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Read our monthly update on developments in environmental policy and the carbon markets around the world.

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August 2010 

• An American Dream Deferred
• UK Policy Tracker: Towards an Energy Revolution?
• International Climate Tracker: Proof and Politics
• Carbon Market Tracker: REDDy - Or Not?

An American Dream Deferred

Election fears leave the US cap-and-trade proposal dead in the water. Is a regional system the answer - or will companies take matters into their own hands?

The US Senate has dropped provisions for a cap-and-trade system and a renewable energy standard from its proposed climate change bill. Senate Majority Leader Harry Reid said a widespread lack of support, especially among Republican senators, meant cap-and-trade had no chance of passing before November’s Congressional elections, as many senators are concerned that voting for stricter climate legislation would damage their electoral chances. Reid has pledged to revisit the cap-and-trade proposal in 2011, but still plans to push ahead with a more limited climate bill, which would include energy efficiency measures for vehicles and tighter regulations for offshore oil exploration - a popular measure after the BP Deep Horizon oil rig disaster.

This new delay to the proposed cap-and-trade system is unlikely to put much of a dent in the demand for voluntary carbon offsets. In the US, this demand comes mostly from small-scale government initiatives and from mainstream companies that want to include a viable climate change platform in their sustainability programmes. However, speculation in carbon credits ahead of regulation will probably fall off sharply. With cap-and-trade now a distant prospect, companies will have a harder time seeing the business benefits of acting in advance of legislation.

While the push for a national cap-and-trade system has stalled, regional programmes are moving ahead. The Western Climate Initiative (WCI), a collaborative cap-and-trade system linking seven US states and four Canadian provinces, has just published the details of its programme, which is slated to begin in 2012 (with caps on carbon emissions in the energy and industrial sectors) and expand to cover 90% of regional emissions over the following three years. The aim of the WCI is to reduce emissions in the regions it covers by 15% (from 2005 levels) by 2020.

Meanwhile, the business sector hasn’t been idle, either. Walmart has placed itself at the forefront of the retail market when it comes to environmental responsibility by establishing a Sustainability Index for all of its 100,000 suppliers. A detailed survey of suppliers, begun a year ago, assesses their company practices on energy and climate, waste, natural resources, and people and communities; Walmart will reward those companies that score well, and those that set and meet ambitious targets based on the survey results, but the retailer has no plans to penalise low-scoring suppliers. Walmart intends to use information about its suppliers to create a database of environmental information about their products and, ultimately, a product labelling system, but the retailer wants this to be an industry-wide initiative, as a single label for the retail industry will carry more weight than individual labelling schemes for different brands. Walmart’s Sustainability Index provides a new way forward for companies concerned about the environmental impact of their products, and demonstrates the business value of a greener supply chain.

UK Policy Tracker: Towards an Energy Revolution?

New policies promote zero-carbon homes and low-carbon energy. Is the UK on track for a greener future?

The UK government has taken the bold step of banning any new coal-fired power stations that don’t have carbon capture and storage (CCS) technology installed. CCS systems work by converting carbon emissions from a power plant or factory into a form that can be transported and stored safely, so that the carbon does not enter the atmosphere. Past governments have stopped short of mandating CCS for power plants, which means that investment in CCS technology has been lacking and there is no CCS system currently working at commercial scale. However, this announcement is likely to trigger greater investment. In addition, the government will hold a wider consultation this autumn on an emissions performance standard for power plants, which would penalise those plants operating below a certain level of efficiency.

In the short term, restrictions on new coal-fired plants are likely to raise energy prices, and there are concerns that retiring aging coal-fired power stations without new plants to replace them could cause energy shortages. Developing more sources of renewable energy could help address both problems. The UK will need an extensive “smart grid” to incorporate more renewable energy into the system and ensure a steady supply, and energy regulator Ofgem has proposed allowing energy suppliers to raise the £32 billion needed to put the smart grid in place.

