Future Energy

Is Carbon a Real Commodity Now?

Source: Peter Nicholson, The Australian

Back in the day, I can remember arranging a trade in carbon emission reductions generated by company I was working for at the time, a Canadian natural gas utility, and thinking we were definitely riding the bleeding edge.  The trade was for 5,000 tonnes of CO₂ per year at $5.00 per tonne and it took a whole consortium of Japanese companies to purchase the "credits".

That was then and this is now.

Last week, the World Bank issued its annual State and Trends of the Carbon Market Report.  Looking back at 2008, the World Bank found that the market (or I should say markets because there a range of different markets in various levels of disconnect) had doubled in value over the previous year reaching a total of $,811 million metric tonnes of CO_2e worth an estimated US$126 billion.

While Kyoto based markets, including CDM and JI declined in value and activity over 2007, secondary trading in Certified Emission Reductions from CDM and JI projects increased by 382%.  Trailing behind, trading in EU Emissions Trading Scheme Allowances grew by only 87% and Voluntary Emissions Reduction markets increased by only 51%.

The World Bank has issued this report since at least 2005 ( or at least that is when I first became aware of it).  Looking at 2004, the 2005 report estimated the size of the carbon markets at 163 million tonnes CO_2e.  In four short years, the market has grown almost 30 times, mostly as a result of the initiative shown by Europe in developing their Emissions Trading Scheme.

Imagine the growth if the U.S., Canada and Australia are able to overcome their foot-dragging and begin to act on the growing concern for climate change?

Tropical Deforestation and the Carbon Markets

   

Rhett Butler, writing at Yale's Environment 360 last week, talked about using the finacial markets to help preserve tropical rainforests (see As Rain Forests Disappear, A Market Solution Emerges, December 11th). 

"The key question today is whether new models of conservation — including an increasingly popular, market-based program known as REDD — will be able to reverse the steady loss of tropical forests, not only in the Amazon, but also in Indonesia, Borneo, and Africa’s Congo basin, where virgin woodlands continue to be razed at an unprecedented rate."

Butler highlights a number of examples in Sumatra, Borneo, Guyana and involving financial players such as Merrill Lynch.  In each case the premise is that REDD (reducing emmissions from deforestation and degredation) deals can make financial markets pay for the environmental services offered by healthy forests, including preservation of biodiversity, water supply and carbon sequestration.

The biggest REDD deal is undoubtedly the sustainable development fund announced by Brazil's president, Lula da Silva on December 1st (see Brazil Pledges to Cut Amazon Destruction in Half, Reuters, December 1st).  Coinciding with the opening of the Poznan climate change discussions, President da Silva committed Brazil to reducing deforestation from 19,533 square kilomtres per year to 5,850 square kilometres by 2014.

Brazil is proposing to fund the change with a US $21 billion fund to be raised from developed countries, companies and others (Norway has already committed US $1 billion).  A review of the plan at mongabay.com points to some questions: How will Brazil actually make significant changes in land use - the commitment remains vague, with money to be spent on "sustainable development and protected areas".  And most of the changes are not scheduled to occur until after President da Silva's term in office ends in 2011.

Despite the negative view of forest based carbon sequestration among many players in todays carbon markets (e.g. Vancity: "we decided to use only offsets from projects that directly reduce energy consumption and/or create some kind of renewable energy"),  the IPCC reports that more than 20% of current man-made emissions originate as a result of deforestation.  If 20% of the problem relates to deforestation,  approaches like REDD, that apply market based tools to slowing the pace of forest destruction, are essential to addressing the climate change problem.  There are limits to how many protected areas can be created.

Deutsche Bank: A Really Enthusiastic Carbon Market Player

There are not many carbon funds out there for retail investors but Deutsche Bank, through its DWS Investments arm, yesterday announced a fund that will invest in CO2 emission rights and related products. 

The fund is to be undertaken in partnership with Aquila Investments and will be managed by First Climate, a Frankfurt based carbon asset manager.  The initial announcements suggest that DWS expects to raise up to 250 million euros from European retail and institutional investors.

