Memorandum from Environmental Industries Commission (EIC)

 

EIC was launched in 1995 to give the UK's environmental technology and services industry a strong and effective voice with Government.

 

With over 310 Member companies, EIC has grown to be the largest trade association in Europe for the environmental technology and services industry. It enjoys the support of leading politicians from all three major parties, as well as industrialists, trade union leaders, environmentalists and academics.

 

EIC has recently launched a Carbon Trading Working Group which already has over 40 Member companies including: Ecosecurities, Sindicatum Carbon Capital, Enviros, Baker and McKenzie, Ashurst, Johnson Matthey, WSP Energy, and the Carbon Neutral Company.

 

Introduction

 

EIC's Carbon Trading Working believe that the voluntary carbon market adds significantly to the capacity for carbon reductions worldwide and that carbon offsetting is an important part of the overall mix of instruments available. These Member companies also believe that their work complements the compliance market for carbon reductions by providing further opportunities for carbon management.

 

EIC is concerned, however, about the impacts of bad and or fraudulent practice on market confidence.

 

In response to these concerns, some companies in this sector have developed their own stringent operating standards. There are also current initiatives to produce cross-industry international standards for carbon offsetting. We expect that these initiatives will deliver robust frameworks in which a mixed market of diverse instruments, including Certified Emission Reductions (CERs) and Verified Emission Reductions (VERs) can develop.

 

EIC believe that a system of accreditation for companies and the products they offer is highly desirable. Members 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.

 

EIC therefore welcomes the Environmental Audit Commission's inquiry into the voluntary carbon offsets market.

 

 

Operation of an Accreditation Scheme

 

EIC believes that a system of accreditation should operate in the way in which current arrangements of assuring standards in markets operate, governing both companies and the products they provide - for example the FSA.

 

EIC believe that the accreditation of companies and instruments offering carbon offsetting should contain the following key requirements:

 

· The quantification of carbon footprints against best practice environmental standards (e.g. the GHG Protocol)

· Transparency in the methods of quantifying "carbon footprints" to end consumers of carbon offset instruments.

· Third party certification of offset service providers

· Independent verification of carbon offsets by an appropriately accredited third party (e.g. a Designated Operational Entity under the Clean Development Mechanism (CDM), accredited verifier for the EU Emissions Trading Scheme etc, or appropriately qualified entities in markets where these are not present) against a uniform verification standard, have a clear audit trail, and ideally be recorded in an independently controlled central registry.

 

 

Scope of Offsetting Schemes

 

EIC believes that emissions trading under binding emissions reduction targets is economically preferable to a straight forward cap or tax based approach to reducing emissions. Emissions trading grants companies the flexibility to abate their emissions via a route of their choosing, be that for example technological, or market based.

 

One of the key virtues of offsetting schemes is that, by providing additional project finance, they can facilitate or accelerate the implementation of innovation in the market. EIC Members welcome this additional incentive to their efforts in providing solutions to the problem of climate change.

 

Market Clarity

 

We do not believe that there is sufficient clarity at present and would welcome requirements for the good practice employed by those EIC Members in this sector to be implemented across the industry.

 

Therefore, EIC believe that there should be a requirement on companies to provide information about:

 

· Quality of offsets (e.g. what standards (if any) the offsets adhere to for carbon additionality, and for retail offset providers, the criteria used to select eligible offset projects)

· Audit trails and certifications

· At what point the carbon offsets are retired

· Financial practices, for example whether VAT is charged

· Calculation methods for carbon offsetting requirements, including the areas where there is scientific uncertainty, on aviation emission, for example

 

In the absence of accreditation standards there is a risk that consumers and companies are not actually purchasing the requisite quality or quantity of carbon offsets for promised carbon neutrality. In the current unregulated market place it is very unlikely that consumers are able to differentiate between "good" and "bad" carbon offsets and it is likely that the price differential between good and bad offsets will lead to more poor quality offsets.

 

 

Calculations of Emission Savings

 

Central to this are transparent and robust methodologies, for calculating both the emissions being offset, and any emissions reductions used to do so.

 

Impact of Voluntary Carbon Offset Markets on the Compliance Market

 

EIC welcomes the Government's initiative to provide the voluntary market with greater transparency but does not advocate that the market should comply with the same stringent requirements as compliance markets such as the CDM and Joint Implementation under the Kyoto Protocol. This is because compliance markets are mandated with implementing specific policy objectives and as such can constrain the scope of qualifying activities, raise transaction costs and suppress innovation.

 

The voluntary market has the potential to support credible projects which fall outside of the UN approved CDM and to provide innovation to this sector. EIC believe that as long as the projects in the voluntary market are "additional" and fully verifiable, then they can be an excellent driver to move the CDM policy framework forward.

 

 

Public participation

 

The integrity of the voluntary carbon offset market is paramount in continuing the current wave of public support climate change issues are currently receiving. The voluntary carbon market can be seen to be educating the public about the threat that climate change poses and accordingly a better educated public can influence long term climate change policy at national and international levels. In the absence of standards there is a risk that the public may perceive the market as environmental suspect and the demand for offsets could diminish.

 

As more sources of offsets enter the market, the absence of a common and appropriate offset standard will become a larger problem. However, while there is a clear need to regulate the operation of voluntary carbon offset market, careful consideration must be made not to regulate it in such a way that discourages innovation and public participation.

 

 

January 2007