Biofuel Producers Reduce Compliance and Reputational Risks by Monitoring Feedstock Supply Chain Sustainability

Biofuels and bioenergy are poised for expansion as governments encourage their production to reduce greenhouse gas emissions and petroleum prices remain high. According to a report produced by the consulting firm McKinsey in August 2009, “growth in the demand for biomass of more than 8% a year is likely over the next decade.” [“Overview: Biomass, mobilizing a sustainable resource,” in Sustainable Bioenergy, London: Fulton Publishing, 2010, ISBN 978-0-9553720-4-9, p. 13.]

In the United States, a final rule published by the US Environmental Protection Agency (EPA) in February 2010 implements the changes in renewable fuel standards mandated by the 2007 Energy Independence and Security Act. The new “RFS2” regulations extend renewable fuel obligations for the refining industry a decade beyond the 2012 date that was set in previous legislation. European governments also are seeking to increase the role that bioenergy plays in their countries, both by encouraging domestic producers and by seeking to increase imports of feedstocks. Motivations on both sides of the Atlantic Ocean include not only a desire to moderate greenhouse gas emissions but also to improve energy security and independence.

Substantial greenhouse gas emission reductions will come from advanced biofuels, which is produced from ligno-cellulosic biomass, algae and waste oils, rather than fermented from corn starch. While EPA believes that corn-based ethanol reduces lifecycle greenhouse gas emissions by 20% compared to petroleum fuel, the advanced biofuels can meet standards of 50-60%. These numbers may be conservative, as biofuels produced for the aviation industry have claimed lifecycle reductions in the range of 80-84%.

The pulp and paper, food and feed products, and heat and power industries will continue to play an important role in bioenergy markets, along with transportation biofuel providers. Farmers around the world will benefit from increasing demand for biomass.

To achieve the growth forecast in the McKinsey report and by other sources, biofuel producers need to develop their supply chains to obtain predictable and reliable deliveries of feedstocks. Managing sourcing, logistics, quality and reliability poses one set of challenges, but others arise as well. Key among these is ensuring that sustainability criteria are not only met but documented in a verifiable way.

Meeting sustainability criteria are key to the success of biofuels, because a major driver for development of the biofuels industry is the claim that biofuels represent a qualitative improvement relative to continued depletion of fossil fuels. However, this claim can only be sustained if certain criteria are not only met, but also documented. Moreover, the greenhouse gas emission reduction benefits cannot come at the expense of other environmental, social, and economic impacts.

“Sustainable” biofuels reduce greenhouse gas emissions relative to the petroleum based fuels for which they serve as substitutes. In addition, the cultivation of their feedstocks does not exacerbate water scarcity in producing regions, threaten biodiversity, or cause food prices to rise. Farmers and others in the supply chain are compensated fairly for their work and labor standards are adhered to. Operations are planned taking into account environmental and social criteria, and managed in compliance with laws and regulations. In regions of poverty, biofuel operations contribute to social and economic development of local, rural and indigenous people and communities. Technology is managed for production efficiency and social and environmental performance, and any use of genetically modified organisms is disclosed. Land rights and land use rights are respected.

Governments and nongovernmental organizations alike have recognized the need for sustainability criteria for biofuels. In December 2009 the Roundtable on Sustainable Biofuels (RSB) at the Ecole Polytechnique Fédérale de Lausanne published version 1.0 of its “Indicators of Compliance for the RSB Principles and Criteria.” Also in 2009, an initiative to develop an international standard on sustainability criteria in biofuels got underway in ISO Technical Committee 248. And, in the United States, the EPA has made biofuel producers responsible for maintaining records from their feedstock producers that meet the defined sustainability criteria in that regulation.

It is not enough to label biofuels as “sustainable.” The claim must be established and proven. Biofuel producers must manage their supply chains for compliance to criteria that go far beyond the “due diligence” investigations that most supply chain managers now consider normal. Failures in supply chain management can damage a producer’s reputation and may subject it to regulatory enforcement.

Managing the risk of deviation from sustainability criteria is an important consideration for all biofuel producers. Producers should consider options that best fit their supply chain management capabilities. Direct oversight and management of the supply chain can be time and resource intensive. To reduce this burden, producers may wish to outsource second party audits of feedstock producers and processers, or require them to obtain third-party certification to criteria developed by RSB or others. In some cases producers may choose to work through industry consortia to outsource the oversight and certification of feedstock producers and processors in various locations around the world.

Futurepast can assist biofuel producers with the development of a strategy for supply chain management that will support in-house management activities and maximize benefits from outsourcing audits and compliance assurance efforts.

© Futurepast: Inc, 2010

Water Scarcity and Greenhouse Gas Emissions Are Environmental Aspects Worthy of Management System Attention

Two of the most successful International Standards of the last 25 years are ISO 9001 and ISO 14001. ISO 9001, a quality management system standard now used by more than one million organizations, first gave international prominence to the “systems approach” to management. It has become one of the all-time best-selling standards of the International Organization for Standardization (ISO).

