blog

MRV of NAMAs – making a simple concept sound complicated

Thu, 29 Nov 2012 12:00:00 +0000

Repeat after me – “MRV and NAMAs are not new concepts”. Depending on how close you
are to the international climate negotiations, you may be scratching your head over what
I’m talking about or rolling your eyes in familiarity. First, let’s unpack the acronyms:
MRV is measurement, reporting and verification; and NAMAs are nationally appropriate mitigation actions. Both concepts are being discussed within the international climate negotiations and if I had a pound/euro/dollar/peso for every time I heard MRV and NAMAs being described as new concepts…..

Let’s be clear and drop the jargon. A ‘NAMA’ just means a strategy, policy or measure aimed at reducing GHG emissions (and that might also have other, wider benefits as well). MRV, in this context, means understanding what impact your policy will have or has had. Policy makers have been working to understand the impacts of policies for a long time. Meaning that there is a lot we can learn from, without having to go back to basics.

I was in Jakarta earlier this month attending a regional seminar on greenhouse gas mitigation frameworks and financing, organised by GIZ (German Agency for International Cooperation) and AIGCC (Asia Investor Group on Climate Change). The seminar brought together policy makers from Asian countries (Bangladesh, China, Indonesia, Pakistan, Philippines and Vietnam) who are actively engaged in the development and financing of climate change mitigation policies.

I was invited to give a couple of presentations on MRV, an area where Ricardo-AEA has a strong track record, whether in relation to emissions inventories, evaluating the impact of mitigation policies or tracking financial support for developing countries. As part of that, I presented the MRV capacity building tool that Ricardo-AEA has developed for GIZ, the final version of which will be available early next year.

At the seminar, I also gave an update on the state of play on NAMAs and MRV in the international negotiations. But for anyone that looks at the next round of the international negotiations kicking off this week in Doha and despairs at their glacial pace, I say this – look at what is happening on the ground. There is a huge amount of work taking place to put NAMAs and MRV systems into operation and it is vital that we collect and share examples of best practice – what works, what doesn’t work, what could be improved. But it is important that we also look outside the ‘NAMA’ space, to learn from experiences in other areas. The EU Emissions Trading System has been in operation since 2005 and has detailed rules on how to carry out MRV of emissions at the installation level for electricity plants and complex industrial sites. The Clean Development Mechanism has a body of detailed guidance and rules on key issues such as emissions factors, development of baselines etc.

There are also useful lessons to be gained from national-level case studies. Before joining Ricardo-AEA I worked for ten years in the UK Government on climate change policies. During this time I worked closely with the independent Committee on Climate Change (CCC) and one of its roles was monitoring progress in meeting the UK’s carbon budgets. Anyone wanting to see an example of a really robust MRV system for assessing the impacts of policies should take a look at their annual reports . The CCC uses a wealth of data and indicators to really drill down into not just what is happening but why.

So my message to anyone tasked with developing or improving MRV systems is simple – you are not alone! Organisations such as Ricardo-AEA have experience in all aspects of MRV and through discussion and collaboration we can help. Get it right, and we ensure that as countries put in place their NAMAs, donors and investors will have confidence in what they will achieve. Get it wrong and the much-needed concerted international effort on climate change may never get off the ground. It may sound like an unnecessary acronym, but MRV could hold the key to success on tackling climate change going forward.

If you’re interested in finding out more about our work in this area – or have an example of best practice you want to share, please contact me at james.harries@ricardo-aea.com.

A head start on mandatory reporting

Tue, 16 Oct 2012 16:30:53 +0100

The countdown has begun for all quoted businesses listed on the Main Market of the London Stock Exchange following the government’s announcement in July that they will have to report their levels of greenhouse gas emissions (GHG) from April next year.

Our experience has shown that identifying data sources and collecting data can take longer than companies expect, and with the emissions of many businesses and valuable brands open to scrutiny for the first time, it will be important to get reporting right to avoid any problems.
In addition, there is a growing awareness among investors and other stakeholders that the reduction of emissions is also critical. So companies will need to think about how they present their reports to demonstrate that they are taking responsibility for their emissions and addressing the associated risks.

Evidence has shown that even the most proactive quoted businesses may need to reconsider their approach, as the Environment Agency’s most recent report on environmental disclosures by quoted companies shows that in 2009/10 annual reports, only 22% were reporting this information in line with government guidance.

