Examination of Witnesses (Questions 86
- 99)
TUESDAY 27 FEBRUARY 2007
PROFESSOR JOHN
MURLIS AND
MR MIKE
MASON
Q86 Chairman: Good morning, welcome
to the Committee, thank you for coming in. A general question
to start with: can you just say what role you think carbon offsetting
can play in the UK's overall climate change strategy?
Professor Murlis: I think that
there are several kinds of roles that offsetting can play. The
first thing to say is that offsetting is an instrument that can,
under the correct circumstances, produce real and permanent carbon
reductions, and from that point of view is something to be encouraged.
I also believe that it plays an important role in terms of bringing
innovation into the arena of carbon reduction. We know there are
technologies out there that can play a part—the Carbon Trust
and Energy Saving Trust have pointed to them—and they do
not appear to market, for a number of reasons, amongst which is
that they come at a small premium compared with other technologies
that deliver the same basic goods. We believe that offsetting
enables there to be a flow of resources that brings those technologies
rather earlier into carbon reduction than would otherwise take
place. We also believe that by thinking about their carbon impacts
and by trying to manage them, companies raise not only their own
awareness and the awareness of their various employees but also
have the opportunity to use it as a way of communicating with
their clients and of course with their supply chains, so we feel
there is quite a powerful way in which offsetting can signal,
if you like, the cost of the carbon imprint and provide incentives
for managing it down. For those reasons we believe that offsets
are a thoroughly useful part of an overall strategy. In UK terms,
obviously the UK, which is quite a market leader in terms of technologies,
should be able to benefit very well from this kind of input.
Mr Mason: I would like to answer
that by using a real example and I am going to draw the example
from a book that George Monbiot wrote. Those of you who know George
will know that he is a very forceful guy who is a journalist and
he is a sometime fairly passionate critic of offsets. In his book
he observed rather despondently that it would cost him something
like £20,000 to turn his house from an ordinary Victorian
terraced house into something that was environmentally friendly.
My retort to that was, "Okay, George in the life of an energy-efficient
light bulb, let us call it seven years, you are going to save
three tonnes a year by doing that, so your 20,000 quid in those
first seven years will do three times that, let us call it 20
tonnes, of emissions reduction. If you gave me that 20,000 quid
and I put it into energy-efficient light bulbs in townships in
South Africa, where there is a social benefit and an economic
benefit as well as a carbon saving benefit, each of those lamps
will save about a tonne of CO2. £2 per lamp, £2 for
monitoring, measuring, checking, all of the things that people
would like us to ramp this with to guarantee certainty, and you
are still saying £4 per tonne of reduction. I am going to
do 5,000 tonnes of emissions reduction in those seven years and
he is going to do 20. If we have got a crisis, if we are in a
hurry, we have a real duty to do "cheapest, bestest, firstest",
and so from my point of view, trying to wear a rational economic
hat for a moment, I think that we are overly concerned about the
priority of doing things at home, not that we should not be but
that at the expense of doing the better things first. The other
side of that is let us just take his home as being typical: there
are 22 million households in this country, take £20,000 as
a reasonable estimate of the cost of doing it; that is £400
billion we are going to have to spend. If 50% of that cost is
manpower at £20,000, there are 10 million people we need
to train. Physically we have not got the human resources or the
financial resources to deal with the problem at the speed that
we need to, and so for me I would be slightly more aggressive
than John I think about the role of offsets and I would say if
you are serious about dealing with global warming, you seriously
have to have a position on offsets.
Chairman: Okay, that is helpful. We have
heard evidence from other people, including WWF and I think more
along the same lines from RSPB and the Energy Saving Trust and
they say that they would like offsetting to be at the bottom of
the hierarchy of responses to climate change, but what you have
just said is clearly taking a completely different view; you are
looking at it on a global basis and looking at what you can do
most quickly and most cheaply and so offsets ranks higher, and
that is a helpful contrast to some of the things we have heard
recently. Des?
