Businesses step on board with offsets

Sensemaking / Businesses step on board with offsets

07 Jan 2011

Three leading companies explain their offsetting approach.

Last resort – or most bangs per buck?

Everyone agrees that offsets are only one tool available in the carbon cutting kit.

The question is: at what point is that tool wielded? Most argue that it should only be brought into action when other options have been exhausted.

For Iain Watt, climate expert at Forum for the Future, the guiding mantra is “Avoid – Reduce – Replace. Avoid creating emissions in the first place, reduce them through energy efficiency, and replace high-carbon sources of energy with low- or zero-carbon ones. Offsetting may play an important part but it should not be the priority of your carbon management strategy.”

Others stress that, once you’ve plucked the ‘low-hanging fruit’ in terms of emissions reductions at home, it can be perverse to spend large amounts on ratcheting them down just a little further, when the same money could achieve vastly greater reductions elsewhere in the world – and deliver all sorts of social benefits too.

Edward Hanrahan of ClimateCare cites one client (he won’t name names) who was so fixated on the ‘reduce first, then offset’ hierarchy, that they spent a cool £80,000 on highly sophisticated lighting controls to cut a final 100 tonnes of CO2: an achievement that would have cost just £75 via offsets. “If they’d spent their original budget on offsets, they would be a substantial net contributor to emissions reduction”.

Some companies, he suggests, have taken irrational decisions in an effort to appease ‘offset sceptics’, when they might have achieved more, both for the climate and their bottom line, by taking a more cool-headed approach to calculating the maximum potential carbon which could be saved per dollar invested – or, in other words, how to achieve the biggest bang for their available bucks.

At the Co-op, Paul Monaghan is keen to stress that offsets are only part of the picture. “We are also doing a host of other things. Virtually all of our three thousand properties support a green electricity tariff. As part of this we've entered into long-term purchase agreements that guarantee new power generation is created, and have begun to erect wind farms on our farmland. We've also pioneered the use of micro-generation, and house the UK's largest applications of solar PV and micro wind.” But he adds: “To say you should only offset once all other options have been exhausted is daft: it’s like saying waste recycling activities should be discouraged as they incite people to duck the higher imperative of waste minimisation.”

Zelda Bentham of Aviva agrees. “Our view is that genuine reductions in carbon emissions to the atmosphere are beneficial – whether they come from a company’s own operations, a compliance trading scheme or from voluntary (offset) projects that help economic progress in a more sustainable way.”

Aviva

Last year, UK-based insurance company Aviva calculated its global CO2 emissions at 104,351 tonnes – and paid to offset it in its entirety. It added an extra 5% to drive carbon reduction above and beyond its own footprint. The bill came in at £620,000.

Over 100,000 tonnes may seem a lot – but it’s down 20,000 against the 2006 baseline, thanks to a range of initiatives to reduce its impact. They include behaviour change (cutting out unnecessary travel through the use of teleconferencing, for example), introducing more efficient ICT systems, and buying electricity from renewable energy companies.

Aviva only buys offsets certified through the rigorous Gold Standard or Voluntary Carbon Standard schemes. Since 2006, approximately half of its spend has gone towards wind energy projects, avoiding over 220,000 tonnes of carbon emissions, with a further 100,000 tonnes offset through biomass and hydropower schemes.

The company favours projects in those countries where it has a market presence – which include the giants of East Asia (China, India, South Korea), and some ‘developing’ nations (from Romania to Sri Lanka), as well as some major European countries (France, Italy, Spain).

Supporting the development of clean energy is a good way to improve the prospects of communities vulnerable to climate change. But it’s not the only way, Aviva believes. Funds raised through offset schemes also support projects aimed specifically at the rural poor: hence Aviva’s purchase of credits generated by IDEI’s treadle pump scheme (see 'Carbon offsets open doors for rural communities').

It has also purchased a total of 22,000 tonnes from CO2Balance, a Kenyan carbon management company that distributes super-efficient cookstoves which require 50% less wood than a traditional open fire. Kenya is not a country in which Aviva operates, but one it considers to “suffer more from the effects of climate change, both in terms of speed and impact” than most. The project not only reduces the number of trees felled for fuel, but has created over 200 new jobs in production. It also supports local industry by sourcing all materials used to build the stoves (bricks, cement and cast iron) in Kenya.

