Carbon Neutrality – Myth or Reality?

Lisa Ashford, Head of Commercialisation Europe, EcoSecurities

The idea of corporate carbon neutrality dates back to the mid 1990s, but it wasn’t until relatively recently that a critical mass of companies began making often high profile commitments to neutrality.

But what, if anything do these commitments actually accomplish?

The science behind offsetting

A claim of carbon neutrality should indicate three things. First, that an entity has taken the step of estimating its “footprint,” second, that it is committed to reducing that footprint through introducing greater efficiency in its operations, and third, that it has acted to offset whatever components of that footprint it can’t reduce directly at once. This will likely be through an investment in Verified Emission Reductions, or “VERs”. VERs (Verified Emission Reductions) represent the emission reductions from greenhouse gas emission reduction projects that have prevented or removed the equivalent of one metric ton of carbon dioxide. Just as emissions from every corner of the globe add to the increasing concentration of greenhouse gases in the atmosphere, so emissions reduction projects are equally beneficial regardless of their location. As long as the reduction is real, verifiable and permanent, the positive impact on the environment will be the same.

GHG emission reduction projects create VERs by displacing more fossil fuel intensive activities or by reducing the direct release of GHGs into the atmosphere. For example, a pig farmer in the Philippines can reduce emissions and generate VERs by trapping the methane released from his pig waste and using it to generate electricity, which also reduces his need for electricity from the grid and thus from fossil fuel based power. By selling VERs to companies wishing to offset their emissions in the developed world, he generates income in addition to his power–cost savings, which helps to make his project economically viable.

Before offsetting

Too often, the first two steps of neutrality are overlooked because it is the offset purchase part of the process that is the most visible. But the first two steps are critical, as they provide the framework for working towards carbon neutrality. A company’s footprint is not at all intuitive (what else in our lives is denominated in tons of invisible gas?) and the process of calculating it is an important step in a company’s education about what activities contribute to GHG emissions in general, and how much impact its particular operations have. With soaring global energy prices, footprints can highlight undiscovered opportunities not only to reduce emissions but also to increase efficiency and cut costs. And even if a company hasn’t explicitly taken these steps towards direct abatement of emissions, the fact that it has committed to pay for offsets presumably will lead to a search for the less expensive long–run alternatives that are available internally, with a bit of searching and planning.

The fact that the carbon markets make the third part of the carbon neutrality equation relatively easy exposes the entire idea of neutrality to unfair criticism. The truth is that the offsetting part is often not as easy as it sounds. It also carries significant risks, both financial and reputational. A large company that is serious about its commitment might interview a dozen or more offset providers and review scores of investment alternatives before settling on the structure and provider that best suits its needs. In the process, companies that approach this the right way will learn a great deal about what makes a “quality” VER.

‘Thoughtful’ offsetting

In April 2007, Yahoo! announced its decision to become a carbon neutral organisation. In order to achieve this, they are changing their internal energy consumption practices alongside investing in greenhouse gas emission reduction projects. Yahoo! wanted to support projects that met their criteria and provided the best fit for Yahoo!’s overall objectives – this included investing in projects located in areas of the world where Yahoo! has a presence.

Yahoo!’s other criteria for investing in emission reduction projects included:

• Measurable results: They wanted to see real, measurable, direct emissions reductions.
• Verification: Yahoo! wanted their projects to be screened through a third–party verification process to ensure they are actually delivering their expected environmental benefits.
• Additionality: Yahoo! wanted to ensure that their investments supported projects that go beyond the business as usual scenario, and help to develop the use of clean energy in regions where coal and diesel are the standard approach to providing power.
• High quality: Yahoo! looked for projects with strong environmental returns and also helped other businesses and consumers build faith in this new and emerging offset market.

After reviewing over 100 projects and undertaking much due diligence, Yahoo! decided to offset part of its 250 thousand metric ton carbon footprint from 2006 using pre–registration VERs from EcoSecurities’ Primavera hydropower project, located near Catorce de Abril, a small village in the state of Rondonia, 1,400 miles northwest of Sao Paulo. Primavera is a small run–of–river dam, which means it uses natural flow and elevation drop to generate electricity. Although hydropower is common in Brazil as a whole, much of this region receives its power from state–subsidized diesel plants, therefore investing in a clean power project here seemed to be a critical and timely decision for Yahoo! 

Myth or reality?

There is a cartoon in wide circulation depicting a character behind a stand where he has set up shop selling “carbon credits.” He is telling a customer “I don’t know what they are, but all the cool kids are buying them.” This raises an important point – the cool kids have the resources to think through the offsetting options and the rest of us should not only be paying attention to the fact that the cool kids are offsetting, but paying attention to what exactly the cool kids are buying. Most companies that have gone about neutrality thoughtfully would be proud to think that others were buying what they bought and effectively multiplying the effect of the good decisions they had made.

When a buyer purchases quality offsets, it can be comfortable that the purchase is actually contributing to an emission reduction. Buying a VER isn’t merely a payment to relieve one’s sense of guilt – it is a payment for a reduction, perhaps a reduction that has been underwritten by an intermediary entity, but a reduction nonetheless.

Carbon neutrality is not a myth so long as it is part of a long–term carbon strategy with a commitment to reduce emissions, and real and permanent offsets are used. To avoid the accusations of ‘greenwashing’, companies must fully engage from CEO to humble employee level, in order to create real change. Claims of carbon neutrality should be as transparent as possible, for example, stated with reference to the historic year or years that a company has addressed.

Carbon neutrality is not just about offsets, it’s about changing a mindset and the way we do business. Ultimately, all of these elements will help to define the future of business in a low–carbon economy.