Select Committee on Environmental Audit Minutes of Evidence


Memorandum submitted by Climate Care

  Climate Care was set up in 1998 to tackle climate change by reducing greenhouse gases in the atmosphere. We do this by providing offsets to individuals and companies voluntarily choosing to offset all or part of their carbon footprint.

  Over the last eight years we have established a robust mode of operation and are scrutinised by an independent environmental steering committee.

  Climate Care's experience and presence in the market put us in an excellent position to offer meaningful input into this government inquiry.

1.  Ought there to be a compulsory UK or European accreditation scheme for carbon offset projects or companies? If so, how should this operate?

  Robust and common standards are vital to the voluntary carbon market.

  Ideally the minimum benchmark would be European-wide and closely modelled on established procedures in the CDM to ensure quality in key features including additionality, baseline calculation, monitoring and verification. However, the standard must be appropriate for the market.

  The voluntary market has an important role as a pioneer, and any accreditation scheme should ensure industry is encouraged to innovate, and not be restrained. Meanwhile, voluntary market consumer preferences are for "value-added" offsets which support additional benefits typically found in small scale projects often in the less economically developed countries. Standards should avoid restricting development of such important projects.

  For these reasons specific failures within the CDM procedures must be addressed to be applicable to the voluntary market. In their "2006 State of the CDM" report, the International Emissions Trading Association identified the principal issues. Notably for the voluntary market these include issues related to bureaucracy and delay in decisions, transaction cost, barriers to new methodologies (particularly with reference to non-renewable biomass) and inappropriate procedures for small scale projects (outlined in the response to question 8).

  Such project standards are critical to ensure offsets are genuine, not double counted, and at least not negatively impacting on sustainable development. However, accreditation need not only apply to projects. Offsets are an extremely complex subject. The only realistic way to provide consumers with the reassurance needed their purchases are genuine emission reductions is through recognition the retailer itself is approved. This accreditation should be provided by a formal body based on their established procedures and proven adherence to the formal project standards.

2.  Should offsetting become mandatory for some of the more carbon-intensive activities, such as flying?

  A mandatory scheme for the more carbon intensive activities should be the ultimate aim. In the transition, such industries should be incentivised to voluntarily participate in an offset scheme, on an opt-out basis. This would ideally use voluntary emissions reductions (VERs), regulated to a strong minimum standard as outlined above. Certainly at this point in time, compliance credits are not appropriate as the only mechanism for a voluntary opt out scheme.

  A progression should occur from participation by early adopters and pioneers, through education, persuasion and the voluntary opt-out schemes, with the objective being a broad mandatory scheme, like a "domestic tradable quota" or similar personal allowance scheme. Such a scheme would automatically include carbon-heavy industries like aviation.

  It is important to have a clear understanding of the progression, and how the different instruments and tools should be used towards this ultimate aim.

3.  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?

  Offsets are a virtual and intangible product, surrounded by substantial technical complexities and issues usually beyond the interest and comprehension of the general public. A common standard would impose a level of transparency needed to improve clarity, widely absent in the current market.

  However, the only realistic way to provide sufficient, widespread reassurance is through government/European accreditation of offset providers themselves. This would impose the necessary rigour (though appropriate to the voluntary market) without the need for consumers to individually research and grasp the many difficult issues. Differentiation above and beyond such a rigorous benchmark can then be achieved through normal marketing channels.

4.  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?

  With respect to land use change and forestry, the science is not the most important issue. Greater focus must be given to the issues of economics, permanence and timescales.

  When an alternative land use is imposed (that of a carbon sink) to ensure its viability as a carbon store and its continuation into the future (its permanence) it must be protected. This applies not just to natural mechanisms such as fires and insect damage, but to use of the forest services by local communities. If the forest has previously been used for its economic services, such as for fuel wood or agriculture, demand for these services will be fulfilled from elsewhere leading to "leakage". It is only in very specific circumstances where the land use has not been used for an important economic purpose, that the issue of leakage is not applicable.

  The crisis of climate change is no longer far in the future, but one to be faced in the next 10 to 20 years. Emissions reductions from forestry take too long to be realised, in the vicinity of 35-100 years, and attention should be given to more immediate methods.

  Nevertheless, land use, land use change and forestry play an important role in global emissions. Given estimations that reductions needed are as much as 90% (eg Tyndall Centre "Decarbonising the UK" 2006), land use and forestry must play a role in overall efforts. Greater focus should therefore be placed on specific avoided deforestation projects, for example those which introduce high efficient stoves, and displace charcoal production (non-renewable biomass).

  The CDM has yet to approve a suitable methodology and has procrastinated on the issue. However, the International Emissions Trading Association recently noted this as a critical concept, which must be addressed ("2006 State of the CDM"). Knowledge and science is sufficiently robust that an adequate methodology can be formulated, but it must be given the priority it deserves.

5.  Is there sufficient data available to guarantee accurate amounts of carbon or other GHG mitigation in the sorts of schemes which offset projects finance?

