at
the way in which it is used by particular sectors in their conversations
with their customers that will give you an indication of how it
is harmful. So if you have an airline selling an offset alongside
a flight I really do think that that is a proposition being put
to those customers to say, "It is okay, you can carry on
doing this and you can still rescue us from the current crisis."
Q3 Chairman: If you have an airline
passenger who is genuinely concerned about climate change and
recognises that it will be at least five years before aviation
is inside the EST in any kind of meaningful or effective way,
is it not better that those people should be facilitated, the
opportunity for those people to buy an offset rather than just
do nothing? You are not going to stop people flying; in the real
world we are going to go on flying. Parliament has just been to
America to discuss climate change and we flew there. Is it not
better to promote offsets in those circumstances?
Ms Davis: I think it would be
better to give people an opportunity to make a contribution to
projects which will help manage climate change either here or
abroad, but the messaging that goes with the concept of offsetting
and the idea of carbon neutrality does specifically convey the
idea that you can neutralise the environmental impacts of your
activity by paying for somebody else to take responsibility for
that.
Mr Lanchbery: Could I just add
a bit there? There are other actions you can take at home, as
EST has just said. What people do not tend to do is think, "I
really do need to fly to there so I ought to take some compensatory
action in another sphere in which I operate at home," using
the car less or something, and offsetting provides them with an
excuse for not taking those compensatory actions elsewhere. That
is our concern. If people wanted to buy a whole load of emission
reduction credits of some sort from the vendors of these products,
then, fine, it is just the way they use them to specifically offset
particular activities that is troublesome. It is the concept of
carbon neutrality: that in some way you can take action and then
be excused for taking it. Because you do not reduce emissions
overall what you use offsets for is to keep emissions the same—you
do not actually use them to reduce anything. So we are very keen
to encourage people to take action at home, which is ultimately
the only solution. Your question obviously is a very good one;
people will continue to fly, but if they do continue to fly then
they should think what they can do somewhere else.
Q4 Chairman: This is rather the WWF
view, that if you are going to have offset it is at the bottom
and there are other things you should be doing first.
Mr Lanchbery: Yes.
Q5 Colin Challen: In the light of
that, can I ask whether either of your organisations have made
a policy decision not to use offsets yourselves?
Ms Davis: Yes.
Mr Lanchbery: Yes.
Mr Samuel: No. What we have tried
to do is to try and end up with a zero carbon footprint for all
our operations. At the moment we have not been able to achieve
that and so, in the meantime, whilst we continue to try and work
towards that goal of being a zero carbon organisation we are considering
offsetting with one of the schemes that the government has recommended
in its consultation. In the meantime we will still try to get
down to zero carbon for our organisation.
Ms Davis: We have decided that
we do not want to go down the route of offsetting in order to
be able to take the money that we would in offsetting and reinvest
it in reducing our emissions at home. So we have a commitment
to try to match our own target within the NGO community of a three%
annual reduction per person per year within the business, and
we expect to do that by absolute emission reductions and not through
offsetting.
Q6 Chairman: I fully understand your
arguments but, notwithstanding, offsetting does seem to be a growing
activity. Why do you think that is?
Mr Lanchbery: There are two reasons.
Firstly, there are people who are pretty green and feel that they
ought to do something and they feel that offsetting in some way
empowers them to do something. Then there is the business case
where businesses, either through moral principles or just for
publicity purposes, want to look good and will offset their emissions.
So there are two main types. It is ironic, though, that in the
case of personal offsetting the offsetting tends to be done very
much by the green community—although it is growing it is
growing really within a green community, which is interesting
given the controversy around the subject. So there are two main
thoughts—business and personl.
Mr Samuel: If I could add to John's
comments? We are also finding that within individual consumers
there is also another category, those who are able to pay and
therefore appear keen to buy their way out of their personal responsibility.
That said, if there is a consumer demand then businesses will
develop products for that consumer demand and with the focus on
aviation emissions and the fact that there are not any aviation
emission reduction policies, or major ones in place at the moment,
therefore businesses will develop products—and we have seen
that, there are now over 60 companies offering products in the
market place for individuals and businesses. So I think there
will be offsetting because people are demanding it.
Q7 Mr Chaytor: If there are over
60 companies now offering offset schemes, how do you envisage
that it will develop over the next five years, the next 10 years?
