Carbon Needs Ratings

Without the certainty to be achieved through a strong international climate change agreement at Copenhagen, committed to the short, medium and long term reduction of carbon in the atmosphere, we’re going to have to find another way to make it work. That means carbon markets, and that means market tools.

 

Despite the enormous growth the carbon market has experienced in the last couple of years, it continues to come under fire due to a combination of volatility and market uncertainty.  The impact of the collapse of the global credit markets has also understandably led to mistrust of the traditional tools of the market. Yet its difficult to know what other tools to use.

 

There is little question the carbon market has continued to grow strongly despite the credit crunch. According to figures from Point Carbon, the carbon market`s total value for 2008 was estimated at €92bn (US$125bn), more than double the €40bn it was worth in 2007, and that growth is set to continue. And, while the price of carbon has fallen significantly with the drop in industry and manufacturing, about 25% of the overall drop in emissions within the EU is said to be down to the carbon market.

 

Yet, if negotiators fail to achieve a successful international climate change treat in Copenhagen, we could end up with a wide range of unconnected carbon markets across the globe. In fact, according to Trevor Sikorski of Barclays Capital, it could be at least seven different markets.

 

We’ll have the EU ETS, at least three US programmes (RGGI, WCI, MRGGRA), Australia’s CPRS, a planned Japanese programme, as well as the ongoing contribution of the CDM and JI under Kyoto. The difficulty will lie in understanding how these schemes can work together.

 

In a globalised economy, there is going to have to be cross-border analyses of the carbon footprint of goods and services. And we’re going to need some standardised way of comparing the quality of one offset to another if the carbon levels of those goods and services are going to be agreed.

 

Buyers, sellers and investors need confidence in what they are buying or, at the very least, they need ways to differentiate between the risks attached to the different credits that are going to be use. Just because the markets operate on a regional basis, doesn’t mean that there isn’t a global implication.

 

A global carbon market requires a set of tools to predict risk, as historical data alone cannot predict the likelihood of future events. Just like financial investors in the debt market (although hopefully with more common sense and a more robust set of tools), they want a clear, transparent and unbiased declaration of those risks, enabling the necessary price differentials to develop. One of the most well-established instruments for enhancing the transparency and efficiency of financial markets is the use of independent credit ratings.  

 

Ratings tells investors/buyers what they should rationally expect to be delivered from a project, given its fundamentals. Therefore, ratings will be a key element in driving the efficiency of the market.  

 

With an increasing number of project developers looking to sell carbon credits into the emerging compliance and voluntary markets around the world, the widespread use of effective carbon ratings might be the only thing standing between separate regional carbon markets, and the introduction of economic protectionism. And that’s something that none of us can afford.

Posted via email from Conquering Carbon

In Praise of Offsets

The idea of the carbon offset has been taking a beating for some time, with people lining up to accuse the idea of being nothing more than an excuse for shirking responsibility for cutting emissions.

DECC recently released guidelines on measuring and managing emissions, along with a definition of carbon neutral which included offsets. According to the UK Government, “carbon neutral means that – through a transparent process of calculating emissions, reducing those emissions and offsetting residual emissions – net carbon emissions equal zero.”

But there is a real purpose behind the concept of offsets, both regulated and voluntary, and if the system is being abused then the system should be amended, not attacked. The concept of the carbon offset has been much maligned, but it has also been badly misunderstood.

The purchase of carbon credits is not just helping western companies meet their compliance quotas or salve their consciences. It also acts as an incentive for greater investment into new clean technologies, generating huge flows of global finance from rich to poor, allowing for technology transfer between countries and enabling wider sustainable social and economic development in developing parts of the world, while actively reducing emissions of GHGs.

A central premise of the CDM was to develop clean energy infrastructure for developing nations. GHGs are damaging on a global scale, no matter where they are emitted, so the idea was that the best way to start is by cutting them where it’s cheapest – in the developing world. And it supports acceleration of the local economy to a lower carbon basis. Technology transfer involves the conveying of equipment, knowledge, operating skills and project management expertise from where it’s developed to where it’s needed.This flow of finance and technologies also allows for far wider social and environmental benefits across the developing world, creating job opportunities and helping retrain the local workforce.

To date, the voluntary carbon market has been the preserve of those projects not easily verified under the CDM. This includes investing in forestry or in smaller programmatic projects where the cost of compliance with Kyoto (certifiers, validators, consultants, and so on) can be prohibitive.  The voluntary market has its own standards, and perhaps the plethora available make it hard to make valid comparisons between different offsets. Yet there is real potential in a number of voluntary standards to create a significant difference. A leading example is the Gold Standard, an NGO initiative that provides tools to develop emission-reduction projects that result in real and additional emission reductions, promote the transition to sustainable energy systems and secure both local and global sustainable development benefits.  

Many criticisms of the offset concept point to the fact that it doesn’t cut emissions from an activity, simply offsets it.  Predominantly the argument is that these projects generating offset credits would have happened anyway, so they’re pointless. But how do you prove a negative? How do you prove that that a developer would not have built a project, or changed to a cleaner fuel, or planted more trees?

The reality is that any contribution to lower emissions is a positive thing. In a perfect world, people would suddenly change their behaviour overnight, but that’s not likely to happen. What the offset system supplies is a transitional process whereby people become slowly more aware of the economic risk of their daily activities.

Carbon offset credits can be as simple as equivalent to 1 tonne of C02 equivalent not emitted, or they could carry a sustainable development aspect. We could demand that any carbon credit generating  project should have a net benefit for the environment; that local sustainable development should be encouraged, or even prescribed; and we should demand globally accepted standards and methodology. It’s up to us to decide which offsets we choose to value, and how.

Posted via email from Conquering Carbon

DECC pulls the teeth of the CRC

There has been growing uproar from UK business in recent months, as the potential financial implications of implementing the Carbon Reduction Commitment (CRC) became increasingly clear. In response, the UK’s Department for Energy and Climate Change has just announced that the first year of the programme will be a ‘monitoring period’ only, and that no emissions allowances will need to be bought.

The scheme has also been renamed to reflect an increasing focus on energy efficiency – it’s now called the Carbon Reduction Commitment Energy Efficiency Scheme. Large energy users in business and the public sector (those who consume over 6000MWh per year) will be required to take part in the scheme from 1st April 2010.