Meanwhile, Grant Shapps, the new Conservative housing minister, has said that the government may change its regulations on zero-carbon homes. Under the law, all new houses must be zero-carbon by 2016. The changes could allow developers to use offsite renewable energy and other measures for mitigating carbon emissions in order to make new homes carbon neutral. If the regulations do change, it’s possible that carbon offsetting could be one of the mitigation measures developers employ.

International Climate Tracker: Proof and Politics

New data from both sides of the Atlantic highlight the threat of climate change as never before - and the Copenhagen Accord isn’t up to the challenge.

In a major blow to climate change sceptics, the US National Oceanic and Atmospheric Administration has published a new report stating unequivocally that climate change is real and is caused by emissions of greenhouse gases from human activity. The NOAA measured a wide variety of scientific indicators, from land and ocean temperature to precipitation and sea ice, to reach its conclusions. The UK’s Meteorological Office also says its own recent data demonstrate the effects of climate change with greater certainty than ever.

However, while climate science is racing ahead, international policy is falling dangerously behind. According to a new joint study from the Stockholm Environment Institute (SEI) and the Third World Network, fatal loopholes could mean that the emissions reduction pledges developed countries made at last year’s Copenhagen climate negotiations are worthless. Overall, industrialised nations promised to reduce their greenhouse gas emissions by 12 - 18% by 2020; however, the SEI report claims that even if these countries technically meet their commitments, the emissions of the industrialised world may not decrease at all. In fact, they could rise by a full 9%. The biggest problem is the number of surplus carbon credits still held by countries of the former Soviet Union after much of the region’s manufacturing collapsed in the 1990s, but experts are also concerned about over-reliance on carbon credits traded under the Clean Development Mechanism and on credits for land use and forestry. Finally, a significant chunk of the developed world’s emissions remains unregulated, as the international community has not yet agreed how to account for emissions from aviation and shipping.

Carbon Market Tracker: REDDy - Or Not?

Reducing emissions from deforestation could be an exciting new opportunity for the voluntary carbon market.

The delay in US cap-and-trade legislation has prompted developers of REDD (Reduced Emissions from Deforestation and Degradation) credits, along with the governments of countries (like Columbia and Brazil) that host REDD projects, to look for alternate markets for these credits. REDD credits allow customers to offset their emissions by protecting set areas of the rainforest. This is an excellent opportunity for the voluntary market to step in, providing urgently needed liquidity to the REDD sector while also acquiring inexpensive credits from projects that provide a wide range of social benefits to local rainforest communities.

At the same time, there is increasing debate in the carbon market about how to calculate the baseline representing “business as usual”, against which emissions reductions are measured. This has been an especially contentious issue when it comes to carbon offset projects based in China, as the Chinese government’s own renewable energy initiatives make it difficult to determine whether emissions reductions would have happened without carbon finance. The debate ties into the wider question of what the price of carbon “should” be: some policymakers and experts believe that a high carbon price is necessary to drive businesses to adopt more environmentally friendly practices, while others think that carbon offsetting should be about reducing emissions as cost-effectively as possible.

Finally, this year’s State of the Voluntary Carbon Market Report found that the voluntary market has consolidated dramatically over the past few years. For example, in 2009, five top offset companies (including The CarbonNeutral Company) captured the same market share between them that was split between the top twenty companies only a year earlier.

Previous Market News

July 2010

• International Policy Tracker:  Changing of the Guard
• UK Policy Tracker:  Crunch Time
• Carbon Market Tracker:  Climate Science Vindicated

International Policy Tracker:  Changing of the Guard

Climate-conscious new leaders and an infamous environmental disaster could drive green politics forward.

The devastating impact of the Deep Horizon oil well disaster in the Gulf of Mexico, and the public outrage surrounding the spill, have prompted US policymakers to give serious consideration to renewable and nuclear energy.  However, the lack of infrastructure to support nuclear and renewables means that the US is struggling to find a way to make these options cost-effective in the short term.

