Slipping into neutral

Carbon offsets are suddenly the talk of the town. Is this the way we start paying our way to climate responsibility – or just buying off our guilt? Mark Tran looks for some proper answers.

Most football fans in Germany this summer were probably blissfully unaware of the World Cup going ‘carbon-neutral’. But for tournament organisers FIFA it was a proud first. Not that they managed to stage the whole thing without greenhouse gas emissions. They did work hard to keep them down [see GF59, ‘World Cup ‘carbon neutral ’’], but their ‘neutral’ claim depended on doing something else besides. In a typical example of ‘carbon offsetting’, FIFA spent over a million euros on assisting renewable energy projects in developing countries.

The connection may seem remote, but in one respect it is quite precise. The sums that FIFA invested in this way were calculated to save the planet from the same quantity of CO2 emissions as were caused by its month-long football extravaganza – and all the associated air miles.

World Cup carbon winners

Two carbon-cutting projects in South Africa – the country hosting the next World Cup in 2010 – were the main beneficiaries of FIFA’s emissions offset spending this time round.

In one, citrus producer and processor African Realty Trust is to switch from coal-fired to biomass-fuelled boilers, burning sawdust from nearby sawmills. The second project tackles methane emissions – four times worse than CO2 as a greenhouse gas if released into the atmosphere – from a wastewater treatment plant in the Johannesburg area. Instead, the methane is to be recovered and used to generate electricity.

Between them, these schemes should save the equivalent of 50,000-60,000 tonnes of CO2 emissions annually over the next ten years, according to Charles Liebenberg. He’s the managing director of WSP Energy, which teamed up with the Swiss-based myclimate foundation to deliver the offsets FIFA needed. “There is a phenomenal demand for such projects,” Liebenberg says. “There are far more buyers [looking for offset opportunities] than projects in the global market.”

“There are companies, musicians, even ordinary individuals, queuing up to cut down their carbon footprint.”

That’s because more and more companies, organisations, musicians and other celebrities, and even ordinary individuals, are looking for ways to cut down their ‘carbon footprint’. Reducing their own emissions to zero through efficiency measures may be impossible, or too expensive. Hence the attraction of offsetting – which basically just means paying to prevent a similar amount of carbon being emitted somewhere else. (Generally, what you actually buy are ‘carbon credit’ certificates, corresponding to the number of tonnes of emissions you’ve paid to ‘neutralise’, though there’s quite a variety of ways to go about doing that – see opposite).

Assuaging guilt – or taking responsibility?

No one, you might think, could be against arrangements like FIFA’s offsets, which launch projects that transform polluting waste into clean energy... Yes, but for some critics they’re still fundamentally wrong. The argument advanced by the likes of SinksWatch, Carbon Trade Watch or The Corner House is that such schemes fail to address (or, worse, deliberately disguise) the fact that the real problem is our excessive burning of fossil fuels. The Corner House’s uncompromising position is that “the only realistic approach to the dangers of climate change is to stop production of coal, oil and gas as soon as possible, leaving the great bulk of fossil fuels safely underground”.

Offsetting, in this view, merely salves consciences, while creating the illusion that consumption (cheap air travel being a prime example) and production patterns in the richer countries can be maintained without harming the climate. And carbon offsetting in the South is seen as a form of ‘CO2lonialism’. We in the industrialised North, these objectors say, go on damaging the planet, while hoovering up ‘cheap and easy’ carbon cuts in developing countries, not even paying what it would cost to achieve an equivalent reduction in emissions at home.

Liebenberg has a robust response to this. Since climate change is by its very nature a global problem, he says, “it doesn’t matter where you reduce emissions as long as you do it”.

Tom Morton, head of UK-based offset specialist company Climate Care, likewise has little time for the argument that he’s promoting a sticking plaster approach to global warming. “We take the view that you should reduce emissions as much as you can, and offset what you can’t,” he says. Moreover, he points out, when you go in for carbon offsetting, as an individual or as a company, you have to start by taking stock of the emissions you are producing. “What is measured, is managed and what is managed is reduced.”

Most big corporations now make it part of their business strategy to take account of climate change issues. Simple economics dictates that they must look seriously at energy efficiency – with crude oil prices at nearly $80 a barrel, and the $100 barrel no longer an outlandish notion. As Liebenberg says: “Doing nothing is expensive. Prices at these levels will change behaviour.”