The UK’s emissions reduction targets are at least 34% on 1990 levels by 2020, and are in large part expected to be achieved through energy efficiency. The CRC is expected to ensure that large organisations play their part. The scheme is mandatory for organisations which consume over a set amount of power, and is expected to eventually save participants around £1billion per year by 2020 through cost effective energy efficiency measures that are not yet being taken up.

Under the programme, all participants must buy allowances to cover their carbon emissions in a given year. Then the revenue from the sale of those allowances is given back to the best performing organisations, adjudicated through the use of a league table. Basically, the more action you take, the more money you make.

In the first year of the scheme, the payments would have been based on the back of early action, such as the installation of automatic metering. Now the first year of the three year introductory phase will only consist of reporting emissions.According to the new guidelines, to smooth the introduction of the scheme and to help ease the upfront costs, organisations will only have to report emissions in the first year (2010/11). In subsequent years organisations will have to buy allowances corresponding to their emissions from energy use, and then surrender them by the end of the year. The only encouragement for early action now is that, in the second year (2011/12), extra weighting will be given to organisations which take action early to improve energy efficiency.

The cost of a new scheme, from the purchase of allowances and the cost of registration and compliance, to the actual cost of implementing energy efficiency measures, could prove significant. At the same time, the CBI has warned that many companies affected by the scheme don’t realise that this is the case.  This makes it understandable that the Government would weaken the stringency of the early days of the scheme, in order to help protect business in a difficult global economic environment.

The reality however is that action must be taken as soon as possible if the UK is to have any hope of achieving its emissions reduction targets, and that weakening the scheme in response to corporate concern sends exactly the wrong signal to those invested in the development of the low carbon economy. The mandated expenditure involved in improving corporate energy efficiency could provide stimulus to parts of the economy, and help the UK develop a foothold in the developing low carbon economy.

More importantly, lessons should be learned from the failures of the EU’s Emissions Trading Scheme (ETS). Concerns about the impact of the scheme on corporations led to the allocation of millions of free allowances to emitters regulated under the scheme. Not only did this result in, effectively, the allocation of free money to many major emitters but, combined with miscalculation of emissions, led to the collapse of the carbon price to less than a euro during the first phase of the scheme.

As the Government continues to undercut each positive legislative or regulatory action with subsequent amendments, if it's not careful, it will lose any hope of being taken seriously on climate change.

Posted via email from Conquering Carbon

Peak Oil is here – action on fossil fuel is no longer a choice

The latest research from Deutche Bank, reported in the FT, warns of high price volatility in both oil and electricity as the environmental agenda, bankruptcy of the car industry, ongoing war and global oil supply challenges affect the market.

 

The bank doesn’t yet seem to accept the peak oil theory, but rather believes that there will be a shift away from oil towards natural gas, that the impact of hybrid cars will grow strongly and that confusion over government green policies will disincentivise investment in oil.  The reality is however that if the price of oil is going to continue to become increasingly volatile, we're going to need a new way to look at our energy environment.

 

Back in the fifties M. King Hubbert, the Shell geologist who came up with the concept of peak oil said:

 

 “We now are moving away from a period of smaller populations, lower levels of technology, and dependence on non-renewable resources. It appears therefore that one of the foremost problems confronting humanity today is how to make the transition from the precarious state that we are now in to this optimum future state by the least catastrophic progression. Our principal impediments at present are neither lack of energy or material resources nor of essential physical and biological knowledge. Our prinicpal constraints are cultural. During the last two centuries we have known nothing but exponential growth and in parallel we have developed what amounts to an exponential-growth culture so heavily dependent upon the continuance of exponential growth for its stability that is incapable of reckoning with problems of non-growth.”

 

The thing we need to remember is that oil isn’t produced, it’s extracted. What we’ve been doing for the last hundred odd years is removing all the easily accessible oil, the stuff lying near the surfact (relatively speaking). In the early days of oil extraction, for every barrel of oil used in the exploration or extraction of oil, another 100 were discovered.  

 

Even if there is new oil to be found, it is going to become increasingly difficult to extract economically if, as some believe, our engineering capacity to extract oil is reaching its limits. That means it will take more money and energy to extract, refine and transport it until, at some point, when it takes the energy of a barrel of oil to extract a barrel of oil, further extraction becomes pointless, no matter what the price.

 

What peak oil really means is:

1.       The world will run out of accessible fossil fuels at some point fairly soon; and

2.       These resources are likely to become more expensive until then

 

And when you boil it down to basics, what that means is that whether you believe that climate change is a problem or not, we’re going to have to find ways of using alternatives to oil. That means putting alternatives such as renewable power, and increasing energy efficiency, ahead of any alternatives. We’ve got to begin a structural change within our economic systems if we’re going to get through the coming crunch.

Posted via email from Conquering Carbon

Senate carbon bill – is it but sound and fury, signifying nothing?

The first draft of the latest Democrat-backed Senate cap and trade bill looks like a serious commitment. The legislation proposed by Senators Barbara Boxer and John Kerry, the Clean Energy Jobs and American Power Act, sets a target 20% emissions cut by 2020 (83% by 2050),  from a baseline date of 2005.

At first glance it seems as if the Senate is considering strong action. Critically, it outlines the penalty for non-compliance at twice the annual average market price per tonne for each tonne not surrendered. This penalty would be administered by a new office of ‘offsets integrity’. At the same time, it limits the number of carbon credits that can be imported, demanding action within the US. Interestingly, it proposes higher cuts that the House Bill passed in June, the Waxman-Markey, which called for cuts of 17%.

The reality is not so clear. The use of 2005 as a baseline for emissions data weakens the proposal. It means that even if the Bill passes, proposed US reductions would be lower than those of Europe and Japan, which use the Kyoto framework of emissions reductions from 1990 levels. At the same time, falling emissions due to lower manufacturing and falling power demand (caused by the recent economic contraction) mean that US carbon emissions are expected to be 6% lower in 2009 than 2008. If accurate, that prediction would see 2009 emissions already 8.8% lower than in 2005 – which wouldn’t demand a huge amount of action from US industry. The key issue is that action on climate change needs to be now, if we are to prevent the further build-up of greenhouse gases in the atmosphere.

There are also structural weaknesses within the outline. While the Bill sets a fixed limit on emissions, it retains credits to be auctioned off if the financial pressure gets too great, and it only impacts about 2% of US business (around 7,500 companies). There is also no clarity on the number of permits that would be allocated for free, a practice which when implemented, proved a disaster for the first phase of Europe’s Emissions Trading Scheme.

