Carbon Clear Blog

World Bank President: "End Fossil Fuel Subsidies"

noreply@blogger.com (Jamal (@JGoreCarbon)) — Tue, 07 May 2013 11:51:00 +0000

Last June I commented on the lack of joined-up thinking when it comes to fossil fuel subsidies. World Bank President Jim Yong Kim seems to share this sentiment.

According to the Thompson Reuters news agency, Kim spoke out against fossil fuel subsidies during a U.N. meeting of climate and environment ministers in Bonn, Germany. As he rightly noted, “They are regressive, negatively impact the environment and act as a barrier to progress on clean technology."

The World Bank has long been a champion of free markets, so perhaps it should not be a surprise when the World Bank's President calls for an end to government subsidies.

What is even more noteworthy, then, about Kim's speech, is that he followed up his criticism of subsidies with a call for more government involvement to price greenhouse gas emissions. Carbon dioxide, nitrous oxide, methane and other GHGs are atmospheric pollutants whose uncontrolled release is causing the planet's average temperature to rise. This in turn is affecting the frequency and intensity of storms, floods, droughts, glacier retreat, the spread of pests and disease and species loss. For 90% of the planet's population, governments have given a free pass on emissions, by failing to force companies and individuals to incorporate the price of pollution into their everyday decisions.

Kim advocates a change of direction, encouraging governments to adopt one or more carbon pricing mechanisms, "whether this is through a tax on carbon, indirect taxation, regulation or the creation of a carbon market."

President Kim's comments are noteworthy because they come from an institution not known for encouraging governments to meddle in the market. They bring to mind an observation I and my colleagues at Carbon Clear have made many times before: climate change is that rare global problem that humanity actually has the power to tackle. We know what causes it, we know what it will take to address it, and we have at our disposal the technological and policy tools to make the transition to a low-carbon future. We even know how to turn climate change from a challenge to an opportunity. What we need now is the courage and conviction to act.

An End to Magical Thinking on Climate Change?

noreply@blogger.com (Jamal (@JGoreCarbon)) — Fri, 03 May 2013 09:16:00 +0000

Mickey Mouse (c) Disney

Quick quiz: What's the link between the recent measles outbreak in the UK, fiscal austerity as a way to restart economic growth, and the news that global CO2 emissions are about to surpass the 400 parts per million mark for the first time in millennia?

Answer: All three reflect the dominance of magical thinking - or rather, the willingness of citizens and policy makers to make decisions based on supposition and gut feel rather than an understanding of cause and effect or relying on data.

Humans are notoriously bad at math. It is extremely challenging for most people to identify more than five items in a group without counting them out. We can rarely perform more than the most basic calculations in our heads. Statistics, percentages, data analysis - these concepts do not come naturally.

This is a problem because society needs to base its important decisions on sound information. When we make major decisions using bad information, the results can be catastrophic. As a result, we need to be very careful when we make decisions that affect the rest of society. Science and data are the order of the day, checking and double-checking, not gut feel or wishful thinking. Unfortunately, that does not always happen.

In 1998, news outlets in the UK reported the results of a study that claimed a link between the measles-mumps-rubella (MMR) triple vaccination and autism. Other researchers immediately questioned the study, and no one demonstrated a verifiable cause-and-effect relationship between the vaccine and the condition. It didn't matter. Thousands of parents, responding to screaming headlines, refused to have their children immunised, believing that somehow avoiding vaccinations would make them safer.

Fast forward to 2013. The original report has been thoroughly repudiated, and the doctor who published the research has been struck off the General Medical Council register. Meanwhile, over 1,000 children have contracted measles, a dangerous and easily preventable illness and many more are at risk. The British government is now spending vast sums on a massive vaccination "catch up" campaign to halt the spread of measles, as well as mumps and rubella. These are diseases that were nearly wiped out in Western countries a generation ago. They have made a comeback thanks to over-reliance on shoddy data, and now all of us are paying to clean up the mess, not least the families of children who have contracted this horrible disease.

In 2010, Harvard economists Carmen Reinhart and Kenneth Rogoff published a research paper claiming a link between countries' national debt levels and economic growth. In particular, they argued that growth falls dramatically when debt levels exceed 90%. No matter that the paper had not undergone peer review, that other economists questioned the report and that other researchers were unable to replicate the results. And no matter that it was hard to work out a cause-and-effect mechanism that would kick in only above a certain threshold. The report was seized upon by fiscal hawks at think tanks and in governments across Europe and in the United States to justify massive government spending cuts. The resulting "age of austerity" has seen a change of government in Italy, riots on the streets of Athens, cuts to public services and benefits in the United Kingdom, and across-the-board budget cuts in everything from air traffic control to national parks in the United States. One might argue that politicians would have embarked on these measures in any event, but the fact remains that this paper provided intellectual cover and was cited far and wide to justify fiscal cutbacks.

Fast forward to 2013. The original report claiming a link between debt levels and economic growth has been debunked due to questionable methodological techniques and a particularly glaring Excel formula error. Even the International Monetary Fund, which championed "structural adjustment" and similar austerity measures for developing countries in the 1980s and 1990s, has begun to rethink its initial support of fiscal austerity. In the meantime, economic output remains anaemic, unemployment has skyrocketed across southern Europe, and in the UK slow growth means that government debt has risen not fallen.

Whether it's in social sciences like economics and sociology, or in the physical sciences like biology and physics, we can make the most confident predictions when there is a logical link between cause and effect, when the research is subject to peer review, and when other resaerchers using the same data reach similar conclusions. To quote the late astronomer Carl Sagan,

"What counts is not what sounds plausible, not what we would like to believe, not what one or two witnesses claim, but only what is supported by hard evidence rigorously and skeptically examined. Extraordinary claims require extraordinary evidence."

And so to climate change.

Scientists have for decades been researching the link between human-induced greenhouse gas emissions, rising global temperatures, and changes to the global and regional climate. Every ten years, the UN-mandated Intergovernmental Panel on Climate Change (IPCC) publishes a summary of these research findings, along with recommendations for government action. The IPCC is comprised of thousands of the world's best climate scientists - physicists, meteorologists, chemists, computer modelers. Their research is published and subject to international peer review. They flag past errors and describe how they have subsequently updated their findings. The findings and recommendations represent the consensus view of over 120 governments, are cautiously worded and full of caveats regarding potential uncertainties.

The IPCC assessments reports are a triumph of science and data over gut feel. The process is slow, methodical and cautious. After all, climate change is a global problem that affects almost every aspect of how we live, work and play. It is important to make sound decisions based on good information.

So what to make of the news that global CO2 concentrations are about to exceed 400 parts per million for the first time since the Pliocene Era, 3.5 to 5 million years ago?

More magical thinking, I'm sorry to say. Politicians worry that setting ambitious targets to tackle climate change will cause economic hardship and continue to subsidise fossil fuels, ignoring the costs of climate related disasters like heatwaves and drought, floods and storms, and irreparable damage to our forests and other ecosystems. Journalists looking for balance have given equal voice to a handful of climate skeptics and recognised scientists who quote the peer reviewed IPCC data. And the general population, unable to see directly the link between their lifestyles and rising global temperatures and lacking any direct incentives to take action, refuses to change its behaviour.

But all is not lost. The sudden push to vaccinate children in the United Kingdom shows that we can overcome magical thinking to make rational decisions. The rapid shift in opinion against a once ubiquitous study on debt and economic growth shows that people can change their minds and consider alternatives when new data becomes available.

The IPCC 5th Assessment Report will be released in late October 2013. As the impacts of climate change become more apparent to people around the world, I'm hopeful that governments, businesses, communities and individuals will review the IPCC findings, abandon gut feel, and seize this latest opportunity to tackle climate change and embrace a lower-carbon future.

Previously: Science- It Works on Mars and on Earth
Previously: Welcome to the Reality-Based Majority

Voluntary Offsets and the Backloading Brouhaha

noreply@blogger.com (Jamal (@JGoreCarbon)) — Fri, 26 Apr 2013 08:55:00 +0000

My previous posts about "backloading" and the EU ETS have focused on the implications for the compliance markets in Europe and elsewhere. In compliance markets, government regulators set the rules governing the supply of emission reduction allowances and offset credits. They also govern demand by setting the emissions targets that firms must meet by making internal reductions or purchasing permits and offsets.

Now I'd like to focus on what the backloading debate means for the voluntary carbon markets. The short answer is that backloading will have little direct impact, but the reasons are worth a longer discussion.

The voluntary market is much smaller than its government-created sibling, but it is difficult to overestimate its importance. The voluntary market is self-regulating. Its carbon offset credits are issued by independent standards bodies, and an increasing number of its largest market makers follow a Code of Practice governing how they do business.

This self regulation makes the voluntary markets exceptionally flexible and a source of innovation that helps improve the slower and more bureacratic compliance markets. All four of the protocols initially approved in California's cap-and-trade system were developed initially under the Climate Action Reserve, a voluntary carbon standard. A number of the carbon credit innovations that were pioneered by bodies such as the Gold Standard and the Verified Carbon Standard have allowed the United Nations carbon credit system to expand beyond large, industrial project types like refrigerant destruction, large hydropower and waste heat recovery. The project types favored by the voluntary carbon market, like clean cookstoves, village lighting, forest conservation and water purification can deliver greater sustainable development and have helped bring the benefits of carbon finance to poorer nations.

Voluntary market innovation is not limited to the projects. It's notable that California's fledgeling carbon market California has decided to use for its cap-and-trade transactions two private sector registries that were created for the voluntary carbon market to - due in large part to their responsiveness, quality and cost-effectiveness. And when the British government launched a short-lived effort to develop its own voluntary offset quality scheme, the market launched a more thorough and far-reaching system, twelve months faster, and for only one-tenth of the cost.

But perhaps the most important point that helps understand what makes the voluntary market special is that its carbon offset buyers choose to buy carbon credits! Voluntary market buyers take action of their own accord beyond or in advance of legislation to tackle their climate change impact.

This difference more than anything helps explain why the backloading brouhaha has little direct impact on the voluntary market. In the compliance market, emitters tend to reduce their emissions just enough to avoid paying penalties. If they cannot meet their reduction targets, they tend to buy just enough offset credits (called CERs) and allowances (EUAs) to avoid those penalties. And when those firms find they have exceeded their reduction targets? They sell their surplus allowances, even if their footprint is still far above zero. The economic recession made it very easy for many companies in the EU ETS to meet their reduction targets, nearly eliminating demand for allowances and offsets. Supply and demand - too many permits and insufficient demand drives CER and EUA prices in the compliance markets towards zero.

Compare that to buyer behaviour in the voluntary carbon market. The demand drivers for carbon credits could not be more different. Here companies pledge to reduce their net emissions - often
to zero - through a combination of internal reductions and voluntary offset credits. When voluntary customers fail to meet their reduction targets, they must buy more carbon credits to make up the difference. When they exceed those targets, they buy fewer credits - but they keep buying. Their reduction goals are sufficiently ambitious that it would be nearly impossible to reduce demand for offset credits to zero - at least for the foreseeable future.