At the same time, two emerging leaders are poised to make a positive impact on global climate policy.  Christiana Figueres, the experienced Costa Rican negotiator appointed Executive Secretary to the UN’s Framework Convention on Climate Change in May, has been working to build a stronger international consensus ahead of the UNFCCC’s next Conference of the Parties in Cancun this December.  Figueres, who has served on the board of the Voluntary Carbon Standard, firmly supports the role of markets and private sector involvement in combating climate change.  Meanwhile, Australia’s new Labour Prime Minister, Julia Gillard, is expected to successfully create a national cap-and-trade scheme, provided she survives August’s general election.  Public support for cap-and-trade has been growing in Australia, and Labour’s failure to push for a national carbon trading scheme before now played a major role in the downfall of Gillard’s predecessor, Kevin Rudd.

UK Policy Tracker:  Crunch Time

Cameron’s cuts hit hard – but the UK’s Green Investment Bank is getting up and running.

The UK’s coalition government is introducing substantial cuts in public spending, and the Department of Energy and Climate Change (DECC) has been ordered to tighten its belt to the tune of £84 million this year.  However, the £1.2 billion to decommission ageing nuclear power plants – DECC’s biggest expense – is ring-fenced, and improvements in efficiency will only yield £6.1 million worth of savings, meaning that DECC will need to save almost £78 million by slashing existing and planned programmes.  According to DECC, low-carbon technology and renewable energy programmes face major cuts:  bio-energy, geothermal, and offshore wind projects will all see their budgets slashed, although the government has provided assurances that it does not plan to cut the Wave Hub project off the coast of Cornwall.  Meanwhile, the Carbon Trust, Energy Saving Trust, and Central Government Low Carbon Technology Programme have also lost large amounts of funding, and the Low Carbon Building Fund has been shut down completely.  There has even been speculation that the Carbon Trust could be closed or absorbed into the new Green Investment Bank, which has spurred a wider debate about whether the Carbon Trust, as it currently stands, has been effective in limiting greenhouse gas emissions.

The Green Investment Bank, a popular policy all three major parties included in their manifestos during the general election in May, will provide a way to invest business taxes in domestic green industries and improve the UK’s low-carbon infrastructure and renewable energy supply, not unlike the role carbon offsetting and other forms of carbon finance play internationally.  However, even if the Green Investment Bank receives all of the Carbon Trust’s current funding, that money – combined with the profits from a system of green bonds and ISAs – will only raise about £14 billion a year, falling far short of the estimated £55 billion the Bank will require.

Despite budget cuts, there is good news on the renewable energy front:  Ofgem has invested £1 million to create the UK’s largest smart grid in Liverpool.  1,200 households will receive smart electricity metres, renewable energy, and charging points for electric vehicles.  This pilot programme could provide a model for the much larger smart grid experts say would allow the UK to receive constant, reliable renewable energy – and to export renewable electricity to Europe.  Meanwhile, Drax plans to convert one of six generating units in one of its plants to burn biomass fuel, an innovative programme that could reduce emissions from the plant by 4.4 million tonnes a year.

Carbon Market Tracker:  Climate Science Vindicated

The Sunday Times backs down, as a Dutch study clears the IPCC of charges.

The Sunday Times has retracted and apologised for a story originally published in January, which criticised the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).  The Times’ original article took issue with the Fourth Assessment Report’s claim that 40% of the Amazonian rainforest could be affected by climate change, and accused the IPCC of basing the claim only on the word of climate campaigners, without scientific evidence.  In its retraction, the Times admitted that the Fourth Assessment Report actually supports this significant claim with peer-reviewed scientific data.  Meanwhile, a Dutch governmental investigation has reported that the conclusions of the IPCC’s Fourth Assessment Report are sound and well-founded, without significant errors.  Following the flurry of criticism the IPCC faced in the run-up to last year’s Copenhagen COP, the Sunday Times’ apology and the Dutch report are important indicators that climate science can be trusted.