Environmentalists argue that the cuts are window-dressing, an offering that is too little too late. The general scientific consensus, adopted by the Major Economies Meeting (a non-UN group which includes the US and China) in June 2009, is that the increase in global average temperature must be kept below 2 degrees Celsius to avoid the worst impacts of climate change.  This limit has been accepted within the EU since the mid-nineties and is backed by some of the world’s largest companies.  

Another question is whether, even if the Bill proves to have few teeth, such a bill can be passed. According to reports, when senators held a rally to promote the legislation, not one single Republican Senator joined the party. The new Bill does include funding provisions for nuclear, natural gas and coal, although details would have to be worked out by the Senate. One key issue is how such a programme would be administered, and the House bill saw an agreement that the Department of Agriculture would be responsible for agriculture and forestry projects. The Senate bill seems to side-step that question, which could lose it support within the agricultural lobby. At the same time, limitations on the number of non-US credits could increase the cost base of such a programme dramatically, which would be politically difficult.

It remains questionable whether or not the Bill can be passed in its current fashion, especially given the difficulties encountered by those promoting health reform. So at least its good to know that the Obama administration has a backup plan.

Posted via email from Conquering Carbon

Water as important as energy in climate debate

The European Environment Agency (EEA) has said that water efficiency is as critical as energy efficiency and energy performance of buildings in the current climate change debate.
There is increasing concern that the impact of a growing population, increasing agricultural demand, combined with climate change, could result in permanent drought in many regions.  At a conference on water issues, the EEA’s executive director expressed her surprised that existing technologies that could help manage and improve the water environment had not made it through into urban planning circles.

While historically, the focus on water has been on improving it’s quality, rather than concern about its scarcity, climate change has the potential to change this drastically. Questions of mitigation and adaptation cannot be addressed without addressing issues surrounding water and land.

While the EEA plans to launch water accounts by the end of 2009, requiring Member States to draft river basin management plans, there has been little done to address issues of water wastage.

Water is critical to humanity, both for drinking and growing food. If the temperature rises around 3 degrees celsius, we could see the glaciers of the Himalayas, Andes, Rockies and Alps begin to melt, affecting the flow of clean water to land all over the world.

In Australia, the Murray River basin is under massive stress as overuse and drought strain its capacity, and residents of Adelaide could be reliant on bottled water by next week.  Australia's worst drought in a century has lasted over 10 years in places, and many cities have had to restrict water use.

The Chinese water minister, Chen Lei, recently told a water conference that two-thirds of Chinese cities now face serious shortages due to rapid industrialisation and climate change. By 2015, he warned, water efficiency would have to be increased by 30%.

According to a UN environment programme report, perennial drought conditions are developing in south-eastern Australia and south-western North America and that water scarcity could increase in southern and northern Africa, the Mediterranean, much of the Middle East, a broad band in central Asia and the Indian subcontinent.

The implications of water scarcity are immense. Access to water supplies is believed to have provided a spark for the outbreak of civil war in 2003, as droughts affected grazing lands and people moved from their traditional homes and came into conflict with those whose lands they entered. The tragedy, which has resulted in the deaths of hundreds of thousands has also resulted in the destruction of foodstocks, seeds, livestock, wells and irrigation systems, making the region basically uninhabitable, and with refugees and displaced persons running into the millions.

The key issue in the current approach to the mitigation of climate change is how best to alter our energy environment in order to avoid the use of fossil fuels. Yet the enormous water footprint relating to energy production is being ignored and is becoming an increasingly critical consideration. When weighing nuclear against coal, the carbon benefit is clear, yet nuclear power requires vast amounts of water for cooling. New energy technologies – from advanced methods of extracting fossil fuels to low-carbon renewable energy – can exacerbate water worries, creating ugly trade-offs between carbon and water. As water stresses increase, the water intensity of energy technologies’ should play as great a role as their carbon footprint in determining the future makeup of the global energy mix.

There are incredibly complicated problems to resolve: what do we do about transboundary water; how do we quantify the growing risk of water-related international tensions; how do we best understand, measure and engage with water resources through corporate water footprinting; how do we embed water efficiency at a cultural level? While quite what we do about this is not yet clear, as the economic/environmental equation has not really been fully clarified for water, it is clear that it’s time that we embed water management in any action on climate change

What does the world need most - should the cost of cutting carbon stop us trying?

Bjorn Lomberg, the ‘Skeptical Environmentalist’, has warned that the climate debate is leading countries to make dangerous promises that can’t be fulfilled. That even if they could, the cost of action would be crippling to many countries.

He’s right that the costs of transforming economies to a low-carbon framework as calculated by economists could be wrong, on the grounds that the process of taking action within a political framework means costs are likely to be higher than anticipated. Any legislation created to accelerate that transition is likely to contain other objectives, as well as funding for other special interest groups and more.

He’s also got a point, that politicians are increasingly talking about taking protectionist action (against countries without binding emissions targets). In the US for example, Congress passed the Waxman-Markey bill with a warning that the US might impose tariffs on imports from countries where there are no legally binding emissions reductions. The French have led a call for an EU tax on imports for such reasons. Given the fact that the DOHA trade negotiations are taking place at the same time as the climate negotiations there is understandable cause for concern that the world is moving away from a free-trade approach. It’s especially difficult as those countries without binding emissions are often also those countries with the poorest populations.

The issues surrounding climate change, international trade, international aid and the political process are undeniably complicated. However conflating them doesn’t do anyone any favours. Many stalwarts of the sustainable movement, and of development aid, are vehemently opposed to the tone of the climate negotiations, deeply concerned that a focus on climate issues will see international funds funnelled solely in that direction, leaving funding for critical problems such as health care, clean water and development aid.

Lomberg says: “In our eagerness to avoid about $1 trillion worth of climate damage, we are being asked to spend at least 50 times as much - and, if we hinder free trade, we are likely to heap at least an additional $50 trillion loss on the global economy.”

His underlying argument seems to be that while coal and other fossil fuels are causing environmental damage, cutting its use dramatically will deprive billions from a means of breaking out of poverty. The issue is one of weighing the consequences of action or inaction in the balance. In his book he suggests that global warming could result in an annual increase of 400,000 heat-related deaths, but 1.8m fewer cold-related deaths, for a net gain of 1.4 million lives. So we're being asked to weigh long term versus short term benefits.