Buyer behaviour in the voluntary market differs from the compliance market in another way. Absent the carrot and stick of government regulation, buyers use their carbon management programmes as a way to demonstrate good citizenship. As a result, many companies seek carbon offset credits from projects that do much more than reduce greenhouse gas emissions. Emission reduction projects that improve local livelihoods help corporate offset customers achieve their broader CSR goals. After all, which would you rather have on the cover of your CSR report, a photo of an industrial gas destruction project, or a photo of a family enjoying the benefits of solar powered lighting and safe drinking water? It is the value of these co-benefits that helps maintain prices in the voluntary carbon market, even during an economic recession.

With such different motivations for buyer behaviour compared to the compliance market, it is little wonder that the impact of policy measures like backloading would have little direct impact on the voluntary market.

However, compliance market policy failures can have an indirect impact on prices in the voluntary market. Actors in the compliance market have begun to take notice of the relative buoyancy of voluntary prices. In September 2012 the UN Framework Convention on Climate Change included the following statement in its meeting notes:

"Project participants and others engaged in the [Clean Development Mechanism] will soon be able to voluntarily cancel their CERs into an account in the CDM registry at the UNFCCC secretariat in Bonn, Germany. This could encourage expanded use of CERs for voluntary emission reduction, such as by companies using credits as part of a social responsibility programme, by event organizers wanting to offset their emissions, or even by individuals wishing to reduce their carbon footprint."

Just a few months later Christiana Figueres, the head of the UNFCCC, made the following Tweet:

It appears that a number of people are hoping that the relatively buoyant voluntary market can support CDM by serving as a source of demand for compliance credits. This is a great idea in theory. However, the primary CDM market was created to feed national and regional compliance schemes. The promise of CDM has mobilised a tremendous amount of climate finance to feed the compliance market. In 2011, the latest year for which figures are available, CDM was five times larger than the voluntary carbon market. Since that time, we have seen record issuances of carbon credits on the CDM.

It would be wonderful if demand in the voluntary market expanded rapidly enough to absorb the surplus from the CDM (or at least from the CDM's more community-oriented and renewable energy projects). The short-term impact of such an influx, however, would be to overwhelm completely the absorptive capacity of the voluntary market, driving prices towards zero and removing incentives to develop new and innovative voluntary projects. It would be akin to fitting all the passengers from the Titanic into one lifeboat. Rather than rescuing the compliance market, we would damage the voluntary carbon market, perhaps irreparably.

It's clear, then, that for all its inherent strengths, the voluntary carbon market remains vulnerable to poorly executed attempts to rescue elements of the compliance market. The most robust and sustainable fix for the compliance market's woes remains in the realm of politics. More specifically, national and regional leaders must show the courage to set ambitious reduction targets that accelerate the pace of action to fight climate change. The depressed prices on the EU ETS show that companies have been able to meet their current emissions reductions obligations more easily than we ever thought possible. Deepening emission reduction targets will accelerate the transition to a lower-carbon economy and strengthen the carbon markets by driving demand for compliance carbon credits and provide a sustained boost to prices.

Meanwhile, the voluntary carbon markets will continue doing what they do best: driving innovation and providing a vehicle for companies who want to take action beyond compliance to demonstrate their environmental leadership.

(Jamal Gore is Managing Director of carbon management firm Carbon Clear.)

More on Fixing the EU ETS

noreply@blogger.com (Jamal (@JGoreCarbon)) — Wed, 24 Apr 2013 08:48:00 +0000

The other day, I pointed out that the collapse in the carbon price on the EU ETS compliance market was down to politics, not an inherent failing of cap-and-trade. I concluded by pointing out that we need courageous political leaders willing to take faster action against climate change.

It seems I'm not alone in reaching this conclusion. Here's the article lead from yesterday's Point Carbon news website:

Of course, the voluntary carbon markets are relatively less likely to be held hostage by politics. Companies around the world increasingly are going beyond any compliance obligations to set ambitious emission reduction targets and buy quality carbon offset credits that reduce GHG emissions outside their organisational footprint boundaries. Carbon Clear is committed to helping companies control their carbon impact - we look forward to working with you.

The EU ETS, Backloading and the End of the Carbon Markets

noreply@blogger.com (Jamal (@JGoreCarbon)) — Mon, 22 Apr 2013 12:49:00 +0000

According to the news reports, the carbon markets are in trouble. Prices on the world's largest market, the EU Emissions Trading Scheme (ETS) are at an all-time low. Generic compliance-grade offsets from the United Nations Clean Development Mechanism trade for pennies. And the European Parliament just voted on April 16th to reject a move called "backloading" that would have helped to prop up carbon prices. Investment banks are closing their carbon trading desks, and clean energy project developers are looking at other revenue streams beyond carbon to support their activities.

What went wrong? And does this spell the end of the carbon markets?

The first thing to note about the carbon markets is that they are an artificial construct. Climate change is a problem mainly because governments, companies, and households normally are unaware of the cost their own environmental pollution. Carbon dioxide is colourless, and odourless, and the warming effects of greenhouse gas emissions can take fifty years or more to become evident. Absent many direct feedback mechanisms, few organisations would put a price on their emissions without government intervention.

Building on the experience of air pollution emissions trading in the US, governments around the world have begun setting up greenhouse gas emissions cap-and-trade schemes. Regulators create carbon markets by setting an overall cap on emissions (thus stimulating demand) and by setting rules on how emissions allowances and carbon offset credits can be used (thus creating a regulated source of supply). This basic approach has been the same whether the carbon markets are set up in California, Australia, China, New Zealand or the European Union. Remember, emissions anywhere contribute to climate change everywhere, and a reduction anywhere has the same general climate change benefit.

In the EU, regulators established an overall emissions cap and then set companies free to meet that cap in the most cost-effective manner, so long as they followed the rules. The goal was to fulfil the European Union's greenhouse gas reduction targets under the Kyoto Protocol at the lowest overall impact to the economy. The EU ETS is a price discovery mechanism that allows firms covered under the cap to determine who can reduce emissions most easily. Those firms that can cost-effectively meet and exceed their reduction targets can sell any savings below their cap on the market. Firms that for whatever reason are unable to meet their targets must buy excess permits from their more carbon-efficient counterparts, purchase certain allowable types of international offsets (which represent certified reductions in developing economies' GHG emissions), or else pay a hefty fine.

And it worked! While early predictions were that the marginal cost of emission reductions under the ETS would be at least €25 during the current compliance period, prices are instead hovering just above €3. Put another way, companies in the European Union have been able to meet their GHG emission targets during this period at minimal overall cost to the economy. Cutting carbon has been cheaper and easier than we ever thought possible. That's the good news story.

The bad news is that this low price has done little to spur low-carbon investment. €3/tonne is equivalent to barely half a Euro cent or 0.4 pence per kWh on household and business electricity tariffs. When buying pollution permits becomes the cheapest option for meeting regulatory targets, few firms will spend the money to improve energy efficiency or switch from coal to natural gas and renewables. Such a state of affairs is particularly troubling for investments in energy infrastructure. A company that builds a coal fired power plant instead of a series of wind farms is locking in 30-50 years of carbon-intensive energy production. What we need, then, is a carbon price that is high enough to provide incentives for green investment, but not so high that it creates economic hardship.

So how did this happen? What went wrong?

Put simply, regulators did not anticipate the recession of the past five years. The emission targets set in 2007 assumed that economic growth - and GHG emissions - would continue to rise each year in the absence of the Emissions Trading Scheme. In the real world, the housing market collapsed, companies shed employees and closed offices, and output from the emissions-intensive steel and cement industries collapsed.

The result was like asking an Olympic sprinter to run 100 meters in 20 seconds - it was far too easy. Those challenging emission reduction targets suddenly became achievable with little or no effort, which meant that few companies needed to buy excess permits and many had surplus allowances for sale. Supply and demand - when sellers outnumber buyers, expect the price to fall.

What's the solution? If achieving a higher carbon price is the goal, regulators can either boost demand for emission reduction credits or restrict supply. Increasing demand is best accomplished by setting even stricter carbon targets. If a firm can easily achieve a 1.4% annual reduction, regulators could set a 2% or even 3% reduction instead. This approach has the added benefit of accelerating emissions reductions in the near term - when we most need them - while providing greater incentives for long term investment.

For various reasons EU regulators decided that boosting demand was a political impossibility in the near term and that a better short term fix was to focus on supply. The preferred tool, "backloading", restricted the number of allowances members states could sell into the current depressed market. This would create a modest shortfall, forcing firms to use up some of their excess allowances. Member states would sell those "backloaded" allowances several years from now when, presumably, the economy had improved and increased corporate GHG emissions would better soak up some of the supply without depressing prices.

Notice that the backloading proposal did not propose to change the EU's overall emissions reduction ambition. It merely shifted in time the overally supply balance of emission allowances. Even this move, however, creates winners and losers and EU parliamentarians argued bitterly on behalf of their respective constituencies' short-term interests. Some even argued that the EU Parliament should not meddle in the market - ignoring the fact that the EU ETS is itself a creation of the EU Parliament.

In the end, the backloading proposal was rejected. With no prospects for increasing near term demand for carbon credits or decreasing supply, prices on the EU ETS have continued to slide. [Update 24April - prices have recovered slightly on news that the backloading proposal may be reintroduced this summer.]

The important point here is that the current problems with the EU ETS are not due to the carbon markets. They are working exactly as they were designed, finding the lowest-cost emissions that can meet government targets. The problems facing the EU ETS are political. The market has shown that it can meet current targets much more cheaply than envisioned. Just imagine what could be achieved with a cap that drove the carbon price to €25-€30, a price that was politically palatable just a few years ago. But the European Parliament has not set a more ambitious target.

Imagine how many investment decisions might be swayed with the slightly higher carbon price that would come from backloading. But the backloading vote failed. The decisions about more ambitious emission reduction targets, backloading and other approaches are being made not by carbon traders but by country governments and EU parliamentarians.

The lessons for other governments that are contemplating or implementing market based emission reduction schemes are clear:

Do not abandon carbon trading - it gives companies the flexibility to meet emission reduction targets at least cost, and often cheaper than you can imagine.
Don't be afraid to set ambitious targets.
Remember that the carbon market is a regulatory construct. Companies crave certainty and do not want rules to change too often, but success fighting climate change requires regulators to leave enough flexibility to respond to unforeseen events.

As I've noted previously, fixing the compliance carbon market in the EU will require inspired political leadership. Citizens are calling for urgent action on climate change. The carbon market has the tools to deliver this action. What is needed now is the political will.

A Plague of Giant Mosquitoes

noreply@blogger.com (Jamal (@JGoreCarbon)) — Wed, 13 Mar 2013 14:07:00 +0000

Florida is bracing itself for an onslaught of "monster-sized" mosquitoes this summer.

Psorophora ciliata, often referred to as gallinippers, are the largest and one of the most aggressive species of biting mosquito in the United States. They are nearly 20 times larger than typical mosquitoes, hunt both day and night, can bite through clothing and leave painful wounds.