Such local, human-scale projects, says Zelda Bentham, Senior Environment Manager at Aviva, “have a resonance with our employees”.

Google, which has made a big splash with recent announcements on investing in renewables (see 'Google invests in clean energy'), also sees offsets as part of its carbon reduction portfolio — despite the fact that it took until May of2010 for the company to finish buying the credits for the energy it used back in 2007. Head of Green Energy, Bill Weihl, says this is because tracing carbon offsets back to particular projects and verifying that they actually reduce emissions — and by how much — is a tricky business.

At Forum for the Future, Deputy Director Sally Uren believes that “it’s important to look at carbon reduction per dollar invested. You can invest millions in a new manufacturing process and take 5% off your overall footprint – or you can invest the same sum in projects and deliver millions of tonnes of carbon savings.” But she sounds a cautionary note. “The priority is to reduce your baseline impacts as quickly and effectively as you can.”

It’s one echoed by Jonathon Porritt. “Offsets have to be a major factor,” he acknowledges, but they shouldn’t be purchased purely because they deliver the biggest reductions per pound or dollar. The basic ‘reduce first’ hierarchy is sound, he says, because “offsets alone will never get us to where we want to be. They must be seen as part of an integrated energy management strategy; and the main driver of that (where most companies are concerned) is energy cost and security of supply.” If you neglect opportunities to cut emissions, then any amount of offset spending risks being dismissed as “a gesture”, he warns.


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History, Geography

It’s all very well to cut emissions now – but what about those you’ve created in the past? They’re still out there in the atmosphere, warming the world. Offsets are arguably the only option in the carbon management toolkit that can make amends. Imagine you’ve finally achieved a completely zero-carbon lifestyle – but that your cumulative carbon emissions in the past total, say, 250 tonnes. You can only credibly claim to be carbon neutral if you take action now to offset that total.

“Because emissions are cumulative and historic”, argues ClimateCare’s Edward Hanrahan, “it’s not enough to say ‘Reduce: then Offset’. It should first be ‘Offset’ (to tackle your past emissions); then ‘Reduce’ (your present ones as much as possible), then ‘Offset’ (the remainder).”

The Co-operative Group

The Co-op takes “a scientific approach, rather than a philosophical one”, says Paul Monaghan. Instead of buying offsets for image reasons, he says, it does so to bring it closer to achieving its goal of carbon neutrality.

Since 2000, the Co-op has offset over 400,000 tonnes of CO2. It raises funds for the scheme by pinpointing a few carbon-intensive things that its customers commonly do, such as driving a car, buying a home, or taking a flight.

As part of its mortgage scheme, the Co-operative Bank anticipates the carbon emissions of a household for the lifetime of the mortgage, and offsets one fifth of that total. The car insurance scheme works in a similar way, offsetting 20% of exhaust carbon.

The Co-operative Travel offers customers the opportunity to offset the carbon emitted through aviation fuel. This is part of a wider initiative to reduce the footprint of the Group’s travel outlets by using electricity from renewable sources, as well as offsetting core management and funding research into sustainable tourism.

Then, in 2007, the Co-operative Insurance Services announced that it would “go beyond carbon neutral”, offsetting 110% of all operational emissions, plus the impact of any unavoidable business travel.

The Co-op buys its offset credits through ClimateCare and, like Aviva, supports the treadle pump scheme. It funded the installation of over 61,000 treadle pumps in 2008, expected to result in 27,500 tonnes of avoided CO2 emissions over a five-year period. And it also backs the Cambodian cookstoves initiative (see 'Offsets spark clean change').

It only buys voluntary offsets from developing countries, says Monaghan, because the relative social benefits are normally much greater – and there is more certainty that the projects would not have gone ahead anyway (in other words, not fall at the ‘additionality’ hurdle).

