10 July 2014
Corporate offset buyers increasingly want to create – and measure – sustainable development benefits in addition to carbon reductions. Zubair Zakir of the The CarbonNeutral Company explains the opportunities for applying voluntary market techniques to wider corporate responsibility objectives, and some of the challenges involved.
Environmental Finance: Recent data shows falling volumes and prices in the voluntary carbon market – does that reflect your experience at The CarbonNeutral Company?
Zubair Zakir: When you look at the data globally, in aggregate, it doesn't necessarily reflect the reality of an individual business like ours. Certainly, there have been falling prices in some segments of the market – but often it's very concentrated around project types or regions. Fortunately we have a strong client base who are committed to taking action on climate change and are achieving business value from it; we've therefore seen an average growth of volumes of 30% a year over the last five years.
EF: Where do you see demand coming from?
ZZ: Europe and the US remain the two major sources of demand, but we're seeing growth from emerging markets for carbon offsetting and neutrality, for instance in Latin America. There's a lot of domestic attention being paid to companies' environmental footprints and they have the same motivations as corporates elsewhere; its about public awareness of their environmental impacts, brand differentiation, and they have an eye on their export markets and consumers in Europe and the US.
In more developed markets, we're seeing a commitment to more impactful projects, such as reforestation, sustainable agriculture, cookstove projects, water filtration – projects where there are the greatest linkages to additional, non-carbon benefits. Carbon finance has become a mechanism for companies to deliver on these benefits.
EF: Doesn't this create challenges in demonstrating the impact of these non-carbon benefits?
ZZ: We have been, first and foremost as a sector, set up to measure emissions reductions, and we've brought a lot of rigour to that. And all the carbon market standards have been built to ensure no harm to communities or biodiversity when implementing projects.
It is certainly not straightforward to demonstrate impact of the other, important, benefits that projects deliver. But we are using the same expertise we have developed around evaluating the quality of the emission reductions to come up with solutions to this. One key challenge is to help projects evaluate the success of investments in these non-carbon benefits without incurring high transaction costs.
There are a variety of different approaches under development – through the Gold Standard and through the Water Benefits Certificate programme, and the Climate, Community & Biodiversity Alliance has added categories to its standard that can be used to show where improvements are being made in terms of biodiversity or community. These go some way to allowing the project developer to show where specific impact is occurring and to link that back to a carbon transaction.
EF: Does this raise the risk of buyers inadvertently misrepresenting the impact of their projects?
ZZ: It's an important point for us, reflected in the work we do in helping our clients understand what types of impacts are possible, and how they can talk about them – so they are making claims that are absolutely accurate and authentic. We've worked very hard to create our own sets of measurement tools, where they aren't available externally, and we expect external tools to provide the same level of rigour we've developed over the past decade in carbon.
EF: Equally, is there a risk buyers could be misled about co-benefits by less scrupulous developers?
ZZ: There's always that risk, no matter what market you're in. The voluntary carbon market has probably had more than its fair share. Fortunately where buyers are much more focused on a specific benefit and much more engaged, they tend to be quite astute and aware of the complexities. They are aware of their reputational exposures, and they tend to be risk averse.
EF: Could these measurement techniques be applied to other elements of corporate responsibility programmes?
ZZ: We're seeing companies increasingly making commitments around zero deforestation in their sourcing of palm oil, or soy, for example. There's a whole lot of learning that's taken place in the carbon market and established mechanisms within the carbon market that could and should allow these corporates to show that deforestation is not taking place, or that communities are not being harmed. There are enormous opportunities for convergence here.
The voluntary carbon market offers a flexible mechanism, built up over a decade, which delivers results-based finance to high quality projects. We're only going to get better at measuring all these other factors.