Although further details on mandatory reporting are not expected until later this autumn, the good news is that companies can get ahead on the issue by starting to review their emissions data and data recording processes now. They will then be in an excellent position to understand the requirements when they are announced, the implications for their business and what they need to do to comply.

Whilst it isn’t confirmed what the requirements will contain we can assume that it is likely to be similar to those in the draft regulations. Therefore the legislation is likely to include Scope 1 and Scope 2 emissions, both in the UK and overseas. Scope 1 and 2 emissions are defined under the GHG protocol as:

• Scope 1 - Direct GHG emissions are emissions from sources that are owned or controlled by the organisation. For example, emissions from combustion in owned or controlled boilers, furnaces and vehicles.

• Scope 2 - Accounts for GHG emissions from the generation of purchased electricity by the organisation.

Many organisations are beginning to tackle scope 3 emissions but it is unlikely to be included in the new requirements. Scope 3 covers a wide range of sources including those which are more challenging to measure including supply chains and waste. However it is worth considering if your business can report Scope 3 emissions to stay ahead of the competition.

As a first step companies should therefore map their operations to assess the emissions which fall under these headings as this should help to identify any all-important gaps. This can be set out in a diagram which quantifies the emissions for each business process including transport.

Classic gaps include where an international business might miss out emissions in certain parts of the world, or where another fails to capture all emissions from company fleet travel. We also find that businesses sometimes only capture emissions associated with metered data, rather than estimate any gaps in the dataset.

Participation in the CRC Energy Efficiency Scheme will stand companies in good stead for reporting some Scope 1 and 2 emissions emitted within the UK. Under the CRC Scheme certain energy and fuel use already has to be reported if the business used more than 6000MWh though a Half Hourly Electricity meter in 2008.

However even if businesses are reporting under the CRC Scheme in the UK, a review of global scope 1 and 2 emissions data is an essential first step. It is also important to remember that not all UK emissions are covered by the CRC Scheme. It’s possible that there are emissions associated with unmetered or tenanted premises, and potentially company owned transport, that have not been captured or estimated to date. Exploring these emissions would enable a company to report its complete footprint.

While considering data sources it is also important to assess how often data is analysed, how it is recorded and most importantly if discrepancies or changes are monitored. When a business captures its overall emissions footprint on an annual basis, it leaves insufficient time to address an increased footprint during the reporting year. Although energy data can be monitored effectively, often other aspects of the emissions footprint eg transport, aren’t considered until a reporting year has gone by.

Overall mandatory reporting will lead to greater transparency of year on year performance so there is a need to ensure that significant changes are detected earlier in the annual cycle to prevent any end of year surprises. We also recommend setting up a consistent data collection process that enables stakeholders across the business to report performance in the same format as this will increase confidence in data quality.

Organisations that conduct an in depth review of their emissions data and data recording processes in this way will be very well placed to undertake consistent transparent reporting which is compliant with the new rules. Robust reporting procedures can also help to deliver reductions in carbon emissions and the associated financial savings.

This piece was originally published in Sustainable Business magazine (Oct 10 2012)

Mandatory GHG reporting for FTSE firms = Transparency + Progress

Fri, 22 Jun 2012 13:00:00 +0100

On Wednesday the UK Government announced the outcome of its consultation on greenhouse gas
company reporting. They announced that from the start of the next financial year, April 2013, all businesses
listed on the Main Market of the London Stock Exchange will have to report their levels of greenhouse gas emissions.

This bold step means that the UK is going to be the first country in the world to ask all quoted businesses to automatically report all their emissions.

So what does it mean for business? Well, it means that those already reporting their emissions will now need to do so in a consistent manner. And, for the first time, their emissions reporting will be totally transparent, allowing comparison with other businesses, and highlighting progress improvements (or failures) year-on-year.

Interestingly it is estimated that over half of UK quoted companies are reporting (2010/11) some information on their GHG emissions. However the Environment Agency’s most recent report on Environmental Disclosures by quoted companies shows that in 2009/10 only 22% were reporting this information in accordance with Government guidance. This shows that to date even the most proactive quoted businesses have only been reporting part data.

Some will consider this just another administrative burden for businesses that are already reporting part emissions through CRC, CCAs or even EU ETS. But I believe that expanding the reporting requirements can only offer more opportunities to businesses to realise efficiencies and savings. I am sure you would agree that reporting GHG emissions is the first step to identifying opportunities for reduction?

