Introduction to Carbon and Carbon Claims

An Introduction to "Carbon” and Carbon Reduction Claims and the Role of Trading Standards :

An Introduction to "Carbon” and Carbon Reduction Claims and the Role of Trading Standards 11th July 2011

Who regulates “Carbon” claims?:

Who regulates “Carbon” claims? United Nations – Agree treaties that apply to the EU and UK regarding greenhouse gases. European Union – regulate the common market, including the ‘cap and trade’ EU Emissions Trading Scheme. DECC and DEFRA - publish carbon accounting and carbon claims guidance and operate a Quality Assurance Scheme. Private Sector, e.g. ISO 14064 - Quantification and reporting of greenhouse gas emissions and removals. Trading Standards – Enforcement action on bogus claims. Advice and education role at local level.

The Role of the United Nations ...:

The Role of the United Nations ... 21/03/1994 – United Nations Framework Convention on Climate Change enters into force. Annex 1 Countries – 40 industrialised and transition economies that have committed to reduce their GHG emissions, i.e. Austria, Portugal, Russia, Ukraine. Annex 2 Countries – 23 developed economies that must pay to reduce emissions in developing economies, i.e. Australia, Greece, Ireland, Norway, UK, USA. Developing countries are not defined in the original treaty but is deemed to include China, Brazil and India, the world’s 2nd, 8th and 11th largest economies.

The Role of the United Nations - Kyoto:

The Role of the United Nations - Kyoto 11/12/1997 – Kyoto Protocol adopted at Conference of Parties #3 (COP 3). July 2001 – COP 6, Bonn, key agreements on ‘Flexible Mechanisms’ and ‘Carbon Sinks’. Oct/Nov 2001 – COP 7, Marrakech, agreements on accounting procedures for ‘Flexible Mechanisms’. Nov/Dec 2005 – COP 11, Montreal, first ‘Meeting of the Parties’ after Kyoto came into force. Agreement to extend life of Kyoto Protocol beyond 2012 expiry and negotiate even deeper cuts in GHG emissions.

What does all this UN jargon mean? :

What does all this UN jargon mean? GREENHOUSE GASES (GHG) – Carbon dioxide is not the only GHG covered by the UNFCCC. GLOBAL WARMING POTENTIAL (GWP) –Equivalence to CO2 for a GHG. GHG GWP (100 years) % of Global GHG emissions Carbon Dioxide 1 72% Methane 21 18% Nitrous Oxide 310 9% Organofluorine Compounds 140 – 11,700 < 1%

What does all this UN jargon mean?:

What does all this UN jargon mean? FLEXIBLE MECHANISMS – Defined under Kyoto Protocol, these are ways of reducing the costs and economic impact of GHG reduction. Flexible Mechanism What is it? Emissions Trading System (ETS) A market in tradable pollution permits. Clean Development Mechanism (CDM) Annex 1 nations can achieve their targets by reducing emissions in developing nations. Joint Implementation (JI) Annex 1 nations can invest in GHG reductions in other Annex 1 nations and claim credit.

What does all this UN jargon mean?:

CARBON SINKS – Projects that reduce GHG in the atmosphere, such as ‘Carbon Sequestration’ through reforestation or ‘Carbon Capture and Storage’. CERTIFIED EMISSIONS REDUCTION – These are produced through CDM projects. Each CER = one tonne of CO2E. EMISSION REDUCTION UNIT – These are produced through JI projects. Each ERU = one tonne of CO2E. CARBON PERMIT – A right to emit GHG created by government. Each permit = one tonne of CO2E What does all this UN jargon mean?

The Role of the European Union ...:

The Role of the European Union ... EU wide GHG reductions target under the UNFCCC and EU is an Annex 2 nation even though some member states are only Annex 1. Targeting a 20% reduction in GHG from 1990 levels by 2020, and is proposing 85% to 90% by 2050. Passes legislation. For example standardises how vehicle emissions are calculated and how the Energy Performance Certificates regime operates. Responsible for the European Union Emissions Trading Scheme (EUETS).

European Union Emissions Trading Scheme ...:

European Union Emissions Trading Scheme ... Permits issued by government Regulated Entities Speculators / Market Makers CDM / JI Reductions Tradable Pollution Rights 1 permit = 1 tonne CO 2 E

EUETS Phase 1 ...:

EUETS Phase 1 ... 2005 – 2007 Covered 40% of total EU GHG emissions in defined industries such as power generation and oil refineries. Permits limited per member state but were given away, not auctioned. Prices per permit ranged from €30 to €0.03. Verified GHG emissions increased by 1.9% during Phase 1. No CER or ERU from CDM or JI projects.