Its success helped launch ISO 14001, an environmental management system based on the “plan-do-check-act” virtuous cycle of policy-driven planning, managing to meet objectives, establishing operational control, and monitoring and measuring progress towards meeting identified objectives and targets. Several hundred thousand organizations around the world have adopted ISO 14001, usually as an enhancement of a quality management system which has the goal of managing processes for delivering quality goods and services and satisfying customers.

Fundamental to an environmental management system is the identification of the environmental aspects of an organization. These are the “elements of the organization’s activities, products and services that have or can have an impact on the environment,” whether adverse or beneficial. Identifying environmental aspects is key to the successful implementation of the management system, because it helps organizations proactively manage “those that can have a significant impact on the environment.”

Many early adopters of ISO 14001 environmental management systems reaped major benefits from their efforts. Energy efficiency, waste reduction, prevention of pollution, improved compliance with environmental legal requirements, all paid returns that contributed to the organizations’ bottom line while improving their standing among stakeholders, driving improvements through the supply chain, and augmenting workforce morale. Alas, the more the environmental management system standard became commonplace, the greater was the tendency of some later-adopting organizations to use the system as a regulatory compliance management tool and for little else.

In such cases, the true potential of the environmental management system is shortchanged. Properly implemented, ISO 14001-based systems should identify all environmental aspects that have the potential to create significant environmental impacts, whether they are currently regulated or not. Two prominent issues that fall in this category are water consumption and greenhouse gas emissions.

With the world population approaching seven billion, water scarcity is a growing concern. Organizations fortunate enough to be located in water-rich regions can ill afford to be complacent. Although “water wars” have not broken out recently in the United States, regions not normally considered water constrained have experienced some skirmishes. The contested northern boundary of the state of Georgia comes to mind, where claims of a flawed early nineteenth century survey that demarcated the boundary with Tennessee recently were raised. Why the sudden interest on behalf of the state of Georgia in a small strip of land that for nearly two centuries had been recognized as part of Tennessee? The explanation is access to the Tennessee River, which could have been tapped to relieve a drought that recently afflicted northern Georgia.

Another example is public opposition in Minnesota, the land of ten thousand lakes, to commercial development of the state’s water resources to feed an ever-expanding consumer thirst for bottled water. No thank you, say Minnesotans, who much prefer to keep their water for themselves.

Reducing greenhouse gas emissions is another issue that concerns many stakeholders. Regulation of greenhouse gas emissions is now occurring in California and has become an important consideration for the siting of new power plants across the country. For many companies, however, regulation of carbon dioxide is an issue for some time in the future, not today.

However, US companies ignore greenhouse gases at their peril. Aircraft operators landing in Europe or taking off from there face regulation from 2012 as part of an expanded European Union Emissions Trading System. This includes all US transatlantic carriers, and even some general aviation. France and other EU countries have proposed legislation that would mandate disclosure of the “carbon footprint” of products sold in that country from as early as January 2011. Imports from the US would be affected.

Identifying water consumption and greenhouse gases as potentially significant environmental aspects in an ISO 14001–based management system makes good business sense today, in advance of regulations. Doing so helps organizations take early actions to tackle critical issues before the mandates arrive.

© 2010, Futurepast: Inc.

ISO Guidance on Social Responsibility Advances Toward Publication With Substantial–But Not Unanimous–International Support

The International Organization for Standardization (ISO) reached a milestone in February when countries participating in the development of ISO 26000, Guidance on social responsibility, approved the latest version of their document as a Draft International Standard. This brings ISO one step closer to publication of an International Standard which could occur later in 2010 or in 2011.

The road to this milestone has been long and bumpy. Seven meetings of 430 experts from 90 countries and representing 40 organizations have been held, and what could be the final one is scheduled for May 2010. Although the Danish host of the May meeting, Ole Blöndal, stated in his invitation letter that the document now represents “broad consensus on common guidelines among different stakeholders around the world,” the results of the DIS ballot suggest that serious differences of opinion remain. Before returning to that topic, let’s take a closer look at the content of the standard.

The heart of the document is found in sections 3-6. Section 3 introduces the topic of social responsibility through discussions of its historical background, recent trends, characteristics of social responsibility, and the different roles for states and organizations with respect to the creation and application of laws.

Seven principles of social responsibility are set forth in section 4. They include:
• Accountability
• Transparency
• Ethical behavior
• Respect for stakeholder interests
• Respect for the rule of law
• Respect for international norms of behavior
• Respect for human rights.

Section 5, “Recognizing social responsibility and engaging stakeholders,” provides guidance on the relationship between an organization and its stakeholders and society. It defines core subjects and issues of social responsibility and describes the “sphere of influence” on these subjects and issues that an organization has.

