Buying carbon back

How companies can lessen their carbon footprint through carbon trading and other methods

Word Cloud Emissions Trading

There is little doubt that climate change will generally have adverse effects, including temperature rises resulting in severe negative effects on the climate and ecosystems. Even from a political and social angle the potential long-term effects of water shortages, for example, can cause havoc. The year 2014 is recorded as being the hottest on record, with a resultant impact on animal and human habitats, for example through droughts and wildfires.

Climate change is a well-discussed phenomenon in the media and other sources. What is perhaps less known is how businesses around the world can play their part in compensating for some of the very same greenhouse gas (GHG) emission effects that they have helped to create. Businesses are under increasing stakeholder pressure to reduce their GHG emissions and one way to take responsibility for internal pollution is through carbon offsetting.

Carbon offsetting is the use of ‘carbon dioxide equivalent credits’ (‘carbon credits’) to enable businesses to compensate for their GHG emissions, meet their carbon reduction goals and support the international movement towards the internalisation of external environmental costs and impacts.  Businesses and other entities can compensate for the release of GHG emissions by funding certified GHG emission reduction projects. A ‘carbon credit’, or ‘carbon offset’, is a unit of measurement that represents the removal of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere. In affect buying a carbon credit implies that one is financially compensating another party for their GHG pollution reduction. This in turn allows the other party to continue or increase their GHG reduction initiatives.

The practice of trading carbon credits allows businesses to demonstrate leadership in the field of climate concerns and stand out from their competitors in doing so. Nedbank, not only supports sustainable and environmentally friendly initiatives, but has also achieved a carbon neutral status for six consecutive years.

Some typical carbon credit producing initiatives could include reductions in emissions by either replacing the use of higher GHG producing fuels with newer or cleaner energy and/or reducing the use of fossil fuels through energy efficiency.  Currently, the carbon market is comprised of the compliance market, where companies and countries are obligated to reduce their emissions, and a voluntary market, in which organisations or individuals voluntarily reduce their carbon emissions. Most economists argue that an efficient, international carbon market will reduce GHG emissions at the lowest cost, allowing polluters that are unable to abate their own emissions cheaply to invest in projects globally that can. Of course carbon credit projects are not without their sceptics and some people claim that it simply allows companies to pollute more GHG emissions after the purchase of carbon credits.

The counter argument is also true in that many GHG reducing projects will struggle to financially justify the reduction without the financial incentive of carbon credits. Furthermore, to ensure that emitters are not just buying their way out of their obligations, offset usage in GHG trading schemes is usually limited to a proportion of the overall emissions target.

In a voluntary carbon market, an entity volunteers to offset its emissions by purchasing carbon credits that reduce the amount of GHG pollution released into the atmosphere. It is driven by a company’s desire to demonstrate leadership and/or ‘do the right thing’ and has been around in different forms for many years.  One can also imagine that GHG pollution is measured, monitored and reduced in much greater detail if there is a monetary cost associated with the pollution. Nedbank is a company that has committed to steps to make voluntary commitments to reduce its impact on the environment and achieved its carbon neutral status through these endeavours. This implies that Nedbank offsets and equal or greater amount of GHG pollution compared to what Nedbank generates in all of its operations.

It is important for companies to distinguish between the primary and secondary market when it comes to buying and selling of carbon offsets. In most cases the origin of the carbon credits will be known when buying straight from the project itself. For simplicity, this will be referred to as the primary market. Contrary to this, once carbon credits were sold on it forms part of the secondary market. In most cases it is difficult to track the origin or specific project where carbon offsets from the secondary market originated from. It is maybe similar to gold in that the origin of an one once gold coin is difficult to trace to a specific mine if it was been sold on a few times. Companies who wish to support a specific type of technology or initiative will then mostly participate in the primary market. A good carbon broker, such as Nedbank, plays a fundamental role in sourcing the carbon offsets that a company wants to be associated with. At Nedbank we also state which projects we support as to achieve our carbon neutral status..

In theory, one carbon credit, or one tonne of carbon dioxide emission saved, is the same as the next, but in practice, personal preferences to support certain projects or stay away from certain technologies must be considered. The voluntary emission reduction space strongly relies on project knowledge and inter-personal relationships.  The voluntary market is also notorious for the vast possible price spread for what seems like similar GHG pollution offsets to the novice.

In 2014, Nedbank’s carbon footprint was as follows:

Total footprint: 213 133,33 tCO2e
Total offsets cancelled: 225 000 tCO2e

Reasons for businesses to reduce their carbon emissions and support carbon offsetting include mitigating the risk of impending regulations; creating savings from reduced energy bills and increased operational efficiencies; stakeholder demand and brand perception, especially in the eyes of environmentally conscious consumers; meeting Corporate Social Responsibility (CSR) obligations, and leading by example in the face of the increasing threat of extreme weather events.

Nedbank’s total carbon footprint decreased by 3.72% from 2013 to 2014. In addition, based on floor space, the GHG intensity rate also decreased by 9.75% to 0.30 tCO2e/m². So we are actually doing 9.75% “more” with the same pollution as in the previous year.

One can say that  the carbon reduction offset business, including the  buying of carbon credits, is a complicated art where science, business the intention to do good and personal relationships are combined for the greater good of all.

Dr Marco Lotz, Carbon Specialist at Nedbank

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Issue 72