Last year's hurricane season led to large flooded areas across the state, the perfect habitat for gallinippers to lay their eggs. Entomologists expect a bumper crop of gallinippers as a result, which is bad news for everyone.

What does this have to do with climate change and carbon reduction? Well, the IPCC and Environmental Protection Agency expect climate change to bring more frequent storms and heavier downpours in that part of the country. And Psorophora ciliata requires flooded, low-lying areas for its eggs to hatch. A plague of gallinippers should therefore not be a surprise to anyone who follows the EPA predictions.

I can't say with perfect confidence that climate change is behind the rise of the monster mosquitoes. But as I've said before, this is what climate change looks like.

More on the CRC and Carbon Offsets

noreply@blogger.com (Jamal (@JGoreCarbon)) — Tue, 19 Feb 2013 10:52:00 +0000

One of the reasons participation in the UK's Carbon Reduction Commitment Energy Efficiency Scheme is a poor alternative to offsetting your company's carbon emissions is that the Government has no obligation to use your CRC "tax" payments to spur greenhouse gas reductions. A second reason is because, by DECC's own admission, the £12 per tonne permit price "may have a marginal effect on decisions to invest in energy efficiency relative to overall energy prices".

Pulling back to look at the big picture provides us yet another reason why companies participating in the CRC should not abandon carbon offsetting as a tool to fight climate change: the CRC ignores a huge portion of most companies' carbon footprint.

The CRC focuses on emissions from stationary energy consumption - particularly the use of electricity and gas in buildings. In traditional carbon reporting parlance, the CRC focuses on Scope 1 and 2 energy emissions. It does not cover other types of Scope 1 emissions - from refrigerant leaks, from land use and forestry activities, or from burning fuel to power a company's vehicles. The CRC is also silent on most Scope 3 emissions, which come from third party activities undertaken on the company's behalf. This includes taxis, commercial air travel, hotels, and outsourced goods and services. Finally, even that limited CRC footprint is focused only on a company's UK operations - all emissions from overseas assets are excluded.

From the point of view of government regulators, these exclusions make sense. After all, the UK would risk an international outcry if it unilaterally imposed a carbon tax on company operations in, say Germany or China. And with buildings responsible for the lion's share of UK emissions, there is a strong case for focusing on this area.

For many companies, however, an emphasis solely on the CRC footprint marks a retreat from best practice. The GHG Protocol and ISO 14064 reporting standards require firms to report all Scope 1 emission sources, not just energy, and recommend further that firms measure and report their Scope 3 emissions whenever possible. Therefore, relying on the CRC footprint would not be enough to demonstrate a firm's low-carbon leadership - even if the CRC were to begin driving investment into emission reductions on a massive scale.

For professional services firms the situation is even worse. Business travel often represents more than 50% of the carbon footprint of a major accounting firm, consultancy or auditor. As a recent infographic in the New York Times demonstrates, frequent long-haul flights can easily swamp an individual's or company's other emission reduction efforts. The problem for professional services is that these companies are selling time and brainpower. They are often most effective when they can sit side by side with their clients to solve business problems. And when their clients are all over the globe, that means they have to travel. A lot. Many of these companies are CRC participants, but their CRC performance says little about their overall GHG impact.

Let me be clear: the CRC has helped us make progress in our efforts to decarbonise the UK economy. It has raise awareness of climate change among finance directors and other corporate leaders in a way that would be difficult to accomplish with voluntary measures alone. Furthermore, it gives government the tools to drive further reductions in future. However, corporates who wish to demonstrate their low-carbon leadership must go further. They can set ambitious near- and long-term reduction targets that go beyond compliance, and they can invest in verified carbon offset credits that achieve guaranteed emission reductions, right here and now.

Jamal Gore is Director at carbon management specialist firm Carbon Clear. All opinions are his own.

Carbon Offsets and the CRC "Tax"

noreply@blogger.com (Jamal (@JGoreCarbon)) — Fri, 08 Feb 2013 17:28:00 +0000

One of the more surprising findings from Carbon Clear's 2012 research into the carbon performance of the FTSE 100 was the fact that only a small fraction of the country's largest companies offset their greenhouse gas emissions. In follow up conversations with some of these firms, representatives gave me a number of reasons why they don't offset, but one rationale has been cropping up with increasing frequency. To paraphrase: "We don't need to offset to demonstrate our low-carbon committment because we're paying the CRC tax."

Such a view might seem reasonable, but falls short of the mark.

The CRC requires large firms that are not covered under the EU ETS to report their energy emissions and pay a £12/tonne permit fee to the Government. In an ideal world, those accumulated payments would go towards a range of emission reduction activities, from tree planting and forest restoration to incentives for clean energy investment, to support for energy efficiency in homes and offices. However, CRC revenues, estimated at over £1 billion, are not earmarked for green initiatives. The money goes into general revenues.

I'll say that again: There is no direct link between CRC payments and Government spending on emission reduction measures.

At best, the CRC drives emission reductions by helping companies become more aware of their energy consumption, and by very slightly increasing firms' energy bills. These measures will undoubtedly have some impact. But with energy a relatively minor expense at most companies covered by the CRC, and permit fees equal to only about 10% of electricity costs, these incentives are relatively weak.

Many sustainability experts hoped that the CRC's Performance League Table (PLT) would provide a reputational driver that encourages firms to reduce their emissions, but there is little evidence to suggest the PLT has had much impact. In its first year, PLT rank was assigned based on implementation of Early Action Metrics that would help a company collect better data, not on emission reductions.

The second round of league table results has been delayed for several months, apparently because so many companies have asked to refile their data with the Environment Agency. What is more, the currently delayed league table will be the last of its kind after Government announced in December 2012 that this element of the CRC will be scrapped. So much for reputational incentives.

All of this makes very tenuous the link between CRC participation and ambitious efforts to tackle companies' climate change impact. To be clear, the CRC has helped to put climate change and carbon reporting on the corporate agenda in the UK, and many firms will use the increased awareness of their energy consumption to drive savings. However, most of the resultant savings will be at the margin, and as we have noted previously the vast majority of a company's greenhouse gas emissions will continue unabated, and then remain in the atmosphere for decades or centuries.

There are only two real ways to tackle a company's carbon impact when it matters most - that is, right now. The first is to reduce net emissions within the company's footprint boundary - through energy efficiency, behaviour change, process improvements, reforestation and other measures. The second is to reduce emissions outside the company's footprint boundary, at the same rate or greater than the company's own emissions - by supporting verifiable emission reductions from another source. That second approach is called "offsetting".

Taken together, ambitious internal reductions and high quality offsetting form the core of a comprehensive carbon management strategy.

The CRC remains a legal requirement for many UK companies and it can make a contribution to the low-carbon agenda. But tax or not, the CRC is not a substitute for carbon offsets when it comes to fighting climate change.

Carbon Offsets - The Air Passenger Duty Excuse

noreply@blogger.com (Jamal (@JGoreCarbon)) — Tue, 29 Jan 2013 15:57:00 +0000

Aircraft are one of the fastest growing sources of greenhouse gas emissions worldwide. While the per-kilometer carbon emissions from flying economy class are about the same as those from driving alone in a car, an airplane can cover any given distance much, much faster. You might generate the same CO2 emissions from a single 12-hour flight as you would from a year of driving. The climate change impact becomes even greater when you consider the indirect warming impacts of high altitude flights, which can double the overall warming compared to burning those same fossil fuels on the ground.

What is more, aircraft flights are often discretionary - at least compared to other greenhouse gas sources like producing food, heating our homes and generating electricity. As a result, flight emissions tend to come under special scrutiny by sustainability teams, environmental campaigners, and - importantly - politicians.

Which brings us to Air Passenger Duty (APD).

In December 2006, the then-Chancellor, Gordon Brown, announced that the Government would double Air Passenger Duty rates for UK flights. The rates were raised again in 2009, and then in 2010, and again in 2012. They are scheduled to rise again in April 2013. APD was originally introduced in 1993 solely as a means of raising revenue from the relatively lightly taxed airline industry. However, Brown justified doubling the APD on environmental grounds, and hinted that it would be earmarked to "secure extra resources...for our priorities, such as public transport and the environment." According to the BBC, the Government continues to make environmental claims for APD rises, and campaigning organisations like Greenpeace argue that increases help ensure that airlines pay their proper environmental cost.

Air Passenger Duty costs £13 for a short-haul flight, rising in tiers up to a maximum charge of £92 for flights over 6,000 miles, and brings in over £2 billion in revenue. The duty is several times the cost to purchase carbon credits that would balance out those flight emissions. It might seem reasonable, therefore, for the average passenger or company travel coordinator to avoid purchasing carbon offsets, on the assumption that they have more than paid for the environmental cost of their flights already.

It might seem reasonable, but it would be wrong.

Anyone familiar with the story of the Carbon Reduction Commitment Energy Efficiency Scheme will be unsurprised to learn how the Government uses the revenues from thAPD. A quick recap:iIn December 2011, the Chancellor announced that CRC revenues at £12/tonne CO2 would no longer be "recycled" back to participating companies as an incentive to save energy. Nor would they be "hypothecated" and earmarked solely to environmental and energy efficiency initiatives. Instead, the funds now go into the general revenue pool for use as the Government sees fit.

The same applies to Air Passenger Duty. While the purchase of a quality carbon offset credit directs funds towards a real emission reduction that has been verified by an auditor, Air Passenger Duty payments go into the general tax revenue pool, where they are added to funds from every other source. There is no requirement to hypothecate those revenues towards emission reduction activities, and no direct link between APD revenues and Government spending to tackle climate change.

APD is not even structured to provide strong incentives to reduce emissions. Because it is levied on a per-passenger basis and not per plane or per litre of fuel, APD provides little direct incentive for airlines to fly fewer, fuller planes, or to fly newer, more fuel efficient aircraft.

With an increasing number of experts concerned that we are on track to disastrous climate change, it is more important than ever that we use all the tools at our disposal to reduce global emissions. However, APD has only a marginal impact on aircraft emissions. The revenue is not reinvested directly into emission reduction activities and its pricing structure does not drive down passenger numbers effectively. In its current form, then, APD is not a credible alternative to offsetting your flight emissions with carbon credits.

If you can avoid flying, then by all means do so But if you must fly, there is no real alternative to carbon credits to offset those emissions.

That Time I Took Advice From a Petroleum Engineer

noreply@blogger.com (Jamal (@JGoreCarbon)) — Mon, 14 Jan 2013 13:40:00 +0000

One of the most important conversations I ever had came about entirely by accident.

One sunny afternoon in the early 1990s I found myself sharing a picnic table with a graduate student from Stanford University's Petroleum Engineering Department (the university changed the department's name in 2006 to Energy Resources Engineering). It was my senior year and the Exxon Valdez oil spill in Alaska was still a recent memory. I was understandably curious to learn why someone would choose to pursue this career path.

"Petroleum is amazing stuff," he said. "Nature has given us these amazing long-chain hydrocarbons. We can break them apart, recombine them and make almost anything. Burning it is probably the least creative thing we can do!"