Taking that approach, the question that must be asked is whether a short term trip on the path to prosperity is worth the consequences. Many of those most in need of a way out of poverty live in countries likely to be most dramatically affected by climate change. What’s the point of having a fridge, if you’ve got no food to keep in it?

Seasonal changes in temperature can affect the ability of crops to grow, affecting our ability to feed ourselves and having a direct impact on the ability of a range of species to survive. The increasing acidity of the oceans (as more CO2 dissolves in the sea-water) could influence water eco-systems and their ability to support sea-borne life. At the same time, increasing volatility in weather systems could result in ever more violent cyclones and hurricanes – there is precedent for this: a storm surge in Bangladesh killed 300,000 people in 1970 and further surges killed 200,000 people there in the 1980s. As things stand, the process to trying to cut carbon emissions from our atmosphere are an attempt to cut the likelihood of abrupt climate change – to keep overall warming to about 2 degrees celcius. And the science suggests that we’ve only got a 50:50 chance of doing that today.

According to Lomborg’s Copenhagen Consensus Center, any attempt to limit global warming to 2 degrees celsius will prove economically crippling, and that a gradual approach will be necessary. Lomborg has argued that the UN’s approach could result in crippling economic costs, and that meeting that goal could cost 12.9% of the world’s gross domestic product (GDP) by 2100. In the report, ‘An Analysis of Mitigation as a Response to Climate Change’, Professor Dr. Richard Tol argues that a clever and gradual abatement policy could substantially reduce emissions (such as stabilizing greenhouse gas emissions at 650 and 550 ppm CO2e) at an acceptable cost (1 or 2 years of growth out of 100, respectively) – meaning at a lower cost to society than current emission reduction policies. Yet the science suggests that CO2e levels of 650ppm could result in temperature increases of over 4 degrees celcius.

Globally, a 4C (39.2F) temperature rise could have a cataclysmic impact, with climate change impacts of desertification, reduction in clean water supply and more, with the most dramatic impacts occuring in the developing world. The 2006 Stern Review predicted that increases of that level would see between 7 and 300 million (dependent on the increase in sea levels) more people affected by coastal flooding each year, a 30–50% reduction in water availability in southern Africa and in the Mediterranean, a fall in agricultural yields of between 15–35% in Africa and that 20–50% of animal and plant species would face extinction. A recent report from the Met Office says that such a temperature increase could happen by 2060. If emissions don’t start to decrease soon, we run the risk of fundamentally changing the underlying balance of the climate.

Some scientists believe that an increase in temperature of more than 4 degrees has a 50% chance of tipping the climate into a new state. These climate tipping points include the melting of the Greenland ice sheet, collapse of the rainforest, disruption of the monsoon system and even the creation of oxygen holes within the seas, that could dramatically impact on the food chain. Last week’s report from the UN Environment Programme said that, since 2000, emissions have increased even faster than the IPCC’s worst case scenario – you know, the one that everyone said could never happen!

So really the question seems to be whether the short term cost of action now is likely to have greater long term benefits or whether it would be best to allow countries to continue to pollute, in order that they can afford to bring populations out of poverty? Over the next fifty years, the global commons is going to have to find a way to feed and water a further 3 billion people. Without the capacity to source sufficient water and food, the economic prosperity of those people may well be moot.

Is the EU's carbon market at risk?

The EU carbon market is at sixes and sevens following a ruling from the First Court of Instance that the EU doesn’t have the right to lower carbon targets for both Poland and Estonia. The fear is that the ruling, which says that carbon limits are a matter for Member States, could undermine the infrastructure of the EU’s Emissions Trading Scheme.

Following the ruling, carbon traders have warned that the market could become increasingly unstable. The EU ETS has been dogged with problems since its inception, with accusations that it handed out too many free permits to emitters in its first phase, that it was too generous in emissions targets or conversely, that it was stifling EU industry by limiting emissions.

The problem with the ruling is that for the market to have any effect, it’s reliant on a stringent cap that can, and will, be enforced. If Member States are allowed to manage their own emissions targets, the system could fall apart. While, according to a statement from the EU’s Environment Commissioner Stavros Dimas, neither Poland or Estonia will be allowed to issue new allowances for CO2 emissions at the moment, it’s clear that there is a disconnect between the EU’s stated goals and its legal framework.

We only have to look at the difficulties being experienced by negotiators in the run up to the post-Kyoto treaty meeting at Copenhagen in December, to see what problems are being experienced.  It is difficult for any large group with strongly different political and economic agendas, to reach an agreement on a treaty that affects every party in a different way.

To make it more difficult, Poland and Estonia are not the only countries challenging EU imposed limits – Bulgaria, Hungary, Latvia, Lithuania and Romania are also unhappy. The former CEE countries believe that they need more time to develop economically if they are going to be able to operate in competition with other EU states. Given that this is a similar argument to that used by developing countries to avoid emissions targets under Kyoto, this could escalate into a significant problem.

While the market is still young, and obviously experiencing growing pains, the ruling comes at a bad time. Given that the EU is still struggling to agree an EU wide position on CO2e targets ahead of Copenhagen, the announcement could prove a serious blow to the EU’s climate change aspirations.

Environmental benefit drives interest in carbon offsets

Despite the fact that carbon offsets continue to come under attack as a means of relinquishing responsibility for cutting carbon, the latest Carbon Management and Offsetting Trends Survey Report 2009 shows that 90% of companies rate the environmental benefits as their key motivation in carbon offsetting.

Highlights of the research, which sampled 280 global, multinational and regional organisations, and 31 carbon companies, included the following

Over three quarters of companies have implemented or have started developing a carbon management strategy
• Two thirds of respondents have already offset their carbon emissions or will consider offsetting in the future
• Environmental benefits (91%) were highlighted as one of the main motivations for interest in carbon offsets, closely  followed by carbon neutrality and marketing (89%)
• 72% of participants nominated the US as the most desirable geographic region for purchasing offsets; this may reflect the desire for domestic projects as 56% of the respondents came from North America. Africa and South America were also rated as highly desirable locations for emission reduction projects
• Respondents prefer renewable energy projects above any other project type with solar scoring 92% and wind 86%

Pro-bono professional services - is this the new carbon offseting?

Leapfrog believes so. It’s a new not-for-profit initiative, bringing together experts in the environmental industries to provide support and expertise for start-ups in the low carbon arena.