The “core subjects” covered by the standard include the most likely economic, environmental and social impacts that should be addressed by organizations, namely:
• Organizational governance
• Human rights
• Labor practices
• The environment
• Fair operating practices
• Consumer issues
• Community involvement and development.

Section 6 of the standard is organized around the core subjects and associated issues relating to social responsibility. Subsections provide an overview for each subject, principles and considerations in understanding an organization’s role with respect to the topic, and detailed descriptions of issues and what related actions and expectations an organization should take with respect to them. For example, in subsection 6.5, the guidance provides an overview of the relationship of an organization to the environment and identifies four principles for organizations: environmental responsibility, use of the precautionary approach, environmental risk management, and polluter pays.

A section on “considerations” refers organizations to the following approaches and strategies:
• Life cycle thinking
• Environmental impact assessment
• Cleaner production and eco-efficiency
• A product-service system approach
• Use of environmentally sound technologies and practices, and
• Sustainable procurement.

Four environmental issues are analyzed in detail. They include prevention of pollution, sustainable resource use, climate change mitigation and adaptation, and protection of the environment and restoration of natural habitats.

Section 7 provides guidance on integrating social responsibility throughout an organization. Topics include increasing understanding of social responsibility and setting expectations, communication, taking action, monitoring progress and improving performance, and evaluating the relevance of voluntary initiatives outside the organization that are designed to assist organizations in meeting social responsibility objectives.

When all the country votes on adopting ISO 26000 as a Draft International Standard were counted in February 2010, the document that so many experts had worked on since 2005 barely achieved the needed margins for approval. It needed 52 affirmative votes and got 56; and it had to attract no more than 19 negative votes (it received 18). Half of no votes came from states in the Middle East. The other nine negative votes were cast by an array of countries that included Russia, China, India, Malaysia, Cuba, Viet Nam and Kazakhstan. Thirteen countries abstained or did not vote.

ISO/DIS 26000 represents a serious attempt to address the social responsibilities of organizations. The document is not designed to be used for certification purposes, and explicitly says that any certification program that makes such a claim is misrepresenting the intent of the standard. Nonetheless, it is difficult to define “actions and expectations” related to the world’s most important economic, social and environmental issues and not expect watchdogs, self-appointed or otherwise, to take heed and to hold organizations accountable for their actions, or inactions.

ISO/DIS 26000 is available for download at

© Futurepast: Inc., 2010

Sustainability and Social Responsibility, Now Mainstream Concepts, Remain Difficult to Achieve at Both Country and Corporate Levels

“Sustainability” and “social responsibility” have entered the mainstream vocabulary over the last two decades. Sustainability is a “second generation” term, having morphed into a more generalized concept from its narrower meaning in the phrase “sustainable development” that gained the world’s attention during the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro in 1992. The most widely cited definition of sustainable development came in Our Common Future (also known as the Brundtland Report) published in 1987: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Social responsibility has had a parallel development. Early on, the term often appeared with the prefix “corporate,” but recognition that social responsibility is an obligation of institutions and governments as well as corporations has broadened the term’s application. A draft international standard, ISO 26000, embraces the broader context with its title “Guidance on social responsibility.” The ISO document defines social responsibility as “responsibility of an organization for the impacts of its decisions and activities on society and the environment through transparent and ethical behavior.”

If only it were as easy to achieve sustainable development and social responsibility as it is to define the terms!

Delegates to the follow-up conference to UNCED, which met in Johannesburg in 2002, generally voiced their disappointment that more progress had not been made to achieve the goals set out in the Rio Declaration on Environment and Development called Agenda 21. In the nearly eight years since 2002, some progress has been achieved on coordinating action to combat climate change, but as the results of the December conference in Copenhagen shows, the world is still far from agreeing on a set of binding commitments to make the changes scientists say are needed to keep the Earth’s average temperature from rising more than 2° Celsius by the end of the present century.

In the meantime, some countries (Denmark, for example) have demonstrated that it is possible both to grow their economies and reduce their carbon intensity while adding “green” jobs. Other countries have taken on the binding commitments defined in the Kyoto Protocol, though not all will actually achieve their targeted reductions.

Many of the largest and most visible corporations commit publicly to operating in socially responsible and sustainable ways. Some acknowledge that the commitments help them preserve what they call their “social license to operate.” This means taking voluntary, proactive action to meet or exceed legally required actions in areas such as worker health and safety, environmental protection, and social impact mitigation. Corporations may promote sustainability in decision making not only to develop new or preserve existing lines of business, but also to manage risks and derive public relations benefits.

