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.

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.

Tips for Greenhouse Gas Project Developers, Part 2: Creating an Effective Project Design Document

In “Tips for Greenhouse Gas Project Developers, Part 1” (2010-01-17), we discussed the important project attributes of emission baselines and additionality, and described how a “performance-based” project protocol differs from the model employed in the Kyoto Protocol’s Clean Development Mechanism (CDM).

This blog addresses another important greenhouse gas (GHG) project element, the “Project Design Document” (PDD). The PDD name comes from CDM but has its equivalent in voluntary GHG programs as well, even if called by a slightly different name. The International Standard ISO 14064:2006 Part 2 refers to it simply as project “documentation.”

There are multiple audiences for a PDD. The first audience is internal. A PDD describes the project in detail, including relevant GHG sources, sinks and reservoirs; emission reduction or removal enhancement quantification methodologies, and the number of tons of CO2-e that the project is expected to create. The PDD also defines requirements for quality control/quality assurance and for monitoring and measurement. It may discuss applicable crediting periods, plans for validation and/or verification, and plans for registering project offset credits.

A second audience for the PDD is an organization that may provide project financing prior to the creation of the offset reductions, or a prospective purchaser of offset credits. Both a carbon financing source and a buyer use PDDs as initial screens for identifying potentially attractive projects and making preliminary assessments of risk.

The third audience for a PDD is the project’s validation or verification body (VVB). VVBs use PDDs to assess audit risk and to develop verification plans and data sampling plans.

Because the PDD is often the means by which outside parties are first introduced to a project, the document should be carefully prepared. It should make a convincing case that the project is eligible, additional, and monitored, and that emission reductions or removal enhancements are (or will be) properly quantified and reported.

A central element of the PDD is the monitoring plan. This section of the PDD describes the need for and purpose of monitoring, and the types of information to be tracked. It discusses where monitored information comes from, and what monitoring methodologies are employed. The latter can include estimation, modeling, measurement or calculation. The monitoring plan defines intervals for monitoring, and discusses roles and responsibilities. It describes any GHG information management systems to be employed, such as automated equipment and data loggers, and specifies the location and retention time for stored data. The monitoring plan also describes plans for calibration and maintenance of monitoring equipment, and includes or refers to procedures needed to carry out the monitoring function.

Monitoring plans should provide for tracking regulatory compliance and other eligibility criteria as well as applicable flows of gases, fluxes in carbon stocks, project emissions, project leakage and changes to the baseline scenario.

A well designed PDD is essential for proper project implementation. It can open the door to project financing and sale of credits, and ease validation and verification. Project developers can undertake this important task on their own or engage the help of qualified consultants, such as Futurepast.

Tips for Greenhouse Gas Project Developers, Part 1: Baselines, Additionality and Performance-Based GHG Protocols

Recent publicity surrounding the climate change negotiations in Copenhagen raised public awareness about the need to transition to a low carbon economy. As a result, inventive people are thinking about new ways to avoid, reduce, or sequester carbon dioxide. But where to start?

Greenhouse gas (GHG) projects are defined as “[an] activity or activities that alter the conditions in the baseline scenario which cause greenhouse gas emission reductions or greenhouse gas removal enhancements” (ISO 14064:2006, Part 2, 2.12). This means the activities of a project need either to reduce GHG emission or increase carbon removals compared to what would have otherwise occurred had the project activities not been implemented. The project emissions then, are always compared against a baseline, which represents “business as usual.”

The following diagram illustrates the basic concepts of a baseline scenario, the calculation of emission reduction credits, and a time-limited project. The diagram shows a flat baseline—that level of GHG emissions that would be expected to exist in the absence of the GHG project. The curved line on the graph illustrates how a project might reduce GHG emissions compared to the baseline scenario. In the example, GHG emissions decline relative to the baseline as a result of project activity, and then level out. Emission reductions, then, are represented by the quantity, measured in metric tons of CO2-equivalent, of emission reductions achieved by the project compared to the baseline. The solid line shows a finite crediting period, which for many projects is 10 years. After that time period, the project may still generate emission reductions, but no longer earn offset credits.

Projects are implemented for many reasons. It is important to keep in mind that the project developer has to demonstrate that the project activity is “additional to” what would have occurred in the baseline scenario. Some projects do not qualify for the issuance of carbon offset credits because they fail this test of “additionality.” For example, the US EPA regulates large municipal solid waste landfills. Once a landfill’s design capacity exceeds 2.5 million metric tons or 2.5 million cubic feet, the landfill is required to install a landfill gas collection and combustion system to control nonmethane organic compound (NMOC) emissions. The same requirement is triggered if the landfill emits more than 50 metric tons per year of NMOCs. Consequently, such a landfill could not claim greenhouse gas emission reduction credits if it installed a landfill gas capture and combustion system after crossing the regulatory threshold.

