Memorandum submitted by The CarbonNeutral
Company
1. INTRODUCTION
1.1 The CarbonNeutral Company is one of
the world's leading climate change businesses, set up in the early
1990s with a vision captured in our CarbonNeutral trademark. We're
proud to be helping thousands of people and 100s of major companies
around the world, to measure, reduce and offset their CO2 emissions.
1.2 TCNC conducts its business in accordance
with the CarbonNeutral Protocol (CNP) which it developed and maintains
through a process that involves a range of external stakeholders,
including NGOs, users of carbon offsets, producers of carbon offsets,
and experts in carbon management. Third-party verifiers review
and report on our adherence to the requirements of the CNP. The
CNP specifically combines action to reduce emissions supported
by requirements for the selection of offset projects with requirements
on assessing carbon abatement, transacting carbon (verification
and registration), and communications (message and brand). The
most recent version of the CNP can be found at Annex 1.
1.3 As a company, we strongly believe that
we are making a significant contribution to the fight against
dangerous environmental change driven by global warming. The Stern
review reminds us that the aims set by Government, a reduction
in carbon emission by 60% on a 1990 baseline by 2050 are challenging
and that innovation is required in ensuring that carbon efficient
technologies and practices are put into effect. Stern also recommends
that measures should be implemented in order of their cost effectiveness
with the most cost effective implemented first. We believe that
the approach we have developed through our proprietary standards
deliver real reductions in carbon emissions in a cost effective
way and that, by taking a market driven approach, we are fostering
the implementation of innovative solutions to the problem of reducing
carbon.
1.4 In common with other reputable companies
in this sector, we strongly deplore bad and sloppy practice and
the activities of "cowboy" operators. We have developed
our own stringent operating standards and we are working with
other companies to produce international standards for carbon
offsetting. We believe that these will provide a framework in
which a mixed market of diverse instruments, including CERs and
VERs can develop. This we believe is essential to maximise the
scale of emission reductions achieved by voluntary carbon markets
(VCMs) and will also serve to optimise the uptake of innovative
solutions.
1.5 We therefore welcome the Environmental
Audit Committee's inquiry and are pleased to offer evidence. Our
responses to the questions posed by the Committee are as follows
2. Ought there to be a compulsory UK or European
accreditation scheme for carbon offset projects or companies?
If so, how should this operate?
2.1 We believe that a system of accreditation
for companies and the products they offer is highly desirable.
It is our experience that our corporate and government clients
are concerned to ensure that the steps they take to measure, reduce
and offset their carbon footprint deliver real carbon-neutral
performance. They are highly conscious of the threats to their
reputation should the investments they make in their environmental
profile turn out to be underperforming. We believe that a system
of accreditation would improve the overall confidence of business
and consumers in the voluntary carbon market and the companies
that work in it. We believe that this system of accreditation
should cover the following key elements:
— that a company should offer third
party carbon assessment services (so that there is an objective
view of the amount of CO2 to be offset);
— that the company should sell offsets
which have a clear audit trail: that they are either credited
against an international system (as CERs) or, in the case of VERs,
that the company has a strong quality assurance scheme; and
— that the company's activities are
independently audited—to prevent double counting of credits,
proper insurance of credits and retirement (for example, TCNC
commissions KPMG to audit the company's activities once per year).
2.2 We would see this operating in a way
similar to the working of the Financial Standards Authority. The
FSA's overall objective is To promote efficient, orderly and
fair markets and to help retail consumers achieve a fair deal.
2.3 Its statutory objectives are:
— market confidence: maintaining confidence
in the financial system;
— public awareness: promoting public
understanding of the financial system;
— consumer protection: securing the
appropriate degree of protection for consumers; and
— the reduction of financial crime:
reducing the extent to which it is possible for a business to
be used for a purpose connected with financial crime.
2.4 We see this as a possible pattern for
a carbon markets regulator. In particular we would welcome the
maintenance of market confidence and the suppression of fraudulent
operators.
