We appreciate your coverage of this timely and important topic.
For the past six months, Center for Resource Solutions (CRS runs the Green-e
program) has been engaged with an advisory group of 15 leading experts from key
environmental organizations, government agencies, businesses, and advocacy
organizations who work on climate change issues to develop a draft standard that
will ensure that retail GHG reduction products sold to consumers provide real,
verified and additional GHG reductions. CRS uses transparent, stakeholder driven
processes in the development its consumer protection standards. The draft
Green-e Retail GHG Reduction Product standard will be distributed for broad
stakeholder review later this month. Any parties interested in participating in
this process should contact CRS to be added to the stakeholder list.
As presented in your blog, the argument against using RECs as a GHG reduction
is that REC markets do not create additional renewables. This is not the case.
The renewable energy and REC markets are complex. RECs are used for varying
purposes
(for example, regulatory mandates such as renewable portfolio
standards, as accounting mechanisms for state run consumer disclosure programs,
and also to support voluntary purchases of new renewable energy) and are of
varying quality. From its inception almost 10 years ago, Green-e has assured
that Green-e certified renewable energy purchases are supporting new renewable
developments and delivering environmental benefits to customers.
Specifically, Green-e requires that Green-e certified RECs must be from
renewable generation serving voluntary markets for environmental attributes
(which include GHG reduction benefits created by renewable energy) and from
facilities put online after 1997. Further, mandated renewables do not qualify
for Green-e.
In fact, leading GHG registries and accounting protocols (including EPA
Climate Leaders, World Resources Institute’s GHG Protocols, and the California
Climate Action Registry) recognize Green-e certified RECs as a way for entities
to reduce their GHG footprints. As you pointed out in your previous post about
RECs, Green-e certification is an essential component for consumers to look for
when purchasing RECs.
The Green-e Program is developing the Retail GHG Reduction Certification
standard to provide quality assurance, consumer protection and market support to
the emerging retail greenhouse gas reduction market and the growing number of
consumers who choose to decrease their own contribution to global warming by
purchasing greenhouse gas reductions.
We agree with you, and Mark Trexler, and Adam Markham that the time for a
broadly supported, meaningful, GHG reduction standard is now. We expect our
standard to serve this function, and it will be available for public comment
later this month.
In 2004 the UK food retailer J Sainsbury introduced a refined service to
customers. If they typed a code number from an organic potato package into a
company’s web page, they would instantly identify which farm had produced the
potatoes. Thanks to information technology, the origin of the food was no longer
hidden from customers by retailers’ complex distribution chains.
Francis Sullivan, advisor on the environment for HSBC – a bank which has
pledged to become carbon neutral – sees similarities between the emerging carbon
market and the organic food market, which is underpinned by visible and
rigorous, consistently upheld criteria. Traceability is, of course, also a key
building block for sustainable consumption.
As with the organic market too, a clear, traceable link between carbon offset
buyer and supplier is essential both in the regulated certified emissions
reduction (CER) market and the non-regulated verified emissions reduction (VER)
market, so that buyers can trust the validity of their emissions reduction
certificates. But as 2007 begins, both the VER and CER markets still have a long
way to go before resembling the now well-ordered organic food industry.
Nevertheless, the battle within both markets to demonstrate the virtues of
reliability and transparency is well under way.
Companies voluntarily wishing to reduce their carbon dioxide emissions by
funding clean energy projects can buy both VERs and CERs to show that they have
reduced their emissions of carbon dioxide (CO2) by one tonne more than would
have occurred in a business-as-usual scenario. Companies operating within the
regulated European Emissions Trading Scheme (EU ETS) buy the European permits to
emit one tonne of CO2 called European Union Allocations (EUAs) or they can buy
CERs as an alternative.
“Most markets in any industry are regulated in some way to ensure buyers are
getting an agreed standard of product, but in the verified emissions reduction
[VER] market, anyone can sell anything,” comments Sullivan, drawing conclusions
based upon his company’s survey of the market. His criticism is typical of many
customers and competitors shunning VERs.
Dietrich Brockhagen, managing director of the German company Atmosfair which
runs “climate protecting projects,” (it does not mention the ambiguous term
carbon neutrality) is a keen competitor in the industry and equally critical.