The Great Recession of 2008-2009 refocused the attention of many citizens on the bread-and-butter issues of jobs, income security, and the risks associated with rising government indebtedness. In the near term the political will to address climate change in the United States appears to have diminished as short-term costs of transitioning to a low-carbon economy take precedence over long-term questions of intergenerational equity.

The old adage that “a rising tide lifts all boats” no longer rings so true on Main Street. Ordinary citizens are distraught over persistently high unemployment in their communities and the financial challenges facing state and local governments. Many question the fairness of the apparent rebound of the Wall Street institutions that some say were principally responsible for the near collapse of the world economic system.

As painful as the Great Recession continues to be for individuals and families directly impacted by it, early shoots of recovery are visible in the United States. Will economic recovery shift attention to the need to act sustainably and in a socially responsible fashion? There are reasons for optimism. Sustainable development principles now are given consideration in the planning processes of many governments and are recognized by private sector actors. Social responsibility is defined and its concerns inform the planning and operations of many leading corporations. Results are measurable, and accountability is possible, if not always through legal mechanisms, then in the court of public opinion.

In the end, nearly everyone shares the common goal of leaving our children and grandchildren a world at least as good as the one we inherited. Demonstrating social responsibility and achieving sustainable development are important barometers for measuring the success of our generation’s stewardship of the Earth we inhabit.

© Futurepast: Inc., 2010.

Perception of Voluntary Carbon Offset Markets Mixed in Recent Poll; Respondents Laud Innovation Potential But Many Doubt Reality of Emission Reductions

The global carbon analysis consultancy Point Carbon released its fifth annual survey on March 3. “Carbon 2010: Return of the Sovereign,” edited by E. Tvinnereim and K. Røine, is based on 4,767 survey responses. Respondents were either elicited by Point Carbon to respond in January and February 2010 or voluntarily participated through the organization’s website. The number of respondents this year grew 29% compared to 2009.

The largest number of respondents came from the United States (753), followed by the United Kingdom (445), India (231), Australia (224), Germany (199), Canada (187), Norway (138), China (135) and Brazil (104). Smaller numbers of respondents came from an additional 109 countries. The authors of the survey caution that the poll is not representative of general public opinion as sizable numbers of respondents are involved in emissions trading (39%), are regulated under the European Union Emissions Trading System (24%), are associated with financial institutions (13%), or are involved in the US emissions offset market (11%).

The “Carbon 2010” report covers carbon markets and policies in 2009, the future of carbon trading and policy in 2010 and beyond, and concludes with some crystal-ball gazing it labels “the return of the sovereign.” In this vision of the future a binding international climate treaty regime is superseded by a country-by-country “pledge and review” system. The complete report runs 40 pages.

Readers of this report will find much to ponder. We found responses to a set of four questions assessing voluntary carbon markets particularly interesting. Point Carbon has asked the same questions three years in a row, so trends over time among survey respondents can be discerned. Nearly 80% (3,777) of the total number of survey respondents answered these four questions.

In 2010, 51% of survey respondents agreed with the statement “The voluntary carbon market fosters innovation in emission reduction methods.” This compares to 42% who gave the same answer in 2009 and 40% who agreed in 2008.

At the same time, only 38% of survey respondents in 2010 agreed with the statement “The voluntary carbon market produces real emission reductions.” Nonetheless, this number is up from 32% in 2009 and 27% in 2008. This level of belief in the reality of voluntary carbon offsets is disturbingly low, especially when the survey population is, on average, much better informed than the general public.

One positive conclusion that can be drawn from an analysis of the answers to these two questions is that increasing numbers of respondents believe that voluntary emission reduction projects can contribute to the mitigation of climate change.

Perhaps the sizable number of respondents who withheld agreement from the second statement did so because they believe emissions trading should occur in the framework of a regulatory system, and fear that lower standards in a voluntary trading system could compromise broad support for a regulatory system. The latter conclusion appears to be buttressed by responses to a third question, with which 36% of survey respondents in 2010 agreed: “The voluntary carbon market poses a risk for the reputation of the compliance market.” Voluntary market supporters may take solace from the fact that the trend is down on the answer to this question. The percentage who agreed in 2009 was 37, and in 2008, 40.

Finally, a fourth question in this series asked for agreement with the following statement: “The voluntary carbon market is transparent.” The percentage of respondents agreeing in 2010, 2009 and 2008 were, respectively, 18, 14, and 10.

The last question may provide another clue to the tepid support for voluntary carbon markets expressed in the first two questions reported on here. Without transparency, there can be only limited trust, and without trust, only the bravest will invest. In this respect a positive sign from the Carbon 2010 survey is that the trend line is improving. However, it is difficult to conclude that voluntary carbon trading does not face an uphill battle for acceptance when only 18% of knowledgeable survey respondents agree that voluntary carbon markets are “transparent.”