Q87 Dr Turner: You are obviously
not going to like the tenor of my question because I think that
those who would say that the great imperative is immediately to
reduce carbon dioxide emissions in absolute terms would also say
that there is a danger, certainly with offsetting, that it is
treated as a sort of comfort zone for people who can buy their
offsets and then carry on polluting as they did before, and that
in effect you have business as usual and the actual carbon saving
from offsetting comes along somewhat later because it is an emitted
tonne of carbon today but it may be many, many, many years before
that tonne is saved by offsetting.
Mr Mason: I think there are two
important things I want to separate here. Let us leave the quality
of the offset—and I am not talking about planting trees
because I think planting trees is mostly a waste of time and energy—if
we are talking about things that sit in the technology space,
so for example we are doing tens of thousands of energy-efficient
stoves or light bulbs for people around the world, you are talking
about the emissions reduction happening within one to six or seven
years. In the context of global warming there is nothing magic
about 365 days particularly and we are talking about something
that is well within the time horizons needed to make the emissions
reduction, so I do not think the multiple year argument is a material
one. The other one is important though. The line that most people
will take is that people will buy offsets and it is like selling
indulgences because you can go out and carry on sinning because
you bought a good crop of indulgences this week. To an extent
I am not trying to make moral and behavioural judgments. I think
society has to make its own choices. We absolutely need to change
society but I am not sure that we can wait to change society;
we are in too much of a hurry, and Parliament has never shown
a great deal of interest in applying some teeth to make those
changes happen. So I am saying the reason that I got into this
was that in the absence of any either social bite or parliamentary
teeth we had to do something. I do not deny that we would really
like to do things and I think we should do them in parallel; they
are not one or the other, they are one and the other. If we want
to grow an oak tree we have got to start today. We have got to
do both of these things right now but the evidence is that it
does not stop people doing the right thing. We surveyed in the
middle of last year 3,500 of our customers and we received a 33%
response rate, so over 1,000 people came back, so it is a statistically
significant sum. Let me give you some of the numbers that came
back from that. "Our website helps improve `carbon literacy'".
78% said that this was the first time they had measured their
carbon emissions. 79% agreed that website calculators had increased
their understanding of their own impact on climate change. 90%
have done one or more of the following: home energy efficiency
improvements, driven less or flown less. 22% have written to their
MP about climate change. 70% have encouraged friends and family
to take action. 59% have driven less. I have got a whole list
that I am happy to put in. The data is there and we will happily
make the survey data available. What I am saying is I think there
is a immediate assumption that people are going to do the bad
thing. The reality is that the climate does not care what is in
their minds so long as the emissions reduction is made, and the
evidence that we have does not actually point in the direction
of your supposition.
Professor Murlis: The experience
of the CarbonNeutral Company, as I understand it, is very similar.
That is to say that companies that are looking for a carbon neutral
accreditation find that they are faced with a protocol which demands
that they do three things. One is to measure their carbon footprint;
the second is to wrestle it down as far as they can; and the third
thing is to deal with what is left. It is our experience that
the first two steps are very salutary for those companies and
quite apart from saying the third step is an indulgence, they
see it as something that happens once they have been able to understand
what their impacts are and deal with them insofar as they can.
I think it is also worth remembering that there are some bits
of impact that companies probably cannot deal with, they can only
go so far. For example, if you are running a taxi company, quite
clearly you have to have fuel and although in the longer run you
could have renewable fuels, in the interim period until those
are available to any substantial amount (and we know the RTFO
is still a glimmer in the Government's eye) we know very well
that there will be a need for fuel and consequently they will
inevitably have a carbon footprint. Thinking about that bit is
really important. I would also argue that in an economic sense,
and I think Mike alluded to this earlier, one should really try
to deal with the low-hanging fruit first—and this is something
that Sir Nicholas Stern points out in his report—in taking
an economics approach to this problem you really want to get the
most cost-effective carbon reductions you can as early as you
can, and the need then is to ensure that there is the investment
to bring those in. I would argue that firstly, quite apart from
allowing people to feel they can just continue polluting and continue
sinning, that is not the evidence we have. Secondly, I would argue
that it is worth trying to ensure that solutions appear in all
of their cost-effectiveness and if it turns out that offsetting
instruments are highly cost-effective you will need to grab them
quickly.