“Carbon credits are cheap at the moment – but we can expect to pay more in the future.”

Direct financial losses also loom for those who fail to control their carbon. They’ll be buyers rather than sellers in the emissions trading markets created by cap-and-trade schemes [see ‘Carbon trading: a guide for the perplexed’]. Carbon credits may be quite cheap at the moment, but they can expect to pay more for the pleasure in future, as the climate change crisis becomes ever more acute, carbon quotas shrink, and trading becomes increasingly a seller’s market.

Faced with all this, it’s no surprise to see a growing band of businesses announcing a combination of carbon reduction measures and offsets. Satellite broadcaster BSkyB is a typical example. Adding itself to the list of high-profile ‘carbon-neutral’ companies earlier this year, it trumpeted new offsetting investments in renewable energy technologies. And it gained Brownie points for greening its travel by moving its taxi account to greentomatocars, a cab company that uses hybrid vehicles.

Of course there is a PR aspect to this. And, as the sceptics point out, the costs hardly bear comparison with the profits that some of these companies are making. In the financial sector, for instance, HSBC is claiming the title of the world’s first major carbon-neutral bank. Offsetting 170,000 tonnes of CO2 annually, through projects in New Zealand, Australia, Germany and India, cost it $750,000. That’s not a massive drain for a company that notched up £6.7 billion in profits in the first six months of 2006.

Companies taking the initiative on carbon management are also preparing themselves for the likelihood of environmental regulations being made stricter. Which is precisely what some business leaders are urging – most notably the Corporate Leaders’ Group on Climate Change, which includes such household names as Shell, Tesco, Unilever and Vodafone. In a recent letter to Tony Blair, the group urged the government to use its regulatory powers to drive up minimum standards on energy efficiency, to encourage companies to invest in low-carbon technology, and to strengthen markets for carbon credits – especially the European Emissions Trading Scheme (ETS – see ‘Carbon trading: a guide for the perplexed’).

An offset with that, sir?

If individuals are motivated enough, the tools are already out there for them to assess, and offset, any or all of their carbon-emitting activities. A variety of web-based calculators reduce the assessment burden to the keying in of data about distances driven, flights taken, electricity and gas bills and the like. If you use the calculator at the website of a specialist offset company such as Climate Care, you need only add yeour credit card details to send a corresponding payment speeding towards a carbon-reducing scheme.

In a similar vein, Ebico, a not-for-profit gas and electricity supplier, offers to arrange for its customers (at their cost) the purchase of enough CO2 reduction certificates through the ETS to cover their household heating and power use. This summer it widened its offer, making the same service available to households using other energy suppliers too.

But it can be a much more powerful prompt to present the offset option at the point of purchase of the CO2-creating product or service. In an interesting and relatively new development, several major companies in such sensitive areas as aviation, tourism and road travel have been dipping their toes in this water.

“Book a plane ticket, and just tick the box to have the cost of a carbon offset added to the bill.”

British Airways was among the first. In September last year, a few months after several UK government departments undertook to offset the greenhouse gas impact of their official business flights, it offered its customers the chance to do the same when they book a ticket. If they tick the box, BA adds the cost to their bill and passes the money on to Climate Care to take care of implementation. Tour operators including First Choice Holidays and Thomas Cook now have a similar point-of-sale option, allowing customers to contribute to tourist industry-related CO2 reduction schemes through the Travel Foundation.

Ford, meanwhile, has come up with a scheme for Land Rovers sold in the UK. This involves the company buying offsets, also through Climate Care, for the CO2 emitted during their manufacture, and simultaneously offering purchasers an option to buy offsets covering fuel burned for their first 45,000 miles of use (at a total extra cost of £85-£165, depending on the model).

BP has just become the latest company to launch an initiative in this area. Its ‘targetneutral’ scheme [see right] provides a website for car drivers to calculate, and pay to offset, the emissions from their yearly travel. There’s a sweetener, too, in the form of a small BP contribution whenever they buy fuel from one of the company’s filling stations – so the programme also functions as a loyalty scheme.