Another test of additionality is “common practice.” In other words, if everyone else is doing it, because it makes good business sense, the emission reduction activities may not qualify as “additional.” How common practice is defined is subject to interpretation, so people who pass judgment on these things apply other tests as well. We’ve discussed the “regulatory additionality” test already.

Other tests are technology and financial. The technology test is met when the project uses a technology that has been approved for GHG crediting by a GHG Program. Prominent GHG programs include the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC), the Climate Action Reserve, and the Chicago Climate Exchange.

The financial test asks whether the project would be implemented anyway regardless of the money that would be raised from the sale of carbon offset credits. The project is only additional from a financial perspective if the answer is “no.”

It should be apparent that judgments about “additionality” can be tricky to make. Fortunately, there are many cases where a case-by-case determination does not have to be made. This occurs when a project is developed that meets a specific “performance standard” established by a GHG program. The term “performance standard” means that if a project fulfills all the criteria set out in a project methodology or protocol, then it is deemed by the GHG program that issued or recognized that methodology/protocol to be additional.

Project protocols developed by the Climate Action Reserve in the United States are of the “performance standard” type. A project developer need only find a suitable CAR protocol, fulfill all its requirements, have the project verified, and credits will be issued.

In the CDM, by contrast, a project developer follows an approved methodology, or proposes a new one. Next, the project developer hires a GHG validation body to “validate” the project. Validation means that an auditor examines the project design, scrutinizes the monitoring plan and other project controls, and renders a decision about whether the project, if properly implemented, will generate GHG offset credits that are real, additional and permanent. Validation of the project takes place prior to implementation. Once the project has been validated and implemented, verification that the planned emission reductions have been achieved is also required.

In North America, the project protocols of most GHG programs are of the performance-standard type. However, the Voluntary Carbon Standard (VCS) is one notable exception. It issues offset reduction credits for projects that, in most cases, have followed a CDM methodology and have been validated and verified. I say “in most cases” because VCS also has a mechanism whereby a project developer can propose a new methodology and have it accepted if it passes muster by two independent validation bodies.

Would-be project developers face a steep learning curve when implementing projects for the first time. The field is highly technical, requires a thorough understanding of complex sets of rules, and demands attention to detail during implementation. For this reason, the use of project consultants from firms such as Futurepast can be highly cost-effective.

Reducing Emissions Below A Project Baseline
Reducing Emissions Below A Project Baseline

COP-15 Accord Breaks New Ground In Voluntary Commitments from China, India and Brazil; Could an ISO GHG Management System Standard Help with Verification?

The COP-15 negotiations in Copenhagen did not produce a new treaty to succeed the Kyoto Protocol. This left many countries and observers bitterly disappointed. It also left in doubt the future beyond 2012 of institutions spawned by the Kyoto Protocol such as the Clean Development Mechanism and the program of Joint Implementation, both “flexible mechanisms” of Kyoto that produce tradable carbon offset credits.

But the agreement brokered by US President Barack Obama did accomplish one goal the US has long held dear. It formally committed the world’s largest greenhouse gas emitter, China, to concrete goals for greenhouse gas emission reductions. At Chinese insistence these goals will be based on reducing the intensity of China’s growth in future emissions rather than in absolute cuts. And for now, no text has been agreed to that will give China’s or any other country’s emission reduction targets the force of international law. Nonetheless the largest of the world’s most rapidly industrializing developing countries have agreed to set targets, and that principle is important.

Many details of the new agreement have been left for resolution to future meetings. One of the most contentious is the verification regime that will permit assessment of the progress developing countries make on achieving targeted reductions. President Obama insisted that independent verification was essential and that all countries should consent to it. Earlier in the talks the Chinese had insisted that its sovereignty was at stake and that it would certify the results of actions taken without the involvement of outside parties. While the details are not yet clear, President Obama’s direct negotiations with the Chinese premier on Friday Dec. 18 appeared to have succeeded in obtaining China’s agreement to some acceptable form of monitoring and verification.

Transparency was a major theme of the COP-15 before the international leaders arrived on the scene for conference’s waning days. At an earlier COP the principle had been agreed to that emission reductions from developing countries should be “monitored, reported and verified”—or MRV’d for short. The MRV concept specifically was to be applied to “Nationally Appropriate Mitigation Actions” that developing countries take on a voluntary basis. Hence the interest of having the largest emitters in the rapidly industrializing world, China and India in particular, set targets and agree to some kind of regime for monitoring and verification.