There is also a risk management aspect. Consistent transparent reporting will reduce exposure to future climate change legislation, and increase information for investors to base their short and long term decisions on. Investors will be able to assess a business not only on its financial performance but on its current emissions performance and future emissions risks.

You can read the announcement in full here: http://www.defra.gov.uk/environment/economy/business-efficiency/reporting/

What happens when you Google renewables?

Fri, 22 Jun 2012 11:00:00 +0100

Back in 2007 Larry Page, CEO and co-founder of Google, declared that the company would get involved directly in energy research, with the ambitious aim to wean the US off fossil fuels. Moreover, Google believed they could make renewable energy cheaper than coal. However, the internet giant recently announced that it was abandoning this project despite having invested $915 million in clean energy projects to date. That is a lot of money, even for Google.

Google believed their creativity in the computing realm could also be used to solve the problem of generating large-scale renewable energy. However, the speedy world of software - where projects can be turned around in weeks – is very different to the energy industry where time horizons typically stretch over decades. When Google announced that it was scrapping its “renewable energy cheaper than coal” project, many thought it was the end of their green ambitions.

Far from it. These days, Google is putting their software-based tools to new uses, such as in trials of driverless cars, which were the stuff of science fiction a few years ago. The Google Earth teams will be at the Rio+20 to show how their mapping software can be used to track deforestation and surface water.

But perhaps the more important shift, and one that is less well-publicised than their active involvement at the frontiers, is their support for innovation outside of the company. Instead of getting directly involved, Google is now financing renewable projects through tax equity investments – i.e. ones that become eligible for offsets against federal corporate tax obligations. Tax equity investments are increasingly important because other federal subsidies have expired or are in danger of being phased out.

As government austerity bites this is where Google can fill an important financial gap. And other companies could too – Apple is sitting on $97 billion cash, General Electric $78 billion and Toyota $48 billion. Companies benefit because renewable energy projects help diversify cash, and earn steady returns from businesses that aren’t correlated to other investments. Renewables benefit from greater deployment, which tends to reduce costs. With more support from the corporate sector, they might even become cheaper than coal.

Small emitters and hospitals: a fairer deal on carbon?

Fri, 25 May 2012 10:00:00 +0100

The EU Emissions Trading System (EU ETS) has been widely criticised for imposing an excessive administrative cost on small emitters, and for the inclusion of hospitals. The move into Phase III of the EU ETS, which will run from 2013 – 2020, provided Member States with an opportunity to remedy the situation. Indeed, if they could come up with an alternative mechanism to encourage small emitters and hospitals to reduce emissions, the European Commission (EC) would allow those organisations to drop out of the EU ETS for Phase III.

After a lengthy negotiation the Department of Energy and Climate Change (DECC) has now agreed an alternative scheme with the EC. The newly launched Small Emitter and Hospital Opt-out Scheme has been designed to cuts costs for participants by eliminating third party verification of emissions and by simplifying monitoring and reporting requirements.

In return for this administrative simplification, and to ensure that emissions reductions incentives are maintained, participants in the new scheme must commit to cutting their emissions, and pay a penalty if they fail to do so. And they have a choice of targets to set: the level of free allowance allocation they would have got under the EU ETS or a reduction in emissions in line with the overall EU ETS cap.

With targets similar to those in EU ETS, and lower admin costs, what’s the catch? Would you be better off in or out of the EU ETS?

Imagine you join the Small Emitter and Hospital Opt-out Scheme and over-achieve your target. Great, but you won’t be able to sell credits on the carbon market, as you would have been able to do in the EU ETS. You could bank the credits for later years of course, but there would be limits on what you could bank and there is no value in banking credits if you keep below future targets and never have the opportunity to use them. So, understanding your future emissions is critical to your choice. If you plan to cut your future emissions, it may just be worth sticking with EU ETS. In fact, I reckon if you make the wrong decision it could cost up to £400,000 over the period to 2020.

Other questions such as your risk of carbon leakage (see my earlier post - Carbon leakage: has Europe scored an own goal?), the amount of allowances you have stockpiled from previous years (or not) and your business growth and CSR plans will also influence your decisions.

Will small emitters get a fairer deal? They will if they make the right decision for their organisation. In fact, DECC estimates that the new scheme will offer savings to industry of up to £80 million, but what is right for one installation will not necessarily be right for another.