EUETS Phase 2 ...:

2008 – 2012 Number of permits reduced, still no auctioning of permits. They are allocated by member states. CER and ERU from CDM and JI projects are now integrated into EUETS. Permits trade in range of €30 to €10, prices collapse as output falls during 2008/09 banking crisis. Controversy on a number of grounds: Reductions all based on CDM ‘offsets’, dubious origins of ‘offsets’ and EUETS Permits used in VAT frauds. EUETS Phase 2 ...

EUETS Phase 3 ...:

2013 – 2020 (date for 20% reduction target). Some auctioning of permits, some to be allocated by member states. Plans to expand to more industries including aviation. Stricter eligibility criteria for ‘offsets’ to qualify for CER or ERU status. ‘Carbon Sinks’ probably not allowed. ‘Offsets’ that cannot be ‘cashed in’ on EUETS could still be sold to consumers via ‘Carbon’ claims such as ‘Carbon Neutral’. Is this allowed??? EUETS Phase 3 ...

Carbon showing some characteristic volatility… :

Carbon showing some characteristic volatility…

The role of DECC and DEFRA ...:

The role of DECC and DEFRA ... DECC issue guidance on carbon accounting and accounting for carbon claims such as ‘carbon neutral’. DEFRA issue guidance on making green claims including carbon claims such as ‘carbon neutral’. Understanding how GHG emissions are accounted for, how Whitehall advises business to make carbon claims to consumers and how consumers relate to carbon-related claims is important if Trading Standards Services are going to provide an enforcement function in respect of claims regarding GHG emissions.

DECC Guidance on ‘Carbon Neutral’ claims ...:

DECC Guidance on ‘Carbon Neutral’ claims ... Calculating Emissions Reducing Emissions Offsetting Residual Emissions

DECC Guidance – Calculating Emissions ...:

DECC Guidance – Calculating Emissions ... Recommends use of ‘Greenhouse Gas Protocol’ (GHGP), an internationally recognised carbon accounting tool. Stage 1 emissions – Direct emissions, i.e. own furnace, own vehicle etc. Stage 2 emissions – Energy indirect emissions, i.e. the electricity you use. Stage 3 emissions – Indirect emissions, i.e. travel using 3rd party vehicles, flights, taxis etc. Recommends at stage 1 and stage 2 emissions as a minimum, stage 3 as best practice.

DECC Guidance – Reducing Emissions ...:

DECC Guidance – Reducing Emissions ... Setting a timeframe, i.e. “We aim to become Carbon Neutral by 2020”. Reductions through energy efficiency measures, installation of on-site renewables and behaviour change. Renewable generation and consumption to be backed by Renewable Energy Guarantees of Origin certificates (Directive 2009/28/EC) Renewable energy purchased to comply with OFGEM Independent Certification Scheme

DECC Guidance – Offsetting Emissions ...:

DECC Guidance – Offsetting Emissions ... What is ‘Offsetting’? “Carbon offsetting involves the funding of projects which reduce or avoid emissions, with the carbon credits then generated used to offset the equivalent amount of emissions emitted elsewhere. These carbon credits represent savings against a business-as-usual assessment. The carbon savings made must be in addition to the savings that would have happened anyway without the funding from the sale/purchase of carbon credits.”

Types of Carbon Offsets ...:

Types of Carbon Offsets ... Certified Emissions Reductions (CER) achieved via the Clean Development Mechanism (CDM) – these offsets ARE Kyoto compliant Emissions Reductions Units (ERU) achieved via Joint Implementation (JI) projects – these offsets ARE Kyoto compliant Unregulated offsets, collectively referred to by DECC as Voluntary Emissions Reductions (VER) – these offsets ARE NOT Kyoto compliant and are sometimes certified by trade associations such under brands such as ‘Voluntary Carbon Standard’ and ‘Gold Standard for VER’s’. When the ‘W’ Bush administration refused to ratify Kyoto a largely self-regulated voluntary market grew in the USA, unlike the government regulated EU ‘cap and trade’.

UK Government Quality Assurance Scheme ...:

UK Government Quality Assurance Scheme ... Only Kyoto compliant credits qualify. DECC Guidance recommends use of Kyoto compliant offsets for making carbon claims. Scheme logo only to be used to promote QAS approved carbon offsets. Detailed conditions of use published by DECC including provision of consumer information for offset providers.

