Putting carbon offsets in their place

Reduce, Reuse, Recycle has been the classic environmental triage message for years. And of course we have the “triple bottom line” of People, Planet, Profit, so it seems fitting that we should have a new Triple E for carbon planning: Evaluate, Efficiency, Environmental Offset. OK, so it’s not quite as catchy as Reduce, Reuse, Recycle, but I’m just a blogger, so cut me some slack.

Evaluate
My church was looking to do its part for the environment awhile back and trying to figure out where to start. Like many industries, a church’s carbon emissions aren’t regulated, and there aren’t generally accepted standards for how a church should go about reducing them. I gave them the same advice I’m giving here: First, figure out what you’ve got, figure out what you want to count, and figure out how to make a difference. Then get your people involved and just do it.

The real issue has always been “boundary conditions,” or what you are going to include in determining your carbon baseline. The standards for a voluntary low carbon plan are still emerging, and there is a wide range of accepted practices.

For many businesses, ISO or API standards and the standards being developed under initiatives like the California Climate Action Registry are framing up the issues well; others can look to the cap-and-trade schemes in Europe under the Kyoto Protocol.

So, back to what you could count. We can basically divide it into four main buckets:

• Your own direct emissions (e.g., power plants or transport fleets). This is generally the easiest to measure and analyze, but often the hardest to reduce for many businesses.
• Your indirect emissions (e.g., grid power usage). Someone else owns the power plant or trucks doing the emitting, but you get the benefit.
• Your life-cycle emissions (e.g., the paper in your supply chain). Always a real devil in the details. There’s the old joke about economists: Put three in a room and ask one question; you get 10 answers. As far as I can tell, with lifecycle analysis you may get 457 answers instead of 10. It’s not a simple exercise.
• Your employee’s or stakeholders’ direct and indirect emissions (e.g., commuting). Basically, this involves counting life-cycle emissions on your people instead of your supplies.

The last two rarely make it into any standards, but areas that fit into an overall sustainability plan, such as employee carpooling and recycling, would fall into these buckets.

As with most things, the KISS (Keep it Simple, Stupid) principle works pretty well.

Choose a standard, then start with what’s easiest to measure and calculate. Getting started is probably more valuable than capturing everything in the first go; you can always add later. Next, you’ll need to figure out what activities in the company produce carbon on a direct, indirect or life-cycle basis; convert those factors into carbon equivalents on a periodic basis; then measure and verify both the activity factors and the conversion factors (known generally as “emissions factors”).

The devil-in-the-details is defining which activities count for your business, how to count them, and how to create the conversion factors to get to a generally accepted number.

So, now you’ve gotten to your carbon footprint number. If you are serious about this, and especially if you are going to report it outside your own walls, get it verified.

Independence, transparency and the strictest standards win. All else gets egg on its face. As with a financial audit, hire the biggest, baddest, most respected verifier you can get, with the most licenses, the most people, the strictest standards and the least availability.

Efficiency
Now that you’ve evaluated and measured where you are, go for solving the big items and the high impact items. And remember the golden rule of anti-greenwashing: Reduce your own carbon footprint before you buy reductions from others. The core of any carbon plan includes reductions in your footprint. Whether it’s direct, indirect or life-cycle emissions, you generally have two main options: (1) Reduce a carbon-using activity (e.g. lower your power usage, miles driven, or reduce the number of paper goods you are using), or (2) Replace it with an alternative activity that has a lower per-unit footprint (e.g. solar panels instead of grid power, more fuel efficient vehicles, switching to recycled paper goods). Here is where energy audits, utility programs, recycling programs and plain old using-resources-better come into play.

Do anything you can to get the number down. Don’t forget to do this right: Do the ROI and payback analysis, capital expenditure justifications and all the rest on each decision. We are in business to make money, after all. Then, as always, get it verified.

That brings us to our new carbon footprint number, post reductions.

Environmental offsets
Now we get to carbon offsets. Very few businesses can go to zero carbon without cutting into bone and actually reducing revenues or hurting profits. And, as much as some might like to see that happen, we live in the real world. I like to think of the efficiency phase as cutting out the carbon fat. When you get to bone and muscle, it’s time to offset from someone else’s fat, as long as it’s cheaper than cutting into your own bone (which it usually is). That drives the carbon out of the economy in the cheapest possible manner— which along with establishing what the right “price” for carbon is, has always been the main objective of including trading in emissions reductions.

You have a myriad of choices on what and where to buy. I would classify the choices into two major types of carbon credits available to a business: Kyoto and non-Kyoto. The price differentials between the two are quite large, with Kyoto compliance credits generally trading for the highest prices (as with many things, quality, supply and demand drive prices). There are literally hundreds of companies selling carbon or green power credits in the voluntary markets. Well-known examples include TerraPass, Renewable Choice Energy, 3Degrees, Sterling Plant, the Chicago Climate Exchange and Climate Clean.

When it comes to Kyoto credits, major players like EcoSecurities or MGM International can handle large volumes, but tend not to deal in small amounts, so you may need to go through a broker or a distributor. For example, Climate Clean packages custom portfolios of Kyoto credits from EcoSecurities.

One key issue to keep in mind: You should generally use credits to offset similar activities to where the credits came from. For example, in many people’s minds and according to many standards, it is not always acceptable to use carbon credits from indirect emissions to offset your own direct emissions.

This issue comes to the forefront when dealing with “green power” or renewable energy credits (RECs), which include some low carbon attributes but don’t always meet the same “additionality” standards of carbon credits. Bottom line is: If it’s a non-Kyoto credit, make sure you know what you are doing with it.

To simplify the Wild West air of offset purchases, I’ve come up with a few rules of thumb that may help:

• Disclose, disclose, disclose. When in doubt, tell everyone everything. What you bought, where you bought it, who you bought it from, who verified it, what standard—everything you can think of. There is no faster way to take flack for buying offsets than to hide what they are. And if you are still worried, ask your stakeholders for their comments.
• If it’s your first time, get an advisor. Make sure your advisor knows carbon verification and standards, not just carbon credits. And just like buying financial advice, get advice from one party and buy from another.
• Look for independent verification. Make sure someone’s name is behind what you buy. Just as with verification for your own emissions and your plan, look for leading Kyoto carbon verifiers such as DNV and SGS Group, and well respected standards for projects, including Clean Development Mechanism (CDM), Voluntary Carbon Standard (VCS), Gold Standard or, for U.S.-based credits, the Center for Resource Solutions’ Green-e brand.
• You get what you pay for. You are wrapping your brand and credibility up in these purchases, so don’t blow it. If you’re worried about the budget, buy fewer credits at a higher price from a source you trust, rather than more, cheaper credits from a source you don’t trust. I’ve always maintained that claiming you have offset 50 percent of usage with quality credits is better than claiming 100 percent and making a mistake.

So, happy carbon hunting!

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Neal Dikeman writes a bimonthly column for Sustainable Industries. In real life he is a partner at boutique energy merchant bank Jane Capital Partners LLC, the blogger behind CleantechBlog.com and the Chairman of Cleantech.org. He is also the founding CEO of Carbonflow, a venture dedicated to bringing automation and transparency to the carbon markets.