Q88 Dr Turner: Even if you are right
about people reducing their sinning, there is still an onus on
carbon offsetters to demonstrate that they are actually making
an impact in terms of carbon saving that could not otherwise be
made. In other words, if you are spending X pounds on low-energy
light bulbs in the developing world it is quite possible that
they would do that anyway because there is an obvious saving for
them in so doing anyway, so (a) you have got to demonstrate the
additionality and (b) an awful lot of offsets that are on the
market are things like forestry et cetera, et cetera, where the
carbon savings are at best debatable and certainly long delayed.
So how can you suggest that you establish the bona fides
of carbon offsetting?
Mr Mason: I would like to persuade
the Committee to separate again these two strands which have become
conflated. The first is the principle: are we going to encourage,
support, regulate and manage an offset market as an important
instrument of policy? The second thing is can we make offsets
that deliver because if we cannot make offsets that deliver then
clearly there is no point in having them involved. The reality
is that offsets may be a good thing and I would not want the idea
to be corrupted by people doing them badly, so we do need to separate
those two. The other thing that I would say is that of course
we are dealing in a world in which we are trying to change the
future and of course because we do not know what the future is
by definition, anything that we aspire to have done has to be
a matter of surmise and judgment. So, for example, we put 10,000
energy-efficient lamps into a township in South Africa recently.
Subsequently Eskom the national electricity company, decided that
they would put a large number of lamps—one million or 10
million, I cannot remember what the number was—out there
and people came to us and said, "Why was what you did additional
because Eskom did this on top of you?" The retort was two-fold,
I guess. The first is Eskom put in 10 million and we put in another
10,000 so there were more, but the second is sometimes you will
be overtaken in life by things which are better than what you
are doing. If you did not do anything for fear that someone might
do something better and make it redundant I think you would be
paralysed by indecision and inactivity. We are much better off
doing things with a considered but small risk of getting it wrong
and maybe doing twice as much, than doing nothing in case we make
a mistake or misjudge it. I think there is a terrible danger that
because we are unable to achieve certainty in our projections
of what would have happened had we not been involved that we do
not do anything at all.
Q89 Dr Turner: So it is fair to say
that the actual impact of offsetting is very difficult to determine?
Mr Mason: I would not say that.
I would say that it is very difficult to be 100% certain that
what you did would not have happened anyway, but you can be reasonably
certain within the bounds of normal commercial risk. We cannot
be certain that global warming is going to happen but we are not
all sitting here saying we will wait until we know before we do
anything.
Professor Murlis: I think there
is a little more to this actually. We do have some evidence of
additionality and we have it in the United Kingdom, and that is
the very slow uptake of these low-energy light bulbs again. We
have had them around for a very long time. If you look at the
scope there is for energy efficiency in Britain, according to
the Carbon Trust it would deliver on current technology about
half of the Government's 2050 60% reduction target, that is what
the Carbon Trust is saying, and yet it does not appear in the
market, so that anything that makes it appear in the market would
be a helpful addition to what has historically been the case.
Q90 Chairman: Accepting that obviously
one does not know what is going to happen next, additionality
does seem to go to the very heart of the case for offsetting.
Would you agree that at least to qualify for additionality it
has got to be beyond what you can reasonably assume is going to
happen in the foreseeable future?
Professor Murlis: Of course, and
in fact every company that has a reputation and has a product
that it wishes to defend has very complicated procedures for ensuring
that, first of all, it understands to the best possible certainty
what the likely "business as usual" future would be
and then also calculates on top of that the addition that would
be produced by the resources that fund the offsetting instrument.
I know that in many cases the kinds of bodies that do this work
are exactly the same kinds of bodies that are recognised in various
international fora like the IPPC, and under the Clean Development
Mechanism there are bodies that do this kind of thing, verifiers
and so forth, and they are normally the people that are brought
in to advise on this. Certainly it has been my feeling, looking
at these instruments, that tremendous care goes into ensuring
that the assumptions as to the future are treated as conservatively
as possible, that is to say that they are as optimistic as possible,
and that therefore anything additional is truly additional. Obviously
we are working in the futurology area and certainly, as I have
said, behaviour historically has been very slow to adopt these
technologies, but where there have been resources, for example
we have got photovoltaic projects going where clearly nobody is
going to put money into those unless there is some extra source
of funding for them.