Offsetting through CDM ...:

Offsetting through CDM ... New windmill C0 2 Reduction Money CER offsets

Offsetting through JI ...:

Offsetting through JI ... Burning methane C0 2 E Reduction Money ERU offsets

Slide 23:

Now for some actual examples of offsets on the UK market ...

clear the carbon offsetting company ...:

clear the carbon offsetting company ... CAMIL Itaqui Biomass in Brazil Rice husks are used as biomass to generate electricity. Price £17.99 / tonne San Jacinto-Tizate Geothermal in Nicaragua Geothermal electricity generation project. Price £17.99 / tonne Braço Norte IV Geothermal in Brazil Hydroelectricity generation project. Price £17.99 / tonne (Obtained 6 th April 2011)

Climatecare (JP Morgan Chase) ...:

Climatecare (JP Morgan Chase) ... Clean Burning Stoves in Cambodia Domestic stoves replaced with clean burning alternatives. Price £7.50 / tonne Chingbin and Taichung Wind Farm in Taiwan New windfarm of 2.3MW wind turbines in Taiwan . Price £7.50 / tonne NOTICE THE PRICE DIFFERENCE!!! (Obtained 6 th April 2011)

ISO 14064 Carbon Accounting Standard ...:

ISO 14064 Carbon Accounting Standard ... ISO 14064-1, Specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals ISO 14064-2, Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements ISO 14064-3, Specification with guidance for the validation and verification of greenhouse gas assertions

DEFRA ‘Green Claims Guidance’ (March ’11) ...:

DEFRA ‘Green Claims Guidance’ (March ’11) ... Covers much more than just ‘carbon’ claims, but provides specific examples of good and bad practice in relation to carbon claims. Offers a three step approach to compliance. Step 1 – Check the content is relevant and reflects a genuine benefit. Step 2 – Present the claim clearly and accurately Step 3 – Check the claim can be readily substantiated

DEFRA ‘Green Claims Guidance’ Step 1...:

DEFRA ‘Green Claims Guidance’ Step 1... Do you have a clear idea of the main environmental impacts of your product, service or organisation? Is the claim relevant to these environmental impacts, and/or your business and consumer interests? Does the claim convey additional benefits to what is already happening or is required? If performance is compared to others on the market, is the comparison fair and meaningful? Is the basis for comparison clear?

Step 1 Examples of Poor Practice...:

Step 1 Examples of Poor Practice...

DEFRA ‘Green Claims Guidance’ Step 2...:

DEFRA ‘Green Claims Guidance’ Step 2... Is the claim a truthful and accurate representation of the scale of the environmental benefit or what is likely to happen in practice? Are the scope and boundaries of the claim clear? Does it use plain language that is not vague or ambiguous, or jargon that may be misunderstood? Is the amount and type of supporting information clear and appropriate? Is all imagery (i.e. symbols, pictures or labels) relevant to the claim and not likely to be misinterpreted?

Step 2 Examples of Poor and Good Practice...:

Step 2 Examples of Poor and Good Practice...

DEFRA ‘Green Claims Guidance’ Step 3...:

DEFRA ‘Green Claims Guidance’ Step 3... Is the evidence to substantiate a claim clear and robust, or is there uncertainty? Has it been tested using the most appropriate standard methods? Can claims of aspirations of future environmental performance be substantiated by evidence and action? Can the information to substantiate a claim, if not already publicly available, be made available on reasonable request (e.g. enforcement authorities)?

Step 3 Examples of Poor and Good Practice...:

Step 3 Examples of Poor and Good Practice...

So where do Trading Standards come in? :

So where do Trading Standards come in? There is no question that bogus claims made with no justification can be dealt with under Consumer Protection from Unfair Trading Regulations 2008, Business Protection from Misleading Marketing Regulations 2008 or Fraud Act 2006. The bigger questions surround where claims are made not in accordance with DECC or DEFRA guidance, or where QAS marketing standards are not followed etc. Standards are not mandatory but compliance should provide a due diligence defence. As the requirement to reduce GHG emissions starts to kick in 2012 onwards (20% by 2020 at an EU level) in what ways will ‘Carbon’ become marketed to consumers? Who will be policing this?