Reasons exist to expect this number to grow in future years. The most popular voluntary emission reduction credits, Climate Reserve Tonnes (CRTs) and Voluntary Carbon Units (VCUs), use registry platforms that are publicly accessible and ensure that verified tons are issued serial numbers and can be traced back to the projects that generated them. In addition, greenhouse gas validation and verification bodies (VVBs) operating in the US increasingly are accredited by the American National Standards Institute to ISO 14065, an international standard that prescribes requirements for the operation of a VVB.

Nonetheless, the results of the Carbon 2010 survey are still sobering for those who believe voluntary carbon offset markets have an important role to play in reducing greenhouse gas emissions. Nothing less than adherence to the highest standards of rigor in developing, reporting and verifying voluntary greenhouse gas emission reductions is needed if the improvements in sentiment found in Carbon 2010 are to continue to grow in coming years.

© Futurepast: Inc., 2010

Approach to Climate Change Makes British Columbia a Gold Medal Contender

Winter Olympic Games in British Columbia focused the attention of the world recently on Canada’s Pacific Coast province. The gold, silver and bronze medals earned by athletes from around the world celebrated achievement in demanding individual and team competitions and showcased the province’s world class communities and sporting event venues.

British Columbia also stands out in ways not related to the Olympic Games. It is a North American leader in its commitment to addressing climate change. Through acts of parliament and regulation, British Columbia has directed the provincial government and public sector organizations to reduce greenhouse gas emissions, directed consideration of environmentally sustainable planning and development at the local level, begun preparations to adapt to climate change, and implemented mandatory greenhouse gas (GHG) reporting for regulated industry.

As a member of the Western Climate Initiative, British Columbia, along with the provinces of Ontario, Quebec, and Manitoba and six western US states, is preparing to implement a regional cap-and-trade program to reduce GHG emissions. Cap-and-trade will take effect in British Columbia (BC) on January 1, 2012, the same date that market-based mechanisms are scheduled to start in California and the other WCI member states.

Legislation passed in 2007 set ambitious goals for reducing BC’s greenhouse gas emissions: 33% fewer in 2020 compared to 2007 levels, and a target of 80% reductions by 2050. The law also requires that public sector organizations in British Columbia be “carbon neutral” for the 2010 calendar year and for each subsequent year thereafter. The law specifically targets GHG emissions related to public officials traveling on public business. Carbon neutrality under the law can be met both by GHG emission reductions and by application of emission offsets.

In 2008, British Columbia enacted a “Green Communities” statute. This law strengthened the ability of local governments and Regional Districts to reduce GHG emissions through Community Action Plans and other mechanisms. New and existing authorities allow municipal governments to achieve GHG emission reductions from energy efficiency, more sustainable use of water (moving water requires the use of energy), restrictions on development, promotion of alternative forms of transportation, zoning and building code changes, economic incentives for construction of small residential units, and consideration of land-use planning and environmental impacts when approving development.

Recognizing that the effects of climate change will be felt for decades, even as emission reduction actions are implemented within the province now and for years to come, British Columbia has identified a number of climate change impacts that require adaptation strategies. The impacts include more long-term warming, more extreme weather, changes to precipitation patterns, and rising sea levels. Ministry of Environment public information cites adverse impacts that have already been felt, such as the mountain pine beetle infestation, triggered by warmer winters, seasonal droughts of above-average magnitude in 2003 and 2009, and intense wildfire seasons in the same years. Strategies to prepare for climate change impacts include development of improved knowledge and tools to address climate change, makinge adaptation a part of BC’s planning and decision-making processes, and assessing risks and implementing priority actions in key climate sensitive sectors.

The strategies identified by British Columbia to address climate change are more akin to Olympic team events than to feats of individual performance. The objective is transformational in scope and collaborative in nature. Through its public actions, BC is showing that responding to climate change is a challenge that promises dividends to generations of current and future residents for decades to come.

© 2010, Futurepast: Inc.

Federal Trade Commission’s “Green Guides” Aim To Protect Consumers Against Misleading and Deceptive Environmental Marketing Claims

The US Federal Trade Commission is expected to extend the reach of its “Guides for the Use of Environmental Marketing Claims” when it updates the regulation codified at 16 CFR Part 260. Although FTC’s “Green Guides,” as they are commonly called, are provided only as guidance, organizations that make environmental marketing claims ignore them at their peril. The Federal Trade Commission Act grants the Commission the authority to file complaints against firms that engage in misleading or deceptive business practices. Under the law, the FTC can seek injunctions, issue cease-and-desist orders, and impose civil penalties. In practice, the majority of cases is settled without the imposition of sanctions.

The Green Guides help businesses make environmental claims that are truthful and verifiable. In the parlance of the FTC, companies making environmental claims should have a “reasonable basis” for doing so. FTC oversight extends to claims that are made both by businesses to consumers as well as to other businesses.