Q91 Chairman: Staying on futurology
for the time being, how fast do you think this voluntary offset
market is going to grow in the next few years?
Mr Mason: Let me give you some
of our statistics. We have expanded 700% in the last 12 months.
Web sales, which are a small but growing proportion of what we
sell, have increased 20-fold in the last 24 months.
Q92 Chairman: That is 1,900%.
Mr Mason: Thank you, Chairman.
It is a lot; huge. Two years ago if we went to a company and made
a pitch and sold 50,000 tonnes of emissions reduction we would
be cock-a-hoop and we would be out partying for the next three
months. These days people ring us up and say, "I made an
error in my assessment." A bank recently rang us up, "We
made an error in our carbon assessment for the year and we have
not been as good at reducing (John's point again) as we thought.
Please can we have another 50,000 tonnes?" 18 months ago
this would have been utterly unheard of so it is going through
a transformation which is vast. If you project it for more than
a few years you have solved the world's problems, so clearly it
not going to do that, but just at the moment it is going through
a huge sea change.
Q93 Chairman: Given that the post
2012 environment is uncertain, would that act as any brake on
the voluntary market or does it act as any kind of brake on the
CDM market?
Professor Murlis: I would not
have thought so.
Mr Mason: The voluntary market
relies on people who have made a decision that this for them is
something that is critically important, they do not write you
cheques for £1 million just on a whim, and having made that
decision and written it into the company's or individual's culture
and their thinking it is a much more certain outlet for projects,
I suspect, than the vagaries of the international regulatory market.
We have seen in the European Union trading scheme, for example,
prices wildly oscillate between €30 and €1 a tonne whereas
in 10 years that Climate Care has been selling carbon offsets
we started at a price of £5.45 10 years ago and our weighted
average cost now is about £6.30 or £6.40, and the price
has not moved very much, so we provide a stability, interestingly
enough, which the other market because it is a political instrument
has not done.
Professor Murlis: Clearly the
price of allowances matters greatly and the allowances provided
under the first stage of the EU ETS were such that really they
did not support very much of a market. There are technologies
out there for the companies who come within EU ETS which would
be waiting in the wings and waiting to be implemented. There are
very high-efficiency ways of generating electricity for example
and there is also carbon capture and storage, and I am sure the
Committee has heard about that several times. Both appear at a
premium but not at an outrageous premium. A good price on the
EU ETS would certainly encourage companies to bring those technologies
into use, there is no doubt about that, but historically it has
been very difficult to get the correct level of allowances. Similarly,
on the second period of the EU ETS there is a certain amount of
discounting going on in investment houses to say, "Can we
rely on it that these things will really appear and they will
be tough enough to support a higher price?" However, when
there is a vigorous voluntary market it is pretty clear there
are a lot of people looking for cost-effective ways of using carbon
and the technology developers may feel more confident. I think
that Mike's experience is that that supports stability of price
and I think that would be ours too. Looking forward, we can see
the prices rising as investors are more confident and invest first
of all in the development of the technologies and then in bringing
them to market.
Q94 Mark Lazarowicz: My apologies
for missing the start of your evidence, I was at another meeting,
and so if the question has been asked already no doubt the Chairman
will tell me, but on this question of the price, the general view
of course on the price for carbon, and suggested by Nicholas Stern
for example, is that it is well in excess of the figures you are
talking about when it comes to people purchasing voluntary offsets.
What is your assessment of the likely consumer reaction if the
price were to start getting anywhere near the figure that is suggested
is the real price for carbon? Your rapidly growing demand may
suddenly become rapidly decreased demand unless there is a compulsory
mechanism.