June 2010

• The Dawn of a New Carbon Market?
• International Policy Tracker:  World Cup Special
• UK Policy Tracker:  The Greenest Government Ever?
• US Policy Tracker:  Business Triumphs – and Disasters

The Dawn of a New Carbon Market?

As a new Executive Secretary takes over the UNFCCC, the future of the carbon market is hotly debated at Carbon Expo 2010.

This year’s Carbon Expo, held in Cologne at the end of May, witnessed a significant changing of the guard:  Yvo de Boer spoke to assembled business leaders about the future of the carbon offset market and its role in combating climate change, before handing over to his successor, Christiana Figueres, the newly appointed Executive Secretary of the UNFCCC.  Figueres is a UNFCCC veteran, having represented her native Costa Rica in the negotiations since 1995.  She is also the first non-European to hold the post of Executive Secretary, and it is widely hoped that her appointment will mean a more influential voice for the developing world in international climate talks.  At Carbon Expo, Figueres expressed strong support for an active and self-regulating carbon market.

The future of the carbon market after the Kyoto Protocol expires in 2012 dominated the discussion at Carbon Expo 2010.  Creating a global carbon trading platform looks more and more like a distant dream; it is far more likely that the carbon market will become a system of regional trading schemes, which may connect and merge over time.  It will largely fall to carbon offset providers, such as The CarbonNeutral Company, to guide clients through the complex requirements of different schemes.

Meanwhile, the fate of the Clean Development Mechanism (CDM) after 2012 remains controversial.  The CDM is already in trouble:  last year, sales of CDM credits fell sharply, even as the overall carbon market grew by a recession-busting 6%.  However, this year’s Carbon Expo saw heated arguments among experts about whether the CDM can be salvaged and reformed to work in the post-Kyoto world, or whether it should be scrapped and replaced with an entirely new system. 

Another hot topic at Carbon Expo 2010 was the continued rise of performance-based additionality testing.  This type of assessment uses a common baseline across a range of carbon offset projects to determine whether the projects are additional (that is, the emissions reductions they provide would not exist without carbon financing).  Performance-based additionality could replace the older system of project-based additionality testing, which sets up a unique baseline for each project, but can make comparing projects difficult.  Two leading carbon offset standards, the Voluntary Carbon Standard (VCS) and the Climate Action Reserve, are already adopting performance-based additionality.

International Policy Tracker:  World Cup Special

Top football teams are going green, but the situation in South Africa isn’t all that rosy.

Half of the teams playing in the 2010 World Cup have decided to offset their carbon emissions with South African offset provider Soil & More Reliance.  Soil & More Reliance turns a mix of green municipal waste and invasive plant life into high-quality compost for organic farms, and creates jobs in the local community at the same time.  The teams’ decision to offset using carbon credits produced in South Africa will help the local green economy and send a positive environmental message.  It also reflects a larger trend:  more and more organisations in developed countries are looking to purchase African carbon credits, and carbon offset projects across Africa have now developed to the point where they can keep pace with the growing demand.

The bad news, though, is that despite its strong stance in international negotiations as part of the BASIC group of countries (along with Brazil, India, and China), South Africa is falling down on domestic environmental policy.  The government has committed to deep cuts in emissions, but hasn’t set out a detailed plan to achieve these reductions.  A lack of clear direction has prevented the national electricity authority investing in carbon capture and storage, meaning that a series of new coal-fired power plants are going ahead without CCS technology – a setback for any future clean energy initiatives.

UK Policy Tracker:  The Greenest Government Ever?

The new prime minister is talking the talk, but will the UK government’s policies back up its promises?

Prime Minister David Cameron has pledged that his will be “the greenest government ever”, but a month after the general election, many of Cameron’s environmental policies remain fuzzy around the edges.  The government has decisively committed to one scheme that will allow homeowners to pay for energy efficiency measures out of future savings on their energy bills – a flagship policy for both the Conservatives and the Liberal Democrats during the election.  However, the two parties still need to hammer out the details of other promised policies, including restrictions on emissions from coal-fired power plants; smart grid technology; the future of the new green investment bank; and a renewable energy network intended to make the country’s energy supply more secure.