Do you expect continuous growth? How do you see the voluntary
market developing?
Ms Flanagan: I think it will continue
to grow at the moment. Over the last three years we have seen
in the offsetting schemes a 60% growth per annum in those which
are available, which is quite substantial, and it seems to be
that that will continue on for some time. Whether it continues
to grow beyond that will depend on whether there is some sort
of accreditation scheme put in place.
Mr Lanchbery: It looks as though
it will continue to grow. Whether it will continue to grow indefinitely
is another matter. As more Kyoto credits come on to the market
I suspect that they will tend to be used anyway, whether or not
there is an accreditation scheme, because they have more credibility
in many ways. They are inadequate in some ways but at least they
abide by a set of internationally agreed rules that are drawn
up by the entire world and experts around the world, so people
tend to prefer those, I think, given the choice. I am sure you
will come on to this, but there is really no way of choosing between
credits on the voluntary market; it is very difficult to get accurate
information about precisely what carbon value and other co-benefits
in terms of social development and biodiversity they might bring.
So it is a terrible market. We have been looking at the market
for ages now and we, frankly, would not be able to draw up a list
of which ones were best. So it does need regulation.
Ms Davis: I think there is also
a question as to the growth in the market partly depends on credits
being a lot cheaper than the activity they are offsetting. At
the moment we are in a situation where it is possible to buy an
offset for a price which is a tiny fraction of what Nicholas Stern
believes to be the price of carbon, for example. In a regulated
market with a cap on it you would expect at some point that that
would change, and we would hope it would change. As that becomes
the case more and more people would probably find themselves in
a position where financially they may choose to forego the activity
rather than buy the offset, but that really is contingent on actually
having a market which reflects the value of its major product—it
does not at the moment.
Q8 Mr Chaytor: Just to pursue that
point a moment. If both of your organisations feel that growth
is inevitable, although not infinite, what is the likely pattern?
John, you said that at the moment this is an activity entirely
within the affluent green community. If Ruth's point is the case
that sooner or later the cost of offsets will need to rise towards
the government's view of the real cost of carbon then it is likely
to stay within the green affluent community. The prospect of the
voluntary offset market extending out to millions of ordinary
people is constrained by the price of purchasing the offsets,
which are going to increase.
Mr Lanchbery: Probably, yes. The
value of Certified Emission Reductions and the Clean Development
Mechanism will almost certainly increase once the global trading
market opens in 2008. It is difficult to see how they will not,
and they will probably increase over that period as the end of
the first Kyoto commitment period looms and states will need credits
in order to come into compliance. So I suspect the price will
go up, yes. The price is an interesting thing because the whole
point of an offset in the voluntary market is to keep it as cheap
as possible. A chap called Brendan Sewell, an ex civil servant
and now an NGO, did a series of sums and worked out that if you
paid the equivalent of the taxes on a motor car for a flight to
Australia you would be paying about £750 to pay the equivalent
taxes for going by road. So that is perhaps indicative of the
sort of value that an offset to Australia ought to be, just about
£700 to £800.
Mr Samuel: I think I would agree
with the fact that prices will increase if this scheme is robust.
I think the problem is that if you have lots of entrants in a
scheme where there are not any rules, then who knows what would
happen? At the moment you have a massive divergence of prices—€3
to €30. You have a massive difference in the carbon calculations
behind the whole offsetting process as well. So there is a lot
of uncertainty. The risk is that you can have even worse products
and projects than there are now on the market to try and keep
the price as low as possible for others to participate. From our
perspective what we would be keen to encourage is that with Defra
planning to launch a carbon calculator, we would look to encourage
every single household in the country to take advantage of that
tool and then to implement the mechanisms required to reduce their
own carbon footprint. Hopefully that may then drive them to look
at what else they can do, and that may or may not include offsetting
if it is a robust scheme.
Q9 Mr Chaytor: The market is going
to grow and therefore the regulation is crucial?
Mr Samuel: Regulation is crucial.
