Examination of Witnesses (Questions 374
- 379)
TUESDAY 20 MARCH 2007
MR ANTHONY
HOBLEY AND
MR MITCHELL
FEIERSTEIN
Q374 Chairman: Welcome. I think this
is the first time before the Committee for both of you. We are
delighted to see you here; thank you for coming along. Perhaps
I could start on the issue of the Government's consultation. I
am aware that you have some criticisms of the process and the
documents and so on. Before we get on to the criticisms, is there
anything positive you take from the way Defra have set about this
and what they are proposing?
Mr Hobley: London Climate Change
Services, as the representative body of the UK's climate change
clients and services industry, supports the proposal, subject
to a couple of caveats which I am sure we will come on to. We
think the rationale and reasoning for bringing this forward is
good. A lot of offset providers are emerging in the market and
if you are a consumer, or even if you are a relatively sophisticated
business, you do not have time to plough through more than 33
documents and sets of rules. Therefore, to have some sort of government
benchmark for these standards is no bad thing, to bring consistency
and . . . integrity is probably the wrong word, but some consumer
and business confidence to the offset products that are being
provided. We support the proposal; we would just like to see some
specific issues addressed. We think it is a good thing and we
think this could set a benchmark far beyond the shores of the
UK.
Mr Feierstein: Thank you for having
me here today on behalf of Cheyne. The UK Government is in an
extremely strong position globally because they lead by example.
I think it has the best climate change policy out there in the
world right now, so you could say, "Look at what we've done
and the way we are moving forward. This is an example we are setting
to the rest of the world as an industrialised country." Leading
from a position of strength is a very powerful instrument to make
change, impact change and influence change. It is a very positive
step to come out with a policy endorsement for the voluntary carbon
market. My most famous phrase is that there are 87 carbon cowboys
out there slinging around at anything on the Internet and the
possibility for something being less than verified and certified
and robust and fungible and internationally accepted in terms
of the standardised product is great. There is a need to have
quantification that every single tonne that is sold is permanent,
additional, verified and certified in accordance with the protocol.
The 56-page document is a step in the right direction but it needs
to be fine-tuned a bit. I was mostly concerned, as you are aware,
of the process, going forward. There was a consultation yesterday,
which Anthony attended. I was made aware of it last Thursday but
I was travelling on business and flew back for this meeting today.
It is important to address risk and mitigation and forward pricing
and to deliver financial and legal accountability. I think all
those things can be addressed in an appropriate document governing
the voluntary markets. Defra has made a step in the right direction
but I think they need to take VERs on board as well because some
VERs can greatly outweigh certain other programmes. I think there
is a strong business case to be made and an increase in capital
markets investing in various technologies serves a really very
powerful driver to provide scaleable and expeditious solutions
to climate change and global warming. In terms of that, that is
why I think we need both markets: the CER market and the VER market
have two separate roles to play in functionality within those.
Mr Hobley: We welcome the requirement
that if you are going to offset those they have to be purchased
within a certain period of time and they have to be retired. We
think that consumers and businesses will be given confidence that
a certain portion of the money they provide, in the same way as
happens with charities, will be used directly in the projects
and the amount that will be used for administration will be capped.
The proposal to prepare a common calculator I think is incredibly
important, because, as Defra will tell you, many consumers get
quite confused by the fact that one offset provider's website
will tell them that certain tonnes of carbon need to be offset
for a flight to Miami and another will tell you a different amount
and give you a very different price. That breeds a cynicism, I
suspect, in relation to these offset providers which need not
be there if there is a common standard for things like that. Many
of those things are very good, but on VER issues, which I am sure
we will come to in a minute, we have a different set of proposals
we would like to see. In terms of the process, I am very concerned—although
I was reassured yesterday—that they have made up their minds
on certain aspects, such as the exclusion of the VER market for
this standard, and this is not really a true consultation across
the board. We would be very concerned if this was not a real consultation
where there minds were open and they were going to take on board
all views.
Q375 Chairman: We will come back
to that very point in a moment. Were either of you involved in
discussions with Defra before they issued this document? Had they
been consulting informally with people like you?
Mr Feierstein: I received a letter
from Defra back in November, at which point I contacted Kate Smith.