The new government is also demanding punishing budget cuts.  Environmental departments and agencies have gotten off relatively lightly so far, with the Department of Energy and Climate Change (DECC) told to cut 2.5% of its budget this year; the Department for Environment, Food, and Rural Affairs (Defra) losing 5.5% of its budget; and the Carbon Trust and Energy Saving Trust each facing budget cuts of only 1%.  However, these cuts serve to deepen doubts about the government’s commitment to the extensive environmental programme Cameron is now promising.

US Policy Tracker:  Business Triumphs – and Disasters

Google embraces offsetting, while BP faces government wrath.

Internet giant Google is closer than ever to its goal of going carbon neutral, after purchasing carbon credits from a landfill gas project near one of the company’s datacentres in South Carolina.  This is the latest of a series of investments in renewable energy and green technology.  Google’s “green energy czar”, Bill Weihl, made a statement supporting the use of offsets as part of a carbon emissions reduction plan, saying that “offsets with strong additionality can achieve real emissions reductions in unregulated sectors at a relatively low cost”.   Google’s commitment to voluntary offsetting using
US-based projects is a sign of life in the US voluntary carbon market, which has been hampered by uncertainty over future regulations.

Meanwhile, environmental issues continue to capture the headlines in the US, as Attorney General Eric Holder launches a criminal investigation into the BP oil rig disaster, which continues to pour thousands of barrels’ worth of oil into the Gulf of Mexico each day.  President Obama has firmly condemned BP for what has become the largest offshore oil spill in US history, and has promised that the company will face justice for any illegal acts the investigation uncovers.

May 2010:

• What the UK election means for environmental policy
• Climate talks in Bonn
• US cap-and-trade plans
• Standards for carbon neutrality

Vote Who to Go Green?

The 2010 election may have changed the face of UK politics – but which party’s policies are up to the challenge of climate change?

The UK general election on 6 May created a hung parliament (where no party has an overall majority).  The close contest, combined with the UK’s first televised election debates, has sparked a more passionate public discussion than the UK political scene has witnessed in some time. As the Conservative Party, which now boasts the largest number of MPs, has now formed a coalition government with the smaller Liberal Democratic Party under new Conservative Prime Minister David Cameron, Market Tracker reviews both parties’ election promises on climate change, and looks at what a coalition could mean.

The Conservatives’ manifesto gave little attention to climate change, an issue most Conservative parliamentary candidates considered a low priority, and one that has divided the party’s leadership in the past. There are several notable Conservative green policies, including a flagship domestic energy efficiency drive, offering homeowners up to £6,500 for energy-saving improvements; however, the Conservative party has not committed to any intermediate targets for reducing UK emissions before 2050, or to a comprehensive renewable energy plan. Without these commitments, it would be difficult to send clear and effective signals to companies and investors about coming climate regulations.

The Liberal Democrats, on the other hand, have consistently had the strongest and most well-integrated environmental policies of the three major parties. The Liberal Democrats’ promises, such as creating 100,000 new green jobs and ensuring that 40% of the UK’s electricity comes from renewable sources by 2020, are backed up by commitments to specific regulations and significant investments. For example, the party has pledged to invest £3.1 billion in creating green jobs, including £400 million to regenerate shipyards to manufacture wind power equipment, and is also committed to funding a Europe-wide renewable energy grid. 