Your emission is my emission

Complacency is a dangerous thing. A year or so ago, British politicians were quietly congratulating themselves on achieving impressive cuts in carbon emissions. Until, that is, studies began to emerge showing that a significant chunk of carbon pumped out of factories in China and elsewhere was the result of meeting demand for consumer goods in the UK. It became all too clear that if emissions incurred in the production of imports are included in the national total, the picture is very different. It’s hardly surprising. Much of what we consume is now produced abroad, and this applies particularly to carbon-intensive manufactured goods. So countries like China effectively emit on our behalf. This realisation has implications not just for Government, but for any company with an international supply chain. Globalisation is making a nonsense of national targets.

Businesses such as Marks & Spencer are starting to realise this, says Iain Watt. “Being neutral in the stores and offices is one thing, (but) now they’re looking at how much carbon it takes to get a product on the shelves”, which includes assessing emissions from production and transportation. And then there are those incurred when the consumer puts it in her car and drives home. Such ‘secondary’ emissions are thought to be about ten times those incurred ‘in house’: so all the effort made to improve office and store efficiency and buy green energy is dwarfed by comparison.

Some companies are taking this approach a step further, says Watt, extending it to all operations upon which the company depends, internal and external: “It’s a broader, more holistic view of the issue, that takes into account the company’s exposure to potential cost risk associated with carbon emissions”, he says.

For Paul Monaghan, this all strengthens the case for offsetting. “The thing about the climate is that it doesn't give a jot where the carbon originates. Whether it's avoided in the UK, or offset in India, a tonne of reduction is a tonne of reduction is a tonne of reduction.”

Future positive?

Whatever offsets’ achievements to date, there’s almost unlimited potential to achieve more. Their present contribution to curbing the vast amount of carbon emitted is just a drop in the ocean. In 2007-8, voluntary offsetting prevented around 25 million tonnes of carbon dioxide from entering the atmosphere. During the same period, the US alone released around 6 billion tonnes…

Offset totals may be small now, but many observers believe we have barely scratched the surface. As carbon costs rise, driven by the UK government’s long term emission reduction goals, says Jonathon Porritt, more and more companies will be keen to adopt policies that move them towards carbon neutrality. “At the moment the market does not reflect the real price for carbon”, he says. “The carbon price is so low it is not important to most companies”, but as the true costs are reflected and carbon prices rise, carbon offset volumes will, inevitably, continue to grow.

“We simply are not going to hit our targets (without securing cuts elsewhere)”, he argues. And that means “offsets must be a major factor” in tackling emissions.

Jaguar Land Rover

Jaguar Land Rover offsets 100% of the CO2 emissions produced through its manufacturing assembly processes and, via a scheme launched in 2007, offers Land Rover customers the opportunity to offset the emissions of their first 45,000 miles – an option integrated at point of sale Jaguar customers can also choose to offset emissions via the Jaguar website.

“We’re in a position to invest in projects that would not otherwise get off the ground”, says Fran Leedham, Head of Environment and Sustainability, recognising the sheer weight of investment potential yielded by the group. “But it’s not a standalone thing”, she asserts. “It’s part of an integrated approach to carbon reduction.”

Jaguar Land Rover is investing £800 million in research and development to improve the efficiency of its cars and manufacturing processes. But, with an average lead time of five years from the design of a car to its production, carbon offsetting enables the group to make an immediate difference. Jaguar Land Rover expects to offset around 3 million tonnes of carbon dioxide by 2012.

“The scale of the offset scheme is very significant”, says Sally Uren,Deputy Directorat Forum for the Future. “It’s not a permanent part of their carbon strategy”, she clarifies. “It’s a way for them to do their bit while the technology catches up.”

Jaguar Land Rover’s offset scheme supports emissions reductions projects in 14 different countries spanning Africa, Asia, Eastern Europe and South America.

The portfolio includes the development of renewable energy sources, such as a wind farm in China and a series of small scale hydro plants in Tajikistan. These two initiatives combined are expected to avoid 150,000 tonnes of carbon emissions a year. The offset scheme also supports energy efficiency initiatives, such as low carbon lighting and cookstoves, as well as the promotion of new technologies that offer to reduce emissions in communities and industry alike.

- Sally Uren

Image credits: Kylie Bisman; Tom Morton

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