December 2011

You are here: Home » Knowledge Centre » Market news » December 2011

• UK Policy Tracker: Unveiling the UK Carbon Plan
• International Carbon Tracker: Hitting Rock Bottom?
• Consistency in Corporate Reporting Standards for Climate Change

If you wish to receive market news updates, please register for our free email newsletter, or call +44 (0)20 7833 6000 to discuss how an effective carbon management strategy could benefit your organisation.  

UK Policy Tracker: Unveiling the UK Carbon Plan

The UK arrived at November’s COP17 summit in Durban with a stellar report card: UK emissions are 25% below 1990 levels for the first time. The UK’s carbon plan will go further, anticipating to significantly exceed the target of reducing emissions by 34% compared to 1990 levels by 2020. In fact, the UK is expecting to reduce emissions 50% by 2025 and 80% by 2050.

Note that these figures are based on the calculation of domestic emissions only, which is the accepted basis for international climate negotiations. If outsourced emissions (from imported goods, shipping and aviation) were included the UK’s emissions report card could look quite grim. Any radical cuts that the UK Carbon Plan achieves may be countered by increasing imports, and the UK may find that these cuts are not enough to meet targets after all.

The government proposes to achieve reductions by focussing on renewable energy and low carbon transport. Energy plans include three to five new nuclear reactors and at least a three fold increase in renewable sources of energy by 2050; while an electricity market reform is in the offing for 2012. The Green Deal Framework announced in November 2011 is also part of the UK Carbon Plan and will introduce energy efficiency regulations for private and commercial rented properties, offering cash loans to carry out energy conservation measures.

Electric cars and low carbon transport will also be key: the aim is to halve new car emissions by 2030, to 50 – 70g of CO2/km and 75g - 105g CO2/km for vans. The plan for low carbon transport includes a push towards adopting electric vehicle infrastructure standards, a Plug-in Vehicle infrastructure strategy and a chargepoint registry. The government will also consider the inclusion of aviation in the EU Emissions Trading System, a sustainable aviation framework, and will deliberate on the possible inclusion of international aviation and shipping in UK carbon budgets.

The plan is ambitious: it could be the defining document to judge the government’s green credentials against. However, the complete picture of actual emission reductions can only be obtained if other crucial emission sources such as imported goods and international aviation and shipping are also considered. Whether the plan actually achieves what it has set out to do, and whether it is enough to sufficiently reduce overall emissions despite increasing consumption and without importing them to other countries, remains to be seen.

International Carbon Tracker: Hitting Rock Bottom?

COP17 in Durban finally ended on a cautiously positive note, but the uncertainty to its run up seriously impacted the confidence of several investment banks. JP Morgan, UBS and Société Générale all scaled back or dissolved their environmental teams.

The MD of JP Morgan’s Environmental Markets resigned in September, with its offset retailer arm ClimateCare divested to its management. UBS has closed down its climate policy group, while Société Générale has sold its 50% stake in carbon trading venture in Orbeo, claiming that it will continue to develop emissions trading as part of its energy business. These changes can be attributed to various underlying reasons: shakeouts or a periodic re-organisation of the industry in anticipation of a disappointing COP; a reflection of the economic crisis and slow market recovery; and in the case of UBS, a direct impact of losses due to unauthorised trading.

These banks have previously used the carbon markets as an investment strategy, but the economic downturn has inevitably had an impact on such strategies where the returns are in the long-term. Furthermore, clear direction from an international policy standpoint will materialize perhaps only in the next 5-10 years, once the agreement to succeed the Kyoto Protocol is reached and details finalised. In the meantime, several countries continue to follow their own Nationally Appropriate Mitigation Actions (NAMAs) or other similar initiatives which could potentially make interconnections and converge into an internationally agreed plan several years hence. With this overall uncertainty, it is probably not surprising that investment banks are rethinking the current size of their investments in the carbon markets.

Additionally, the most obvious indicator of market confidence – the price of carbon – has recently plummeted to record low levels below €5. UBS and Deutsche bank have slashed carbon price forecasts, predicting that the system will not be short again until 2025. There will be a surplus of EUAs, and those organisations who can buy EUAs in bulk will have less of an incentive to effectively reduce their emissions. However, this is an ideal opportunity for corporations looking to offset their emissions to do so much more cost effectively by buying carbon offsets at the current prices.

The carbon market and price may have hit rock bottom at the moment, but these developments must be considered in context. Besides the EU-ETS, new cap and trade schemes continue to be under consideration or are at the brink of implementation (California, Australia, South Korea). Durban did not mean the end of the Kyoto Protocol as feared – not only was a second commitment period agreed upon, but consensus was also reached between nations on the necessity for a future path of action (admittedly a bit sketchy at the moment). The recession and uncertainty about a future internationally agreed policy may have put a damper on the carbon market, but it is certainly not dead - and the only way to go from here is to pick up, dust off and march on.

Consistency in Corporate Reporting Standards for Climate Change

Multinational corporations are facing growing challenges in complying with a variety of climate change reporting methodologies in multiple jurisdictions, due to the lack of internationally agreed reporting methodologies and scope of reported information. This impacts the time, effort and resources an organisation has to spend to report its emissions. The good news is that the Climate Disclosure Standards Board (CDSB) is working to provide a solution in the form of a single, comprehensive climate change reporting framework that could be adopted globally.

The CDSB is a consortium of eight business and environmental organisations that came together at the annual meeting of the World Economic Forum in January 2007, with the mission to research and promote a single global reporting standard for corporates to report climate change related information. CDSB aims to use a standardised reporting framework to harmonise worldwide reporting and facilitate comparative analysis by investors, managers and the public. The end goal is to have this framework adopted as an international standard to bring about consistency, transparency and comparability in climate change reporting.

CDSB’s Climate Change Reporting Framework consolidates and enhances existing standards used by various countries. To supplement the Climate Change Reporting Framework, CDSB is developing an XBRL (eXtensible Business Reporting Language) – a standards-based way to communicate and exchange business information. Used by exchanges, tax-filing agencies and national statistical agencies to reduce mechanical data entry, XBRL eliminates entry errors and facilitates analysis of data. Additionally, CDSB runs investor and corporate engagement programs to feed in to the development of the reporting framework.

The All Party Parliamentary Climate Change Group (APPCCG) held a joint event with the Climate Disclosure Standards Board (CDSB) in November 2011, unveiling a CDSB report on national and regional development on climate change disclosure and reporting standards by corporations. CDSB is seeking feedback on the draft report, with the final report to be launched at Rio +20 as part of the Sustainable Stock Exchange event. The report reviews climate change reporting requirements in 15 countries and recommends a harmonised approach. The work of CDSB could prove to be crucial in measuring the progress of the corporate sector in concrete action to reduce their emissions. As a speaker at the event commented: financial accounting and reporting standards took several decades to achieve a level of consistency but we cannot afford those timescales for developing consistent climate change reporting standards.

If CDSB succeeds in its mission, in a few years time corporations will find that reporting their emissions and other climate change related information becomes streamlined, with clear climate change reporting requirements across countries. Not only will companies be able to spend fewer resources on complying with reporting requirements, the information will also be comparable with their peers, clearly defining those who successfully reduce their impact on the environment.

For more information on CDSB visit www.cdsb.net

You can find out more about The CarbonNeutral Company’s services here:
Carbon offsets, carbon offset videos, carbon reduction target, carbon management, carbon measurement, carbon strategy, carbon plan, carbon marketing, selling carbon, CarbonNeutral® and PAS 2060 certification, The CarbonNeutral Company blog, carbon calculator, business white papers and our free carbon reduction newsletter.