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The carbon calculation
21 Oct 2008
Topics: Carbon footprint, CFV, GHG, Environment, Carbon market, PAS 2050
Climate change is becoming increasingly entwined in our volatile global economic system, whether through its impact on business or on the public. And while the international community seems to agree on the need to bring carbon emissions under control, the commitment and strategic responses of individual countries - to say nothing of businesses - have been markedly different.
The need to bring carbon emissions under control is increasingly urgent. By 2050, the world's middle classes will have expanded by over a billion people, mainly from within emerging markets. Some research suggests that the four BRIC countries (Brazil, Russia, India and China) will overtake the G8 in terms of GDP by 2035. This global economic growth is expected to create a 50 per cent larger carbon footprint in 2050, with China overtaking the US, according to the International Energy Agency, as early as 2009.
To date, there has been no best practice case study to help countries re-tool their economies for a low carbon future - though BSI has made a start through the launch of standards like PAS 2050 (see below - "PAS 2050: In a nutshell"). The UK government is no exception, having received its fair share of criticism for dithering on future energy policy.
However, by setting up the Carbon Trust in 2001 with the twin aims of helping business cut carbon emissions, and investing and promoting alternative energy sources, it has genuinely created a world leader.
Carrot, not the stick
Taking an evolutionary approach to carbon reduction rather than a revolutionary one, the Carbon Trust's strategy has been to impress upon business the financial benefits of reducing carbon emissions. It has also used its independent status and knowledge of the industry to make long-term investments in emerging technologies.
The business benefits for trimming carbon emissions are considerable. There are obvious energy savings to be had, either from reduced waste or more efficient energy consumption. Then there are growth opportunities to be had from sales of environmentally friendly products, and capital efficiency savings from building environmental due diligence into all major investment decisions. Smart companies - think M&S for a UK retail example - have been using their environmental record in their marketing in recent years.
For Professor Michael Grubb, chief economist at the Carbon Trust, the message is clear: the move towards a low carbon future need not be a burden for business: "In terms of the overall economy, tackling climate change won't involve a huge cost impact but in the energy sector and other heavy user sectors there are a number of big structural challenges that need different kinds of approaches. Looking ahead, these companies need to understand how their businesses can adapt to a changed climate and those industries that are unable to address their reliance on coal and other fossil fuels will struggle.
There are many ways companies of any size can make significant reductions in their carbon footprint without huge investment. Fostering a culture of conservation among employees is a first step: switching off lights, rechargers and electrical equipment when they are not in use can deliver savings as well as reduce energy usage. HSBC recently knocked 200 tonnes off its annual carbon bill by moving into a new office in Mexico City that optimises use of natural light.
Other ways to make carbon savings include looking at the company travel budget: how many meetings can be conducted via teleconference and video-conference rather than going to the trouble of a flight, train or motorway journey? Companies also have a wider range of options for their electricity sources than ever before, whether a large business considering better waste management or solar power, or SME considering a renewable electricity provider.
"To date, the Carbon Trust's efforts to encourage carbon reductions across all strata of business have yielded mixed results," says Professor Grubb. "My impression is that the willpower among heavy users of energy to change and restructure varies considerably among companies.
"The big multinationals tend to be able to think longer term: they have more experience in environmental issues and dealing with public opinion. Smaller companies tend to have less strategic vision. These companies are struggling and, by virtue of this, they will be the ones that suffer the most."
Companies that have bought in to the need to make carbon reductions have to overcome their inertia and implement low-carbon strategies.
"Bigger companies are reacting by doing lots of background research and hedging by diversifying their portfolios, both in terms of their sources of energy and their actual business model. They are moving into new businesses that are not reliant on fossil fuels in a bid to escape some of the uncertainty surrounding their existing business. Most are still at the stage where they are trying to understand the scale of the problem they face and, importantly, to see how serious governments are about forcing them to make changes," says Professor Grubb.
The wait-and-see phase of information gathering and education is understandable for large multinational companies, some of which have turnover comparable to the GDPs of small countries. It can also be counter productive, as businesses test the water to see what they can and cannot get away with.
For example, the oil company Exxon was criticised by the Advertising Standards Authority in the UK in August 2008 for claiming that liquefied natural gas was one of the world's cleanest fuels.
In the UK power industry meanwhile, electricity-generating companies are locked in a PR battle with the government against a proposed windfall tax, which they claim is preventing them from making long-term investment decisions in improving their environmental performance.
Better options?
While many companies have begun to focus on carbon reduction, can they actually go further and start thinking about carbon replacement?
"Companies are diversifying in terms of their business activities and also in terms of the sources of energy they're using," says Professor Grubb. "For example, we've seen that cement firms are using less clinker [the energy-intensive input to cement], and also using wastes and biomass to replace coal generation. We're also seeing it in the steel industry. In terms of actual carbon replacements, we know the three alternatives are renewables, nuclear and carbon capture, which taken together could provide a large amount of energy supplies."
Of these three alternatives, the debate surrounding the effectiveness - and desirability - of nuclear and renewables such as wind, solar and tidal power is well known, but the prospects for carbon capture and storage are hard to quantify.
"Carbon capture is promising, but the technology still hasn't been proven to scale, nor has it been established how expensive it will be to store carbon once it has been captured," says Professor Grubb. "To date, there have been a few small pilot schemes but as yet no integrated full-scale pilot to do both carbon capture and storage (CCS). This may well be needed, particularly given the use of domestic coal reserves as a source of energy in many countries. However, due to the scale of investment required and the uncertainty and risk attached to this new technology, CCS has not yet seen the level of private sector investment or government support required to bring it down in cost and make it a commercially viable option."