Mr Mason: Again we have to look
at two different things. We have to separate price and cost and
the cost of carbon in the short to medium term can be set by a
number of things. Let us presume that the policy instruments make
all carbon fungible around the world so an emissions savings here
is equivalent to one there. At around €30 a tonne of carbon
dioxide the big German coal producers switched to gas. There are
huge savings to be made, so in the short to medium term I think
we see a ceiling there. In the very short term there are huge
zero cost savings to be made in the developing world where the
problems are infrastructure, technology availability and knowledge.
When Sir Nicholas talks about the cost of carbon, he is talking
about the marginal cost of carbon at the edges as you get close
to achieving the policy objectives. If I come back to the point
that you made earlier about is it not better if we did things
at home and insulated our houses and cut our emissions; the reality
is that we will see the marginal cost of carbon driven up to the
point at which people should be then persuaded that it would be
better to do these things at home than to do those things overseas.
I am very happy if the market gave way. I run a renewable energy
business so I do not mind which way it goes, in truth. The offset
market will be a useful policy instrument if once people start
to get involved in this, there are strong encouragements, arm
twisting, policy measures which keep them in so that as the price
rises, which it inevitably will, they do not say, "Thank
you very much but not now Josephine." I think you are right,
the price will rise, and if we do not capture their willingness
now while it is low and wrap that up in a series of measures,
systems, protocols and encouragements, then we have missed a major
opportunity to get the general public on board while they can
afford to be on board.
Q95 Mr Caton: The Environment Agency
told us in its memorandum to this inquiry what it does as an alternative
to offsetting through organisations like yours. What it does is
to calculate what it would need to spend to offset its emissions
and then uses that amount to set up a number of funds to reduce
its direct emissions instead. Is that not a better way forward?
Mr Mason: No, it is worse.
Q96 Mr Caton: Could you expand on
that?
Mr Mason: It is worse because
we are in a hurry. As a society we are constrained in resources.
If we are in a hurry we should do the cheapest things first and
by cheapest I mean we do not have to worry about financial discounting,
in the timescales that we have to deliver—ten or 20 years—we
have to reduce as much carbon as we humanly can do. There are
two reasons why you might not want to do it internally in the
way that they do. The first is that it is just more expensive.
The second is that many of these expensive technologies will have
fallen in price by the time the cost of offsets has risen so you
have got the technology price curve doing that and the carbon
offset price curve doing that. When they cross is the time to
start doing it. The rational answer is to follow the economics.
Do the most you can with the resources you have available and
do not be too hung up about where you do them; the climate really
does not care.
Professor Murlis: I think my view
would be rather similar to that. I am not sure exactly what the
Environment Agency is saying on what they do and how they actually
do this job, but I come back to the idea that for the Environment
Agency, first of all, understanding carbon impacts and then managing
then down as far as possible is a very reasonable thing to do,
but I suspect they will rapidly run into diminishing returns on
investment, and as they run into those diminishing returns on
investment if they wish to make further reductions in their carbon
footprint, then offsetting I think is a very reasonable way of
doing that and, as I have said, is of enormous benefit in bringing
innovation into this, so I would have thought from an Environment
Agency point of view there would be a limit as to how far they
can reasonably go before they run into either enormous costs or
great operational difficulty. They have got a serious job to do
and they therefore may be thinking of perhaps some kind of mixture
of managing down as far as they can and then looking for other
ways in which they can take an offset.
Q97 Dr Turner: You have both made
play of the effect of your activities being just not to directly
drive down but to change the awareness and behaviour of your customers.
Indeed Professor, in your memorandum you place great emphasis
on that.
Professor Murlis: Yes.
Q98 Dr Turner: Is there not a danger
that companies that have an interest in compensating for emissions
through buying offsets will not necessarily try too hard to reduce
their emissions? Mr Mason, there was a hint of that in one of
your earlier answers in which you talked of your great joy at
a company ringing up and saying, "We have not done very well,
we have got to buy another 50,000 of these because we have not
done it for ourselves." You have yourself given evidence
of that danger.
Professor Murlis: I do not think
it is a danger, I think that is a very good thing. You could put
that the other way which is that it is good the company is so
aware and so concerned for its reputation that it wants to come
back for another slice.