Ms Davis: I think also there is
a very important point about the difference between a functioning
cap and trade scheme, and what we have here, which is a voluntary
market, is that there is no cap. The point about a cap and trade
scheme is specifically that it sets an environmental limit on
emissions and then you trade within that context. We all know
that we are not there with the Kyoto Mechanism yet because we
do not have the right level of participation, the right number
of sectors, even the right cap operating, but the principle behind
that is that we do have an environmental limit. No environmental
limit exists in the voluntary market, and in essence that creates
a situation where you are really not trading to reduce, which
is the point that John was making. If we were to get into a situation,
for example, where we did have personal carbon calculators, and
perhaps a suggestion from government, if not a regulation from
government—I cannot see us going down that route yet—of,
say, a limit, a five tonne personal allowance for carbon, if we
were to take the same approach that we have taken in, for example,
the EST, then we should be saying to people, "You can only
meet a small proportion of your carbon requirements through offsetting."
In the EST we set a limit on the number of credits that can be
used and traded from CDM mechanisms for precisely the reason that
we know it is necessary to achieve reductions within the European
Union, rather than simply trade across global power blocks. The
same would need to apply to a personal carbon allowance for this
to have any real environmental benefit. We have to remember all
the time that the point of this market is to achieve benefits
for the climate, and we will not get those without a cap.
Chairman: Graham Stuart.
Q10 Mr Stuart: There have been reports
in the Press about projects not being truly additional, of double-counting,
of leakage, and I wondered how serious and widespread you thought
these problems were in the market, or is it just a small number
of bad apples giving the rest a bad name?
Ms Flanagan: I think without an
accreditation regulation or regulatory scheme in place it is really
hard to know. It is widely variable.
Mr Lanchbery: We would agree with
that but there have been some real horror stories. Some of the
projects have actually been approved by—not the CDM—but
the World Bank have run into big trouble, especially the big Plantar
project, for example, in Brazil, about which many horror stories
are told. So there are a lot of projects that have gone wrong;
but, as you say, it is very difficult to quantify them because
there is no regulation, so it is just what people can find out
or happen to find out. The Defra project is way behind time, of
course; it has not gone wrong, as such, but Defra are still flying
around whilst not actually offsetting that much in their project
in South Africa.
Mr Samuel: One of my major concerns
as well is how much of the financial contribution is actually
going to go to projects, even the good ones. So the margins that
have been extracted by the market by some of the suppliers of
the offsetting projects are very high. So that is another concern.
Q11 Mr Stuart: Before we move on
to talk about validation I want to ask you about who is best to
regulate the market, or indeed to provide the accreditation that
is felt to be necessary, because you both agree that some form
of accreditation should be mandatory. Could the industry, rather
than the government, run such a mandatory scheme, perhaps with
government support and with outside independent regulation and
verification?
Ms Flanagan: I think if you are
looking for a consumer based programme it needs to be a very trusted,
transparent and robust system that is put in place, and I think
that needs to be run by an organisation that is seen to be trusted
by consumers. I am not sure that necessarily they would see the
industry self-regulating as meeting those requirements.
Ms Davis: There is also an issue
about the fact that many charities, environmental charities, development
groups and others have seen the voluntary market as a means of
attracting funding in a very difficult funding environment, which
means that you have a plethora of different kinds of projects
in the voluntary market. I think it would be very difficult to
get those very different groups to agree to a single accreditation
system; they would all fight for their specific projects, and
we know this very clearly because within the conservation community
there are many people who see this as a means of accessing funds
and will argue for maintaining all kinds of land use projects
in a context where many others might actually see those as not
being appropriate or valid. So I think it might be very hard to
achieve commonality.
Mr Lanchbery: I think you do need
an independent verifier. Like the EST has done that on renewables
projects in the UK at one time, and did it very well. The CDM
executive board does sort of fulfil that function—it is
composed of experts appointed by governments but acting in their
own capacity, scrutinising projects, and most of them are very
good, very expert experts. It may be a bit clunky in the way it
operates—it is rather cumbersome—but they are very
expert and very independent. They are almost bound to be because
of the diversity of countries and the different states of development
that they come from. So they do give pretty unbiased judgments,
even if people sometimes do not like them.
Q12 Mr Stuart: Is it not possible
though that as the market develops the market is going to suffer
because of the bad Press stories we have already mentioned, and
often markets do seem extremely diverse and unable to come to
any common standards together, but actually market pressures themselves
bring them together until you develop a stamp of approval, without
which you do not really have market credibility. Is it not possible
that that could develop, given time, rather than some central
regulatory regime?
Mr Samuel: I think it could possibly
develop given time, but how long and what damage is done in the
meantime and how long would it take to recover, I think it is
far too risky an approach to let the market manage itself.