  There is no reason why voluntary market operations should be materially less rigorous than the compliance markets with respect to the key elements of baseline calculation and measurement of reductions. Within the CDM methodologies are being produced which ensure carbon reductions are measured to an acceptable level.

  Currently some schemes in the voluntary market do not operate at a level of rigour that can sufficiently guarantee accurate amounts of emissions mitigation. However, with the introduction of an appropriate and common voluntary market standard, preferably a government or European led scheme, such projects should be eliminated.

6.  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?

  Given the level of robustness needed within the voluntary market, it is likely the voluntary and compliance markets will begin to converge over the medium term. Furthermore, as the CDM Executive Board refines its processes and increases the number of approved methodologies, so the number of projects outside its scope, and therefore only viable in the voluntary market, decreases.

  In the meantime, provided credits are of a high quality, the voluntary market's existence is great benefit:

    —  The absence of a long term signal for commitments within the CDM has deterred investment and created substantial uncertainty for project developers. By providing reassurance of a market demand, the voluntary market can continue to stimulate project development past 2012.

    —  It can also act to provide stability to the market by acting as an outlet in times of price turbulence, providing greater reassurance to project developers and again helping to stimulate projects. Climate policy is so difficult that attempting to address it with one market is unwise. As Stern recommends, a multiplicity of approaches is advisable, which can spread carbon pricing through the economy to the extent possible.

    —  With its greater flexibility the voluntary market can offer huge value in pioneering and refining methodologies and addressing new project types in anticipation of entry to the compliance market. Whilst the compliance market is still developing, the voluntary sector can therefore broaden the carbon market's scope to include new but important project types.

    —  The voluntary market offers great opportunity for those developing countries which remain outside the scope of the CDM, yet are in great need of finance to help them achieve a lower carbon development path. Countries such as East Timor (one of the least developed economies) and Turkey (one of the fastest growing economies) are not currently able to participate in the formal markets yet offer great potential for emission reductions.

    —  If offsets are to succeed, they must work for consumers. Consumer motivations differ between markets, from the compliance drivers of the CDM to the more altruistically or politically motivated voluntary participants, focused on a "value-added model" (Bayon et al 2006, "Voluntary Carbon Markets") of additional sustainable development benefits. The CDM has evolved in consequence to produce a much more commoditised product, suiting the compliance buyers focused on least cost. However, the voluntary market has adapted so it can meet its consumer preferences for greater variety and additional benefits.

7.  What evidence is there to show that offsetting helps to change the carbon behaviour of the customer?

  Behavioral change is a complex issue, but it is accepted that change will not happen until there is awareness and understanding. In a Climate Care survey to over 3,000 of its customers (with 33% response rate) almost 80% agreed that Climate Care's web calculator had increased their understanding of their own impact on climate change.

  It also demonstrated that 90% had also done one or more of home energy efficiency improvements, driven less or flown less. Although the primary instigator cannot be determined, it at least shows that offsetting does not decrease the propensity to "do the right thing".

8.  To what extent are the schemes and projects funded by offset companies more broadly sustainable, in an environmental, social or economic sense?

  In contrast to the compliance market, projects with additional benefits are extremely prevalent within the voluntary market and are often more aligned with the CDM's twin objectives than the dominant CDM project types.

  This feature can be attributable to the voluntary market's response to customer preferences for additional benefits, and to certain design and procedural issues within the CDM which render the typically smaller projects with strong sustainable development unfeasible. The failure to incorporate sustainable development benefits is particularly clear in the absence of CDM projects in Africa, where less than 1% of CERs originate.

  Key failings of the CDM have been outlined by the International Emissions Trading Association's report, "2006 State of the CDM". Of particular relevance to projects with strong sustainable development are:

    —  Lack of technical competence and institutional uncertainty, notably with reference to the key concept of non-renewable biomass. This is a critical concept for projects (often using biogas digesters and cookstoves) in the least developed countries.

    —  Failure to adapt the CDM's overly complex and bureaucratic processes to small scale projects. This is demonstrated clearly in SouthSouthNorth's cost comparison of their South African low cost housing energy upgrade project (http://ecosystemmarketplace.com/pages/article.opinion.php? component_id=4126&component_version_id=5905&language_id=12). Under the CDM the project is not viable whereas the simplified and appropriate procedures in the voluntary market lower the transactions costs and bring the project into profitability without losing its rigour.

    —  Substantial delays in the approval of new methodologies, which "lead to quality projects, with significant sustainable development benefits, to go undeveloped" (IETA, 2006).

  What's more, projects in the least developed countries with strong sustainable development benefits often require upfront funding. In contrast the tendency within the CDM is to make the project developer assume delivery risk. This is exacerbated by the absence of a long-term signal for investment in the CDM beyond 2012, which has negatively impacted projects with long paybacks. In particular this affects smaller projects which have high proportionate transaction costs and often rely on long paybacks as a consequence. It also impacts projects with a risk of delay in delivery, often in the less economically developed areas where infrastructure and resources are weak.

January 2007





 
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