Plane flights, 4x4s and petrol – you could hardly have chosen anything more likely to spark a cynical reaction. What’s more, BP’s targetneutral initiative was launched hard on the heels of a spate of environmental protests over its activities in Alaska. As Kerryn Schrank at BP acknowledges, companies in the energy business frequently get accused of paying mere lip service to green causes. (Campaign groups recently made the point, in the wake of big profits announcements from BP and Shell, that only 5.7% of BP’s capital budget last year went on its alternative energy division, compared with 72% on finding and developing oil and gas fields – while Shell spent only 1.1% on renewables.) They won’t carry credibility with customer-oriented initiatives, she recognises, unless they also take action themselves.

But Schrank, an advisor in the company’s biofuels business (within which the offset scheme sits), stresses that BP is doing just that. “We are making investments in developing lower-impact products,” she says, as well as pursuing a longstanding programme of cutting BP’s own carbon emissions, and offsetting the CO2 released by the tanker lorries that distribute its road fuel around the UK.

“Consumers have a responsibility too,” says Schrank. “If people drive, we should encourage them to drive hybrid models or diesel cars and to drive in the most efficient way possible. But all that is further down the line. Offsetting is about taking action today.”

The targetneutral website carries clear messages, she points out, about actually reducing fuel consumption, and replacing existing cars or fuel with something more energy efficient. It also makes absolutely explicit the link between fuel consumption and CO2 emissions – all designed to help people get more ‘carbon literate’. That, says Jonathon Porritt, is “something all oil companies will need to commit to in the very near future”.

What happens when car drivers take the first step, “to neutralise what they can’t reduce or replace”, as BP’s UK head of country Peter Mather puts it? Do they stop there – or will they, as Schrank believes, become much more open to those other messages? The sceptics claim that offsets just encourage complacency by ‘buying off’ feelings of guilt. If BP has it right, we could soon be seeing the exact opposite.

That’s the way the money goesOffsets seem somehow intangible. What does the reality look like?
Once upon a time, one simple answer was –just picture a tree. Tree-planting schemes have proven to be a wonderfully intuitive way of selling offsetting to the public –tapping into those school biology lessons about trees absorbing CO2 from the atmosphere. You pollute, so you plant (or pay for) a tree, and it soaks up your pollution. But Oliver Rackham, a botanist and landscape historian at Cambridge University, helped rubbish the idea with a withering quote for the environmental group Fern. “Telling people to plant trees,” he said, “is like telling them to drink more water to keep down rising sea levels.”

How, Fern asked, do you actually calculate the carbon performance of a tree? Trees also take time to grow, can die if not managed properly, or burn down, releasing CO2 back into the atmosphere. Others have warned that insensitive tree-planting schemes can create large plantation monocultures inimical to biodiversity. They may even displace local populations.

If not trees, then what?

Although tree-planting is still widely used as a popular form of offset, it is now on the wane –as witness the 2005 name-change of UK-based offsets trailblazer Future Forests. Its new name, the CarbonNeutral Company, reflects a growing sophistication about carbon management, promoting solutions that focus more on investment in renewable energy. Climate Care, too, now offers tree-planting projects amounting to only 20% of its total portfolio –roughly corresponding to the proportion of global CO2 emissions that are reckoned to be attributable to deforestation in the first place.

Can you be sure your money is well spent?

“The biggest weakness of all in offsets is determining the integrity of a project,” says Liebenberg. Talk to anyone in the field of offsets and this issue crops up again and again. Jonathan Shopley, chief executive of the CarbonNeutral Company, sees it as a real barrier to growth. “What we have at the moment,” he says, “is similar to fair trade and organic food; too many different standards. We use our own, but there needs to be a global, independent standard verifiable by third parties.”

Companies can at least get their offset projects approved by a reputable certification company such as the Gold Standard, based in Switzerland. Their work goes well beyond just making sure that the chosen project is genuinely up and running, to include the recording and registering of the resulting carbon credits, and their ‘retirement’ once they have been assigned as an offset. A global registry of carbon credits would make this much more foolproof, not to say fraud-proof. Otherwise there’s a risk of double counting –in other words, going on treating a carbon reduction as a benefit to the planet, when it has already been matched against the same level of emissions elsewhere. The whole point of offsets is that they match plus with minus and ‘neutralise’ them both.

