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 In this vision of the future a binding international climate treaty regime is superseded by a country-by-country “pledge and review” system.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

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.