There is a significant question as to whether retail investors should be investing in a market as risky and uncertain as carbon.  My opinion: they shouldn't, full stop.  No one is even certain if this market will be around in its current form five years from now.

However, putting that question aside, Deutsche Bank is showing impressive enthusiasm for carbon market related products.  Just over a year ago, DWS Investments introduced a climate change fund that invests in companies likely to benefit from the global response to climate change such as wind power, electrical utilities, etc. (this makes a bit more sense for investors - the companies generally appear to be stable industrial companies with good prospects). 

And earlier this year (January to be exact) Deutsche Bank launched a custody, clearing and settlement service for carbon credit instruments issued under both the European Union Emissions Trading Scheme and the Clean Development Mechanism set up under the Kyoto Protocol. 

If you want to know what they think they know take a look at their Investing in Climate Change page.

Sustainable Energy Stories This Week

Its been a while since I tried to put together a post so I thought I'd do something simple and highlight a few of the sustainable energy stories that I found to be of interest this past week.

The growth of carbon markets continues to accelerate and that was certainly reflected in the stories that caught my attention. 

Starting out: Fast Company magazine for July/August chronicles the rise of a cadre of Yale Forestry grads that are at the centre of the carbon offset markets (see Carbon Boom).  The article tries to make the case that Yale forestry-school grads are dominating the emerging carbon markets.  Thats probably a bit of a stretch, but my wife is a forester and says that yes, Yale has worked to establish and publicize a reputation as a leader in the development of forest-based offsets.  The article is good but I'm a sceptic regarding the claim of Yale as an undisputed leader in the world of carbon credits in part as a result of comments such as this:

"I focused my courses at Yale around independent studies to look into this stuff," she says. "Back then, in 2005, it was still unknown." Now, "it's growing like crazy, and pretty much any forestry student you speak to at the moment wants to do [carbon credits]."

Crabon trading and offsets may have been unheard of among Yale students but not in most of the rest of the world.  More credibly, the writer acknowledges the as yet unproven efficacy of carbon markets in addressing climate change and notes that California, a proven environmental leader, has attained its success on the back of tough activist regulations that forced adaptation.

The Globe & Mail looked at the development of carbon markets in Canada and concluded that the problems can be solved (see Carbon Conundrum Solvable, July 22nd, 2008).  The writer, Boyd Erman, identified two key issues including the perennial story of Canada's economic fragmentation between ten squabbling provinces and three territories.

"For starters, the country needs to harmonize its regulations so that provinces and the federal government all have consistent rules on how much polluters can emit, which will standardize the market within Canada. With all the political sniping surrounding the issue, the situation has been well publicized."

He also cites Mike McBain of the Royal Bank to the effect that with huge emissions growth in the country, demand for offsets will have to be met from outside the country.  So Canada's emissions trading system will have to be fungible with the emerging international carbon trading regime.

Notably, Royal Bank made its own news late last week, announcing its coming of age as a one-stop carbon trading centre (see RBC unveils worldwide carbon trading capabilities to help industry manage greenhouse gas emissions, Market Watch Weekend Edition, July 18th, 2008 and RBC's press release).

Making climate change a bit more relevant for individual investors, HSBC announced its Global Climate Change Fund, a mutual fund that will invest in companies that expect to benefit from developing climate change solutions.  Thanks to Point Carbon for identifying this story in its daily newsletter (subscription required).

I also found some interesting stories on the waste-to-energy theme.

Again, in the Globe & Mail, Martin Mittelstaedt reported on an Ontario dairy farmer that is set to become the country's first supplier of electricity from manure (see On the Farm, a Back-End Solution to the Energy Crisis, July 21, 2008).  Using an anaerobic digester and a diesel generator converted to run on methane, a farmer near London, Ontario will soon begin supply electricity to the Ontario grid.  Starting out at 300 KW, he intends to grow the operation to 1.3 MW by supplementing his farm manure with food wastes from local canning plants.

At the New York Times, Mathew Wald looked at progress in the U.S. towards the commercial production of liquid-fuels from garbage and wastes (see Gassing Up With Garbage, July 24th, 2008).

