Isramart : Carbon offsetting: is it time to ‘retire’?

Isramart news:
Dark clouds may be gathering over the carbon markets, but businesses still need to address those unavoidable carbon emissions they emit, and one scheme – Carbon Retirement – could hold the answer.
Earlier this month, the Kyoto Protocol’s Clean Development Mechanism (CDM), announced it had passed a “milestone” – registering its 2000th project, a biogas project in Thailand.

The CDM is used by industrialised countries to help meet their emissions reduction targets, but it is also used on a voluntary basis by individuals and organisations wanting to offset their carbon footprint. It builds greenhouse gas emission reduction projects, such as the one in Thailand, funded by carbon credits bought by buyers in developed countries.

But the CDM looks to be in trouble. The failure of the UN Summit on Climate Change in Copenhagen in December to agree decisive action to cut emissions means confidence in carbon trading and carbon offset credits has taken a knock. Banks and investors are deserting the carbon markets and there are reports of backers pulling out of major clean energy projects in developing countries because of the expected fall in emissions credits.

But that’s not all. The efficiency of carbon offsetting through the CDM has been called into question by recent research that suggests that only a third of the money spent on offsetting actually goes to fund environmental projects.

So what should businesses do to address those unavoidable emissions they emit?

Well, according to Jane Burston, founder and managing director of Carbon Retirement, her company offers a real alternative to project offsetting that won’t leave you wondering how your money is being spent.

The online service (www.carbonretirement.com) offsets carbon emissions on behalf of consumers and businesses by ‘retiring’ allowances that would otherwise be used by big polluting companies that are regulated by the European Union’s Emissions Trading Scheme (ETS).

The ETS sets emissions caps for heavy industry in the EU and allocates the polluters with a fixed number of permits – each one the equivalent of one tonne of CO2 – which they can then either trade (if they reduce their emissions) or use against their CO2 emissions.

Burston says carbon retirement works because it offers “a clear environmental impact” and it tackles the emissions created by developed countries head on – objectives she says companies are increasingly looking for when offsetting.

“Our customers are businesses that voluntarily retire carbon through us to offset their unavoidable emissions,” she says. “Despite the lack of certainty [in carbon markets] these businesses have taken a strategic decision to continue investing in managing their emissions, self-regulating by setting internal reduction targets and mitigating the remaining emissions through offsetting.”

According to Burston, businesses that invest in voluntary offsetting are looking for value-for-money, and are concerned about the inefficiencies in the supply chain for project-offsets, which mean that a lot of their money might not end up being directed towards reducing emissions.

It was Burston’s company that published research in December that called into question the effectiveness of carbon offsetting through the CDM, which so far has generated more than 365 million certified emission reductions (CERs). The Carbon Retirement research suggested that for every £1 a statutory buyer spends on carbon offsetting under the CDM, typically just 31p is spent on the project’s set-up and maintenance costs.

For voluntary buyers going through a carbon offsetting retailer, rather than dealing direct with brokers, the amount typically making it through to the project is even smaller, at just 28p. The rest of the money is ‘lost’ to investors, brokers and other participants in the process, according to the report.

“This sort of concern could mean that more businesses move to retirement of EU allowances for offsetting, as it is transparent and without a complex supply chain,” claims Burston. “Organisations like ourselves are able to operate much more efficiently.”

Burston’s company, which launched just over a year ago, has certainly won over offset skeptics such as Richard Ellis, group head of Corporate Social Responsibility at Boots. He’s no fan of carbon offsetting, but he’s prepared to endorse Carbon Retirement. “Carbon Retirement is different. What they do genuinely reduces emissions and their honesty about the place offsetting should have in a carbon reduction strategy is very refreshing,” he says.

Indeed, Carbon Retirement’s offsetting is Government accredited and a lot of its work with businesses is concerned with carbon footprinting because of the importance it places on the need for companies to reduce their emissions before they offset.

“We only work with companies that have plans [to measure and reduce their emissions],” says Burston.

A lot of the companies Carbon Retirement works with are small to medium-sized businesses, suggesting that this sector is by no means ignoring its responsibilities with regards to reducing its own as well as heavy industry’s carbon emissions. Clients include advertising company Fallon, the Arcola Theatre in Dalston, and NGOs.

“There are quite a few businesses interested in using us at the moment – the sectors that are keenest are the financial services and professional services,” says Burston, who expects to be able to announce “a big client” soon.

You can certainly see the attraction of signing up to carbon retiring. After all, isn't a method that permanently removes EU allowances from trading – thereby making fewer available to heavy industry and in turn reducing emissions in Europe beyond the government-enforced cap – just what is needed?

Well yes, but the EU ETS is by no means unaffected by the current crisis in the carbon markets. In fact, depressed demand in the European carbon market, brought on by the recession, is adding to the problem (as are the signs in recent weeks that the EU will stick to a 20 per cent emissions target by 2020 instead of raising it to 30 per cent which was on the cards if Copenhagen had delivered a more robust deal). It is estimated that EU emissions fell 9.5 per cent in 2009 alone due to the global recession and power sector emissions aren’t expected to return to previous levels for another three years.

A Bank of America Merrill Lynch report just out forecasts European emission permits, or EUAs, could now be in surplus by about 166 million tonnes across the five-year second phase of the EU ETS scheme, which finishes in 2012. That’s a lot of surplus allowances that are going to have to be ‘retired’ before we see any meaningful impact on emission reductions in Europe.

However, the good news is that unlike other cap and trade schemes that appear to be stalling – such as in the US and Australia – the EU ETS has been running for several years now and seems certain to continue until at least 2020.

As for, Burston she doesn’t pay much attention to analyst’s forecasts. “Analysts change their forecasts regularly and between different banks the estimates vary wildly even at a given point in time,” she says.

She’d much prefer to put her faith in businesses themselves. She maintains: “Businesses have been driving the debate for a long time and post-Copenhagen that has not changed.”