"That may be," I responded, but those long-chains hydrocarbons are also a great energy source, and we seem to be burning an awful lot of them, when we're not spilling them in the ocean."

"Yes," he conceded, "But we don't have to! We can make electricity any number of ways, and there are plenty of other things we can burn to generate heat. Besides, it's better for the environment. So let's use those other resources for energy and do something more useful with the petroleum."

And so here I am, 20-odd years later. As a justification for his chosen career path, that petroleum engineer's argument may have been self-serving. After all, the vast majority of the petroleum that goes to refineries is still burnt as fuel - only a minority of petroleum engineers get to play with the substance as a chemical feedstock.

But he described very nicely the rationale behind everything I've done since then.

Burning fossil fuels for energy is easy, but it isn't particularly smart. Making a transition to a low-carbon future means finding ways to live a satisfying life without imposing unacceptable long term costs on families, communities, and the planet. I founded Carbon Clear nearly eight years ago to help accelerate that transition. Since then, we've helped hundreds of companies improve their response to the challenges posed by climate change.

I wonder whether that aspiring petroleum engineer remembers me or that casual afternoon conversation at Stanford all those years ago.

I certainly remember him.

Related posts:
Making Renewables Work: Understanding Energy Density

Airlines, The EU ETS and Biofuels

Peak Oil: Will We Freeze or Roast?

UK Mandatory GHG Reporting - Data Collection Begins NOW

noreply@blogger.com (Jamal (@JGoreCarbon)) — Mon, 07 Jan 2013 12:09:00 +0000

Happy New Year from the Carbon Clear team.

A reminder for companies affected by the UK's mandatory greenhouse gas reporting regulations: If your fiscal year follows the calendar year, your 2013 financial report must include carbon footprint data for the entire year. That means you should already be recording your greenhouse gas emissions data against Defra's new requirements.

Not sure if you're covered by the regulations? Don't know what to include in your footprint report? Want to be certain your approach follows best practice? We're here to help you make the right start - just get in touch.

Previously:

Defra's Mandatory GHG Reporting: Some Answers, Even More Questions

Mandatory Carbon Reporting: From Compliance to Competitive Advantage

Mandatory Carbon Reporting: Lessons from the CRC

Mandatory Carbon Reporting: What's the Big Deal?

The Day After Tomorrow

noreply@blogger.com (Jamal (@JGoreCarbon)) — Sun, 30 Dec 2012 22:33:00 +0000

The latest issue of Scientific American provides an excellent summary of the state of the Arctic polar ice cap, or what's left of it.

For those of us concerned about climate change, and everyone else, the ice caps are of tremendous importance. Those vast white expanses reflect most of the sunlight that strikes their surface back into space, whereas the surrounding seawater absorbs most of the solar energy and re-radiates it as heat. The logic is straightforward: more ice = less warming; less ice = more warming.

According to Mark Fischetti's SciAm article, the amount of sea ice that remained after the annual Arctic summer thaw (aka "minimum ice cover") fluctuated around six million square kilometers for the two decades before 2000. Then it began to shrink -due, presumably to global warming. When the IPCC published its last assessment report in 2006, the scientific consensus was that the shrinking ice would mean ice-free summers towards the end of the century.

Then something happened. In 2007, the summer melt began to accelerate, and the ice that reformed in the winter was not as thick. Since then the ice has continued to retreat. In 2012 the minimum ice cover hit a record low of 3.4 million sq. km - barely 50% of the average a few decades ago. A few years ago the IPCC thought we'd have an ice free Arctic summer by the end of the century. Now climate scientists think we could see it as early as 2020-2030.

2020-2030! That's no time at all - practically the day after tomorrow. We don't have much time left if we want to avoid that outcome.

And I do think we should do everything we can to slow the arctic ice melt. Another article, by Charles H. Greene in the same issue of Scientific American points to more links between climate and weather. In particular, Greene describes how a warming Arctic affects the jet stream and allows it to fluctuate more widely in response to seasonal oscillations like El Nino and the North Atlantic Oscillation. When the jet stream dips further south than normal we get unforgiving wintery weather. When it surges northward we get record heatwaves in March. Given the oscillations currently in place, Greene argues that "the deck may be stacked for harsh outbreaks during the 2012–2013 winter in North America and Europe."

What does a "harsh outbreak" look like? Here's how it looked in Eastern Europe earlier this year, under 10-15 feet of snow:

Not fun. 35 people died in that part of Romania in two days. Images like that remind me of the 2006 Hollywood disaster flick "The Day After Tomorrow". While that was a movie, and not a prediction, warnings about the near term impacts of Arctic warming are getting worryingly specific. The lesson- the faster the ice melts, the more things look like a disaster movie.

But catastrophic climate change is not inevitable - not even now, after yet another global climate summit where progress is measured in half-steps. Individuals, businesses, communities and nations can take action now to slow the buildup of greenhouse gases in the atmosphere. Simple no-cost actions to change behaviour, money saving investments in energy efficiency, resilience-boosting renewable energy investments and use of the carbon markets to spur similar measures around the world - all of these make a difference. There is no need to wait for a global treaty in order to set ambitious targets and embrace a lower-carbon future.

We can start today. Or, if you prefer to get things started on New Year's Day, we can start the day after tomorrow.

Defra's Mandatory GHG Reporting: Some Answers, Even More Questions

noreply@blogger.com (Jamal (@JGoreCarbon)) — Wed, 19 Dec 2012 11:28:00 +0000

The UK's Department for the Environment, Food and Rural Affairs (Defra) has been holding consultation workshops over the last three days to get feedback on the proposed guidance document for the Mandatory Greenhouse Gas Reporting legislation that will go through Parliament next year. Carbon Clear and other members of the industry organisation we helped found, ICROA were on hand to lend our expertise and learn more about Defra's intentions.

There have been a few changes to the proposed legislation since the consultation draft was released in July. Most notably, companies now have to include their GHG emissions totals in their Directors' report only for fiscal years ending after 1st October 2013. This is a change from the 1st April date that Defra originally proposed, but there is no time for complacency.

If your company's fiscal year follows the calendar year, you need to start collecting your data as of 1st January - two weeks from now. Are you ready?

Defra clarified that the GHG footprint report should state totals in terms of carbon dioxide equivalent (CO2e), but that companies should be including emissions data from the 6 main Kyoto gases (carbon dioxide, methane, nitrous oxide, perfluorocarbons, sulfur hexafluoride, and hydrofluorocarbons). The newest addition to the Kyoto greenhouse gas list, nitrogen trifluoride (NF3) has been excluded from the list - according to Defra's representative at the consultation, they cannot include it until Parliament amends the Climate Change Act.

One of the concerns we heard during the initial consultation process was that Defra seemed to be reinventing the wheel - coming up with its own footprint boundary definitions that do not match the ones used by popular standards like ISO 14064-1 and the WBCSD/WRI GHG Protocol. It turns out there is a reason for the discrepancy - the new requirements integrate with the country's largest pieces of existing legislation, the Companies Act. What is more, the reporting legislation does not oblige businesses to use a specific standard. As a result Defra has attempted to develop their carbon measurement rules using terminology consistent with the Companies Act, and in a way that does not give preference to any one existing footprint standard. Easier said than done!

This approach means that there is still considerable ambiguity in the legislation and even in the guidance documents. Questions remain about the use of intensity ratios, Defra's definition of Scope 2 emissions, whether and how companies can include their emissions from agricultural and land use activities, and range of other subjects. While the final draft of these documents will address some of these points, they will still leave room for interpretation by companies, assurance providers and - importantly - enforcement authorities.

Defra has, importantly, clarified the enforcement aspect of the legislation. They note that the Conduct Committee of the Financial Reporting Council will enforce the provisions of the legislation, and can use section 456 of the Companies Act to obtain a declaration that the annual report of a company does not comply with the requirements of the Act. They also note that Section 397 of the Financial Services and Markets Act means a person who makes a misleading or false statement is liable to a fine or up to six months' imprisonment. These enforcement measures make it more important than ever for companies to ensure their carbon footprint report meets the requirements of the law.

Carbon Clear will continue working with companies throughout the year to help them assess their readiness for Mandatory Greenhouse Gas Reporting, and put in place measures to comply with the requirements of the law. Please contact our carbon advisory team to find out what you should do next.

After Doha: Living in a 3-Speed World

noreply@blogger.com (Jamal (@JGoreCarbon)) — Wed, 19 Dec 2012 10:12:00 +0000

It's December, and that means we're once again picking through the results of a two-week United Nations climate change conference in search of meaning.

The UNFCCC website contains the text of all the official decisions reached in Doha. There's enough in there to keep the climate policy wonks busy for days.

But what does all of this mean for day-to-day practitioners involved in the fight against catastrophic climate change? It means, among other things, that we are living in a three-speed world. The UN negotiations are meant to pave the way for a unified international emissions reduction framework, with a global emissions reduction target that trickles down to individual country governments, and then to organisations and communities. When the Kyoto Protocol was drafted back in 1992, the plan was for a coordinated approach that ensures everyone made a fair contribution to truly ambitious global emission reductions.

With each subsequent climate change conference - from Bali to Copenhagen to Cancun to Durban to Doha - the limitations of this approach have become apparent. Government negotiators bicker over details small and large, for reasons of national sovereignty, economic advantage or sheer principle. The negotiating text, consequently, has splintered into parallel tracks, each of which must be agreed by consensus by 194 countries plus the EU - no majority voting here! With each subsequent round, the pace of negotiations has slowed, and the level of ambition seemingly has diminished.

In our three-speed framework, we'll label UN-speed "super-slow".

The news is slightly better at the country level. The UK has set an ambitious 2050 reduction target and gradually is devising measures to meet a series of 5-year carbon budgets. Australia has implemented an economy-wide cap and trade scheme to achieve its emission reduction targets. So have New Zealand, South Korea and California (a U.S. state with an economy larger than many nations). Meanwhile, a host of other countries are developing national and regional cap and trade schemes, implementing some form of carbon tax, or are rolling out various greenhouse gas reporting regulations and financial incentives. And of course, the European Union has deepened the reduction targets linked to the granddaddy of GHG cap and trade mechanisms, the EU ETS.

These are encouraging moves, and can take us part-way towards our global emission reduction targets. The problem is that these are piecemeal efforts that are dependent in most cases on the whims of elected legislatures. It is difficult for companies that operate under this system to make long term plans when the scheme may change with the next election. What is more, the lack of international coordination encourages "environmental arbitrage", with some companies threatening to base their business investment (and employment) decisions on the relative cost of climate change legislation in different jurisdictions. Real or not, these arguments about economic competitiveness discourage many governments from taking more ambitious action to drive emission reductions. At the country level, then we have real signs of progress, but fragmentary and subject to reversal. Let us call national-speed "medium-slow" but inconsistent.