Ms Davis: I do think as well in
a context where you are not talking about firms necessarily adapting
their existing business to meet regulatory standards, but changing
fundamentally their whole business. So, for example, if we had
a context where we said that actually the regulation suggests
that forest projects in temperate regions are inappropriate, you
have whole businesses whose entire offsetting practice is around
temperate forests and they cannot adapt because they are doing
something completely outside of what would then be the regulated
market, which means that they will fight tooth and nail against
that kind of regulatory proposition. I do not think they can be
expected to self-regulate in that context.
Q13 Mr Stuart: Again, market pressure
might mean market knowledge develops and they are simply—
Ms Davis: Wiped out.
Q14 Mr Stuart: They either move to
other areas or go out of business. What makes offsets different
from "buy-a-goat" or "water-a-farm" projects
undertaken by overseas aid and development charities that do not,
at least for now, require accreditation? Is it just that you do
not think the offset industry is to be trusted?
Mr Lanchbery: It is probably the
fact that they do purport to deliver a certain amount of carbon
saving which has a specific value, and in the voluntary market
they do not have a highly specific market value. But that is what
is valued, and it has led, as Ruth implied just now, a lot of
companies to set up offset marketing exercises for reasons other
than climate because they see this as one way of getting money
for environmental or developmental goods. So, a lot of the projects
they run are actually very good in terms of biodiversity or social
development—the wood burning stoves projects, for example,
in India and Nepal that are Practical Action run. They are excellent
projects but they are not primarily designed as carbon projects.
Because they are designed for something else—many of the
offsets, anyway—this tends to distort how they function.
So you can have a perfectly good biodiversity project, say, from
Conservation International, and they will have worked out the
biodiversity aspect brilliantly, but not necessarily the carbon
aspects. I think that is what makes it so difficult; there are
lots of different types of projects that bring about social or
environmental good in some way, and they are piggy-backing on
the top of the carbon market, and for carbon markets you really
want something different.
Mr Samuel: I would perhaps turn
the question around and liken the carbon market to perhaps a financial
market. We have seen quite a lot of instances of mis-selling of
financial products, even within the FSA framework, so I would
turn it around and say it is more similar to a financials market.
Q15 Colin Challen: Mis-selling is
perhaps a good word for me to come in on because the CDM has been
criticised by a number of our contributors to this inquiry on
the grounds that it is inflexible, delivers projects which are
very large-scale and, as we saw recently in a report about China,
does not even necessarily deliver what we really want; it does
not look at the social and other developmental aspects and so
on. So would it be the best thing to lock ourselves into that
kind of system which effectively locks out, as we have seen with
the CDM, many African countries—only South Africa seems
to be getting anything from the CDM. What are your views on that?
Mr Lanchbery: The CDM market being
part of the Kyoto cap and trade market again delivers carbon benefits
and inevitably it was designed in that way: to deliver carbon
benefits and absolutely nothing else. It is meant to deliver sustainable
development benefits but in practice it does not—sustainability
is assessed solely by the host country of the project because
that is the only way to do it in an international regime. So you
are right, it is a clunky mechanism, like many international mechanisms,
and it is designed solely to deliver carbon benefit. So if you
are an investor it has always been recognised that the CDM was
likely to become the Chinese development mechanism because China
is a big country, it has infrastructure, you are going to invest
in it, or you are going to invest in India; but you are probably
not going to invest in small countries. Also, the transaction
costs are quite high, it costs $50,000 to $100,000 to go through
the compliance procedures, so that tends to mitigate against small
projects in developing countries. There was an attempt to fast
track such projects, to have some sort of streamlining, but it
fell by the wayside. Yes, it certainly has a large number of flaws,
but it is hard to see how to get around that. There is a lot of
biodiversity stuff written into the agreements on afforestation
and reforestation but it is not binding—only the carbon
bits are binding.
Q16 Colin Challen: If you have VERs
operating who can deal with the smaller projects and also take
into account other social developmental aspects, provided that
was properly regulated, surely that would fill that gap?
Mr Lanchbery: That could be a
valuable function, yes.