“We are not involved in the VER market – we don’t think it’s environmentally
sound due to the fact that there is no common standard or uniform set of
criteria. A VER can mean anything,” he remarks, unknowingly echoing
Sullivan.
Brockhagen is at pains to point out the efforts the company has made to link
customers (both individuals and companies) directly with the Atmosfair projects
they are investing in. “If you go to our web pages you will see every step in
detail. We have made every effort to provide transparency so that the process is
verifiable to the user without our involvement,” he emphasises.
The company describes individual projects such as a solar mirror rice cooking
system in India and a biogas scheme in Thailand on the website, alongside a
description of its planning, verification and operational processes, official
verification reports and details of its approval and project selection
procedures.
Brockhagen operates only in the more firmly structured CER market and only
uses Gold Standard CERs. These CERs are derived from projects with particularly
rigorous criteria relating to the sustainable development goals of a project as
well as its additionality - the quality that shows the project’s creation is
dependent on the creation of CERS or VERs and would not have happened under a
business-as-usual scenario. Again, additionality is a hotly contested
concept.
The clean energy sector has been developing for 10 years or more and
investment in the sector dates from before the creation of the Kyoto Protocol’s
Clean Development Mechanism (CDM). A business-as-usual scenario frames the
amount of investment that would have taken place anyway, without the CDM. Hence,
additionality is supposed to represent the additional investment that has taken
place, stimulated by the CDM alone, and hence making an additional impact on
emissions reductions.
In the newer VER market, companies selling VERs have been developing
additionality criteria that often vary from those in the CER market. Is the
development of the VER market the result of business-as-usual and a gradually
developing social awareness of climate change, or is it stimulating investment
in its own right? The causality is hard to prove. Most importantly, a consensus
on the definition of additionality in the VER market is absent. The definition
of the baseline at which investment becomes additional is very subjective.
“Additionality is not black-and-white, but that makes it all the more
important that not every group defines its own criteria but that ONE approach is
followed,” comments Michael Schlup, Director of the Swiss-based Gold Standard
Foundation, the organisation which makes the strictest demands on CER and VER
projects.
It is clear that since entry into force of the Kyoto Protocol, the
development of projects under the CDM has gained momentum. Investment is
growing, and that in turn has resulted in a closer scrutiny of supplier
credibility in the CER but more noticeably in the VER market.
And this is where the analogy between organic food markets and carbon markets
weakens; it is in the commoditised EU ETS as well as the CER market that the
more rigorous standards and better traceability are to be found. This is
especially true of the EU ETS (linked to the CDM mechanism via the Linking
Directive) - which currently makes up the bulk of global carbon trading.
In the EU ETS, traders regard EUAs as the flipside of the oil, gas and other
energy markets - a ‘negative commodity’ or right to create a certain amount of
waste (CO2) alongside energy generation. For example, the price of an EUA
responds to the price of coal, since companies may switch from coal to gas when
coal prices rise; this in turn will cut their emissions, since gas emits less
CO2. The EU ETS is a cap-and-trade scheme through which governmental pressure is
placed on polluters to cut emissions by creating emission caps. The stricter the
caps placed on corporate emissions, the higher the value of an EUA is likely to
be.
Whereas pollution controls are built into this market through regulation,
they are integrated into the VER market through values-based corporate affairs
policies. VERs are not commodities but a marketing tool for corporations who buy
them from retailers such as Atmosfair, positioning them as socially responsible
organisations. They are supposed to represent, not a permit to emit a tonne of
CO2, but an emissions reduction of one tonne more than would have happened under
a business-as-usual scenario.
A 2006 study by the International Institute for Environment and Development
(IIED) found that 30-40 retailers exist in the carbon market, based mainly in
Europe, the USA and Australia. The Carbon Neutral Company in London is one of
the retailers.
“Our customers are people who want to take action and become part of the
solution,” says Bill Sneyd, Operations Director. He says the company offers a
range of services in addition to investment in energy projects. Projects include
a solar lighting system in Sri Lanka (replacing kerosene lamps) and a plan to
restore a forest in Mozambique. The company operates in both the VER and the CER
market. Its services range from helping companies to understand their carbon
footprint, reduce operational emissions and providing communications advice.
Like Dietrich Brockhagen, he is keen to show that customers can trace where
their investment has been placed, as well as be assured of the quality of the
projects. Transactions are noted in a registry which shows that, for instance,
1000 tonnes of CO2 from project X have been allocated to client Y.