"Virtually any material containing hydrogen, carbon and oxygen could potentially be turned into motor fuel. That includes plastics, construction debris, forest and lawn trimmings, wood chips, wheat straw and many other types of agricultural waste.

The potential fuels include ethanol, which can be blended with gasoline, or other liquids that could displace gasoline or diesel entirely. Government studies suggest the country could potentially replace half its gasoline supply in this way — even more if cars became more efficient."

The story includes a long list of different companies and initiatives as evidence of the growing interest in converting waste to energy.  I'll try and look at some of the companies in a later post.

In Defense of Carbon Offsets

                                                

                                        Source: Carbon Markets Global Limited

After Doubling in Size in 2007 Do the Carbon Markets Need Defending?

Neal Dikeman at ALT Energy Stocks posted an informative interview on the topic of Carbon Offsets with Marc Stuart of EcoSecurities plc this past week (see Carbon Offsets Work-Will the Mainstream Media Ever Get It?).  If you have any interest on climate change, the regulatory regime that is emerging to address it and the rapidly growing industry that is the result, the interview will make for interesting reading.

EcoSecurities  (Lon AIM: ECO) was one of the first firms created to generate and monetize greenhouse gas emissions reductions and in particular, carbon offsets (and one of the few publicly traded today).  The company is primarily known for being one of the largest developers of Clean Development Mechanism offset projects, a US$7 billion market in 2007.  And Marc Stuart is one of the founders of the firm so he speaks with some authority on the subject of offsets.

Neal Dikeman on the other hand, introduces the interview with a mini-diatribe against laymen and media, asking if they will ever get it, i.e. understand the carbon markets.  He's apparently concerned that questions remain about the "additionality" of credits, in other words, the regulatory and public concern that credits of significant value are being handed out for projects that would have taken place anyways. 

Mr. Dikeman also suggests that the level of oversight and protection against scamming the offset system, i.e. the validation and verification processes, may be too much.  In his words, "leading certification firms and carbon project developers have been dealing with the details behind those questions for years."

Well, actually, no they haven't.  These markets are for the most part less than five years old.  While talked about in exhaustive detail in many rounds of national and international meetings beginning with creation of the Kyoto Protocol back in 1997, it wasn't until the emergence of the European Emissions Trading System (ETS) in 2005 that any real market was available to gain real practical experience in developing offsets.  (Yes I know there were lots of pilot schemes developed between 1997 and 2005 to gain experience.  I was involved in many of them.  However, all were very small and not a little unreal.)

So this is still an emerging market with not a lot of certainty about it and media and members of the public are right to be sceptical at this stage. 

The CDM market has had some hiccoughs, including the flurry of HFC-23 reduction projects, primarily in China, which Mr. Stuart acknowledges has been adjusted so that no one can build plants simply to develop an associated offset project(suggesting that that is exactly what happened).  Voluntary offset markets are also rapidly emerging (but much smaller-estimated at under US$300 million in 2007) but present some of their own issues.  Many of the forest and tree planting based credits that are being sold will not actually remove the carbon (or create the credit) for years to come, if they are still standing, something that not all who buy understand and that many who sell don't explain.

So I repeat, some scepticism is still warranted in these early days.

That being said, carbon markets and carbon offsets are here to stay.  As governments become more focused on addressing climate change and reversing the growth of greenhouse gas emissions, the carbon market provides a very powerful tool for reducing emissions for the least-cost.  I agree with Messrs. Dikeman and Stuart (and many, many others) that they offer tremendous opportunities for investors, project developers and entrepreneurs for the future. 

The World Bank released its annual survey of the Carbon Markets earlier in May (see State and Trends of the Carbon Market 2008, May, 2008).  The report confirmed the doubling of the carbon markets in 2007, to a total value of US$64 billion.  Most of this value is associated with the ETS (US$50 billion) but as noted above, the CDM markets are not insignificant and the voluntary offset markets, while small, are growing rapidly.

To-date, most of this activity has been associated directly or indirectly with the ETS.  As the U.S., Japan, Canada and Australia begin to implement trading systems and tie those systems into a global carbon market expect EcoSecurities and its peers to get much bigger and much more active.