How is ‘Carbon’ already being sold to consumers in the UK? :

How is ‘Carbon’ already being sold to consumers in the UK? The ‘Big 6’ energy tariffs already sell ‘Green Energy Tariffs’ to consumers. Some quotes from OFGEM FAQ’s on the certification scheme: “... all that 100% Renewables Tariffs can guarantee is that the supplies are wholly matched against renewable energy generation capacity that has already been installed.” “... Essentially, this can either be by purchasing Government Quality Approved Carbon Offsets, or by directly investing in additional voluntary activities” “...many experts believe that [actions by governments] may be inadequate and that there is still a high chance of damaging climate change ... As a result, additional voluntary actions by consumers remains important, and the Green Energy Supply Scheme is one way in which you can help”

“Future Energy Plus” (Centrica plc):

“Future Energy Plus” (Centrica plc) “If you want a green tariff for gas and electricity, this is for you. It helps reduce carbon emissions in two different ways: by using energy from renewable sources and by contributing some of your bill payments to green energy initiatives. It also offsets all the carbon emissions from your gas usage.” How many consumers actually understand that they might be going ‘green’ by donating free wind turbines to the worlds 2nd largest economy? How many people would sign up to a green tariff if they knew that’s what it meant?

What if the EUETS extends to airlines? :

What if the EUETS extends to airlines? “Can we sell you some carbon offsets with that?”

What would a ‘Carbon Floor Price’ do? :

What would a ‘Carbon Floor Price’ do? “We will introduce a floor price for carbon, and make efforts to persuade the EU to move towards full auctioning of ETS permits.” (Coalition Agreement, 2010) If installing brand new wind turbines in China is viable at €15 / tonne what sort of projects are at €30 / tonne or even €50 / tonne? E.G. If an energy efficiency measure is not financially viable based on fuel savings in the UK, could this count as ‘additionality’ and allow carbon permits to be generated in France or Germany via the JI mechanism to finance the efficiency measure? Could this be compatible with the government’s ‘Green Deal’ policy? There are still more questions than answers at this stage, but it looks certain that ‘carbon finance’ is set to play a much bigger part in the UK consumer marketplace. Who will protect consumers from unfair and fraudulent trading practices?

Is ‘climate change’ a priority? :

Is ‘climate change’ a priority? “Protect the environment for future generations by tackling the threats and impacts of climate change.” (Proposed Priority Regulatory Outcome #1, LBRO, Feb 2011) “[Climate Change] has become one of the most significant challenges to public health we have ever faced, putting at risk the very pillars of life: clean water, sanitation, air quality and food. It is a challenge to us as individuals but also to environmental health practitioners (EHPs) who have a key role both in adaptation and mitigation of climate change.” (CIEH, Climate Change, Public Health and Health Inequalities, 2008)

Slide 40:

“Trading standards has an important role to play in the protection of the environment and the climate change agenda ... To meet carbon reduction and other eco-targets before 2020 we need enhanced monitoring of all trading activity ... Trading standards monitors claims about the environmental credentials of a product or service.  Terms such as ‘environmentally friendly’ and ‘carbon neutral’ can often give business a commercial advantage but are often too vague for consumers to make comparisons with other products.” (TSI, ‘Protecting the Environment’ Policy) Is ‘climate change’ a priority?

What do consumers think? :

What do consumers think? DEFRA paid £115,461 for extensive research into consumer attitudes to ‘green’ claims which we can all now access on the interweb. Key findings include: 26% of consumers agree “I would be prepared to pay more for environmentally friendly products” 42% disagree. Only about 10% of consumers regularly consider ‘carbon neutral’ claim when making purchasing decisions. Consumers are more interested in going ‘green’ if it makes financial sense to do so. There is limited understanding of what ‘carbon’ claims actually mean, even consumers who think they do understand these claims are often wrong.

What should we conclude? :

What should we conclude? 20 years on from Kyoto (2012) carbon trading and carbon finance look set to start playing a much bigger part in the lives of western consumers. The private and household sectors are money motivated. Carbon trading and carbon finance is intended as a money motivation scheme to get them to change their behaviour. Carbon’ claims and carbon finance schemes cannot be viewed in isolation from the EU energy efficiency regime which incorporates Energy Performance Certificates and now in the UK, ‘The Green Deal’ it is all inter-linked and it is happening. Very few UK consumers understand how carbon markets and carbon finance work. Yet it amounts to a massive economic reform which will affect every consumer at work, at home and on the high street.

Is Carbon Trading a big thing? Who is involved?:

Is Carbon Trading a big thing? Who is involved?

A small selection of IETA Members :

A small selection of IETA Members