Mr Mason: Let me take that to
its most extreme example that I can think. Members of the Committee
might be aware that we offset 45,000 miles of emissions for every
2007 model of Land Rover, Range Rover, Defender, all of those.
This was an interesting ethical decision for us. Here we have
a car which by most accounts is a heavily polluting car; should
we be associating ourselves with this? The logic is interesting.
They have a number of choices. I know the management of Land Rover
now from the top right downwards and I am beginning to know them
quite well. They absolutely understand that they have got a very
beautiful but fundamentally rubbish product. It is not a product
designed for a highly carbon-constrained world, so sitting there,
they have a number of choices. They can say, "Fantastic guys,
we have made a big decision to deal with global warming and we
are going to close the factory door and stop." Never mind
the employment consequences, the reality is that as long as society
carries on buying these and as long as Parliament does not stop
people buying them, other people—Porsche will walk straight
into the niche and say, "Fantastic, thank you very much,"
so that will not achieve anything. The next thing they can do
is they can say, "We will wait until society changes."
That course of action will not achieve anything either. You might
say as a third course of action, "Let us invest £1 billion
and develop new platforms and new technologies to reduce the emissions
hugely." Great, and Ford are doing that, a lot of it in the
UK (Ford is their parent) but that is going to have 10 or 15 years'
gestation period before it finally comes to fruition. The fourth
thing you do is say, "Okay, I really need to do something.
I am utterly convinced that this is a problem. How can I get the
emissions down?" They rang Climate Care and we ended up with
a lot of conversations and what we now have is a vehicle whose
net emissions—and I am talking about three to seven years
from the date of the emission, actually that is not true, one
to four years from the date of the final emissions—being
100% offset—not 50%, not 20%, not 10%: 100%. Let us accept
some uncertainty. We might do a bit more and perhaps we might
be a bit optimistic and we do 110% and 30% gets thrown away; it
is still an 80% emissions reduction. In other words, we have achieved
a huge amount whilst the technology is catching up because all
of the alternatives in the absence of a legislative framework
would not have achieved anything at all. It is not as simple as,
"Oh well, they don't care so they aren't doing it."
It is like the old saying "if I was going to go to Brighton
I would not start from here"—unfortunately you are
here and we have to move from here to there as fast as we can.
Professor Murlis: We at the CarbonNeutral
Company provided some evidence to you of case studies of some
companies that had actually gone through the process of accreditation
through the Carbon Neutral Protocol, and that is a protocol, as
I explained, where at these three stages companies are obliged
to measure and to reduce insofar as they can and then as a third
stage to deal with the residue through offset. Within that protocol
there is quite a lot of detail and, again, we have offered you
the copy of the document in its current form. It is always evolving
and I chair a group of independent people whose job it is to essentially
exercise governance over that protocol as to how it develops in
the future to meet future challenges. It has been the experience
of the list of companies that we provided you with that by going
through this process they had actually informed themselves a lot
and rather changed the way they saw the world. An interesting
example is RadioTaxis who came to this thinking, "We ought
to do something, we are not quite sure what it is, perhaps we
will have a look at it," but came away from it much more
enthusiastic and feeling rather positive about it and thinking,
"What do we do about new fuels, how are we going to deal
with the RTFO, and how are we going to make use of all these things
that are coming down the line at us?" So essentially we have
a management there now that has perked up and begun to listen
to these messages about carbon. Similarly with Sky, Sky started
off thinking it would be a very good thing to do and it would
be nice to do it for the company but then began to think about
why not do it to our supply chain, why not ask them to come in,
and then we have got the customer base, why not ask them to do
something and we can campaign and do all of these things. We have
engaged what is a very large media player and I think that is
very positive myself. We see this sort of change going on all
the time. People come along tentatively not quite sure how to
think about this but go away, first of all, thinking that they
have got quite a lot to do but, secondly, interested in it and
thinking about it so it is not at the bottom of their mind any
more, it is near the top.
Q99 Chairman: Coming back to the
Land Rover example; how much does it cost them to do that?
Mr Mason: About 100 to 150 quid
per car.
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