In some earlier posts, I identified some of the publicly traded funds, companies and others that provide investors with a window on the carbon markets - if they think they're up for the risk and uncertainty that are associated with an emerging commodity and market.

• see Carbon Markets and the New Energy Commodity, November 26th, 2007; and
• see Carbon Funds and Other Offsets Investors, December 20th, 2007.

(Given the rapid growth of the market, I'll have to update these lists someday soon.)

If you are interested in following the development of the carbon markets, you may also want to look at some of the following sources:

• Point Carbon offers some different daily news and informations services;
• Carbon Finance and Environmental Finance, sister publications focus on the emissions markets in monthly magazines (available online as well); and
• ClimateBiz offers an online news and information source thats updated weekly.

There are many other news and information services focused on carbon markets but Mr. Dikeman's interview with Marc Stuart is a good place to start and the other sources I've provided should satiate any appetite for more information.

Enjoy.

More on Carbon Trading

Carbon Market Japan

An interesting carbon market development that I missed in my last post (see Carbon Trading Marches On, February 28th) was Lehman Brothers announcement earlier this week that it would start trading U.N.-approved carbon credits in Japan.  While I saw the announcement in Reuters Environment News site, it was widely reported on.

The announcement is interesting beacuse while reporting on Lehman's move, Reuters had this to say about the Japanese market for carbon:

"Japan has just a tiny voluntary market and a barely used Web-based matching system of U.N. certified emission reductions (CERs) through forward contracts."

It is also one more sign the markets are increasingly moving out of their euro-centric mode, where the fucus has been primarily on the European Emissions Trading System.

Carbon Trading Marches On

                                             

                                             Source: www.celsias.com                                          

An Emerging Market is Well on its Way to Becoming the Next Big Thing

Signs of the growing market for carbon are popping up at about the same rate that bulbs are coming out of the ground in Vancouver gardens these late February days. 

Yesterday's Globe & Mail included an article on the development of agricultural carbon offsets (or sinks) to meet the demand for offset credits now that Alberta has begun to regulate carbon emissions (see A New Way to Make Hay, by David Ebner, February 26th).

Mr. Ebner does a good job of outlining the issues facing the emerging North American carbon markets.

"For Canada's dirtiest companies, the race to collect offset credits is just beginning, spurred by the reality that green legislation is soon going to emerge everywhere. New laws, in Ottawa and the United States, will likely pack tougher penalties than Alberta has come out with so far.

Just last week, British Columbia introduced a carbon tax and a plan to cap emissions. In Ottawa today, the federal budget is likely to include support for technology that reduces greenhouse gas emissions.

This is new ground for many. Government and industry officials across North America are watching Alberta closely as a kind of experiment in action. It's estimated that the market for carbon trading in North America could exceed a staggering $1-trillion (U.S.) by 2020, according to New Carbon Finance, a British consultancy that provides carbon price forecasting for European and global markets."

At the end of the article he also provides the statistics that demonstrate the market's growth the world over.

Yesterday also saw the Financial Times highlight LCH.Clearnet's intention to launch over-the-counter clearing services for Certified Emission Reductions and EU Emissions Trading System Allowances (see Clearnet Supports Carbon Trading Contracts, Stanley Pignal and Fiona Harvey).

The article notes that there are currently 110 million of CER's certified and a further four billion tonnes in development.  The practical effect of Clearnet's decision is likely to be a more mature market for CER's, reducing pritonnesce volatility and perhaps some of the price differential with EU-ETS Allowances.

Also yesterday, the Wall Street Journal's Environmental Capital blog (formerly the Energy Roundup) did a quick review of the growing carbon markets (see Market Making: Carbon Keeps Growing, by Keith Johnson).  WSJ chose to highlight Point Carbon's estimate that global trades in carbon dioxide emission rights will be worth about $92 billion in 2008 and the imminent launch of the Regional Greenhouse Gas Initiative by 10 northeast U.S. states.