It began in 2006 as an idea. Travers Smith, a UK-headquartered law firm, has had an active environmental committee for some time, and the company has worked hard to reduce its emissions profile in the traditional ways – using renewable power, changing the lightbulbs etc. But at some point, as is usual, the firm came across the core emissions that it simply couldn’t affect. Instead of deciding to buy some carbon credits to offset those emissions, Steve McNab, head of environment at the firm, came up with the idea that the firm could contribute pro-bono work instead.

Three years later, the final result is an initiative which enables organisations to facilitate real change in the wider market, rather than simply buy their way out of a problem. What makes it so exciting is that the right kind of expertise and support can be impossible to attract when your business is small – Leapfrog can really help small projects to scale.

The initiative intends to support businesses in three key areas – low carbon and cleantech businesses; community projects; and carbon reduction and renewable projects in the developing world. It plans to provide expertise to developing projects which result in the cutting of more than 500,000 tonnes of CO2 a year. The hope is that in three years, the group will be able to support over 100 projects a year.

The group predicted that the first set of seven projects will receive around 4,000 hours of professional services worth approximately £1m and believes that there are many more to come. Andrew Neuman, founder of the Low Carbon Foundation, the world’s first not-for-profit venture capital fund (returns capped at 2%) freely admitted that without the help of the delivery team it was unlikely that the fund could have afforded to get off the ground.

Over 15 professional services firms have joined the network, including Travers Smith, as well as financial advisors such as BDO Stoy Hayward and investment consultancies such as Decarbonize, and it expects many more organisations to sign up. It’s all about leverage – if you know the right people, get the right help, you can move further, faster and in the right direction. Thecleantech/low carbon world is still relatively small and many gamechanging projects, from new technologies to encouraging behaviouralchange at a community level, simply don’t have the personnel or thefunds to accelerate what they do.

The Leapfrog team is setting up a skills bank to enable organisations to register their interest in helping. So if your organisation has skills in business & finance; legal; engineering & environmental; marketing and contacts, then go along and join the initiative. Obviously it’ll help if your organization already has a commitment to CSR and pro-bono work but if not, why not use this as an opportunity to put one in place.

And if you’ve got a project, a grand idea but no idea what to do next, then you should get in touch and see if you could be one of the next Leapfrog projects – http://www.carbonleapfrog.com.

Too much hope for Copenhagen?

Everywhere you turn, there'e fear that a post-Kyoto climate change 
agreement won’t be reached at Copenhagen in December. More 
importantly, there's fear about the consequences of that failure.

There are a series of meetings remaining in the run-up to Copenhagen, 
but several issues remain to be resolved, such as who is going to pay 
for the transition to a low carbon economy (in the North but more 
especially in the South); whether developing economies will accept 
binding emissions targets when they still need to grow their 
economies; even agreement on when cuts need to be made. These are all 
huge obstacles to be overcome.

Stern’s latest paper says we’ve got to cut emissions in the atmosphere 
from 50 gigatonnes today to 35 gigatonnes by 2030 and 20 gigatonnes by 
2050. What’s worse, it’s no longer a question of simply cutting 
emissions if we’re going to have a ‘reasonable’ chance of keep 
temperature increases to about degrees over the next century, we’ve 
got to cut the amount of CO2e already in the atmosphere down to 
between 44 and 48 gigatonnes.

That means fairly drastic action. It will require a change in power 
infrastructure, resource management, design process, waste management 
and more. It’s not just a quesiton of North vs South, developed vs 
developing economies. There are inequities that arise from the need to 
change our economic patterns, and there are understandable concerns 
about economic growth and carbon leakage. But action must be taken, 
and soon, if we are to hope to avoid significant changes to the global 
climate.

One of the most difficult things we’re going to have to accept is that 
passionate belief in the protection of the ecosphere doesn’t always 
sit well with political realities. While we might hope that 
politicians are our representatives, their focus is usually more about 
supporting their own party, or getting back into power. And mostly, 
that includes not agreeing to treaties which will increase their 
countries industrial cost base, international taxes that they can’t 
control or even that they can’t afford to look weak on the 
international stage.

What we need to understand is that even if we don’t achieve a climate 
treaty in Copenhagen, it’s not the end of the road. In recent months, 
the message that action must be taken has been growing in volume. 
There is an acceptance that it’s time to draw a line, that 
individuals, companies, investor groups and even countries are saying 
together, the time to act is now. Recognition of the potential impacts 
of climate change are focusing many groups to reassess their approach 
to their relationship to the overall environment.

The one thing we have to keep in mind is that failure in Copenhagen is 
not necessarily about failure to address climate change – it’s about 
the failure of the political process to address change on a global 
scale. Given that we haven’t been trying very long, that’s hardly 
surprising. There is surprisingly little data for analysis on the 
impacts of climate change or where there is, it's based on modelling 
the future and we all know how reliable that can be. The reality is 
that we're trying to manage risk and that can be difficult to predict, 
especially if you don't understand what's going on. Just ask the 
finance community. But, if we don’t achieve our goals in Copenhagen, 
the important thing is that we keep trying. Because that's the only 
thing we all can do.

Value is about more than money, but we need to prove it

Many of us believe that value is about much more than finance but, certainly in corporate terms, that’s difficult to prove. There have been many inconclusive analyses done on the correlation of non-financial performance, such as environmental, social and governance factors, with overall business success.  The problem is that its difficult to make comparisons.

We’ve know that the modern economy has separated out the interests of governments, corporations, individuals and the environment and by doing so, we’ve created problems for which we’re now struggling to find solutions. In order to be heard though, we need to get through to those with their hands on the tiller – the money men. We need to show how important it is to take a wider view. For example, HP has been recycling old printer cartridges for some time. This is a social positive – it reduces materials and power consumption in the manufacturing process, and it reduces waste and therefore landfill. From the company’s point of view, it also saves a large amount of money. That’s something that any board can get behind.

Even for those active in bringing such elements into daily business practice, the definition of what this means is flexible. Do we mean the practice of corporate social responsibility (CSR). Is it actually Corporate Sustainable Re-Engineering or Corporate Social Responsiveness? Should it be just CR- Corporate Responsibility, or should it be CS - Corporate Sustainability or even the latest term ESG – environmental, social and governance.