It was left to a future meeting—perhaps the COP-16 in Mexico City in December 2010—to flesh out the details for monitoring, reporting and verification. In the meantime ISO—the International Organization for Standardization—presented a concept at a side event cosponsored by the United Nations Framework Convention on Climate Change (UNFCCC) for a greenhouse gas management system standard that could be used by national governments—or regional or local subunits of governments—to manage, monitor, report and verify climate change mitigation actions. The outline of such a standard was presented by the US-based United Nations Foundation, an advocacy group, and commented on by an Indonesian delegate to the talks in his capacity as Vice Chair of ISO Technical Committee 207 Subcommittee 1 on Environmental Management Systems. Last week in my blog I described the standards published by ISO TC 207 Subcommittee 7 on Greenhouse Gas Management and Related Activities which would also support this management system approach.

The ISO approach is valuable for at least two reasons. First, it provides a framework for countries, regions, or communities to manage climate change mitigation actions at the operational level. A management system provides a ready framework for capacity building and technology transfer, which is just what the developing world needs to implement mitigation actions. Second, it provides assurance to countries furnishing climate change mitigation assistance that their investments in hundreds of locations throughout the world are properly deployed and that results are monitored, reported and verified.

ISO management system standards, in particular ISO 9001 for quality management and ISO 14001 for environmental management, are some of the most popular and widely adopted management system standards in the world. There is no doubt that a management system standard for climate change mitigation could be developed on an accelerated timetable and that it could be of enormous importance in achieving the verification objectives set forth in the Copenhagen COP-15 accord. Third-party verification could be achieved by bodies independent of any national government or the UNFCCC while at the same time augmenting the effectiveness of the Nationally Appropriate Mitigation Actions.

Copenhagen COP-15 Side Events Highlight ISO Greenhouse Gas Standards for Managing Responses to Climate Change

Negotiators at the fifteenth “Conference of the Parties” to the Kyoto Protocol, meeting in Copenhagen, enter their final week with eyes focused on the text of an agreement to reach a new international agreement to reduce greenhouse gas emissions. Heads of state are gathering during the coming days to commit their countries to concrete actions to curb climate change.

At the meeting developing countries are pressing developed ones to lead the way in abating concentrations of atmospheric greenhouse gases that have risen steadily since the beginning of industrialization in the eighteenth century. Developed countries, the developing ones say, have benefitted disproportionately from the industry and trade that are associated with the rise from approximately 250 parts per million of atmospheric CO2 in 1750 to the 385 parts per million that now are accumulated in the troposphere. This rationale explains the “common but differentiated responsibilities” that underlie the 1992 United Nations Framework Convention on Climate Change.

One thing is sure. Reaching agreement will be difficult, as developed countries seek global participation in “nationally appropriate mitigation actions” (NAMAs) from all signatories to the UNFCCC and emission reductions that are “monitored, reported and verified.”

While the daily to and fro of high-level negotiations grab most media attention, discussions of myriad details related to climate science, sectoral emission reduction approaches, and institutional mechanisms take place on the sidelines. Two “side events” at the COP-15 involved ISO, the International Organization for Standardization. More than 160 countries are members of ISO which is based in Geneva. Since 1947, ISO has developed more than 17,000 standards in support of international trade.

One of these side events, co-sponsored by the UNFCCC, offered delegates a perspective on how a proposed international greenhouse gas management system standard might support the implementation of NAMAs at both national governmental and local levels. Another side event, sponsored by the International Emissions Trading Association, highlighted existing ISO greenhouse gas standards and their role in promoting governance, trust and integrity in emissions markets.

I had the privilege of representing ISO Technical Committee 207 Subcommittee 7 as a standards expert in these two side events. In both sessions I explained the purpose and role of published standards on greenhouse gas quantification and reporting at the organizational and project levels (ISO 14064:2006 Parts 1 and 2). I also described published standards on greenhouse gas verification (ISO 14064:2006 Part 3) and requirements for greenhouse gas validation and verification bodies (ISO 14065:2007). Our technical committee has forthcoming standards on the competence of greenhouse gas validation teams and verification teams, the carbon footprint of products, and guidance for the establishment of greenhouse gas inventories.

ISO standards facilitate capacity building by providing benchmarks for training, certification of personnel, and accreditation of the bodies that oversee these activities. They play an important role in helping organizations achieve the objectives they set for themselves—or that are set for them by local ordinance, national law or international agreement.

ISO standards define the rules by which independent verification bodies can audit the “greenhouse gas assertions” made by organizations at the entity, facility or project level. ISO greenhouse gas standards currently support emissions trading in both voluntary and regulatory markets. Future standards will offer organizations a means to identify the carbon footprint of products and thereby influence greenhouse gas emissions intensity within a supply chain.

Voluntary, consensus-based ISO standards stand ready to underpin the negotiated agreements reached by countries under the United Nations Framework Convention on Climate Change.

© Futurepast: Inc., 2009

John Shideler at ISO Side Event in Copenhagen