Such comments point to the critical juncture that has been reached in the economics and policy of climate change. With no silver bullet in terms of carbon replacement, governments are focusing on regulation and offsetting in the short term as the most effective ways to reduce carbon in the atmosphere. Professor Grubb insists these mechanisms do work.
"Carbon offsetting is part of a staged process," he says. "The first stage is about making companies get serious about cutting carbon emissions. Offsetting can be valuable here as there are lots of opportunities for very low cost emissions reductions in emerging markets so long as the system is well governed. There are good and bad markets, regulated and unregulated markets, but I believe on the whole these markets work well."
"As for the EU's Emissions Trading Scheme (ETS), this was designed as an evolutionary system. Markets only work well if there is a balance between supply and demand, and it was clear that in the first phase too many allowances were given away. But we are in the second phase now and the market is working in a much more robust fashion. Proposals are now being evaluated for post-2012 and this will be more effective still.
"ETS is the first serious international mechanism that puts a price on carbon and has made carbon an issue in the boardroom in a way that all the media attention had failed to do."
Future climates
Just how far the international community goes by 2012 and what other initiatives it puts in place depends on the level of consensus that can be achieved at next year's UN Climate Change Summit in Copenhagen. This will be the fifteenth such UN event, aiming to put in place a new programme that builds on the achievements of the Kyoto Agreement.
Despite the uncertain global economic and political climate, Professor Grubb is optimistic that governments will commit to further initiatives to cut carbon emissions: "All governments act differently with regards to climate change. For some, investing in solutions is a matter of national comparative advantage. For others, pure politics come into play.
"For example, in Australia, the last government saw every attempt to reach an accord on the environment as a threat to their resource sector and opposed any attempt at international climate reduction," he says. "Six months in, the new government has performed a complete inversion, citing the huge threat it sees climate change posing to its agricultural sector and huge opportunity it sees in terms of investment in renewables.
"The current economic situation in the UK is denting public interest to some degree but there are a few reasons why climate change will remain a high priority. First, there is quite a strong connection between energy problems and climate change - for example, energy security depends on diversifying energy sources, which will keep diversification high on the agenda.
"Secondly, there are political processes involved. For example, the biggest recalcitrant government is about to leave office. Whoever becomes the next US president will be committed to capping climate change."
The international effort will form a large part of the Carbon Trust's own agenda in 2009, says Professor Grubb. As well as launching PAS 2050 in collaboration with BSI British Standards in the UK, agreements are also being finalized to develop local versions of the Carbon Trust in Florida and China. A memorandum of understanding has just been signed between the Carbon Trust and China's Energy Conservation and Investment Corporation.
Lastly, Professor Grubb and his colleagues will be busy formulating proposals for next year's Copenhagen Summit, where they have already made a case for the establishment of a network of international innovation centres to foster alternative energy enterprises. The business of fighting climate change continues to hot up.
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PAS 2050: in a nutshell
If you can't measure it, you can't manage it - there is as yet no agreed measurement standard for life cycle greenhouse gas (GHG) emissions of products, something that is essential in allowing organizations to understand the GHG implications of their actions. BSI has just published a widely consulted method for assessing GHG emissions, with PAS 2050 Specification for the assessment of the life cycle greenhouse gas emissions of goods and services. The PAS (Publicly Available Specification) will help businesses assess the GHG emissions from goods and services throughout their life cycle.
Working with the Carbon Trust and Defra, BSI started work on PAS 2050 in June 2007. Defra commissioned an independent review of the current methods relevant to measuring life cycle greenhouse gas emissions of products and services. The Carbon Trust was the Technical Author of the standard and supported this role by facilitating workgroups on key topics, seeking expert input on the standard and running several pilots at various stages of the drafting, the findings from which were fed back into the standard. The proposed assessment method had to apply to all goods and services with consideration given to how and whether it may need customizing for specific product groups such as food, buildings, electronics and so on. Key to the standard is the fact that it examines all stages in the life of a good or service, from raw materials to end of life, and it includes all the GHGs identified by the IPCC (Intergovernmental Panel on Climate Change).
"Our work on carbon footprinting shows there is real appetite amongst business to tackle the indirect emissions from their supply chains, and to offer clear information to consumers on the carbon impact of their products and services," says Euan Murray, general manager, Carbon Reduction Label. "In order for even more businesses to use this approach it is essential that we develop a single universally accepted method. As part of this the Carbon Trust has been working with BSI British Standards and Defra to co-sponsor the development of a Publicly Available Specification for the measurement of the embodied greenhouse gases in products and services.
"The standard has been designed to ensure a consistent and comparable approach to supply chain measurement of embodied GHGs across markets. The intention is that this is the first step in moving towards an internationally agreed standard for measuring embodied GHG emissions." Ultimately, the PAS is intended as a step towards a future internationally agreed method for organizations to measure the GHG emissions embodied in their goods and services.
For more information and to download your free copy of PAS 2050: www.bsigroup.com/oct08pas2050
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Validation & verification
As part of its commitment to helping business to minimize their environmental impact, BSI in the US is among the initial group of qualified certification bodies to participate in the pilot accreditation programme launched by the American National Standards Institute (ANSI) earlier in 2008 aimed to facilitate consistent, reliable and creditable public disclosures of the inventory, reduction and removal of greenhouse gases.
According to ANSI, "the initiative will support the efforts of greenhouse gas programmes across the US by providing an accredited network of independent, third-parties that verify and validate nationwide efforts to reduce emissions and complete carbon credit inventories."
This is an important step, as beginning in 2009, all voluntary GHG emission inventory reports submitted to The Climate Registry (TCR) - a collaborative initiative between 39 states in the US, the District of Columbia, three Indian Nations, 12 Canadian provinces and six Mexican states - must be validated and/or verified by an independent, accredited certification body.
For more information, visit: www.bsigroup.com/oct08ghg
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