And then there is the business community. Taken together, the footprints of the 350 largest listed companies on the FTSE are greater than the UK's total direct emissions. As our carbon maturity assessment showed, many companies are going far beyond their legal obligations to tackle their climate change impact. Some companies have already achieved reductions of 20% or more and have set reduction targets that drastically outstrip those contemplated by governments or the United Nations. In the U.S., Walmart has reached out to its global supply chain of over 100,000 businesses to help them evaluate and improve their environmental performance.

In the UK, meanwhile, Unilever is working with its customers to help them use its products in a more sustainable manner and Centreparcs has rolled out an incentive scheme to help employees save energy at home. Other British firms, like Marks & Spencer and Sky, have gone "carbon neutral" taking immediate responsibility for 100% of their emissions* even while they work towards longer term footprint reductions.

We may be nearing a tipping point in which the business community as a whole embraces the need for an ambitious low-carbon transformation, but most of the action to date has been confined to a handful of global leaders, and primarily consumer facing brands. The emissions-intensive extractive industries have done significantly less to measure, report, reduce and offset their footprint beyond the bare minimum required by legislation, and efforts within other industry sectors remains spotty at best.

Let us call business-visionary-speed "fast", even as we acknowledge that there are not nearly enough companies in this category.

The Doha climate change negotiators reaffirmed this three-speed model of the world. COP 18 in Doha gave us a global commitment to extend the existing Kyoto Protocol mechanisms until a new global agreement is negotiated in 2015, and this new post-Kyoto agreement is expected to come into force no later than 2020. Encouragingly, some countries and negotiating blocs unilaterally increased their reduction targets. Distressingly, many of the biggest polluters - China, the U.S., Japan, Russia and Canada - have refused to commit to "Kyoto 2", but will continue to participate in negotiations. All of this is better than no effort to reach a comprehensive agreement at all, but it lacks the sense of urgency required to keep us within the 2 degree warming target required to stave off the worst climate change impacts.

While the global-level debates dragged on nearly 48 hours beyond the official deadline, individual country governments moved faster. Maldives pledged to become carbon-neutral by 2020, while Norway has made an unconditional 30% reduction pledge below business as usual over the same period. A host of companies, meanwhile, have pledged even greater reductions and a growing number are declaring themselves carbon-neutral every day.

Speaking in 2011, Christiana Figueres, Executive Secretary of the UNFCCC acknowledged the importance of the business community in this three-speed system, noting, "It is essential that from the outset we take into account the needs of the private sector, as, in the end, it will be the engine for action."

I think Secretary Figueres's observation captures the most important lesson from the recent Doha climate change conference. This three-speed system is a reality. We will - we must - continue working towards binding agreements that ensure every nation is doing its part to reduce global emissions levels. But the importance of that effort does not diminish the impact that pioneering nations can have when they set their own targets to drive emission reductions in advance of a global pact. If anything, it is more important than ever for those countries to show leadership so that the rest of the international community can follow suit.

And the sometimes stuttering pace of national regulations does not dim the light shone by visionary corporate leaders, who go beyond compliance to achieve ambitious emission reductions in their operations, with their suppliers and customers, and through the use of offsets beyond even the boundaries of their own footprint. Corporate leadership in our three-speed system can give country governments the courage to increase the scale of their ambition and encourage a faster transition to a low carbon world.

Can everyone really be "above average" when it comes to Carbon Management?

noreply@blogger.com (Rachel @ Carbon Clear) — Wed, 12 Dec 2012 10:19:00 +0000

When I lived in the States I was a fan of Garrison Keillor’s News from Lake Wobegon. As part of his weekly radio show, Keillor told homespun stories from a small town where “all the women are strong, all the men are good looking, and all the children are above average.”

One of the charms of the show was Keillor’s knack for saying things that sounded reasonable but upon closer inspection were shown to be ridiculous or impossible. In particular, in order for one person to be above average, someone has to be below average! But few people would volunteer for that role.

The “Lake Wobegon effect”, a propensity to overestimate one’s capabilities, manifests itself in many walks of life – intelligence, driving, choosing the fastest lane on the freeway – even carbon management. When we talk with large companies, the vast majority speak proudly of their climate change initiatives. In reality, there is a significant spread in the depth and breadth of carbon management programmes in the corporate world.

Some companies, mostly consumer facing retailers, are trail blazing when it comes to measuring and reporting their greenhouse gas emissions. These firms have a variety of projects, strategies and engagement programmes underway and they are setting the bar for being above average fairly high. As a Walmart executive commented recently to Fast Company, “This isn’t a project, it’s the company.”

But there are many other businesses that are only taking the first tentative steps in managing their climate change impact, and a handful are doing nothing at all. Clearly, then, not everyone is above average when it comes to carbon management.

Carbon Clear recently analysed the progress that member companies in the FTSE 100 have made measuring, reporting and managing their carbon emissions. This research, which has gained wide press coverage, builds on similar work we carried out last year. This year, however, we have taken a more nuanced view to better evaluate the maturity of companies’ carbon reporting. As a result, we have gone beyond asking whether or not a company reports its carbon footprint to explore how thoroughly it reports and whether it has obtained independent assurance for its claims.

These tougher evaluation criteria allow us to highlight clearer differences in companies’ carbon management strategies. They reflect the fact that carbon management and sustainability are processes, not end goals, and the definition of “good enough” will continue to evolve.

Our analysis found that the majority of companies that performed well in last year’s rankings continued to perform well in 2012. One reason for this consistent performance may be because leading companies have put in place systems that help embed carbon management within their operations. Having overcome the initial learning curve, they find it easier to continue and advance their programmes.

Another reason is that leading companies are beginning to recognise the business benefits of carbon management. This should not be a surprise. At Carbon Clear, we have found repeatedly that companies that measure their carbon emissions begin to look at their operations in a different way, identifying efficiency and cost saving measures that strengthen their bottom line.

However, even amongst the biggest publicly listed companies in the UK, only a minority have successfully integrated carbon management into their businesses. In fact, the average overall performance score from our analysis is 47%. A start, to be sure, but not good enough given the benefits that come from an integrated carbon management programme.

More specifically, companies tended to score quite well in the measurement, reporting and verification competency area, with an average score of 58%. High scores in this domain may be due in part to the fact that the scoring criteria encompass those areas of carbon management that a company should logically address first.

Companies scored less well in the strategy competency area and in the carbon reduction competency area, with average scores of 42% and 30% respectively.

The strategy competency area focusses on whether companies have evaluated the risks and opportunities that arise from climate change, whether they have an overarching plan to reduce their emissions, and whether there is a senior leader in the company who takes responsibility for driving the strategy forward along a defined timeframe. Establishing a carbon management strategy requires a fairly sophisticated level of engagement by senior management, so it is not overly surprising that the average score in this area is relatively low.

What is more worrying is that companies are not scoring very well in the carbon reduction competency area. This is a concern as carbon reduction is a central feature of an effective carbon management strategy, helping drive cost savings and lower greenhouse gas emissions. Companies that are not driving ambitious reductions through their operations and supply chain are in many instances leaving money on the table. Even fewer are offsetting their footprint, choosing for now to release greenhouse gases unabated into the atmosphere without any efforts at compensation. Given the urgent need for business leadership on climate change, we need more action in this area.

Engagement activities are one of the main and most visible benefits of comprehensive carbon reporting, so it’s not surprising that companies score quite well in this competency area, with an average score of 52%. Over half of the FTSE 100 demonstrates a commitment to building a platform with which to communicate their activities and establish a dialogue with their stakeholders around climate change and carbon management.

Our in-depth analysis has found that the FTSE 100 is making useful progress on the carbon management journey. All of the companies we researched are taking some steps to measure and sometimes manage their carbon impact. And there are many more that have progressed further along the carbon maturity curve and achieved higher scores. What is evident from the analysis is that those companies demonstrating true carbon management leadership remain few and far between: there are many companies performing at the average level and not very many that live in Lake Wobegon.

The Missing 95%

noreply@blogger.com (Jamal (@JGoreCarbon)) — Tue, 20 Nov 2012 11:48:00 +0000

Earlier this month, the consulting company PwC released an analysis showing that current efforts to reduce greenhouse gas emissions are not sufficiently ambitious to keep us within the two degrees warming target agreed at the 2009 United Nations climate change conference in Copenhagen.

This news, while distressing for those of us committed to combating climate change, is not surprising. As Carbon Clear's FTSE 100 analysis shows, many leading companies have not even measured their carbon footprint, let alone put in place measures to drive emission reductions. And those companies that do work to reduce their carbon footprint are often not making enough progress.

Let's face it: decarbonising an economy - or a business - is hard work. Greenhouse gas-emitting activities are embedded in our daily business lives. Our vehicle fleets, logistics networks, energy infrastructure, built environment and even food production systems all release vast quantities of greenhouse gases into the atmosphere. Each of these systems has been developed and optimised over several decades, and represents billions of dollars of cumulative investment. We have trained generations of engineers, architects and farmers to design and use this infrastructure, and by and large, it works. It would be unrealistic to drop all of this and change overnight to a transportation, logistics, energy, built environment and food production system that releases 80% less carbon.

Seen in this light, the 3-5% annual reduction targets set by the most ambitious companies appear quite reasonable. Coming at a time of reduced government spending and economic hardship, the 1% or even smaller reductions that developed nations are actually achieving likewise appear understandable. These are often the "easy" reductions, the ones that save companies money and energise staff and stakeholders. These reductions should by rights be happening anyway.

The trouble is that they're not enough.

Achieving a 5% annual emission reduction target over ten years translates into a 40% reduction below the baseline by the end of that period. A company that had been emitting a million tonnes CO2e a year would now be emitting only 600,000 tonnes. Such an achievement would mark any business as a low-carbon leader.

But it isn't enough.

The problem is clear: a five percent carbon reduction target means not taking responsibility for the other 95% of the company's footprint that remains unabated. And even though the footprint is shrinking year on year and may eventually reach zero, that residual 95% is causing a lot of damage along the way.

At the end of that ten year period, a company that had been releasing a million tonnes of CO2 to the atmosphere will have saved a cumulative total of 2.4 million tonnes, but will still have a cumulative carbon footprint of 7.6 million tonnes. In other words, more than 3/4 of all the emissions they would have released without an ambitious reduction plan got released anyway. And all else being equal, once that carbon is in the atmosphere it will contribute to a warming climate for hundreds or even thousands of years. Is that really the legacy of a leader?

As I said earlier, it is challenging for a company to radically alter its internal operations and reduce its carbon footprint immediately. No doubt about it. But the fact of the matter is they don't need to do it alone. There is a tool that businesses all over the world employ when they don't have the time or local resources to achieve their objectives.

It's called outsourcing.

Companies outsource critical business services all the time: legal representation, website design, accounting and payroll, deliveries, building cleaning and maintenance, cafeteria food service, travel management, and annual report preparation. They do this because it is faster, more efficient and, importantly, cheaper than trying to achieve an equivalent result in-house.

Outsourcing works for a host of important business activities, so why not carbon footprint reduction? We have already established that it is time consuming, difficult and costly to achieve in-house emission reductions on the the scale needed to avert disastrous climate change. In a situation like this, it makes sense to outsource the rest of the emission reduction effort to people who can do it faster, more efficiently, and cheaper. There are a host of companies (including ours) that can help companies deal with the "missing 95%" of their footprint.