Ms Davis: I think that is a very
good point because the danger of regulating so that you limit
the choice to Kyoto projects is that you do exclude things which
are socially very important, you exclude poor countries and you
exclude stuff which is very close to our hearts as a conservation
organisation, which is managing impacts of deforestation. I am
not sure, though, that in deciding because the CDM mechanism does
not work in the way that we want it to that the right approach
is then to decide that the responsibility for dealing with those
issues and for providing that funding should fall to the voluntary
market. I think we would probably take the view that over time
we have to try to make carbon savings within the context of a
cap and trade scheme. That means really doing everything we can
to improve what is still a very new international process. We
have never had a market in environmental goods before; we cannot
really expect it to operate immediately in the most perfect way.
But I would have said from our point of view that most of our
time and investment will probably go into trying to do the best
we can to improve both the CDM mechanism itself and also improve
wider provisions around Kyoto and post-Kyoto to be able to take
into account some of the things that are currently neglected through
that process. That is in the end because we have to keep concentrating
on the fact that the purpose of the carbon market is to allow
us to cap carbon emissions, and we should bring everything we
can within the context of that cap and not manage outside the
cap scheme.
Q17 Colin Challen: From that would
the most important thing in your view be to remove doubts about
VERs if they were somehow included in a robust cap and trade system,
but still allowed themselves the flexibilities that the CDM does
not offer?
Ms Davis: I think that is one
way of looking at it; I think that is an interesting question.
What government is trying to do, very intelligently, is to make
sure that what cap and trade schemes exist actually have a relationship
with each other so that they sit within an overall framework.
That is why the EST is essentially embedded inside the Kyoto process
and why any trading schemes that we develop further down the chain
should have that relationship. That may be quite problematic if
you have a context in which you are trading with VERs in a situation
where you also want to have a relationship with other trading
schemes further up the system. The preference has to remain, difficult
though it is, to try and create a context in which the international
agreement under which we are operating allows flows of capital
to developing countries to manage their emissions through whatever
route, and recognises the value of standing forest, through whatever
is an appropriate route. Relying on the voluntary market to do
that is not, in the end, going to solve the problem; it is not
a long-term solution to the problem.
Q18 Colin Challen: Do the EST share
those views?
Mr Samuel: I fully agree with
the fact that where we should end up is a cap and trade system.
However, I am not convinced that a personal carbon allowance scheme
of caps on individuals is going to happen very quickly. I would
like to think that progress towards that goal would be taken.
Therefore, I think there probably is a role for a mandatory regulated
market for smaller projects that are more difficult to deliver
under the CDM mechanism. And within that you could have product
differentiation where you would have the products within the market,
such as an African offset fund, you could have an Asian offset
fund, a fuel poverty offset fund, technology transfer offset fund,
for instance, which is more difficult to be achieved under CDM.
The point is, though, that you do need to have regulations in
order to make that happen. I do not know if those regulations
can be developed to be sufficiently robust to guarantee and deliver
sufficient carbon savings, but I think that it is something probably
worthwhile exploring. Going back to my earlier point, if consumers
demand offsetting then companies will develop schemes anyway.
Q19 Colin Challen: Can I ask a broader
question about the issue of equity because, as we have heard,
Africa is generally excluded from the CDM so clearly the CDM,
which is about trying to reduce carbon emissions, only focuses
on those people who have the infrastructure to release carbon
and, since most African countries do not, do you think that that
should be an issue discussed in any form of the CDM?
Mr Lanchbery: Yes. It has been
discussed in the context of avoided deforestation that Ruth mentioned.
There is a proposal from Papua New Guinea and Costa Rica to limit
emissions from deforestation where they would take on what is
known as sectoral commitment to limit their rate of deforestation,
preferably to zero, and they would gain credit from anything in
excess of that. The trouble with that is that for countries in
Africa, particularly the Congo Basin people, they are not actually
deforesting much at the moment and so they cannot really deforest
any less, and yet they need the funding to preserve their forests
and prevent emissions from deforestation. You have another problem,
in addition, which is basically a capacity problem. We had quite
a good meeting with the Congo Basin Group—which is the Congo,
Cameroon and neighbouring countries—and they pointed out
that what they really need at the moment is some sort of capacity
building programme that would enable them to take on this sort
of commitment and do projects on avoided deforestation, and I
know it is a very common difficulty in Africa. South Africa can
do these projects but in many other countries it is probable initially,
that some sort of form of overseas aid is needed from DFID to
enable people to development such projects.
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