Without definition and comparative performance benchmarks, how can you sell the idea to your board or worse, your investors? There are investors willing to undertake ‘responsible investing’ but then again, what does that mean? Are we talking about ethical investment, or environmental investment or are we talking about SRI – Socially Responsible Investing. Perhaps that should be SR- Sustainable Investing or even RI - Responsible Investing? Without proper delineation and definition however, we don’t really know what these mean – and without clear boundaries, it can prove impossible to make people understand the need for action.

There’s been talk for some time about the need for companies to address the ‘triple bottom line’ of social, environmental and financial performance, but little concrete analysis on the financial benefits. The associations with social and environmental concerns are such that many board members are loathe to promote the need for such responsibility.

A new programme, with a report called Sustainable Value (http://www.investorvalue.org/valuingBusiness.htm), is trying to change that.

A research team led by the Doughty Centre for Corporate Responsibility at Cranfield School of Management brought together academics from SDA Bocconi School of Management in Milan and Vlerick Leuven Gent Management School in Belgium and looked in detail at how ESG performance can impact business success, how companies explain these linkages to investors, and how the investment community treats this data.

There are problems which need to be overcome – especially the narrow focus in the way in which "shareholder-value" is defined. The report outlines the obstacles to assessing the value of ESG activities such as:

• Limited or non-existent data suitable for cross-company comparison 
• Lack of evidence for linking ESG performance with general performance 
• Confusion of terminology and shifting definitions between actors 
• Lack of incentives to present positive ESG impacts 
• Disconnects between ESG specialists and Investor Relations experts within companies

The report proposes that value be redefined as ‘sustainable value; and sets out a ‘Value Creation Framework' which can be used both by business and the investment community. An operationalised management version of it has been developed by the parallel European Alliance for CSR laboratory (http://www.investorvalue.org/), run with the support of CSR Europe.

A number of companies are looking at a critical mass of pioneer companies and investors using the Value Creation Framework to explain the risks associated with not embedding sustainability, and the opportunities potentially accruing to businesses from doing so; and how this can be factored into investor valuation models.

What we need to do is change mainstream investors minds about what they need/want to do. That can mean training and education, or even changes in the way in which investors (either individually or institutionally) are rewarded. Most importantly, we need to focus on the longer term implications of our actions, rather than on a short-term investment window of two to three years (with quarterly updates demanded from listed companies).

As with every aspect of our lives, we need to stop acting like a bunch of teenagers who believe in our own immortality, and start thinking about the long-term consequences of our actions.

So what if the temperature is falling?

The latest pet theory adopted to disprove climate change concerns is that the world is in fact due to enter a period of ‘global cooling’, meaning that there is no need to manage man-made CO2 emissions.

Key bodies which track temperature (such as the UK’s Hadley Centre, and NASA’s Goddard Insitute for Space Studies) have released updated information showing that 2007 showed a fall in overall temperature. Much has also been made of the fact that Artic sea-ice now covers more area that it did this time last year, ignoring the fact that its still the third lowest reported ice coverage since the nadir in 2007, and there are still concerns that it is thinner than usual.

There can be little denying that climate science is still maturing, and that predictions are dependent on the premise selected, and the measurements used. Models need to be updated as new information is gained, or new impacts understood. Generally speaking, it is accepted that climatic fluctuations occur, over thousands, hundreds, even tens of years. This means that it should be overall trends that are at issue, not the behaviour of climate over a few years. Yet those opposed to action on climate change seem to seize on every and any opportunity to attack the theory, rather than to discuss the consequences of its impact.

It’s quite possible that recent cooling could simply be a fluctuation in a long term trend, a natural cooling period in the climate cycle. Maybe the cooling it’s the result of increased amounts of aerosol particles in the atmosphere over the last few decades, due to pollution, which will diminish as the impact of air pollution regulation is felt. We don’t yet know.

The question I would ask is whether or not it’s useful to get caught up in these sorts of arguments. It’s vital to question what we’re told, but equally important to attempt to understand what we’re questioning. Empirically, it is easy to belive that the climate (and extreme weather events) is increasingly volatile – we certainly hear more regularly about floods, droughts and dangerous climate impacts. Does that mean that it’s true? Our experience of the world does not necessarily reflect the truth, rather it tells us more about our own perceptions.

At the heart of the problem lies one fundamental issue – how do we provide clean food, air and water for a global population of 9 billion, when we’re failing to do that effectively for an existing global population of 6 billion? Global population is expanding rapidly and we have to find ways to manage our resources, and keep them in balance, if we are to survive. Cataclysmic concerns about the world’s survival are absurd – the planet will survive. That doesn’t mean that in any way that reflects our wants and needs however.

We need to find ways to manage our resources, and the international attempt to find ways to limit our emissions is possibly the first attempt to model a global approach to managing a particular entity. At the very least, we’re going to learn a lot about what’s possible using this approach. At best, we’re going to develop an international framework for managing resources on an equitable basis. And that’s something we’re going to need soon.

Money wants some climate action

It’s not just individuals who want to see action on climate change, and it’s not just politicians negotiating their own best terms for a global treaty – investors with around $13 trillion under management want action. The group called a press conference to state what they think we need to see in a new climate agreement. 
 
In a capitalist society, pretty much nothing is going to get done unless someone, somewhere, sees the benefit. Environmentalists, and some economists, have been arguing for years that we need to value the benefit of clean air and water in our framework of existence. Unfortunately, since these groups rarely have the kind of money necessary to effectively lobby government, buy media space or do any of those things that help get a message across, their message has remained, to an extent, preaching to the choir. 
 
Yet a cultural shift seems to be taking place where people are actually developing a sense of responsibility to the world around them. It’s a slow process but when the investment community takes a stand, things can really change. After all, companies need to please investors if they’re going to get their money. New York State Comptroller Thomas DiNapoli, who heads the $116.5 billion New York State Common Retirement Fund and its $500 million green strategic investment programme said, "We cannot drag our feet on the issue of global climate change. I am deeply concerned about the investor risks climate change presents, and the human cost of inaction is unthinkable." 
 
Investment managers, pension funds and other institutional investors (181 of them) have outlined what they think they need to effectively create a low carbon economy. They want to see such an agreement because, if their investments in the low-carbon agenda are to suceed, they need the right climate policies in place. 
 