By the same token, if a project would have gone ahead anyway, then it is not ‘additional’. Whether it’s trees planted, wind energy installed, or coal-fired boilers replaced by biomass, a genuine offset can only be claimed if it was the offsetter’s investment that made it happen. FIFA’s projects, for example, were only validated by the Gold Standard because they would not have been built without the involvement of WSP and myclimate.

For all the potential pitfalls in finding good offset projects, there are real benefits in promoting some of the smaller, more innovative initiatives that are being sniffed out by the companies in the business of managing voluntary offsets. Climate Care’s Tom Morton points out, for example, that 500 million people need access to improved cooking stoves [below], rather than their existing highly polluting wood- or coal-burning models, to reach the UN’s Millennium Development Goals on poverty reduction. Community-based schemes to spread the use of solar, biogas or other low-carbon energy solutions are just the kind of thing the likes of the CarbonNeutral Company and Climate Care can invest in.

In this way, Morton believes, the voluntary sector has been able to reach areas that fall under the radar of the Clean Development Mechansim (CDM), the official vehicle for matching developed country carbon offset needs with developing country investment projects under the Kyoto Protocol [see ‘Carbon trading: a guide for the perplexed’]. CDM projects have to jump through a lot of bureaucratic hoops, and consequently focus more on big, easily counted emissions reductions, such as renewable power generation to feed into the grid. And the majority of CDM projects developed so far have been in the more well-off developing countries, particularly in Asia and Latin America –an imbalance that’s recognised as needing attention.

And what might a typical offset cost?

Prices vary widely according to who’s offering you the service. Offsetting a short air flight might cost you a fiver. HSBC recently paid just $4.4 per tonne to go carbon-neutral. Once the market is better established –and standardised –you might expect prices to align to whatever level carbon credits are trading at within the major emissions trading schemes [see ‘Carbon trading: a guide for the perplexed’]. That’s about 15 euros at present – but can’t stay so low in an increasingly carbon-constrained world.

Carbon trading: a guide for the perplexed

Roger East and Mark Tran untangle the past, present and future of a $30 billion industry.

The world’s first carbon offset project? That distinction is claimed by global power company AES for an agroforestry scheme it funded in Guatemala nearly two decades ago. But it took the 1997 Kyoto agreement to make carbon offsets part of the discourse even among the climate change cognoscenti – and almost another decade to shift the idea into the mainstream.

Kyoto introduced three new elements:

• the first ‘binding ceilings’ on the carbon emissions of its industrialised country participants.
• a provision for countries at risk of going through their ceilings to buy extra allowances from those with headroom to spare; and
  
• a couple of initially quite controversial ‘mechanisms’, the CDM and the JI [see jargon-buster, below], for earning further ‘carbon credits’ by investing in carbon-cutting projects in the global South, and energy cleanups in the former communist countries.

And thus was today’s ‘carbon market’ born – out of the prospect of financial penalties for excessive emissions, and the opportunities to earn (and trade) ‘permits to emit’.

It took time to happen; indeed, the Kyoto Protocol only came into formal effect last year, and its first round of country-by-country emissions ceilings cover the 2010-2012 period. As a first step in tackling climate change, they’re modest to a fault. And what happens post-2012 is still very much up for grabs, but is certain to have offsets and emissions trading at its heart. The market’s booming fast. Trading was worth over $10 billion in 2005; some analysts predict it could be $30 billion by the end of 2006.

It was the looming deadline for meeting Kyoto’s country-by-country targets that kick-started the process of passing carbon reduction requirements – and permit trading possibilities – down from governments to the polluters themselves. The EU’s emissions trading scheme (ETS), launched last year, is a world first in setting mandatory CO2 limits company-by-company at a plant level – although businesses recognising this as the shape of things to come have been signing up to voluntary schemes for a while – even in the Kyoto-refusenik US and Australia.

The first phase of the ETS (2005-2007) applied to some 12,000 installations, mostly in the power sector, with allowances determined under national allocation plans. Those that exceeded their allowances would have to purchase permits from other, more efficient participants. Those that came under their allowances could sell them to make a profit.