2.5 The FSA regulates companies and the
instruments they offer. Consumers will have greater confidence
in companies under FSA regulation and instruments regulated by
the FSA. We note, however, that there are financial instruments,
reversionary mortgages, for example, that the FSA does not regulate.
In this case the regulation is not compulsory and we feel that
this may have to be case in the instance of carbon markets, too.
We believe that clients will be wary of non-regulated companies
and instruments and that this would provide a measure of safeguard.
3. Should offsetting become mandatory for
some of the more carbon-intensive activities, such as flying?
3.1 We are very aware of the current debate
about the climate impacts of some activities, notably flying and
have considerable sympathy with those who see direct regulation
of airline charges as a means of internalising the social impacts
of flying into costs to passengers. We are also aware of a more
general debate on ways of internalising environmental costs into
goods and services. It is our experience that the setting of adequately
robust targets creates a more secure environment for the development
of solutions that combine high performance with cost effectiveness.
We find that our clients achieve an excellent understanding of
the costs of carbon by taking on the demanding commitments of
the CarbonNeutral Protocol and that this has a profound effect
on their practices as they try to reduce the costs of compliance
with their targets.
3.2 We believe therefore that carbon-intensive
activities should be subject to binding targets and that it should
be for the businesses concerned to work out the most cost effective
route to achieving them. This might include technology advance,
trading schemes or offsetting, as examples. Experience suggests,
however, that it will be difficult to set targets that fully offset
the impacts of aviation on the climate system.
3.3 Some companies will wish to go further
and to work towards carbon neutrality. Offsetting schemes offer
theses companies the opportunity to do this in a controlled environment.
4. Is there enough clarity within the offset
market to allow customers to make informed choices based upon
robust information about different schemes at different prices?
4.1 No, there is not sufficient clarity
at present. As a company TCNC is committed to providing clarity
to its clients in the offsets we provide and we believe that we
share this aim with other reputable companies. However, there
are factors that work to make customer information less than transparent.
For us the major factors are:
— The quality of the offset. This needs
to be absolutely clear and we would welcome codes of practice
to cover client information.
— Audit trails. All our offset instruments
are fully audited: we believe that audit information should be
expected by clients and that companies should expect to provide
it.
— Practice in charging VAT. Some companies
in this sector operated with VAT exemption and this makes offset
price comparison difficult.
— Scientific uncertainty about offset
calculations. There are some areas, notably in aviation, where
the offsets required are difficult to calculate. We have reviewed
the scientific literature, for example, on Radiative Forcing Indices
in the case of aviation, and we find there is genuine divergence
of opinion within the scientific community. A standard approach
to issues of this kind would be helpful and improve clarity for
clients.
5. Many offset projects involve afforestation
or reforestation. Is the science sufficiently coherent in this
area accurately to assess overall long-term carbon (or other GHG)
gains and losses from such projects?
5.1 We believe that there is considerable merit
in schemes involving land use and land use change as theses are
the only means available for addressing the important issues of
the performance of carbon sinks. We have considered the evidence
on land use schemes carefully and it is our view that the science
is robust and has shown which issues need to be addressed in the
development of effective measures.
5.2 In particular we have noted that permanence
is a major issue, both in the long-term performance of schemes,
for example of reforestation and in the losses that might occur
through ecological failure or accidental damage. In the light
of this understanding, we advise clients to limit the amount of
such schemes to 20% of their portfolio of offsets. We also take
steps to back-fill failures and underperformance from our stocks
of non land use projects. We believe this should be standard practice
for all voluntary carbon market companies offering emissions reductions
through land use and land use change.
6. Is there sufficient data available to guarantee
accurate amounts of carbon or other GHG mitigation in the sorts
of schemes which offset projects finance?
6.1 It has been our experience that it is
possible to calculate carbon emissions savings for individual
projects to a good level of accuracy. There are projects of which
we are aware that, whatever their merits, make it difficult to
calculate the carbon savings accurately and we would avoid these.