The Green Guides caution companies against making overly general claims like “eco-friendly.” Claims about recyclability should specifically state whether the claim applies to the packaging or to the product, or both. Enforcement actions by the FTC have increased under the administration of President Barack Obama. In 2009 the Commission filed three complaints against companies it said misused claims of biodegradability and four claims related to the purported environmental friendliness of clothing made from bamboo fibers. In the two terms of the George W. Bush administration, no complaints were filed against firms for misleading or deceptive environmental claims.

Some observers of the FTC hope the Commission’s updated Green Guides will address new types of environmental claims. At public workshops conducted in 2008, participants asked the Commission to expand the document to cover topics such as greenhouse gas emission reduction offset credits and Renewable Energy Certificates. Other environmental claims that have become common since the last issuance of the Green Guides address products that their marketers consider “sustainable” or “carbon neutral.”

The Commission’s Green Guides track closely ISO 14021, an International Standard published in 1999 with the title “Environmental Labels and Declarations—Self-declared environmental claims (Type II environmental labelling)” and adopted in 2001 as an American National Standard. Subcommittee 3 of ISO Technical Committee 207 is currently amending ISO 14021 and has before it some of the same issues that arose in the FTC’s public workshops.

ISO’s draft amended standard would allow qualified claims of “sustainable” or “sustainability” to be made as long as they can be justified in accordance with the 18 tests enumerated in clause 5.7 of the ISO 14021 standard. The draft amended standard addresses claims made about greenhouse gases, such as those relating to the “carbon footprint” of a product and claims that a product is “carbon neutral.” A new definition of “offsetting” refers to a “methodology by which the removal of CO2 from the atmosphere or prevention of emissions to the atmosphere from one process can be procured by the operators of another separate and unrelated process to counterbalance their own CO2 emissions that occur from the production or use of that process or product.” Claims that products composed of biomass are “renewable” are also discussed, as are claims related to “renewable energy.”

Given the past influence of ISO 14021 on the Green Guides, it can be reasonably expected that the FTC will take the amended ISO 14021 into consideration when finalizing its Green Guides revisions.

There are practical reasons for basing FTC guidance on International Standards. Primary among them is the influence that ISO standards have in international trade. When regulations adopted in the United States parallel ISO standards, actions the FTC takes to protect consumers against misleading or deceptive product claims are easier to sustain when challenged in bodies such as the World Trade Organization. Moreover, Congress in the National Technology Transfer and Advancement Act of 1995 instructed federal agencies to give preference when possible to voluntary consensus-based standards.

Futurepast is an active member of the US Technical Advisory Group to ISO Technical Committee 207, and is participating in the development of US positions related to the amended ISO 14021 standard. Futurepast provides expertise to clients on the development of environmental claims that can be substantiated in accordance with FTC Green Guides.

© 2010, Futurepast: Inc.

High Quality Carbon Offset Credits Available Now At Bargain Prices—Is Now the Time to Buy?

Prices for voluntary carbon offset credits issued in the United States have declined considerably since the beginning of 2010. Diminishing prospects for the passage of climate change legislation in the US Senate is most often cited as the major reason for the price of Climate Reserve Tonnes (CRTs) dropping to around $6 per ton from approximately $10 at the beginning of the year. CRTs are issued by the Climate Action Reserve for carbon offset projects undertaken mainly in the United States and are viewed as “compliance grade” offsets under a future US federal cap-and-trade program.

Meanwhile California and other states and Canadian provinces continue to plan for the introduction of a regional cap-and-trade system within their jurisdictions by the start of 2012—now less than two years away. And in the United States the Environmental Protection Agency continues to develop an approach to regulating greenhouse gas emissions under existing authority granted to it by the Clean Air Act.

The consensus view among many climate change experts is that it is only a matter of time before real constraints are placed upon the emission in the United States of carbon dioxide and other greenhouse gases, and that some form of market mechanism will be used to help ease the transition to a low-carbon future. The success of the 1990s Acid Rain program in reducing emissions of sulfur dioxide is too compelling, market advocates say, for significant reductions in greenhouse gas emissions to be achieved across broad segments of the economy without taking advantage of emissions trading. Trading, they contend, provides needed price signals concerning the value of future carbon emission reductions and helps companies implement the most efficient abatement strategies.

Six dollars per ton is cheap compared with the cost of driving down emissions in America’s power plants, factories, and transportation networks. This can only mean that the price reflects skepticism about the political will of leaders in either the nation’s capital or in state capitals to cap greenhouse gas emissions. However, few voices among the many speakers at the Electric Utility Environmental Conference (EUEC) held in Phoenix earlier this month thought that no action was likely, if for no other reason than the industries most affected by greenhouse gas regulation would prefer the more flexible cap-and-trade mechanism to the blunt instrument that a command-and-control approach would take under existing provisions of the Clean Air Act.