Mr. Johnson closed by noting that "at least one group should be an enthusiastic supporter of the various cap-and-trade schemes under consideration in [the U.S.] Congress: Wall Street banks."

Last week the Environmental Capital Blog also announced the formation of a new carbon market, the World Green Exchange (see Trading Places: A New Carbon Market, by Keith Johnson).  The World Green Exchange is an offshoot of an existing electricity and gas trading platform operated by World Energy.  Notably, World Energy has been supporting trading in renewable-energy certificates since 2003. 

And finally, Australia's Greenair Fund announced earlier this week that they will be seeking up to Aus$100 million  in an IPO later this year.  Greenair is a Sydney based developer of forest-based carbon offsets.  With all of the excitement around carbon these days, they should have little problem getting the money.

   

Future Canadian Climate Change Policy?????

Continued Momentum Toward Carbon Trading Markets in Canada

Earlier today Canada’s National Round Table on the Environment and the Economy (NRTEE) released its advisory report on how the country can achieve a 60% to 70% reduction in greenhouse gas emissions by 2050.  (See Getting to 2050: Canada’s Transition to a Low-Emission Future, January 7^th, 2008.)  At the core of this group’s recommendations, NRTEE is pushing for Canada to continue moving towards the establishment of long-term carbon markets.

NRTEE identified five enabling conditions that it felt must be in place for Canada to achieve the suggested emission reduction target.  From an investor or markets perspective, the most important of these is the need for an economy-wide emission price signal (NRTEE also called for, medium and long term policy certainty, which could be almost as important). 

To achieve an economy-wide emission price signal, NRTEE is recommending that a carbon tax, a cap and trade system or a combination of both approaches be put into place.

All of this advice is good in that it reinforces the momentum towards Carbon Trading Markets in Canada.  Setting a price on carbon emissions and allowing a free trade in allowances and credits that reflect that price is arguably, the only policy that can be counted on to recruit the projects, technologies and other actions that will reduce greenhouse gas emissions in the long term.

To their credit, NRTEE does draw a distinction between developing a policy framework and the implementation of such a framework by government, industry, capital markets and consumers.  After all, this is Canada, where we have had at least three "policy frameworks" introduced by various federal governments with nary a pause in the growth of our emissions.

However, NRTEE does fall into the same rut that has captured all climate change policy discussion in this country when the group calls for the federal government to:

“implement, immediately, the development and design of market-based policy instruments ...... following broad consultation with industry, environmental and other stakeholders.....”

The Canadian government has been in more or less continuous consultation on this issue since 1997.  Efforts to design market-based emission reduction approaches have been almost too numerous to count.  NRTEE itself struck a Multistakeholder Expert Group on Domestic Emissions Trading which in 1999 delivered a series of nine reports evaluating different aspects of a potential domestic emissions trading system.

The report is notable because it pulls the dreaded “carbon tax” words back into the public dialogue after a long banishment and it provides further impetus for the introduction of functioning carbon markets.    However, despite the Environment Minister's polite response, its recommendations don't carry any real weight.  I wouldn’t recommend reading anything more than the Executive Summary.

Carbon Funds and Other Offset Investors

Source: Energytechstocks.com

With Carbon Markets Now At $70 Billion, Everyone Wants to Play

Estimates suggest that the world carbon markets could grow to approximately $70 billion by the end of this year.  And those estimates are attracting lots of those who would be players in the carbon markets.

This week the Wall Street Journal highlighted the move of at least some of the large banks to begin directly investing in carbon offsets and in particular projects under the Kyoto Protocol’s Clean Development Mechanism and Joint Implementation (see Banks See Green in Carbon Projects: Investing Directly Adds To Potential for Profits In Emissions Trading, December 18^th, 2007).

“After piling into the burgeoning market for trading in carbon-emissions credits, some financial firms on Wall Street and elsewhere are going a step further, getting into the nitty-gritty of fixing leaking oil pipes in Russia and building hydroelectric dams in Latin America to create new credits themselves.

Those projects stand to reduce emissions of carbon dioxide into the atmosphere, one of the chief causes of climate change. The banks see a different kind of green, though. The projects can be converted into carbon credits, which can be sold at a profit on the European carbon market.”