We guarantee the quality of the offsets we offer by using recognised
project evaluators who operate to recognised standards of calculation.
6.2 We believe, however, that other companies
may not be so fastidious. This is why we have suggested that the
project evaluation procedures should be part of the global standard
for voluntary markets we are seeking to develop with other major
players.
7. 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?
7.1 In our evidence to the Stern inquiry,
we noted that it had proved very difficult for Government, both
in the UK and at European level to set targets for compliance
that matched the scale of the challenge of climate change. In
the case of the UK, allowances to industry for phase one of the
EU ETS had to be raised not once but twice in the face of industry
objections. It is our assessment that, despite the improvement
in the climate for tough targets, the compliance market will continue
to fall short of what is needed. We therefore believe that there
will be a continuing need to go beyond compliance and that the
voluntary market will continue to play a vital role in managing
carbon emission down.
7.2 Having said this, we believe that the
development of the voluntary market will have a beneficial impact
on the compliance market. At the outset it will allow legislators
to set more ambitious targets. It will accelerate the implementation
of innovative solutions that the compliance market may adopt at
a later stage. It will also reveal prices, allowing Government
a second source of data to assess impacts on industry of tough
targets and, in the longer term, it will act to ensure that prices
of carbon rise as low cost options are assimilated. This will
have the effect of increasing the liquidity of the market in carbon
reductions as a whole and in consequence its overall efficiency.
8. What evidence is there to show that offsetting
helps to change the carbon behaviour of the customer?
8.1 Over the last 10 years we have worked
with over 200 corporate clients to reduce their carbon footprint
and the majority have agreed to the conditions of the CarbonNeutral
Protocol. Clearly, different clients have responded differently
to the challenges this has made for them. However, it has been
our general experience that clients become far more carbon-aware
as a result of working with us. There are clear financial implications
for our customers and these are widely noted. The discipline of
measuring the carbon footprint itself has made companies think
carefully about the scale of their impacts and the options there
are to reduce them to the extent that they can claim to be "carbon
neutral". We believe that companies have generally been driven
by cost effectiveness in reducing carbon footprints. Cost effective
measures to reduce carbon are, in our experience, normally seen
as a part of the company's compliance plan together with offsetting,
the balance being driven by the availability and costs of measure
and offsets.
8.2 We have also noted that the engagement
of companies in the process of working towards carbon neutrality
has caused them to think more widely about their environmental
impacts. Communications group, St Lukes, for example, reduced
their CO2 emissions by 30% but they also reduced waste by 22%.
Clients have begun to engage with their customers and supply chains
on carbon management and some clients have considered extending
this to their people and their families. BSkyB, for example, is
actively encouraging suppliers to manage emissions—TCNC
and Sky organised supplier presentations of Al Gore's film, an
inconvenient truth, and follow up meetings. Three of Sky's
suppliers have already taken the step to go CarbonNeutral. TCNC
is also working with Sky to excite and enable consumers to reduce
and offset their emissions.
8.3 Annex 2 contains some case studies showing
how our clients have responded to the challenges of carbon neutrality.
9. To what extent are the schemes and projects
funded by offset companies more broadly sustainable, in an environmental,
social or economic sense?
9.1 We are aware that the industry has taken
different positions on this matter with some companies taking
the view that it is essential to incorporate considerations of
wider sustainability into offsetting and other taking the view
that it is the carbon impacts that should be the key to pricing
and project development and that wider issues should be addressed
through other instruments.
9.2 We tend to the view that wider sustainability
considerations are relevant to voluntary action on climate change.
It is our view that the key question that arises is about the
reputation of offsetting instruments and that project reputation
is a major part of this. We would seek to ensure that the projects
we use for offsetting carried no major negative externalities.
We are open to arguments that it would be desirable to go further
and seek positive externalities. This is very much at the heart
of the discussions we have had on the development of a global
standard for VCMs and we would welcome a wider debate on the matter.
January 2007
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