What's surprising is that more companies are not doing this already. According to our research, while the vast majority of the FTSE 100 have set an emission reduction target, less than 10% of these companies currently have a carbon offset programme of any kind. Part of the reason is ideological. Google the phrase "carbon offset last resort" and you will find page after page of advice from organisations as varied as Friends of the Earth UK and IEMA (of which Carbon Clear is a corporate member) exhorting companies to treat carbon offsets as a fallback option. A sign of failure. That same internet search will turn up scores of companies that offset meekly, offering up this "last resort" language as an apology for not doing more on their internal footprint.

This is a "through the looking glass" mentality. While climate scientists tell us that global greenhouse gas emissions must peak in the next five years, some advisers are reassuring companies that they can demonstrate their leadership by deferring action on the vast majority of their carbon footprint, so long as they prioritise internal reductions. In reality, the companies that show the strongest commitment to avoiding climate change impacts will reduce what they can, while simultaneously outsourcing the rest of their footprint reduction through carbon offsets.

Clear evidence of the link between environmental leadership and carbon offsetting comes from our analysis of the FTSE 100. If companies saw offsetting as an "easy" way to relieve their green guilt or make up for a lack of effort in other areas, we would expect to see companies grouped into two clusters: those with a robust internal carbon management programme but no offsetting, and those with a weak internal carbon management programme who use offsets to make up for their lack of effort.

The results are quite different. Companies that are offsetting their emissions also cluster near the top ranks for reporting their footprint, developing an internal climate change strategy, internal emission reduction activities and engaging their stakeholders. None of the bottom ranked companies on these other criteria offset their emissions.

This result shouldn't be surprising. After all, carbon offset credits cost money, and the business benefits of a voluntary (or "beyond compliance") carbon offsetting programme, while real, are indirect. Investors, finance managers and senior executives will face competing demands for scarce capital. A company that scores at the bottom of the league table and isn't serious about tackling the climate change challenge doesn't need to be discouraged from purchasing carbon offsets. The "last resort" language, then, serves mainly to discourage people who might otherwise consider integrating carbon offsets into their broader carbon management programme. This is a wasted opportunity.

Our review of the FTSE 100 shows that using carbon offsets is not a sign of failure. For companies that take climate change seriously, offsets are seen as part of their overall carbon reduction toolkit, a way to outsource those emission reductions they cannot readily achieve with internal resources. Offsets help companies tackle the "missing 95%" of their footprint reductions, achieve business benefits and contribute to the fight against climate change.

Mandatory Carbon Reporting: From Compliance to Competitive Advantage

noreply@blogger.com (Jamal (@JGoreCarbon)) — Mon, 12 Nov 2012 18:55:00 +0000

Four weeks have passed since the close of DECC's consultation on mandatory greenhouse gas reporting. That means we are now four weeks closer to the anticipated launch of the scheme in April 2013. Now is not the time to rest easy. We expect yet another consultation - on the guidance notes for the legislation - sometime in December.

We may have weeks or months to wait before DECC publishes the results of the legislative consultation. However, it would be a mistake for companies to wait until the final legislation is published before taking action. As I noted in a previous post, the original Carbon Reduction Commitment rules were only finalised a month before the legislation came into force. Firms that fail to prepare in advance will find themselves at a disadvantage when it comes to complying with the new carbon reporting rules.

So what can companies do to get ready?

Many firms that need to report their carbon footprint make the mistake of leaping immediately into the data collection phase without specifying how they plan to use the resultant information. In many cases, this approach yields a carbon footprint report that fails to generate broader benefits for the company.

We recommend that businesses take a more focused approach if they wish to get long-term value from their carbon reporting efforts. The first step in this approach is to determine the correct measurement and reporting strategy to pursue. The measurement and reporting strategy will help dictate the human and financial resources the firm allocates to the initiative, the software and other data collection systems that will be employed to process the information, and even how the company will be able to communicate its accomplishments.

So what questions must the reporting team answer to determine their carbon measurement strategy? One of the key issues is to understand the types of benefits the company expects to gain from their carbon reporting. Is the main driver the promise of financial savings that result from better management of corporate resources, or does the business also expect to reap reputational rewards from their carbon disclosure? A logistics business focused on cost savings might go beyond the legislation to collect very fine-grained data on their fleet using a telematics solution, and then drive efficiencies through driver education. Meanwhile, a consumer facing retailer seeking reputational benefits might go beyond the requirements of the legislation in a different way and report voluntarily on a broader range of activities in its supply chain. Each of these decisions has implications for the types of data a company chooses to collect, and the data collection tools and systems it uses to assemble this information.

Another key consideration in the determination of a company's carbon measurement and reporting strategy is the internal implementation capacity of the business. Even with the best will in the world, a company that is unable to devote technical, financial and human resources to carbon measurement cannot achieve as much as one with a larger, more experienced team and proportionately greater budget. Understanding your resources, capabilities and limitations can help prevent over-reach and potential underperformance.

What you need, then, is an approach that is tailored to your company. Carbon Clear has been helping firms determine their carbon measurement and reporting strategy, both in terms of the benefits they can reasonably expect to achieve and in terms of their internal capability to roll out their reporting initiative.

Among other things, these basic criteria allow us to create a rough snapshot that plots corporate carbon measurement strategies within four quadrants, as shown below:


Carbon Measurement & Reporting Strategy Quadrants	(Copyright Carbon Clear, all rights reserved)

Every business needs a carbon measurement and reporting approach customised to their requirements. However, we have found that this snapshot helps companies focus on the issues most relevant to their position, while avoiding the one-size-fits-all approach of some solution providers.

Companies that pursue a "Compliance" strategy tend to have limited internal capacity to implement a sophisticated measurement programme and see little reputational benefit from reporting their carbon data (perhaps because they are not consumer-facing a consumer-facing brand or anticipate limited investor pressure for carbon disclosure). Firms in the "Compliance Quadrant" tend to follow the letter of the law. Their primary objective is to avoid any negative repercussions that result from failure to meet the legislation's requirements. Financial savings that result from better data and efficiency improvements are secondary. These businesses may use a simple carbon accounting software package or even a spreadsheet tool to calculate their carbon footprint.

Like their "Compliance" counterparts, firms in the lower-right "Cost Reduction" Quadrant lack strong reputational drivers for developing their footprint measurement and reporting system. However, their strong internal implementation capability (budget, staff, management systems) means they are better able to use more sophisticated carbon accounting diagnostic tools to identify emissions hot-spots and drive footprint and cost reductions.

The upper-left quadrant, housing Performance Strategy firms, is for companies that face brand or reputational pressure to disclose their carbon performance, but who have limited ability to put in place a sophisticated measurement and reporting system. These companies may choose to start with a basic carbon footprint report and embark on a programme of continuous improvement, that encompasses ambitious overall reduction targets. In most cases, these firms will try to capture more and more of their total footprint as their data management capability improves over time.

Companies that stand to gain brand and reputational benefits from carbon measurement and reporting, and that have the internal capability to implement a robust data collection and management programme may find themselves in the "Leadership Strategy" Quadrant. These firms want to use their carbon reporting to demonstrate to stakeholders their commitment to environmental sustainability, achieve a high score at the top of the CDP and carbon maturity league tables, and use their carbon reporting initiative as a vehicle to engage their staff, their customers and, increasingly, their investors. They may use more sophisticated carbon accounting tools that integrate with their accounting system and capture data for a range of other sustainability indicators at the same time.

Many companies that begin in the "Compliance", "Cost Reduction" or "Performance" quadrants may move to the "Leadership" strategy quadrant as their systems improve and as the broader benefits of carbon reporting and management become evident. However, it isn't necessary to begin there, and many firms may be comfortable staying where they are. What it shows, however, is that there is no "one-size fits all" approach to carbon reporting.

Choosing the right carbon measurement and reporting strategy is the first step in preparing a fit-for-purpose carbon footprint report. Getting it right requires a thorough evaluation of your company's business drivers and of your internal resources and capabilities.

These decisions will influence every other aspect of your company's response to Mandatory Carbon Reporting, so it is important to know where you stand. The good news is that you don't have to wait for DECC to release the final details around the carbon reporting legislation before you determine the right approach. We have already begun helping companies define carbon reporting strategies that range from compliance to competitive advantage, ensuring that they spend resources wisely and helping identify business benefits.

"This Is What Climate Change Looks Like"

noreply@blogger.com (Jamal (@JGoreCarbon)) — Fri, 02 Nov 2012 13:10:00 +0000

Even as America's East Coast continues to recover from the impact of Hurricane/"Superstorm" Sandy, pundits are using it as a teachable moment to talk about climate change. Perhaps the most in-your-face comment along these lines appeared on the cover of Businessweek:

My preference for precision makes me wince a little when I see statements like this. As I noted in an earlier post, there is a difference between weather and climate. A hurricane - even one as big and destructive as Sandy - is weather. Weather is what you see when you look out the window on any particular day. Is it sunny? Is it snowing? Are there 70 mph winds and driving rain? That's weather.

"Climate" is a description of the conditions you can reasonably expect given the location and time of year. If it's autumn on the U.S. East Coast, you can reasonably expect a handful of hurricanes to strike. Warmer ocean temperatures provide even more energy to power hurricanes, and we know that the planet is warming as a result of fossil fuel use, deforestation and other practices. As a result of global warming, then, we expect a changing climate with more and stronger hurricanes. But it's very challenging to point to any one storm and say, "Aha! Climate change made that happen!"

Meteorologists believe that increased freshwater as a result of Arctic melting may have contributed to the cold front that steered Sandy onshore. Those who are looking for a teachable moment are saying that all of this proves we are suffering from climate change impacts. But as with hurricanes in autumn, cold fronts are not unknown in the north Atlantic. It's an amazing coincidence, and matches very closely what we would expect in a warming world. But again, if we want to be as accurate as possible, when describing any particular incident we are talking about weather. Our models are not sufficiently fine-grained to allow us to draw the causal link more directly than that. At least not yet.

The danger with definitively attributing a bad weather event to climate change is that it can cut both ways. When campaigners claim that a warm, snow-free winter is evidence of climate change, climate deniers can claim that a cold snap and blizzard the following year make the opposite case. Trends and statistics allow a more nuanced debate.

Businessweek quotes Eric Pooley of the Environmental Defense Fund, who uses a sports analogy: “We can’t say that steroids caused any one home run by Barry Bonds, but steroids sure helped him hit more and hit them farther. Now we have weather on steroids.” Steroids and other performance enhancing drugs increase the likelihood that a world class athlete will win games and break records, just as climate change increases the likelihood that we will experience monster hurricanes and other impacts.

This does not mean we can't use Sandy to have a serious conversation about global warming. Rather than saying, "This is climate change," I might say, "This is what climate change looks like. We'll have to get used to much more of this if we don't drastically cut emissions."