Like Atmosfair, the company wants the “chain of custody” to be visible on its
website for the purposes of transparency. “The Carbon Neutral Company is
committed to making the key elements of its registry publicly accessible, and is
increasing the functionality of its website to this end during 2006,” it states
on its offset project registry web page. Before it is registered, though, a
project has to be verified by auditors such as major accountancy firms, who also
check the register itself.
Auditors confirm the volume of emissions reductions created by the project.
They also check that double counting does not occur, for instance when two
customers are allocated the same lot of emissions reductions from a particular
project, or when a project developer sells the same lot to a retailer and an end
user. “That’s harder to guard against in the VER market,” says Sneyd.
At the moment, the company uses its own Carbon Neutral Protocol, a standard
measuring carbon neutrality developed five years ago when the market was
embryonic. Sneyd says that in 2005 70% of the company’s projects were
technology-based while 30% were forestry, and he sees the proportion of forestry
as reducing further in the future.
NGOs have attacked the concept of forestry projects, suggesting they show
poor additionality. Forests may not be permanent and take a long time to grow.
The assumptions about the CO2 absorption capacities of forests vary more widely
than the assumptions behind clean energy projects.
Sneyd agrees that there are risks involved in forestry projects. But he
states that “ten years ago trees were a fantastic icon. Now messages don’t need
to be as simple as that, the market is moving on.” Forestry projects, he argues,
are complementary to clean energy and should not be written off as part of the
solution to climate change because of the destruction of carbon sinks through
deforestation.
Critics may have less cause in future to snipe at the VER market, as
standards are beginning to emerge. The International Emissions Trading
Association (IETA) and the Climate Group – a stakeholder group with members
ranging from the Greater London Authority (GLA), State of California and BP –
are consulting on a new Voluntary Carbon Standard (VCS) which could be used to
harmonise the VER market.
They also propose to create better traceability by generating a unique serial
number for each VER. But a group of NGOs including WWF and Friends of the Earth
who back the Gold Standard say that the VCS’s additionality guidance is
“inadequate” and that it will “legitimise false claims of carbon neutrality from
buyers.”
In a parallel development, the Renewable Energy and Energy Efficiency
Partnership (REEEP) and the Gold Standard Foundation have launched the Gold
Standard VER. “Because of the confusion, fragmentation, and lack of liquidity in
the marketplace (not a lot of VERs were being traded), REEEP decided that VERs
need to be harmonised and quality ensured, so that buyer confidence would
increase and finance would flow into renewable energy projects,” says Peter
Richards, Communications Director at REEEP.
The organisation, funded by several governments, facilitates clean energy
development in developing and transitional economies. “Gas flaring, carbon
sequestration or forestry projects are excluded from the GS VER, because they do
not support long term changes to energy production,” explains Richards. REEEP
has also launched a Voluntary Carbon Offset (VCO) outsourcing service to
governments who want to offset air travel (and other emissions) via CERs, though
REEEP itself only facilitates the sale of GS CERs.
Market positions are being taken as the market grows. The most demanding
customers will probably choose the GS CER or GS VER. In the current market, they
also pay more. Although projects are larger and eventually economies of scale
may result, CERs are currently more expensive due to the demands of the CDM.
Atmosfair’s customers pay E18-20 per CER at the moment. In the VER market,
prices range from E4 upwards.
Avoiding the carbon market completely and cutting fossil fuel consumption at
home is the best option for the environmentally-conscious customer. HSBC, for
its part, found that the VER market was not the most cost-effective way achieve
its goals. Retailers could not handle the middle-ranking size of its offset
requirements (700,000 tonnes per year). Equally, “the wholesale CER market is
not designed for us” says Sullivan. In-house energy efficiency investments,
which he says cost ten times as much as its investment in carbon credits, are an
option. Another solution is to incorporate service industries into cap-and-trade
schemes, nullifying the need for VERs in the first place.
Hi Joel,
Thanks for digging into this important topic. At TerraPass, we're still
digesting the report, and we'll certainly be posting our full thoughts soon on
our blog. In the meantime, a couple of comments:
1) The study does do an admirable job of clearly laying out many (maybe even
most) of the key issues in the voluntary carbon offset industry. These are
complicated topics, and it's nice to see them laid out clearly. There's a lot in
there to chew over.