Critically, there are only 8 weeks for eligible operators to decide whether to opt out, and if so which target to accept - decisions which will affect them for the next 8 years.

Carbon leakage: has Europe scored an own goal?

Thu, 17 May 2012 13:00:00 +0100

Climate policy increasingly involves putting a price on environmental impacts. This can be done by creating a market through politically influenced targets or by estimating the monetary cost of the damage which companies cause to the environment. A pioneering example is the EU Emissions Trading System (EU ETS), which has created a market for carbon, targeting the big emitters in Europe. In principle it is quite simple, the European Commission supplies an amount of carbon credits which politicians agree is Europe’s share of what the global skies can tolerate, and companies buy them up. The more companies emit, the more demand there is for the credits and so the carbon price rises. The idea is that as the carbon price rises, big emitters start thinking about new technologies to reduce emissions to avoid paying the carbon price. Sounds OK?

Well, it’s not OK according to many industries caught by the scheme. The EU ETS has been created by the EU and whilst carbon markets exist elsewhere, rarely are they equivalent to the EU ETS. It follows that EU firms are often disadvantaged by this bold scheme compared to foreign firms whose governments have not implemented similar measures for fear of losing competitiveness.

This problem of an uneven political landscape for climate change manifests itself in one topical issue: carbon leakage. If the cost of buying your carbon credits increases production costs and forces your output down, foreign suppliers may soak up the demand causing carbon leakage. The term refers to the CO2 emissions which no longer occur in the region under climate policy, but haven’t gone away – they’ve simply leaked elsewhere. Seeing as climate change is a global problem, claims of carbon leakage can seriously undermine climate policies.

Is it happening? Well, quite possibly, but read the figures in the press and reports with care. For some of the worst hit sectors carbon leakage rates of 50%-70% are banded around, but this doesn’t mean that 50%-70% of the industry’s emissions have leaked elsewhere. Carbon leakage is gauged as the amount of leaked emissions as a percentage of the total abated emissions within a climate policy zone, so is not as drastic as it first sounds. For example, if a sector reduces its emissions by 200 MtCO2, but 100 MtCO2 of the reduction is in fact due to production seeping elsewhere, the carbon leakage rate would be 50%.

Studies on actual evidence are hard to come by because of the complex factors at play when companies make production and location decisions. Was the reduction in output purely due to the climate policy, or was it more down to labour costs and growing markets? Can’t they pass the climate costs on to their consumers? Where have emissions leaked to? For these reasons we often rely on models to predict the effects, and as always, these are underpinned by assumptions.

Still, most model assumptions seem to make sense and there is some agreement on carbon leakage rates caused by the EU ETS of around 5% - 30%, although it varies widely between sectors. The upper end estimates occur where production outside the EU is less efficient than that inside the EU and therefore has a disproportionate effect, in fact, it is possible that there would be a net increase in emissions, a kind of own goal for the climate policy team!

Of course, it’s not just emissions we should be concerned about. Dips in production affect jobs and the jobs which rely on those jobs. Climate policy can also divert foreign direct investment and affect the balance of imports to exports, which are big macroeconomic players. It is fair to say though that it is the carbon leakage part which is the main headache for climate policy thinkers, because it fundamentally undermines the aims of the policy.

AEA and CE Delft looked into the cumulative impact of all the main climate policies which affect EU and UK companies for the UK Department for Business, Innovation and Skills. It gives conclusions for each affected sector and what the main influences on carbon leakage are. You can find the report, The Cumulative Impact of Climate Policy on UK Businesses (2012), here.

Why you should understand your GHG emissions

Thu, 19 Apr 2012 18:00:00 +0100

Over the past year we have all watched the build-up to the Government’s decision on mandatory company reporting of greenhouse gas (GHG) emissions, and its implications for businesses. With the Climate Change Act requiring the Government to introduce mandatory reporting for businesses by 6 April 2012, or explain why they have not, we have been waiting with bated breath for the outcome of the consultation held last summer.

Just before the April deadline a short report was published by Defra: “Company reporting of greenhouse gas emissions”. It highlighted that mandatory company reporting will not be introduced at the present time. Why not? Because Government is still assessing the options before deciding what to do. And who can blame them, how would they be perceived if they introduced mandatory company reporting in the same week as launching a consultation on the simplification of the CRC Energy Efficiency Scheme, with the aim being to limit the administrative burden on businesses.