Trading on the ETS got off to a rocky start, largely because, under intense lobbying by industry, governments gave out too many allowances. This reduced the likelihood of companies needing to buy any extra – and carbon permit prices crashed accordingly. The lower the carbon price, the less incentive there is to cut pollution; it becomes cheaper to pay up than to invest in more energy-efficient technology. In theory that should be self-correcting, up to a point, but cap-and-trade only really bites when the cap is tight enough.

There’s more at stake than just EU prestige. When carbon is being traded on the cheap, there’s little incentive to invest in energy projects, and the pipeline for ventures in the developing world dries up too. If the ETS comes a cropper, it will have a knock-on effect on CDM; the markets are all linked, with credits from CDM (and JI) projects accepted within the EU scheme to help companies meet their targets.

The eurosceptic think tank Open Europe has dismissed the ETS as an environmental and economic failure, saying that its permits should have been auctioned rather than handed out by national allocation. But David Arvanitakis, an analyst with industry specialists Point Carbon, says that “with so much riding on the success of the ETS, we can expect the Commission to look very hard at the next set of national allocation plans to make sure they are tougher”. John Murlis, professor of geography at University College London, agrees that a bit more of a stick is needed. “Next time,” he says, “it has got to be serious.”

Kyoto jargon-buster
targetneutral: the basicsReduce, replace and neutralise are all advocated on the BP project’s website (www.targetneutral.com), which then goes on to offer a route to ‘neutralising’ the carbon impact of your car.

You have to register with the scheme, and pay upfront to offset your annual road fuel use. According to BP, payments would typically amount to around £20 a year, to offset 3.7 tonnes of CO2 equivalent.

That corresponds to the emissions of an average car driving 10,000 miles a year with a fuel economy of 30 miles a gallon. The cost to the motorist works out at about 65p per 50-litre tankful.

BP pays in another 10p for a 50-litre tankful when customers buy regular fuel at its filling stations, and 20p if they buy low-emission BP Ultimate.

The project is costing BP several million to get up and running. If it is well received, it will be rolled out in the US as well. Forum for the Future worked with BP from the outset to develop this scheme. Its involvement is a key factor in combating cynicism about BP’s motives.

An independent review board chaired by Jonathon Porritt, founder director of Forum for the Future and chair of the UK government’s Sustainable Development Commission, will oversee the operation of the project.
This time it’s personalSo far it is very much voluntary for consumers to act to cut their carbon footprint. And few of us do. But that could change – and the prospect of mass participation drew closer when, this July, environment secretary David Miliband unveiled plans for a possible nationwide carbon swipe card scheme.

Under such a scheme, all citizens including the Queen would be allocated an identical annual carbon allowance, stored as points on an electronic card similar to bank or credit cards. The card would be swiped, and points deducted from it, each time the holder bought non-renewable energy. People who didn’t use up all their allowances would be able to sell points to higher energy users. To reduce total UK emissions, the overall number of points would shrink every year [see also ‘Learning to count your carbon’ and, for earlier discussion of this concept, GF49, ‘Smart carb quota’].

It’s an idea long advocated by the likes of Richard Starkey, of the Tyndall Centre for Climate Change Research. “The starting point,” he says, “is an overall cap to restrict carbon emissions, which can be seen as a cake. The cake shrinks every year, and we have to decide how to slice it. Personal carbon trading will not be pushing the technology envelope. We can use credit card technology, which is well tried and tested.”

“Personal carbon trading is the way it’s going to go,” asserts Climate Care’s Tom Morton. “It’s going to come down to individual carbon responsibility and that’s a good thing. Personal trading will bring carbon pricing into people’s lives. And, as allowances become scarcer and more expensive, it will make people think harder about energy.”

But there are dissenting voices. James Woudhuysen, professor of forecasting and innovation at De Montfort University, questions this whole emphasis on individual responsibility. “Today’s government search for consensus, social inclusion and state legitimation has led politicians to alight on personal responsibility for energy as a highly effective ‘groupthink’ for our times,” he argues. So much so, that “you’d almost think that electrical goods in the home give off CO2 there”. He’s worried that this risks taking the heat off the electricity generating industry over the carbon intensity of their power stations – where the emissions are actually being created.
 Mark Tran is business editor of Guardian Unlimited. Additional material by Roger East.

9 October 2006

Mark Tran and Roger East