That means:

• A global target for emission reductions of 50-85% by 2050
• Developed country emission reductions targets of 80-95% by 2050 withinterim targets of 25-40% backed up by effective national action plans
• Developing country action plans that deliver measurable and verifiable emission reductions
• Government support for energy efficiency and low-carbon technologies
• Measures that support the move to an effective global carbon market, including ambitious caps, fair and efficient allocation of allowances and links between different trading schemes
• Revisions to the Clean Development Mechanism to ensure real, permanentand verifiable emission reductions
• Public financing mechanisms that leverage private sector finance for investment in developing countries
• Measures to reduce deforestation and promote afforestation
• Support for adaptation to unavoidable climate change impacts

Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk pointed out something really obvious. She said "The problem is too big for any one country. We need clear market signals. If there is a cost of carbon emissions, a cap on carbon, we will have flow of capital. Investors see these opportunities." 
 
Now all we need is for more of them to pay attention.

Global resources tax might force investment in alternatives to oil

There have been protests recently about projects to extract oil from Canada’s tar sands. These tar sands cover over 140,000 square kilometres of Alberta and contain nearly 173 billion barrels of oil in the form of bitumen. This is transformed into crude oil through highly energy, carbon and water-intensive extraction and treatment procedures. A 2008 report from Co-Operative Investment and the NGO WWF, “Unconventional Oil: Scraping the Bottom of the Barrel”, suggested that the production of oil from tar sands can create up to eight times as many emissions as producing conventional oil, as well as consuming vast amounts of water.

Many oil companies are focusing on oil recovery, tar sands and other potential oil sources to supplement global energy supplies – it’s an obvious thing for them to do when the oil price has been volatile and they are, after all, in the oil business. Shell is also working on the Canadian tar sands. Recently a Shell scientist said that technological advances meant that the tar sands projects would be no less polluting than conventional wells.

There are other pressures to be managed however. Not only are tar sands projects environmentally unfriendly but much of the tar sands derived oil is sold to the US and, if a carbon trading regime is introduced in the US, its carbon profile could price it out of the market. At the same time, oil demand may well be falling. A July 2009 report co-authored by PLATFORM, Greenpeace and Oil Change International, Shifting Sands, warns that the oil market could be going through a permanent structural shift – making the long term profitability of unconventional oil open to question. Even investment groups are questioning the focus on tar sands, given the climate risks associated with their exploitation.

The only way to change corporate behaviour is to change the economic framework in which they operate. If the oil price remains low but the oil giants are charged for their emissions and their water consumption, perhaps that will make the tar sands too ‘risky’ for investment.

The only way to change behaviour in the global economy, from oil giants to agriculture, is to put a price on resources and demand that they be given economic value. One approach to this has been suggested by the World Resources Forum (WRF), which has suggested a direct tax on raw materials, rather than on products and labour. It notes in its draft declaration that there are no incentives or policies in place to create a "sufficiently resource-efficient economy." Current markets are "blind to the environmental costs of growth", largely because market prices do not include environmental externalities and information is not made available to the relevant stakeholders.

Whether an outright global tax on resources is the solution, or an emissions or water rights trading scheme is resolved, it’s becoming increasingly clear that current negotiations on managing growth in CO2 emissions is behind the curve. We need to think about emissions yes, but right now we need to start looking at the limitations on our global resources, and find ways to change behaviour before a growing global population and the increasing impact of climate change on clean air, water and food supplies means that we’ve run out of time.

BP’s getting less alternative

The oil giants seem to be retreating from the renewable energy market, except where they can be sure of profit. In a prime example BP, which promotes itself as an oil company that goes ‘Beyond Petroleum’, seems to be continuing its withdrawal from the renewable energy market.

The company has just sold its Indian wind farm portfolio to Green Infra, following a summer which has seen it close down solar plants in the US and Spain, and the closure of the London-based headquarters of its renewable energy business, BP Alternative Fuels. BP does still have solar operations in India, but these are through its joint venture BP Tata Solar. At issue seems to be the level of risk that the company is prepared to shoulder. In July 2009, BP’s chief executive said that the company is still investing in alternative energy, but said that given the economic climate the money needed to be focused where it was most likely to achieve a return.

A withdrawal from the UK wind industry was said to be due to lack of available land, as well as problems in getting planning permission. BP is still investing in the US onshore wind market, as land is readily available and planning permission relatively easy to obtain. The question is what this refocus will mean globally - outside the US, the company is focusing on new oil exploration, coal-bed methane and even tar sands. Without a framework to ensure that the fossil fuel giants explores renewables, it looks as if they'll be focusing on
‘alternatives’ instead.

Climate change: show me the money

There’s growing activity at an individual level to take action on climate change, from campaigns such as 10:10, BeThatChange, 350 and many others. There’s a groundswell of belief that if we don’t force action now, governments will do too little, too late.

This is laudable, and a vital part of changing the framework in which politicians operate but it doesn’t answer the fundamental question – who or what is going to pay for the changes we need. Individual action sends a message, and purchasing power can change corporate behaviour to an extent, but in order to achieve a change in direction, a change from a high carbon to a low carbon economy, billions of pounds will need to be funneled in the right direction and very soon.

The question is where the money is going to come from. Globally, the imploding banking sector was rescued and many are understandably angry that funds for financial services (which created its own problems) were found, while governments throw an ineffectual few million at climate change and expect to get some good publicity.

We’re talking a requirement of billions of pounds a year just in adaptation in the developing world. We’re talking a transformation from a fossil fuel economy to a low carbon economy and worse, transformation in the teeth of entrenched opposition. The consistent resistance of the status quo is hard to overcome.

Politicians are loathe to introduce new taxes. The French are set to introduce a carbon tax but even that is less than half of what was recommended to effect significant change. Carbon trading is attacked as too complicated, too open to abuse and as a means for the west to transfer its emissions to the developing world. The giants of the hydrocarbon economy are adamant that increasing their cost base through either approach is going to be economically destructive - which is probably will be to them. The reality is that action is required, at a personal, corporate and country level.

Funds have to be found from somewhere and emissions tax or trading with regard to corporate activity is going to have a far greater effect on economic patterns than the actions of individuals. Somewhere, somehow, something's going to have to give.

Oil and gas industry want protection from carbon trading - excuse me?

One of the biggest complaints about carbon trading is that it’s complex and difficult to manage, that a tax would be more effective, and a fairer approach to managing emissions. The benefit to emissions trading is the associated cap on emissions, as by definition such a system demands an overall drop in emissions. This argument looks set to run and run but during this process, the industry body Oil and Gas UK has set a new level for effrontery – arguing that the oil and gas industry should be exempt from the next phase of the European Union’s emissions trading scheme (EU ETS) because it’s effectively a tax on the industry. Clearly not a fan of emissions trading or taxation!