Many speakers at the EUEC speculated that a billion tons of carbon offset credits will be needed to make a cap-and-trade program work at the federal level in the United States. This amount of voluntary emission reductions is enormous compared to the Climate Action Reserve’s current output in millions. In the face of political uncertainty about the timing of climate change legislation, the price of CRTs appears to be supported at current low levels by electric utilities—and others—hedging future carbon risks by taking “pre-compliance” positions in CRTs. It is estimated that such buying may have motivated as much as three quarters of the market in 2009.

At present prices, CRTs are trading at approximately one third the cost of Certified Emission Reductions (CERs) issued by the Clean Development Mechanism (CDM) under the Kyoto Protocol. Companies whose greenhouse gas emissions are currently capped under the European Union Emissions Trading System (EU ETS) are able to use CERs interchangeably with Assigned Amount Units when meeting their compliance obligations. CRTs trade at a discount to CERs because CRTs are not currently priced for use under a mandatory cap-and-trade system, though it is virtually certain that they will play a role similar to CERs under the Western Climate Initiative’s cap-and-trade program that begins in 2012.

Now is the time for companies with exposure to climate change risks to consider adding voluntary emission reductions to their investment portfolios. Since not all voluntary emission reductions are created equal, the present time provides an excellent opportunity to learn how to perform due diligence when conducting trades or financing emission reduction projects. Carbon traders may well look back to 2010 as the time when forward-thinking companies got a head start on their competition by building positions when CRTs were cheap.

© 2010, Futurepast: Inc.

Sustainable Biofuels Key to Reducing Aviation Carbon Emissions from Flights to the EU

The decision of the European Union last year to include aircraft operators in the EU Emissions Trading System (EU ETS) has given a sense of urgency to the development of sustainable aviation biofuels. In 2013 operators will be required to surrender allowances equal to their carbon dioxide emissions in 2012. Allocated allowances will be capped at 97% of historical aviation emissions taken as an average of the base years 2004, 2005 and 2006. In the period 2013 through 2020, the cap declines to 95% of the historical aviation activity emissions.

Starting this year, regulated aircraft operators flying within or to Europe are required to monitor their carbon dioxide emissions. Monitoring data provided to the member state of the EU with regulatory authority over each aircraft operator will be used in 2011 to make applications for allowances under the EU ETS. Certain small aircraft, some commercial operators with a low volume of flights, and a number of defined categories of aircraft operators are exempted under the regulation.

Aircraft operators included in the regulation will be able to offset up to 15% of their emissions by submitting Certified Emission Reduction credits verified under the Clean Development Mechanism of the United Nations Framework Convention on Climate Change (UNFCCC). Emission Reduction Units from the Joint Implementation program of the UNFCCC also can be used to supplement allocated allowances.

However, the long-term growth trends in commercial aviation could result in limits on air travel to and within Europe if additional means for reducing aviation carbon dioxide emissions are not found. Already the industry is improving aircraft fuel efficiency in order to limit the impact of annual air traffic growth that is projected by the Air Transport Action Group to rise at 5% per year through 2050. And within Europe, greater use of high speed rail could shift some passenger traffic from airplanes to more fuel-efficient trains and therefore ease constraints imposed by the cap.

Improved efficiency is not the only answer the aviation industry has in mind. It is also pursuing “carbon neutral growth” by embracing biofuels called “synthetic paraffinic kerosene” (SPK). Bio-SPK can be made by refining oils derived from plants like Jatropha and Camelina, and from algae. Test flights by Air New Zealand, Japan Airlines and Continental Airlines have already demonstrated the performance of this new biofuel, and ASTM International and the UK Defence Standards Agency are working on fuel certification standards. Certification of a 50% blend of Bio-SPK with petroleum-based Jet A-1 fuel could be ready by the end of 2010.

Already the performance characteristics of Bio-SPK look promising. In early tests, Bio-SPK outperformed petroleum-based Jet A-1 on two key parameters, freezing point and energy density. The first is a key safety metric for the fuel, the second means that less fuel by volume is needed to deliver an equal payload over the same distance. With these kinds of results, the aviation industry has high hopes that Bio-SPK will help reduce carbon emissions while increasing the diversity of fuel supplies.

In embracing Bio-SPK, the aviation industry has also recognized the importance of demonstrating that the biofuels of the future are sustainably developed and deployed. To this end it participated in a multistakeholder consultation process, the Roundtable on Sustainable Biofuels (RSB), hosted by the École Polytechnique Fédérale de Lausanne (Switzerland). RSB published “Indicators of Compliance for the RSB Principles & Criteria” in December 2009. This document provides a variety of environmental, social and economic indicators applicable to the entire biofuel supply chain, from feedstock producers and processors to biofuel producers and blenders.