The article focuses on three banks, Barclays PLC, Dresdner Kleinwort, a unit of Allianz and Morgan Stanley and their efforts to invest in largely third world jurisdictions, seeking low-cost emission reduction projects that leverage their project finance capabilities. 

Recent months have also seen the creation of a variety of “carbon funds”, with new funds joining several well established funds were already scouring the globe for carbon offsets and carbon friendly companies.

[A recent report in the Australian (see The Coming Cleantech Boom, November 5th) indicates that there are 70 carbon funds worldwide.  However, it looks as though the majority of these have been established by the World Bank and other government organizations or they are primarily focused on renewable and other alternative energy investment.]

The funds fall into two groups.  There are what I would call real “carbon funds”, i.e. those that have been established to invest in carbon offset projects, carbon credits (or Certified Emission Reductions) and carbon allowances.  And then there are those that are looking for carbon friendly businesses to invest in, i.e. those that produce low-carbon products such as renewable energy, produce their products more efficiently than their peers or provide products or services likely to be needed for adaptation to a warming world.

Briefly, the funds that I have found, include:

Privately Held

·         ArkX Carbon Fund

Announced only this month, ArkX indicated that intended to raise Aus$250 million from wholesale investors to invest in carbon reduction assets worldwide. 

·         Climate Change Capital

An investment banking group that is focused on low-carbon investments and carbon markets, this firm estimates that it has over US$1.5 billion under management, in a range of private equity funds, for investment in clean energy and other low carbon investments. 

·         Gold Carbon Capital Fund

A carbon fund focusing on Gold Standard Certified Emission Reductions. Operated by South Pole Carbon Asset Management Ltd., the fund provides equity and mezzanine investments for high quality CDM projects. Gold Carbon Capital is structured as a Luxembourg based SICAR (i.e. venture capital company).

·         Istithmar & Sindicatum Climate Change Partnership

UK-based carbon project developer Sindicatum Carbon Capital recently expanded on an existing €300 million carbon fund with the addition of a Dubai-based partner, Istithmar World Ventures.  The new fund, totalling US$600 million, will invest in CDM projects.

Publicly Traded

·         Trading Emissions PLC (LSE AIM: TEP)

Launched in 2005, Trading Emissions initially raised £135 million for investment in carbon offsets and credits.  The closed-end fund currently manages £310 million for investment in CDM and JI projects.

·        Low Carbon Accelerator (LSE AIM: LCA) 

A closed-ended investment company, listed in October 2006, LCA raised £44.5 million for investment in companies providing low-carbon products and services.

·         SAM Sustainable Climate Fund (NASDAQ: SMCNX)

The fund, launched in September of this year, invests companies offering products and services which diminish, delay or manage the consequences of the climate change.  SAM’s fund is structured to allow investment by both institutional investors, with a minimum investment of US$100,000, and retail investors, with a minimum investment of US$2,500.

And then there is ANZ’s Climate Change Trust.....

·         ANZ Climate Change Trust

ANZ’s fund is designed to invest in the above noted SAM fund in combination with “dynamic” risk management.  This fund isn’t publicly traded, although, it was open to any “wholesale” investors willing to make a minimum investment of Aus$500,000.

Generally, all of the funds noted above have a high risk profile that makes them unlikely investments for the average investor.  International and national policy outcomes could negate much of their value and many of the commodities they are investing in (e.g. carbon emission offsets) have only a limited market to-date.  With that in mind it seems a bit unlikely that we’ll see carbon mutual funds available to retail investors anytime soon. 

What we might see, however, is more pension funds and other institutional investors continuing to pile into the carbon markets if this Bloomberg article is to be believed (see Australian Pension Funds May Lead Carbon Investment, Bank Says, Bloomberg.com, December 17^th). 

Carbon Offset Standards - Not Everyone is Happy

                      

Five Standards for Carbon Offsets

Introduction of the Voluntary Carbon Standard on November 19^th, appears to have added some new energy to an ongoing philosophical battle about what is an acceptable carbon emission reduction offset. 