We don't need 100% certainty before we take action. People who live in relatively dangerous neighborhoods tend to have more locks on their doors than those who live on safer streets, even though the probability of a robbery is far below 100%. The insurance industry in particular is very sensitive to the probability of a claim, and uses this information to decide who to insure and what premium to charge. Even a slightly increased probability of devastating storms, droughts, floods, and the like is enough to spur insurers to change their policies. When it comes to climate change, insurers are the canary in the coal mine. They don't need to know that a particular storm or drought is due to climate change, just that those impacts match what we would expect in a warming world.

While I won't yet go as far as that Businessweek headline, I do think Sandy helps sound the alarm.

"This is what climate change looks like."

From the Archives: New Fossil Fuel Sources and Climate Change

noreply@blogger.com (Jamal (@JGoreCarbon)) — Mon, 29 Oct 2012 10:47:00 +0000

Over the past few months the debate about new fossil fuel sources has gotten pretty...intense. In the U.S. environmentalists are campaigning in the courts and in farmers fields to halt the Keystone XL pipeline, which will provide easier market access for petroleum from Canada's tar sands. Here in the U.K. campaigners are working to slow the spread of hydraulic fracturing, which enables drillers to access abundant but otherwise difficult to access shale gas.

This is an important debate, and one I discussed in a blog post over three years ago. Rather than rehash that discussion, I will reprint that March 2009 post below:

Peak Oil: Will We Freeze or Roast? Originally posted 18 March 2009

When I was in graduate school in the early 1990s, M. King Hubbert was a name known only to fellow energy nerds. Now, he's so popular you can get regular news alerts.

Hubbert developed a mathematical model describing how production from an oil well or entire oil producing region tends to increase at a predictable rate, until it hits a - predictable - peak and then declines. Hubbert used his model to predict the year of peak oil output for the United States, and it has been used more or less successfully for other oil producing regions since then.

In addition to forecasting output growth for particular regions, the Hubbert Curve and peak oil theory can be applied to oil production for the world as a whole. But as recently as 2005, the International Energy Agency (IEA) dismissed the concept. Mainstream energy agencies tended to assume that oil production could increase indefinitely as new investment and technology are brought to bear. If a peak exists, they argued, we are nowhere near it.

This matters because when the world's leading climate scientists prepared their 2007 report on global warming trends and impacts, they turned to the IEA for their best estimates of fossil fuel consumption. The IPCC works by consensus, and its reports tend to refer only to the most authoritative sources. The IEA estimates showed that conventional fossil fuel use would continue to grow without end, and this prediction is reflected in all the pessimistic warnings about global temperature increases and climate change.

Times have changed. The IEA is now predicting that we will reach global peak oil between 2020 and 2030 (more pessimistic scenarios argue that we reached the global peak last year). So oil production will top out much earlier than anticipated.

Less petroleum production means fewer petroleum-related greenhouse gas emissions. In fact, manyindependent models suggest that, once peak oil (and coal) is factored in, we simply can't burn enough traditional fossil fuels to reach the worst-case global warming levels.

Let me repeat that: Most climate models that incorporate peak oil theory predict a temperature rise of less than 2 degrees Centigrade. A major change to be sure, but far less than the IPCC's "business as usual" scenario for global warming.

So, this is good news, isn't it? Climate change is solved because fossil fuel production will decline sooner than predicted, right?

Not so fast. What are we going to use for our vehicles when the oil starts to run out? Shall we simply switch off the lights and freeze?

In 2006, Alex Farrell and Adam Brandt, researchers at the University of California at Berkeley's Energy and Resources Group, published a paper that examined the cost, availability and climate change implications of substitutes for conventional petroleum. These are liquid fuels derived from heavy, difficult to process resources like tar sands, oil shale, and coal.

The Berkeley team found that it would be commercially viable to produce synthetic petroleum from these heavy fuels at oil prices of less than US $50 per barrel. What's more these resources are so abundant that they would keep pump prices relatively low.

In other words, peak oil means less petroleum, but not an end to fossil fuels. For those who worry that peak oil means society will collapse into "Mad Max" - style anarchy, that's good news.

The bad news is that these fuels have a much greater climate change impact than conventional oil. Using tar sands and heavy oil results in about 50% more CO2 per unit of energy than regular petroleum. Synthetic fuels made from coal nearly doubles the greenhouse gas emissions, and using oil shale could result in up to 3X the emissions per unit of energy. To quote the authors:

"Overall...the oil transition is not a shift from abundance to scarcity: fossil fuel resources abound. Rather, the oil transition is a shift from high quality resources to lower quality resources that have increased risks of environmental damage, as well as other risks."

Sadly, peak oil is not the solution to climate change. If anything, a poorly planned response to peak oil could accelerate global greenhouse gas emissions growth.

There is an alternative. We have the technical know-how to produce energy from low- or zero-emission sources. Solar, hydropower, wave and tidal, wind, and geothermal energy are clean sources of hydrogen and electricity, and carefully chosen biofuels can provide high energy-density liquid fuels.

Scaling up these clean energy technologies at the rate required to compensate for peak oil and limite climate change is a challenge. But as discussed in an earlier article, the required investments by governments, corporations and communities are no larger than other causes on which we have spent billions. The need is arguably as great, if not greater, because poorly planned energy investments made today will have a huge impact for decades to come.

Which FTSE 100 Company Has The Best Carbon Reporting?

noreply@blogger.com (Jamal (@JGoreCarbon)) — Fri, 12 Oct 2012 17:07:00 +0000

(This is a guest post by Carbon Clear CEO Mark Chadwick, and was originally published via the 2Degrees Network.)

"Best" is clearly a subjective term... At Carbon Clear we have developed criteria for what we believe represents best practice in carbon management, and we score company reports to assess their carbon management maturity.

On Wednesday 17th October at 08:30am we will be announcing the results of our 2012 research and will reveal the top 20 companies from the FTSE 100. Our maturity model looks for more than just measurement and disclosure. We also look for broader signs of carbon management maturity, including reduction performance, engagement and strategy.

Last year's top 10 were the following:

BSkyB
M&S
Aviva
Pearson
RSA
GSK
Hammerson
Kingfisher
Sainsbury
Tesco

This year's results contain some surprises, some new entrants and some that have fallen in the rankings.

The event will be held at Carbon Clear's office near King's Cross, London and will run from 8:30 to 10:30 on Wednesday October 17th. See our website for more information.

If you’re from a FTSE 100 company, or are interested in improving your carbon management performance please contact Rachel Hunter (rhunter [at] carbon-clear [dot] com) or on 0203 589 9423 to request a place at the briefing.

Mandatory Carbon Reporting: Lessons from the CRC

noreply@blogger.com (Jamal (@JGoreCarbon)) — Thu, 04 Oct 2012 15:27:00 +0000

The UK's Mandatory Carbon Reporting requirement is expected to become law on 6th April 2013. As I mentioned previously, there are still a number of questions surrounding this proposed legislation. What is more, the final consultation is still open, meaning some details may yet change.

Carbon Clear conducted a survey last month on corporate attitudes to Mandatory Carbon Reporting. Worryingly, we found that the lack of specifics has led nearly 3/4 of respondents to adopt a "wait and see" approach to the legislation.

We've been here before, with the Carbon Reduction Commitment Energy Efficiency Scheme (CRC). When the first consultation was launched in 2006 for what was then called the "Energy Performance Commitment", most corporates ignored it. By 2008, with the first qualification year underway, most companies with whom my team spoke were still in denial. "It will never pass into law," they claimed, "We're in the middle of an economic crisis!"

In March 2009, the full CRC consultation commenced and it became clear that the Labour Government wasn't going to back down. And still many firms decided to wait and see. At that point, the claim became, "The Tories are more business-friendly; they will cancel the scheme once they come into power."

Fast forward to October 2012, and as we all know the CRC hasn't been cancelled - at least not yet. However, it has changed considerably since 2008. The timings have shifted repeatedly, the rules for purchasing allowances were only finalised in 2010, the league table has been amended, and the specifics of the reporting requirements have been updated.

Most notably, the CRC has changed from a type of cap-and-trade scheme into something that looks suspiciously like a carbon tax. While the £12/tonne CO2 payment represents only a small portion of most companies' energy spend, it will bring billions to a cash-strapped Treasury.

What is most interesting and relevant for businesses potentially affected by Mandatory Carbon Reporting, is that it is the outputs remain a work in progress: the inputs have remained remarkably consistent. If your company is captured in the CRC, you must:

Define the organisation
Identify your locations
Locate supplies
Identify meters and suppliers, and
Prepare your evidence pack.

The consistency in the CRC's input requirements matters because the rest of the CRC rules were not finalised and did not come into force until March 2010 - only a month before the first compliance year started!Carbon Clear clients who started preparing for the CRC in 2008 and 2009 were generally well-prepared to meet the legislative requirements in April 2010. Some companies were even able to take reasonable steps in 2008 to ensure they did not quality for the CRC.

Those who took a "wait and see" approach until March 2010 (or later) found CRC compliance to be a significantly more stressful process.

Something similar seems to be happening with Mandatory Carbon Reporting. The majority of companies so far have taken no steps to prepare, beyond setting up a watching brief.

I believe this is a missed opportunity. If history is any guide, the final Mandatory Carbon Reporting rules will only be released at the last minute. Companies that wait too long before taking action may be setting themselves up for unnecessary hardship.

While some uncertainty remains around the specifics, we already know what goes into Mandatory Carbon Reporting: firms must measure all their Scope 1 and 2 emissions for all Kyoto greenhouse gases. For some large and complex businesses, this will be easier said than done.

As I've stated previously, companies that already report their emissions to the Carbon Disclosure Project or other schemes will have a head start, even though the specific reporting outputs may differ. Once you are collecting your data in a robust and consistent manner, it is a relatively simply matter to produce a range of different reports.

What is more, we consistently find that firms who measure their carbon emissions begin to look at their operations in a different light and identify valuable efficiency and cost saving measures that strengthen their bottom line. Indeed, a sound carbon monitoring and reporting system sets the stage for a well-designed carbon management programme and transforming your company into a climate change leader.

There are scores of detailed policy lessons we can learn from the CRC. But the main lesson that we and our customers have learned is that uncertainty is no excuse for inaction. Indeed, early action is good for business.

Mandatory Carbon Reporting: What's the Big Deal?

noreply@blogger.com (Jamal (@JGoreCarbon)) — Fri, 21 Sep 2012 13:29:00 +0000

There are just 26 days left before the 17 October close of Defra's Mandatory Carbon Reporting consultation.

As I mentioned in a previous blog post, the formal requirements are not particularly detailed. Many of the biggest companies are already reporting their greenhouse gas emissions via the Carbon Disclosure Project and what is more, Mandatory Carbon Reporting, unlike the EU ETS and CRC, does not attempt to put a price on carbon or mandate reductions.

So why would Defra go through all the trouble?

In a phrase, climate change. The British Government made history with its 5-year carbon budgets, which established a path to an 80% emissions reduction target by 2050.