We had been participating, in that we had established the world's
first voluntary carbon fund in August 2005, so obviously we had
an interest and I asked to be kept appraised of the situation.
Defra was going to keep in touch but I never heard back. I sent
some subsequent letters. I sent a letter, also, to Ian Pearson
on December 12 but I did not receive a response to that letter
until late January. I called Kate Smith again to find out what
was going on, because in the first document I had received it
said they were going to have a consultation in late January, I
was assured that we would be able to participate and I never heard
anything about the consultation in January. I do not know if it
happened or it did not. I then had a meeting with six members
of Defra about a month ago—Colin Challen was in attendance—at
which point it seemed, from the comments they made, that they
had already made their mind up to exclude CERs. I do not know
if that position has changed. Once again, they told me they would
keep me in touch. Late last week I had to travel to Helsinki on
business. I received an email on Thursday, notifying me of the
meeting on Monday, but it was too tough to get back so, unfortunately,
I missed it.
Mr Hobley: LCCS was invited and
we took along 10 members to see the Defra team on 30 November
2006. We were briefed on what the proposal was—rather than
it being a discussion—so it was pretty baked at that point
in time. We welcomed the proposal. We thought it was a good idea
but we did raise some questions at that time about the fact that
the VER was going to be excluded. We offered to work with Defra
to find ways in which the VER could be included and to ensure
that some of the Government's concerns around the VER market could
be addressed—because there are some concerns, but we feel
that there are a lot of options to address those concerns—to
provide the same integrity in the VER market as we have in the
regulatory market.
Q376 Dr Turner: There seems to be
a certain sense of urgency about Defra in the consultation. Do
you think they are right in thinking that intervention now will
maximise the benefits of the current interest in offsetting? It
seems they cannot wait for a voluntary code to emerge and they
want to force the pace.
Mr Feierstein: I think a little
bit of a premature effort has come out of the document and I have
addressed this in a couple of the comments I have made. Pure is
one of the companies that was endorsed by Defra in a few of the
documents they released and, unfortunately, they are advertising
on the website—and I do not know if you have seen this but
I took it off the website yesterday—that: "Pure guarantees
to meet the new UK government standards for carbon offsetting"
and then there is a quote below from Ian Pearson of endorsement
for Pure. I was a bit taken aback because the policy has not come
out yet. I do not know how they are endorsing it if there is a
consultation under way. This is on the website. I brought this
up with Defra at the meeting I had about a month ago and they
assured me that this was not happening, but this advertisement
seems to speak for itself.
Mr Hobley: In answer to your question
from the LCCS perspective, we do think there is some urgency because
there is some concern around the "cowboys" in this market
and there genuinely is a wide range of standards, shall we say,
in terms of those now offering offset products. As I said in my
opening statement, we welcome this but it is important to get
it right and not rush it and make key mistakes. Our concern is
that perhaps it would have been prudent to have had a little bit
more consultation with industry bodies like LCCS and others rather
than with individual commercial enterprises. It would have been
better, I think, to have consulted with the industry as a whole
before proposals became as fixed as they have become.
Q377 Dr Turner: It is quite clear
that there is a considerable amount of confusion and obfuscation—which
is probably as good a word for it as any—out there. If Defra
can cut through this and present a clearly understandable standard
for all to follow, would that not be a good thing?
Mr Hobley: If they get it right,
that would be a good thing.
Q378 Dr Turner: Do you think Defra
have their assumptions about the growth in the voluntary market
right? They are talking about a six-fold increase in the voluntary
carbon offsetting market.
Mr Feierstein: Excuse me for one
second on that. On the uptake figures, as in my paper that I sent
to the Audit Committee, there is no justification, there is no
maths, behind the six-fold uptake if you switch. This is an assumption
they make. I had a problem with that assumption. I asked them
to address that at the meeting I had over a month ago with Defra
and they were going to supply me with the information. That is
an arbitrary number that they have created, so that is slightly
problematic until I can see how they obtained that figure and
how price sensitive that would be, should the prices of CERs go
up. But those are two separate markets and I think you have to
keep them separate. When I spoke to Defra back in November, I
advised them that there is a credible standard out there for voluntary
carbon, Voluntary Carbon Standard Version 1. That was launched
by The World Business Council for Sustainable Development, The
Climate Group, the World Economic Forum, and the International
Emissions Trading Association (IETA) back in March 2005. So there
are standards out there and yet the document says there are none.