But in my view, mandatory company reporting is still likely to be introduced sooner or later, for the following reasons:

1. We all know that until something gets measured, it cannot be effectively managed. If you don’t know how you are performing now, how can you set and achieve meaningful improvement targets? It is, therefore, in our commercial and national interests for businesses to accurately report their emissions.

2. The UK’s decision was not negative. It was just a confirmation that the Government has not yet come to a conclusion.

3. And finally, even if the UK doesn’t introduce mandatory reporting, in all likelihood, Europe will. Their recent consultation on environmental reporting sets a high standard.

Either way, understanding your emissions and reporting them stands a business in good stead now and into the future.

CRC Simplification: Admin costs down, carbon costs up?

Wed, 28 Mar 2012 19:16:22 +0100

The Department of Energy and Climate Change (DECC) has released its long awaited consultation on the simplification of CRC Energy Efficiency Scheme (CRC). They have naturally placed considerable emphasis on proposals for administrative savings to address the biggest criticism of the scheme – its complexity. But will these meet George Osborne’s requirement for “very significant” savings that will prevent the scheme being scrapped altogether?

If the headline figures are anything to go by, then the savings do look significant - £250m for businesses by 2030, which works out at about £10,000 per year for each CRC participant. So how will these savings come about?

The main changes:

•   Limiting registration to half hourly settled meters only, avoiding the need to report Automatic Meter Reading (AMR) consumption at Registration.
•   DECC does not plan to change the qualification threshold but it does say that the emissions from those that drop out will be compensated by increases in coverage by those that stay in (see below).
•   Cutting down the number of fuels from 29 to 4.
•   Scrapping the footprint report, 90% rule and Climate Change Agreements (CCA) exemption rules.
•   Simplifying the EU Emissions Trading System (EU ETS) and CCA exclusions.
•   More flexibility around organisation definitions.
•   Simplification around the supply rules, unconsumed supply, landlord rules and other supply aspects.
•   Scrapping electricity generating credits.
•   Plus, about 40 other detailed changes aimed at making it more straightforward to understand how CRC affects you and what you have to do to comply.

Taken together these are significant changes, although getting used to the new rules will itself require some effort. The first step for an organisation will be to understand what these proposals mean to them - and if desired to respond to the consultation by 18th June 2012. But there is a further point not to be overlooked…

A hidden increase in carbon costs?

Under the proposals, participants would have to include some residual supplies of electricity and gas – sources they may currently be able to exclude. This will increase their carbon costs. In essence, DECC proposes changes which will mean a smaller number of participants each paying a higher carbon cost.

This points to an important aspect that won’t go away. Energy use will incur a carbon cost, and those who manage and reduce their energy will make the greatest savings – savings that may far exceed the benefits of simplification.

The consultation can be found here.

The Carbon Bubble

Thu, 01 Mar 2012 20:00:00 +0000

The signs of a bubble are that an asset is overpriced and there is a widespread belief in its price. The dot.com boom and housing are classic examples because they were both overvalued at the time, but it was never questioned until too late – it was unthinkable not to own a house, or not to be investing in tech stocks.

What is the next candidate? If we look for something that is overpriced and unquestioned, we see there is a contradiction between long-term climate policy goals and the way fossil fuels are valued. Enter the carbon bubble.

If we are to meet the 2-degree warming target, the remaining carbon budget between 2010 and 2050 is around 500-1,200GtCO2. According to the Carbon Tracker Initiative that would mean we would have to leave 50-80% of the world’s proven reserves unburned. There are more fossil fuels listed on the world’s stock markets than we can afford to use, but these companies are still priced as if all of their reserves are going to be exploited.

This is a worry for the UK, as our stock market is overweight on fossil fuels; around 20-30% of our market capitalisation is connected to them. These reserves cannot be developed if we are to tackle climate change. This “unburnable carbon” could pose a severe risk to fossil fuel companies, energy-intensive industries and to wider financial stability. Concerned investors have urged the Bank of England and the European Central Bank to investigate the systemic risks of our exposure to high-carbon assets. Viable CCS could provide some extra headroom in the medium term; however, the entire oil-based transport system would be left unmitigated.

The other option would be to assume that pledges to reduce emissions will not be met. If this happens we could be on a path to warming of 6-degrees or more. There are more fossil fuels listed on the world’s stock markets than we can afford to burn, but can our financial systems afford to leave them unburned?