Accounting for almost 20% of the U.S.$30 billion global carbon markets, offsets are project based emission reductions that can include renewable energy, methane capture, energy efficiency and ecosystem renewal (e.g. tree planting).  The Clean Development Mechanism, Joint Implementation and Voluntary Emission Reduction markets are all based on offsets.

In contrast with emission allowances, which are strictly defined and allocated by a market regulator, offsets can be undertaken by almost anyone that can figure out a way to reduce emissions, avoid emissions or sequester emissions.

Despite their importance, not everyone accepts carbon offsetting as a valid approach to addressing the threat of climate change.  Most notably, George Monbiot, an English journalist who equates addressing climate change with a moral crusade, has compared the purchasing of offsets to the medieval practice of purchasing indulgences.  A recent column in Fast Company (see Are Carbon Offsets A Cop-Out?, Fast Company, November 2007) provides a good argument refuting the anti-offset movement.

Even once you get past the moral argument, there is still some controversy about what is and what is not an offset.  The three principal concerns include:

1.   Additionality: would the emission reductions be realized without the carbon finance provided in the transaction or would it have occurred anyways as a result of existing regulations or financing.

 

2.   Verification: do emission reductions that look good on paper actually get created, e.g. does the forest burn down, does the technological innovation fail to deliver as promised, etc.

 

3.   Double counting: the emission reduction from a single project can only be used to meet one compliance requirement, i.e. only sold once.

So with the introduction of at least five standards in recent years to address these issues, you would think that the controversy would end?  Not so. 

The Voluntary Carbon Standard (VCS), introduced last month was developed and introduced by the International Emissions Trading Association working together with the World Business Council for Sustainable Development and Climate Group.  The standard encompasses the full range of potential offset types, including carbon sequestration (forestry) projects.

By comparison, the Gold Standard, an earlier offset standard introduced for CDM projects in 2003 (a companion standard for the Voluntary Emission Reduction market was subsequently introduced in 2006) covers only renewable energy and energy efficiency projects.  The standard’s proponents indicate that they have taken a narrower view because:

”....[because] we envision a sustainable economy that depends less on fossil fuels such as oil and coal and more on renewable energy sources, like solar and wind power, our goal is

to promote energy sources that cut back on emissions from the very beginning.”

World Wildlife Fund, one of the proponents behind the Gold Standard, has now attacked the VCS (see , Buyer Beware of the Voluntary Carbon Standard, WWF website, November 20^th, 2007) claiming:

“Carbon buyers using the VCS will remain exposed to significant risk. The VCS cannot guarantee that credits are real nor projects valuable to host countries.” 

WWF believes that the VCS has loopholes in its requirements for validation and verification, allowing non-additional emission reductions to be certified.  WWF also believes that the VCS “waives all environmental and social safeguards and requirements for stakeholder consultation” when it accepts local environmental and social legislation.  In part, WWF appears to be adopting some of the moralist stance of George Monbiot.  (WWF’s detailed assessment of the VCS is provided in a pdf document, here.)

On the flip side, there are those that are concerned that the VCS will constrain the voluntary emissions reduction market too much.  In an early review of the VCS (see What is the Voluntary Carbon Offset Standard, Climatebiz.com, April 2006), Mark Trexler, one of the pioneers in the climate change and emissions trading debates, suggested that the market may push back out of concern for costs and loss of flexibility.

Eventually, the carbon markets and their participants are likely to sort out what is and what is not an acceptable offset.  In the meantime, this bun fight seems to introduce a bit more risk for those companies and financial institutions that might invest in offsets.

Just for the record, the three offset standards not yet mentioned include:

·         World Business Council for Sustainable Development/World Resources Institute GHG Protocol for Project Accounting.

Provides tools for calculating emission reductions, often similar to those provided by the IPCC.

·         ISO 14064-2 Process for project-based GHG reduction quantification.

A succinct set of verifiable requirements for quantifying project based greenhouse gas emission reductions.

·         Climate, Community and Biodiversity Project Design Standards

Standards for evaluating land-based carbon sequestration projects.