I think it is important to take all the information on board,
have a thorough consultation and say, "These VERs are going
to work for this programme." We see that there is a strong
business case to be made for investment in the capital markets
infrastructures. That is the way forward for the market. Everything
that we would purchase is verified and certified by a designated
operational identity which is accredited by the UNFCC. This assures
that these have happened. We do not invest in forestry because
of the permanence issues associated in that sector. We will only
invest in things that are quantifiable and real.
Mr Hobley: I think Defra will
tell you that there are some issues for the VER market and the
different standards. LCCS does not want to get into endorsing
any one standard over any other, although there are some good
standards out there. We have put it back and we have been having
this discussion with Defra over the last month, but there is a
real opportunity here in this proposal for Defra and the UK to
set the standard for the voluntary carbon market. They can leave
the door open. They can start their offset standard, using regulatory
credits, but they can leave the door open and they can set a threshold.
They can say, "These are the issues that we are concerned
about with the VER and the standards that are out there that we
do not think they address." I would be prepared to enter
a bet, although I am not really a betting man, that if Defra sets
that baseline, that threshold, the voluntary market will respond
to that. For example, traceability: there is already a proposal
from The Climate Group, working with IETA and others, to put in
place an international registry system for VER, so you get that
traceability which will go some way to address some of the double-counting
issues and so forth. There will be an ability—and, again,
The Climate Group and others are looking at this—to put
in place an independent body that could verify and validate voluntary
projects. The UK has a real opportunity, yet again—because
it has done this successfully to-date with the UK scheme and with
its early support of things like EU ETS—to set the standard
for what will be part of the global carbon market and to influence
development in North America and other key markets where VERs
for the next three/four/five years will be an incredibly important
part of the North American market.
Q379 Dr Turner: Do you think that
Defra's input to this will be more effective if it is voluntary
(as they are saying at the moment) or if it is made mandatory?
Mr Hobley: My view, personally,
and the view of the LCCS is that for the time being it is right
that this should be voluntary. I think it would be too much of
a step-change politically and otherwise to make it mandatory.
I think there is another unquestionable advantage which those
who have this Government logo would have in terms of selling their
offset product in the market—which is why it is so important
to get it right and not to exclude a valuable part of the market
on this scheme. I would support, for the time being, it being
a voluntary standard.
Mr Feierstein: In terms of the
registry, I could not agree more with Anthony, but there is in
fact a revenue stream, because we have been trading for over a
year and the Bank of New York has created the world's first voluntary
carbon registry for voluntary carbon issues as specified in the
Voluntary Carbon Standard. The Bank of New York is a double A-minus
credit-rated institution that has to go through due diligence
to put things into that registry. I think that is highly significant
and adds a lot of credibility to the entire voluntary programme.
We are agnostic as to what sort of standard is used for the voluntary
market as long as it provides permanence, something that can be
qualified, something that can be certified and verified, that
is real and has happened already—nothing to go forward with
that. In terms of regulatory versus voluntary and making an argument
as to whether everything should be a cap and trade government
type of system, I think you need both. I think there are four
really important points: (i) Climate change education; (ii) behaviour
and adaptation and modification; (iii) there needs to be government
cap and trade; and (iv) energy efficiency. Energy efficiency is
really important. Those are four really important components but
the fifth one is a credible voluntary programme. The Government
regulatory programme, the EU ETS, has developed out of Kyoto.
It is a great step in the right direction; it is very small, though,
in terms of how many tonnes are going up every year and what that
is going to mitigate. One of the problems with the EU ETS is the
prices, as we saw in phase 1. There are people selling allocations
which do not really accomplish much at all. Going into that, you
have artificial timelines. The price action is determined by artificial
timelines and in terms of allocations that are arbitrary from
the Government side, so that is going to impact the prices. If
you have consumers entering that market, it could make people
who have to enter into this market for regulatory reasons make
the price go higher or make the price go lower depending upon
that. That is why I wanted to see the price assumptions but I
think the two should be kept separate, to create additional investment
in new technologies and education.
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