Is gas the fuel of the future?

Tue, 31 Jan 2012 12:48:24 +0000

UK Energy minister Charles Hendry said in a recent address to a Wilton Park Conference that natural gas is a critical part of the UK energy mix today and will continue to have a crucial role tomorrow, and beyond 2030. His views are echoed by the International Energy Agency (IEA), who recently published a special report entitled “Are we entering a golden age of gas?”.

But how comfortably does this sit with the UK Government’s objectives around climate change, energy security and affordable energy?

Modern generation gas-fired power stations are efficient and flexible and many predict a new dash to gas as ageing nuclear and coal plants shut down during this decade. Delays in nuclear new-build, the high cost of renewables and the lack of demonstration of carbon capture and storage (CCS) on coal-fired plant all point to the continued need for gas-fired power generation. Gas has emerged as the ideal hedging fuel in these times of political and policy uncertainty.

But the Committee on Climate Change, DECC and others agree that power generation will need to be largely decarbonised by 2030 to put us on a pathway to the 80% reduction in greenhouse gas emissions by 2050 required as our contribution to the avoidance of dangerous climate change. This means gas-fired power generation is not a long-term option without CCS. There will also need to be a shift away from using gas boilers for heating homes and workplaces, to be replaced by a combination of district heating (with CCS), electric heat pumps and renewable heat.

Gas scores less highly on energy security now that the UK has become a net importer of gas and output from the North Sea is dropping fast. There is greater diversity in supply sources of gas than oil and much of our gas currently comes from Norway, but as North Sea output drops away we are likely to turn to less stable regions like Russia and North Africa. The big question on gas supply is the extent to which unconventional supplies, e.g. from shale gas, can replace depleted gas fields and help meet rising demand and whether those sources are themselves sustainable.

The availability of unconventional gas from places such as Australia should prevent gas prices from rising as fast as oil prices over the coming decade. However, there could be short term fluctuations in price and availability, e.g. very little liquefied natural gas (LNG) is coming to the UK currently as it is heading to earthquake-hit Japan instead.

So it looks like gas is here to stay - if (and it’s a big if) CCS can be made to work well before 2030 at scale without an excessive energy penalty or an unaffordable price. If not, then the UK Government faces some tough decisions about when and how to slow and then halt any new dash for gas. There is an onus on the gas industry to better demonstrate how the fuel fits with the radical change that is required, moving beyond the standard “gas is a great transition fuel” argument.

All of this points to a need to maintain a balanced portfolio of energy technology options. It’s not a question of natural gas vs. renewables vs. CCS – we need all of them and we need them quickly if we’re to have any chance of meeting our carbon reduction goals. And any strategy also needs to be mindful of path dependency – the danger of locking into a not-so-low-carbon future by making the wrong investments now.

COP17: The Final Verdict

Mon, 12 Dec 2011 12:00:00 +0000

After marathon negotiations which ran 36 hours beyond schedule, the UN climate change conference in Durban finally produced a new deal early on Sunday morning. The 5 key elements of the deal are:

1. The attractively named Durban Platform for Enhanced Action which sets out a roadmap towards a new treaty to succeed the Kyoto Protocol from 2020 which for the first time will require action to reduce emissions to be made by China, India and Brazil as well as by the US and those with targets under the Kyoto Protocol.

2. Agreement that the Kyoto Protocol will continue for a second commitment period. As Japan, Canada and Russia have refused to take further Kyoto targets, only the EU and a handful of other countries will have reduction targets for the period which will end in either 2017 or 2020 (still to be agreed). But crucially this means that the rules and mechanisms (including the Clean Development Mechanism) will be preserved.

3. An admission that there is a significant gap between the reduction pledges to date and level of reductions needed to meet the goal of limiting global warming to less than 2 degrees. Discussions on how to fill this gap will begin almost immediately with parties asked to submit views by the end of February 2012 on options for increasing ambition.

4. The establishment of a Green Climate Fund including a private sector facility which will allow it to finance private sector activities both directly and indirectly.

5. Decisions putting into operation the Cancun Agreements reached at last year’s conference, covering such issues as monitoring, reporting and verification (MRV), technology transfer and adaptation.

Significant achievement

While cynics will say the Durban Platform is just an agreement to negotiate an agreement, taken together this package is a significant achievement. Of course, Durban can’t achieve reductions itself as it’s only government policies and the private sector investments which they incentivise that will actually have an impact on global emissions. The business sector reaction has been generally positive with most hailing this as a ‘great result’ but others observing that as ambition is not affected, businesses now need to look to national capitals for signals.