2) Unfortunately, the attempt to overlay a numeric ranking system on top of
these complex issues goes so far awry as to render the report's conclusions
largely meaningless. You quote the study's author as saying: "It all comes down
to additionality -- it's almost impossible to write an objective, easily
interpreted way to address additionality."
The author intends this to be a criticism of the open standards process now
underway in the voluntary carbon offset industry, but why shouldn't this comment
apply to the CACP study itself, which after all makes additionality its
pre-eminent concern?
Indeed, why is the participatory standards process -- which embodies the
pooled knowledge of dozens of environmental organizations with deep expertise in
the field -- trumped by a single marketing survey conducted by an outside
consultancy?
As I read the CACP study, I found myself repeatedly frustrated by the
experience of agreeing wholeheartedly with this or that qualitative statement,
and then being utterly baffled by the way those statements were turned into
pseudo-quantitative evaluative criteria.
3) The voluntary carbon industry has actually been doing an excellent job of
aggressively and cooperatively pursuing quality standards, contrary to what is
suggested in your post. You state that the voluntary carbon industry is part of
a $22 billion worldwide market, implying that it is long overdue for scrutiny.
But of course this figure vastly overstates the size of the voluntary market,
which is a tiny fraction of the overall pie. For such a young industry, the
rapid evolution of quality standards has been remarkable.
The study's author also complains that "this whole process has been insane.
Instead of focusing on how to improve the market, we're all just focusing on
what does it mean for us, which is frustrating."
This sounds very high-minded, but in fact most of us in the voluntary carbon
industry have long known that consumer trust is our most important asset and
have therefore focused a huge amount of energy on quality and transparency.
Perhaps the author's frustration reflects the lack of confidence that industry
participants had in the study's methodology. As the study briefly notes, more
than half of the ranked organizations declined to be surveyed, out of concerns
over how the research was being conducted.
----
So I find myself with mixed emotions. I'm glad that important issues in the
industry are being aired, and I commend the study's author for laying out those
issues with clarity and expertise. Had the study stuck with a qualitative
analysis, perhaps backed up with individual case studies, it would indeed have
been a valuable resource for consumers and practitioners. Certainly I have taken
away some insights that I will be applying to my own business.
But the study makes such a hash of its forced ranking system that I fear it
only muddies further what it hoped to clarify.
Fortunately, I don't share the author's pessimism regarding the standards
process now underway. In fact, such standards processes have been enormously
successful in the renewable energy market, and there's every reason to expect
their success to be duplicated in the voluntary carbon market. In a few months,
the picture for consumers will get a lot clearer.
I think the analogy between organic food and carbon offsets is a good one.
Both ask consumers to pay a price premium to conform to an ideal of the way they
think the world should be. But the comparison is not entirely fair. For one
thing, the organic movement has been around a lot longer than the offset
industry, and has had longer to get its house in order. More importantly, I hope
it is not ungenerous to add that part of the process of defining certification
criteria to determine what can be called "organic" has led to what many might
deem a pretty significant divergence from the movement's early ideals. I don't
claim to be an expert in organic food, but I know that (fairly or not) the
industry has been accused of selling out, and of being indistinguishable from
non-organic agribusiness.
So while it is no doubt supremely important to be able to establish beyond
question that our offsets actually work, it is also important not to overlook
one of our sector's key assets: that there are people and businesses willing to
participate in this economy for no other reason than that it is the right thing
to do, and others are willing to retail offsets without being motivated by
profit. It would be a mistake to lose sight of this in pursuit of a set of
certification criteria.
Those who pooh-pooh offsets almost never argue that they don't work. They
claim instead that they are poorly managed and audited, that they are vulnerabe
to double-counting, that they pay people to do things they would have done
anyway, that they encourage people in the developing world to raze one forest in
order to plant another, etc. To counter these arguments we need strong and
quantifiable regulations in place--no doubt about it. But another argument
against offsetting is that it is no more than a mechanism for the middle class
to buy a clear conscience. Another way of saying that is that offsets are a way
for people to pay money to do the right thing for the environment. This is not
something people would have been lining up to do even a short time ago. That's a
unique opportunity to educate and to direct resources to wherever they'll help.
Let's make sure that whatever regulations come into effect, they make it easier
for people to do the right thing, not harder.