The coalition gives the Liberal Democrats an unprecedented opportunity to influence the policies of the next government.  The new administration has already made a public commitment to several Liberal Democrat environmental policies that the Conservatives did not initially share, including a plane tax (to replace the current passenger duty), a high-speed rail network, a ban on new coal-fired power stations without carbon capture and storage, and, encouragingly, higher targets for renewable energy use than the last government adopted.  The government has also confirmed several popular policies both parties previously agreed on, such as maintaining the Green Investment Bank and blocking the construction of a third runway at Heathrow Airport (this will now extend to a ban on new construction at Gatwick and Stansted, as well).  Only one major Conservative environmental policy that has been opposed by the Liberal Democrats remains in place:  new nuclear power plants will be permitted (although Liberal Democrat MPs will be allowed to abstain from votes on nuclear power).  Most tellingly, David Cameron has appointed leading Liberal Democrat Chris Huhne as Secretary of State for Energy and Climate Change, indicating that Liberal Democrat priorities will most likely continue to dominate this policy area.

International Policy Tracker: Crash and Bonn?

The first climate talks since Copenhagen are moving at a glacial pace – but global emissions keep heating up…

Delegates from forty countries attended negotiations in Bonn – the first high-level climate talks since last December’s Copenhagen negotiations.  While leaders claimed the Bonn talks helped “build trust” after the disappointments of Copenhagen, there was little momentum: President Obama’s inability to move key climate legislation through the US Senate has bogged down international discussions. The stalemate will place intense pressure on Yvo de Boer’s replacement as executive secretary of the UN Framework Convention on Climate Change, who will be chosen in July. The current frontrunner is lead Costan Rican climate negotiator Christiana Figueres.

The EU’s proposal to extend the Kyoto system past 2012 has met with stiff opposition from Japan, on the grounds that it would force Japan to shoulder an excessive burden in capital investment. The Japanese government is pushing for a new system that would cover the emissions of all countries.  Meanwhile, the EU itself has its hands full with ongoing investigations into fraud in the EU-ETS: 21 people have been held so far in connection with a €5 billion VAT fraud scheme.

While international negotiations have slowed to a crawl, global emissions continue to grow at a frightening pace. According to the International Energy Agency, worldwide electricity production will increase by 2.5% every year through 2030, adding up to five times the current capacity of the US over the next twenty years. Furthermore, China’s consumption of oil rose a staggering 28% in the past year.

US Policy Tracker: Cap-and-Trade in Trouble

A Senator’s defection sinks support for an already precarious bill.

The US Senate’s debate on the Kerry-Graham-Lieberman climate change bill has been postponed indefinitely after a critical setback: one of the bill’s sponsors, Republican Senator Lindsey Graham, withdrew his support for the bill, citing his concern that the Senate would prioritise debating immigration above climate change (making a full debate on climate change all but impossible before the Congressional elections in November).

Without Graham, it’s unlikely the climate bill will pass. Some policymakers are looking to revive a shelved bill on renewable energy instead, which would require utilities to generate 15% of their electricity from renewable sources, or from improvements to energy efficiency, by 2021, but would do nothing to create a viable US domestic carbon market. However, if environmental advocates in the Senate object to the more limited renewable energy bill, an all-or-nothing debate on climate change is possible before November. Two recent incidents have focused further public attention on the debate over US environmental legislation:  the BP oil disaster, which is still releasing an estimated 795,000 litres of oil into the Gulf of Mexico each day, and Walmart’s agreement to a pay USD 27.6 million settlement for multiple violations of California’s environmental laws, ending a five-year investigation into Walmart’s business practices.

Carbon Market Tracker

PAS 2060 makes its debut: What can companies expect from this new standard?

The British Standards Institute (BSI) has just published its new PAS 2060 standard for carbon neutrality. Companies can now declare that they have committed to going carbon neutral in the year ahead, or that they have achieved carbon neutrality over the past year, in accordance with PAS 2060; this requires businesses to develop, implement, and assess an exhaustive emissions reduction strategy, which must include internal emissions reductions alongside any offsets.

If a business wishes to comply with PAS 2060, in addition to going CarbonNeutral®, The CarbonNeutral Company can offer guidance on the few simple steps needed to add PAS 2060 certification to the company’s existing CarbonNeutral® status.