The dramatic and sometimes ill-tempered nature of the final denouement suggests that there’s still a trust deficiency and ongoing negotiations will not be easy: the vital phrase which allowed consensus to be reached (that a future deal would be “a protocol, another legal instrument or an agreed outcome with legal force” if you really want to know) only emerged after the EU and India were asked to go into a huddle to resolve their differences (see above).

Durban sets the stage

I believe that Durban makes it more likely that countries will continue to develop climate strategies and policies and that there will be pressure on them to increase the level of ambition in these polices (so, good news for AEA - our stong track record can help support the efforts of those providing funding and support for policy development as well as governments themselves).

In coming weeks, we will get a better understanding of the detailed outcomes, their implications and the challenges ahead. For example, the detailed agreements on monitoring, reporting and verification set out in the Durban decisions include more stringent requirements for both developed countries and developing ones. In particular, these set out requirements that starting in 2014 developing countries must submit “biennial updates reports” (including inventories and information on mitigation actions – see further paragraphs 39-44 and Annex III): building the capacity within countries to meet this timetable will be a major challenge.

In terms of ambition within the EU, by coming to Durban with a clear vision of the final outcome and then building a broad set of support across vulnerable countries, the EU has re-asserted itself as a leader on climate change on the international stage, with the climate commissioner at the heart of the action. The Commission will return more confident not only of its own strategy but also that others will take action which should have a positive knock on effect on domestic ambition. Equally, in the UK, Durban can only help the state of the domestic debate, by demonstrating there’s potential for international action rather than - as some style it - the UK continuing to go it alone.

Durban will not save the planet and much work needs to be done to putting us on a pathway to 2 degrees. But it’s certainly exceeded my expectations and sets the stage for more activities at both national and international level in the years to come.

Outstanding next generation of environmentalists

Fri, 08 Jul 2011 12:31:12 +0100

Yesterday I supported a West London initiative to encourage school children to think about their environment and consider what they can do to improve it.

I sat and listened as a Dragon in a mock Dragons’s Den to presentations from secondary school children of all ages. Each pitch, like the Dragons’ Den we all know, was a bid for funding. The pitches covered all aspects of sustainability including community support and dissemination, health and well-being, waste minimisation and recycling, and energy efficiency. The bids were well thought out and in many instances offered a business case.

What struck me was how well informed these presenters where, not only on how to put together a pitch for funding but in the solutions that they had selected and researched and most importantly in the understanding of the need for these ideas to be disseminated. Most projects included a communication or involvement with others. For their ideas they wanted to get it right and then tell everyone else about, spread the message and encourage others to participate.

I found this particularly interesting as all too often I see organisations relying on a few individuals to deliver technical measures without communicating the opportunities to the wider group either in an organisation or a community. And yet my view is that the success of any sustainability programme is through the delivery of a process that is facilitated by communication and engagement. You can pretty much always find a technical solution, but unless you can get stakeholder buy in you are unlikely to proceed.

With all the new mediums for communication I hope that we can learn from this outstanding effort by the next generation of environmentalists!

What is driving sustainability?

Fri, 10 Jun 2011 09:44:57 +0100

Over the past decade, in the private sector, we’ve seen customers commission an almost cyclic pattern of services. In the early years our solution was energy efficiency audits, and a little behaviour change crept in, then we had a wave of renewable assessments. In 2006 Carbon Management became the new thing and was all the rage. With the advent of carbon regulation for the wider audience, compliance became popular – because it had to be. Now we have a range of customers whose needs vary from strategy, mitigation (renewable, energy efficiency and behaviour change), GHG inventories and regulation.

Some clients now want to just do what they are doing better. Others want to explore new areas. For example a major oil and gas client company wants to improve the quality of their Scope 1 and 2 carbon footprint through better data management, whereas a well known high street department store wants to explore Scope 3. We’re also seeing a closing of the gap between CSR and the environmental or energy managers, and in some cases both appear to be coming together under the banner of ‘’Sustainability’’.

Crucially each organisations perception of sustainability appears to be different but it mandates the same thing. Ensuring that their business has the ability to sustain against future changes to the climate, lack of resource availability and fuel security. It means mitigating their impact, maximising their profitability and adapting their products and services to meet future requirements.