The argument goes that because green fuels can’t power oil platforms or drilling equipment, for practical purposes inclusion in the EU ETS is a tax. Somehow you can’t help but feel they’re missing the point – the whole idea behind the imposition of an emissions trading scheme was to encourage an economy wide transition to a low carbon basis. Oil and Gas UK might be right about the EU ETS making things difficult for the oil and gas industry – but surely that was the point?

We need to find alternatives to fossil fuel consumption, especially if supplies of fossil fuel are set to dwindle. Oil and Gas UK is arguing that energy security requires protection of the oil and gas industry. In the short term, this may be a valid point. In the medium to long
term, energy security can only be assured by the development of alternatives to fossil fuel sources. If Peak Oil is truly on its way (and some argue it’s a point that we’ve already reached), then it’ imperative that we address energy issues in such a way that we become independent of imports of any form of fuel. That means an increase in distributed generation, improved transmission systems, and the use of every sensible resource available to generate power.

Many arguments regarding the use of renewable power, or fossil fuel power, seem to swirl around the idea that there is one perfect solution. The reality is that there are a number of technologie available today that should be in wider use, and many more in development. It’s not a question of offshore wind providing the solution, or the need for nuclear power or CCS, or even the need for protecting the oil and gas industry. We need to start taking a holistic approach to our energy environment and starting using the resources we have where appropriate – that means that we use a combination of different power sources from geothermal, to wind, to waste – and that we start looking at energy management as a key way to cut emissions.

Unfortunately, that leaves out the option of protecting the oil and gas industry with funds needed to help develop those alternatives.

Damned if you do, damned if you don’t

There has been more gnashing of teeth about the carbon markets, and questions about its legitmacy, following news that SGS UK has had its accreditation to audit carbon projects suspended.

According to The Times, this is because it was unable to prove that its staff had effectively reviewed potential CDM projects, or that its staff were qualified to do so.

A central premise of the CDM was to develop clean energy infrastructure for developing nations. Given that GHGs are damaging no matter where they’re emitted, the idea was that its best to start by cleaning them up where cheapest – in the developing world. By transferring money and technology to the developing world through these CDM projects, the system helps keep emissions down and ensures that developing markets have access to technologies which can help them contain their own growing emissions. But the rules are complicated, as are the projects and their risk profiles.

Resources have been a problem in the CDM market since its inception, whether of the number of people actually working for the CDM Board, or the skills and expertise available to help conceive, create, develop and implement emissions reduction programmes, or even the skills to confirm that the projects conform to the guidelines. One of the problems suffered by SGS was that, following a suspension of another auditor – DNV in 2008 – it took over a lot of extra work, putting its team under enormous pressure.

Yet surely the very point that SGS has been suspended while its procedures are reviewed means that the market is maturing – that UN reviews and regulations have teeth? Critics are consistently arguing that the system is not sufficiently well policed but, when it is, they complain that its proof that the system fails.

It seems as if each step the market makes is immediately seen as a sign of trouble. Concern is understandable, especially given the collapse of the banking markets that precipitated the credit crunch, but the very fact that current verification systems are under review means that they’re being closely watched. There are clear flaws within the current emissions trading markets but it’s consistently improving, and there are high expectations that a review of the CDM will result in significant changes at the next major UN negotiations in Copenhagen in December 2009. That should give comfort, rather than remove it. Instead of carping about the problems, critics should try suggesting ways and means of improving the system.

US stuck on climate bill – but benefits outweigh costs

US politicians are running around in circles (which direction depends which party they support) arguing whether or not they should pass climate change legislation. Lots of rows about how much will it cost, and who that cost will hit hardest.

A new paper from NYU’s Institute for Policy Integrity takes a slightly different approach – its trying to work out what the benefits may be.
I know it might be considered old-fashioned but a cost-benefit analysis is how most business decisions are made, so it could be handy when arguing about the cost of action.

WSJ’s Environmental Capital takes a look at the numbers and reports that for every dollar spent on the bill $2.27 will be provided in benefits – and that’s without counting subsidiary benefits like clean air and the knock-on health impact of that.

They do admit that the costs they’re referring to are global, not US specific. But, given that our consumables come from around the world, short term impact on the ability to grow food in Bangladesh is bound to have an impact on the medium to long term cost of food in Boston. And that’s not even considering the financial costs of relief efforts, refugee management and the likely cost of fighting to gain access to fuel sources, clean water and fuel.

Still banging on about personal carbon trading

The IPPR has released a report saying that if carbon trading as it
stands doesn’t work, the Government is going to need to think about
introducing personal carbon trading.

What they’re saying is, carbon trading doesn’t work, so it must be
time for personal carbon budgets. What I don’t understand is why this
is still an issue.

There are problems with the current carbon trading regime but they’re
down to two major problems: the emissions limits are too loose, and
its hard to regulate. How’s that going to get better if we introduce
independent personal carbon trading?

There is a conceptual and ideological appeal as it would make
individuals responsible for their own emissions. While many believe
that the only sensible option to fundamentally change emissions
patterns are taxation or rationing, politicians as a general rule tend
to prefer not to introduce taxes. Personal carbon trading has appeal
to both the right wing agenda (focused on the free market), and the
left wing agenda (focus on the equitable distribution of rights).
Despite the fact that lower income houses tend to spend a higher
proportion of income on power and heating, as a general rule the poor
emit lower levels of GHGs and would therefore be more likely to be
sellers of credits – providing an additional revenue stream.

Honestly, the sensible thing seems to be to provide a combination of
both. But then you’ve got the question, who is going to pay for the
programme, how’s it going to be regulated and, of course, does anyone
actually accurately know the carbon footprints of half the actions
they refer to?

Not only would all goods and services have to have their embedded
carbon calculated, but the full lifecycle including distribution and
disposal would have to be analysed. While the launch of the Carbon
Trust standard PAS 2050 may bring us one step closer to that goal,
we’re still some time away from having a detailed economy wide
understanding of where all GHGs are emitted.

Even if we achieve that goal, such a system would require a country
wide bureaucracy to manage each individual’s carbon account. While in
the UK that would fit neatly with government plans to track all our
personal information on ID cards, it sounds like yet another way to
let Big Brother into our lives.