The most powerful tool in the Government's current arsenal is the EU Emissions Trading Scheme. Participating installations are responsible for approximately 48% of the country's emissions, but the low carbon price reduces incentives to invest in longer term reduction measures. Similarly, the Carbon Reduction Commitment Energy Efficiency Scheme (CRC-EE) targets firms responsible for 10% of the country's emissions but energy represents on average 3% of these company's costs. For these companies, the £12 carbon price in the CRC is rarely enough to justify massive energy reduction investments.

Note that the EU ETS and CRC schemes combined do not cover 58% of the UK footprint due to double counting. Most of the large companies covered by the CRC purchase energy from ETS compliant utilities. The ETS works to drive supply side reductions while the CRC drives demand side reductions. The problem is that those reductions aren't coming fast enough.

Mandatory Carbon Reporting gives the Government a third arrow for its quiver. According to the latest CDP report, the subset of FTSE 350 companies that voluntarily report their emissions had a combined Scope 1 and 2 footprint of over 487 million tonnes CO2e for their worldwide operations. This is remarkably close to the UK's national carbon footprint total of 470 million tonnes CO2e. Broadening this to the 1,000 or more firms covered under Mandatory Carbon Reporting would give a combined footprint considerably larger than the entire country. The emissions covered under Mandatory Carbon Reporting, then, are potentially several times larger than any other carbon reporting measure in the Government's arsenal.

Here's where it gets interesting. Defra's Impact Assessment for the draft Mandatory Carbon Reporting consultation estimates that firms will achieve a 4% emissions reduction simply by improving their footprint reporting. In other words, they assume that forcing the Board and investors to pay attention to the company's footprint will lead to carbon savings, without requiring carbon caps, taxes, or mandated technology measures. Of course, not all of those global emission reductions can be counted against the UK's carbon budget, but with so many of the largest emitters covered under Mandatory Carbon Reporting, these "easy" reductions will make a material contribution to Government carbon saving efforts.

In addition, the current reporting proposal is only the first step. In 2015 Defra will review the programme with an eye to broadening it to cover every large company in the UK, public and private.
And should the need arise for a cap and trade system or carbon tax covering these companies at some point in the future, Defra will already have their emissions data at the ready.

Even though Mandatory Carbon Reporting looks like business as usual at first blush, its wide net makes it a very big deal indeed.

Carbon Clear's Autumn Breakfast Briefings: Telling the Story

noreply@blogger.com (Jamal (@JGoreCarbon)) — Tue, 18 Sep 2012 08:20:00 +0000

There are only two days to go before the launch of Carbon Clear's autumn Breakfast Briefing series. A good deal of thought went into these sessions, and I like to think they come together to tell a compelling story. Here's how they fit together.

The first session, on 20 September, will cover the UK Government's new Mandatory Carbon Reporting legislation, which I blogged about a few weeks ago. I'll be joined at that session by my colleague Vincent Reulet and by Mardi McBrien, MD of the Carbon Disclosure Standards Board.

We'll be talking about why the Government is pushing for mandatory carbon reporting, how this new requirement fits in with other carbon reporting efforts like the EU ETS, the Carbon Disclosure Project and the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), and how companies can both comply with this legislation and use it to gain competitive advantage. Should be an informative and dynamic event.

A few weeks later, on 2 October, we will be talking about what I sometimes refer to as Carbon Offsetting 2.0. After the first wave of carbon offsetting in the mid- to late-2000s, there was a lull. Now, a new crop of companies, from Microsoft to Marks & Spencer, are announcing carbon neutrality programmes. We'll be discussing how this new round of carbon offsetting differs from the first, and how other companies can benefit.

Then, on 17 October we will be unveiling our Carbon Maturity whitepaper. Our crack team of consultants has pooled decades of accumulated experience working with over a hundred companies to develop a model of corporate carbon maturity. We've found that companies at each stage of the maturity curve share certain characteristics and encounter similar obstacles before moving on to the next level. This applies to both their internal carbon management activities and their carbon offsetting initiatives. Delegates at this briefing will learn how the carbon maturity model works, and how to benchmark their companies' performance against other businesses.

The breakfast briefing series, then, tells a story. We start with carbon footprinting and show how it can go from being a burden to a source of competitive advantage. We then move on to carbon offsetting and show how it has evolved to become a source of real business value for the largest companies. And then we describe how companies around the world are developing increasingly sophisticated carbon management programmes that deliver benefits for management, employees, investors and the wider community.

I think that's a story that every company should hear. Join us, and help tell the story.

Who's Afraid of Low Carbon Prices? Part 3: Not Australia

noreply@blogger.com (Jamal (@JGoreCarbon)) — Thu, 13 Sep 2012 10:03:00 +0000

Last week I attended a briefing at the Australian High Commission in London. The Victorian Government (the Australian state, not the 19th century ruler) hosted a session for carbon market participants to present the latest updates to the country's ambitious greenhouse gas cap-and-trade scheme.

The Australian carbon pricing initiative begins as a straightforward carbon tax, set at A$23 (€19), indexed to inflation and payable by the largest 500 or so industrial polluters. European carbon allowances, by contrast, were trading below €8 yesterday. That price difference initially attracted howls of protest from industry lobbyists.

From July 2015, however, Australia switches from a carbon tax to a cap-and-trade scheme linked to the EU-ETS. That means Australian companies will be able to buy European credits (EUAs), and to an extent UN-issued CERs to comply with up to 50% of their carbon reduction obligations. Similarly, Europeans will be able to buy Australian Allowances to satisfy EU abatement requirements.

The EU-Australia linkup is not a marriage of equals, however. The EU is directly responsible for 11% of global greenhouse gas emissions, while Australia emits just 1.5% of the global total - about the same as the United Kingdom. The additional supply of relatively cheap EU allowances is expected to dwarf the additional demand for allowances generated by Australia's emissions-intensive firms. If the business-as-usual EUA price remained at €8 in 2015 and all else being equal, we should expect the carbon price for the linked systems to equalise much closer to the EUA price - somewhere around €9.30.

This analysis indicates that linking the two carbon trading schemes might cut the Australian carbon price in half. In reality, the EU expects the carbon price to rise by 2015, but still much lower than the Australian carbon tax level. Isn't that bad news for Australia? Surely we need high carbon prices to drive emission reductions?

That might be true if the Australians had magically built a dome over their country and were the only people affected by the carbon emissions. The reality is that Australia's greenhouse gas emissions contribute to climate change across the planet. Similarly, the CO2 from a Polish or American power station adds to the global atmospheric buildup contributing to droughts and flooding in Australia.

Global atmospheric circulation means that an emission reduction anywhere helps the climate everywhere and vice versa. If we need to save 1 million or 1 billion tonnes of CO2, it doesn't matter too much where that savings happens. What is important for climate change is that this savings happens sooner rather than later.

As I discussed in an earlier blog post, the emissions trading scheme is a price discovery mechanism that helps us identify the most cost effective emissions reduction opportunities across the entire scheme. So a relatively low carbon price for a combined Australia-EU trading systems means there are significant opportunities to reduce green house gas emissions with minimal economic impact. It means the Australian Government can make its contribution to curbing global climate change even cheaper and faster than before. The market can work, and that's a good news story.

It also means that there are still major carbon reduction opportunities that we (including Australia) are not pursuing. And that's bad news. One analysis says that global greenhouse gas emissions need to peak by 2015 and then decline year on year if we are to limit average global temperature increases to a damaging but not wholly catastrophic 2 degrees. A low carbon price means we continue to fight this battle with one arm tied behind our collective back. It means governments are still failing to set sufficiently ambitious targets to set us on a path towards a low-carbon future.

What Defra's Greenhouse Gas Reporting Consultation Won't Tell You

noreply@blogger.com (Jamal (@JGoreCarbon)) — Mon, 13 Aug 2012 12:04:00 +0000

In late July I tweeted the news that the UK Department for Food, Environment and Rural Affairs (DEFRA) has released the final consultation on its proposed mandatory carbon reporting legislation.

If you went to Defra's website and download the consultation documents following that announcement, you might have felt somewhat confused and more than a little disappointed. It all feels rather vague.

The draft consultation document from late last year, and Defra's ensuing feedback document released this spring each ran to dozens of pages focusing on the technical minutiae of setting organisational footprint boundaries based on operational versus financial control, whether or not to include Scope 3 emissions in the footprint, and the pros and cons of reporting all six Kyoto categories of greenhouse gases. In the end, Defra expressed strong views on how these and other points should be addressed, and went to some length to justify those decisions.

The final consultation document totals just six pages and lacks specificity on most of these important points. Required reporting standard? Not specified. Financial versus operational control? Not clearly specified. Penalties for non-compliance? Silence. What is more, the final consultation document appears to change the inclusion criteria that determine which companies are covered under the proposed legislation, narrowing them in one regard and substantially broadening them in others. You can find Defra's greenhouse gas reporting consultation page here - as I said, it's a relatively quick read.

When Nick Clegg announced the introduction of mandatory carbon reporting at the Rio+20 summit, it was touted as proof that the UK was leading the world in its response to climate change. So why the sudden absence of detail? I have three theories.

The first is political. The initial consultation documents clearly were written by technical specialists, who were focused on getting things right. The final legislation needs to be read into the House of Commons and debated by politicians. The more detail is included, the more likely the legislation will get delayed due to time pressure or tripped up by a Member of Parliament who objects to one or more provisions. Seen from this perspective, short and sweet is the way to go. Perhaps Defra will choose to issue clarifications containing the detail once the legislation is passed.

The second potential reason for this approach is to maximise the number of companies who report. I call this the "boiled frog" approach. By refusing to define rigidly what companies must report and how they must report it, Defra might be making it easier to comply. Given the choice between companies submitting poor quality or incomparable data versus no data at all, my preference would be to get poor quality data. After all, we know the footprint isn't zero, and this flawed initial number gives us something with which to start. Defra can then issue additional guidance as time goes on to improve the quality of data that companies submit and ensure that it becomes easier to make comparisons between companies or industry sectors. The responding companies, meanwhile, can gradually begin to implement better data collection and quality assurance systems - perhaps with less internal resistance than if they tried to jump from no carbon reporting to industry best practice all at once.

And the third potential reason Defra may have chosen to keep it simple, is that many of the largest companies already report their carbon footprints in a reasonably consistent way via the Carbon Disclosure Project. CDP respondents report their greenhouse gas emissions using ISO 14064 or the GHG Protocol and answer the same standard questions about their carbon footprints. Carbon Clear is a CDP accredited Consultancy Partner, and while respondents' footprints are not directly comparable, they do tend to take a similar approach. I expect UK listed firms that already report their emissions to comprise the bulk of the total footprint covered under the Government's mandatory carbon reporting scheme. As a result, Defra may have decided they did not need to reinvent the wheel.

The real reason is likely to include some of each of these, and perhaps some others that never see the light of day. Whatever the reason, the result in the short term is confusion for firms that don't yet know whether they will be included, nor what they need to report. Based on our previous conversations with Defra and the CDP, our team at Carbon Clear is able to tease some extra detail out of the current legislative draft, and will aim to give our clients a head start in preparing for the advent of mandatory carbon reporting in the UK.