Many are looking beyond their own businesses to understand what the future holds for them, and need to consider what their customers will wish to procure, and the security of their supply chain. They will need to think about types of products and services they provide, the assets that they hold and people that they employ.

But what in the current economic climate is driving them?

This week at a workshop with a major oil and gas company we heard from their investor manager who was very clear that a number of investors, when looking to invest, now consider a range of risks from political to climate. We know from our CDP stats that most businesses are beginning to have this overall awareness. For example 10% now see raw material supply as a risk, a further 10% security of energy supply a risk and 46% see extreme weather events as a risk.

Increasingly, this and other market pulls, rather than regulatory push, are stimulating debate at exec and middle management level. Another of our customers, a UK manufacturing business trading in 200 countries worldwide, was driven by customer requirements and a wish to gain a competitive edge in a market that is beginning to be dominated by other developers.

I think that this is evidence of a new phase in sustainability and carbon management where the key driver, whilst still related to profit, is through better market perception by both investors and customers. Not the operational efficiency or compliance with regulation that we know.

ECOnomics - should we stop worrying about energy efficiency?

Mon, 06 Jun 2011 09:44:56 +0100

Energy efficiency: its a no brainer right? Well maybe its not that simple.

Economists are sometimes sceptical about the professed benefits of energy efficiency – as energy is used more efficiently (as it has been over a great many years) economists argue that there is a tendency to use more of it. That seems a little counter intuitive so it needs a little more explanation.

Economists describe the making of stuff as the combination of factors of production (that’s just the things that go into making stuff) typically these are described as Land, Labour and Capital.

Factors of Production (making stuff)

Land – covers all of the raw material inputs, some of which are renewable and some of which are non renewable (but that is a discussion for another time), and intermediate products for our purposes energy is just a form of this factor (it really doesn’t change the logic of the argument to lump energy in as part of another factor of production or indeed consider it as a separate input altogether, just bear with me for a bit here).

Labour – that’s just work from workers, physical and mental labour both count in here.

Capital – is just stuff we already made for the purpose of making more stuff.

The total amount of stuff you can make is governed by the availability of these factor inputs.

If making stuff is about efficiently combining factors of production then there is a certain amount of flexibility inherent in choosing the best combinations of land labour and capital used. The effect of greater efficiency of use of one factor is that we can make more stuff with the same total input.

But here is the tricky bit...

Remember we are thinking about the cost per unit of output of stuff produced.

Without any change in the efficiency with which inputs are converted to stuff any changes in the price of inputs lead to a change in the relative demand for different factor inputs. The price of energy goes up we use less of it relative to other factor inputs because we can make the same amount of stuff by substituting relatively cheaper inputs.

Everybody understands this when it is about labour – if you can get labour more cheaply then you use labour in preference to (for example) capital, and if you can use more labour to use less land then you do that too. In fact you keep substituting the cheaper input for the more expensive output until you get to the point where it would no longer be cheaper overall to use more labour and less of something else (this might be because the cheap labour no longer available, or relative scarcity bids up the price of it).

The equi-marginal principal

There is a curious effect of this known as the equi-marginal principal – in which each unit of input has the same output per cost of input at the margin (i.e. when considered from the point of view of the last unit used). You might not realise this as obvious but it is – if you could spend less on getting the same amount of stuff by using more of one input than you do now and less on another then you would make that switch and keep doing it till there were no more beneficial switches available.

So what happens when you use energy more efficiently is the relative cost of converting energy inputs into stuff goes down and you use more of it. This is what is referred to sometimes as a rebound effect.

So should we stop worrying about energy efficiency?

If a family living in “fuel poverty” lives in a badly insulated house then the benefit they get from the energy spend is much less than would be available in a well insulated, energy efficient home. In may cases the expectation would be that for the same or less than is currently spent on energy the family could have warmth and comfort (beyond what they do now)...

There is compelling evidence that people living in more fuel efficient homes derive health benefits directly as a result of not suffering from cold in winter (and seeking medial assistance, being admitted to hospital or even premature death) as well as other quality of life benefits. The effect of energy efficiency may not significantly reduce their consumption of energy. And, if their energy consumption does go down the family might now be able to afford more other suff (which embodies energy in its production, use and disposal).

So energy efficiency, while manifestly a good thing, might not reduce demand for energy, and certainly not by as much as might be expected.