By embracing a rigorous standard for biofuel sustainability, the aviation industry is seeking to avoid the negative unintended consequences associated with corn-based ethanol. That product has been criticized for not reducing total life-cycle carbon dioxide emissions, soaking up scarce water supplies and diverting agricultural lands from food to fuel production, thus contributing to rises in food prices. Instead, the aviation industry intends to make meeting sustainability criteria a requirement for the new biofuel industry that is just beginning to take off.

© 2010 Futurepast: Inc.

Application of Principles Improves Greenhouse Gas Inventory and Project Accounting

International standards published in 2006 define principles for greenhouse gas (GHG) accounting. Five principles are provided in ISO 14064 Part 1, Greenhouse gases – Specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals:
• Relevance
Select the GHG sources, GHG sinks, GHG reservoirs, data and methodologies appropriate to the needs of the intended user.
• Completeness
Include all relevant GHG emissions and removals.
• Consistency
Enable meaningful comparisons in GHG-related information.
• Accuracy
Reduce bias and uncertainties as far as is practical.
• Transparency
Disclose sufficient and appropriate GHG-related information to allow intended users to make decisions with reasonable confidence.

These five characteristics of GHG accounting are principles, rather than requirements, because they are aspirational in nature. In some cases trade-offs are either explicitly stated or strongly implied. The first principle of relevance is explained by reference to a process of selection. It is expected, therefore, that an inventory manager will make choices concerning the identification of sources, sinks and reservoirs, data sources, and quantification methodologies in establishing the inventory. Even when a choice does not compromise the principle of completeness, it may imply some arbitrary decision making. An example could be selecting an appropriate degree of aggregation for individual sources. Relevance, therefore, guides the inventory manager in pursuing the next principle, completeness.

In theory, organizations should strive for 100% completeness in reporting. In practice, some sources will be reported at higher or lower levels of detail, and some may even be missed, especially when an inventory is first established. The relevance principle is not intended to permit organizations to underreport their emissions, but rather to acknowledge that 100% completeness is not likely to be achieved. For example, organizations may have trees on their properties. It is rare among organizations, except those with large numbers of trees under professional management, to account for the changes in carbon stocks in their inventories.

Consistency refers to the manner in which GHG emissions information is stated, both in terms of data aggregation and consolidation practices within an organization’s inventory for a single reporting period, and with respect to the application of accounting methodologies from one reporting period to the next. This principle may on occasion be at odds with the accuracy principle, which exhorts inventory managers to reduce bias and uncertainties. Why would such a tension arise? In the case where an inventory manager decided to revise the organization’s accounting methods in a subsequent year for quality improvement purposes, the emissions accounting would no longer be consistent with prior year reporting. Inventory managers may in reality make such choices, but they should not do so casually, and the facts of any significant accounting methods changes should be fully disclosed. In some cases, restatements of prior year emission accounts may be called for. Another application of the principle of consistency is the adjustment of an organization’s base year. Triggered by acquisitions and divestitures, base year adjustment ensures the consistency of reports from one reporting period to the next.

The principle of accuracy seems self evident. Organizations should neither underreport nor overreport their GHG emissions. ISO 14064-1 introduces the concept of “practicality” in this principle, however, because in reality it is no more possible to be 100% accurate than it is to be 100% complete in reporting emissions. The principle of accuracy is tempered by the concept of materiality, which recognizes that coming close to the “true number” is good enough. Common reasons for not achieving 100% accuracy may arise due to limitations of measurement devices or to the application of intermittent measurement instead of continuous measurement. Or it may be due to the use of emissions factors, which are based upon the averaging of values.

The last principle, transparency, challenges organizations to gather and report GHG information in sufficient detail so that intended users can properly evaluate it. This is not normally an issue when an inventory manager gathers information and reports it internally. Questions typically only arise when an organization has to decide how much detail to include in publicly disclosed reports. This involves choices, and the exercise of judgment. Other business considerations may come into play, such as not wanting to report information in such detail as to disclose appropriately confidential business information.

The principles of quantifying and reporting greenhouse gas emissions at the organization level were designed as guideposts for inventory managers, not straitjackets. The use of common sense in their application is recommended. In cases where it appears necessary to compromise a principle, the reasons for the divergence should be explained.

In addition to the five principles described above, a sixth principle, conservativeness, applies to greenhouse gas projects. This principle is found in ISO 14064 Part 2, Greenhouse gases – Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements, and is presented in the following terms:

• Conservativeness
Use conservative assumptions, values and procedures to ensure that GHG emission reductions or removal enhancements are not over-estimated.

Conservativeness is appropriate for project accounting because verified emission reductions must have environmental integrity to sustain environmental markets. The principle is most often applied where uncertainty has been identified in project accounting methodologies. By applying the principle of conservativeness, confidence is increased for those who may purchase GHG emission reductions or removal enhancements.

© 2010 Futurepast: Inc.