System of reduction
Carbon Neutral outlines the business case for offset inclusive carbon management
In the transition to a low carbon economy, carbon management represents a new and fundamental challenge for business. How companies respond to this challenge is fast becoming a strategic issue. The business drivers for taking action on climate change will only strengthen and if a company is not able to respond effectively or credibly, increasingly it will be disadvantaged relative to its peers who successfully execute carbon management strategies.
Effective and credible strategies are those that seek to drive revenue growth, minimise costs and enhance reputation.
Companies are realising the environmental and commercial value of implementing offset inclusive carbon management programmes (CMP). They represent the most efficient way to reduce emissions beyond a certain point and offer for many the only way to reach scientifically significant emission reduction targets. CMPs also offer a cost benchmark against which to measure the efficiency of all internal reduction opportunities, and area driver of operational behavioural change to adopt energy efficient working practices, as well as a cost-effective way to present a climate change credential to customers that will drive revenue and to stakeholders that will enhance corporate reputation
Drivers for managing carbon
The prevailing scientific and economic consensus is that an absolute reduction of 80 percent in global greenhouse gas emissions is required by mid-century to prevent material damage to the world’s economy. This is at a time when global emissions are growing at their fastest rate ever.
Though the world is becoming more carbon conscious, it is expected that with a ‘business as usual’ approach to emissions would still see our emissions double by 2050. Meanwhile to reach a ‘stabilisation’ trajectory of halving the world’s carbon footprint would require at least an 80 percent reduction in emissions by 2050 to compensate potential expansion.
Each business faces the challenge of how to grow profitably while reducing emissions. To meet the stabilisation trajectory, firms will need to average around a four percent absolute reduction year on year to 2050. The phrase scientifically significant is used to describe emission reductions that meet this stabilisation requirement. A report by the Carbon Disclosure Project found the world’s largest companies are on track for an annual reduction of just 1.9 percent, reaching the scientifically recommended level of greenhouse gas cuts by 2089, 39 years too late.
The global economy is transitioning to a future constrained by carbon. The UK’s Department for Energy and Climate Change (DECC) define a carbon price rising from £25 per tonne of CO2 in 2009 to £100 in 2050. With this potential rise in costs, business and consumers are increasingly interested in low carbon brands, products and services. The environmental agenda is a key area where businesses can differentiate their offerings – a company that has its own active carbon management programme will stand apart from those that only pay lip service to the issue. It is estimated that tackling climate change could create opportunities for a company to increase its value by up to 80 percent if it is well positioned and proactive. Conversely, it could threaten up to 65 percent of value if the company is poorly positioned.
Offset inclusive carbon management
As pressure grows for businesses to demonstrate how they are accounting for their impact on the climate, several early adopters have implemented offset inclusive carbon management strategies as a way of demonstrating this to the market within the constraints imposed by their current infrastructure, such as leased offices and mature manufacturing facilities, and business models such as dependence on air travel to visit clients.
Companies executing offset inclusive carbon management strategies need to address the issue in steps. They must measure baseline emissions, set scientifically significant reduction targets, meet the targets most cost effectively and then communicate their activity to stakeholders. Practically speaking, this means evaluating all carbon reduction projects in terms of the cost of reducing a tonne of carbon, and then implementing those projects with a lower cost of carbon than the cost of an offset.
The remainder of the target is met through the next most cost effective source of emission reductions: carbon offsets. In simple terms, businesses pay to outsource emissions reductions when it is more cost-efficient or technologically feasible than doing so in-house, in the same way as if they were making the decision to outsource a business process like accounts payable or payroll. Every business makes strategic decisions to make or buy, to in-source or outsource, and delivering emissions reductions is no different.
The case for outsourcing emissions reductions is strengthened by the fact that roughly one-third of carbon dioxide emissions related to the consumption of goods and services in industrialised countries are actually emitted outside their national borders. Companies in Europe are essentially outsourcing some of their carbon emissions to developing countries through global trade – by importing goods and services from more carbon-intensive countries abroad – thereby shrinking their carbon footprints while inflating those of major exporting nations. Carbon offsets are therefore an ideal way to counterbalance the emissions a company outsources with an equal amount of emissions reductions in a developing country.
The role of carbon offsets as a cost containment measure in corporate carbon management is recognised by legislators on both sides of the Atlantic. Offsets are an integral part of the European Emissions Trading Scheme, and are set to play a similar role in the US under the proposed cap-and-trade system. Economic analysis prepared by the US Environmental Protection Agency points to the effectiveness of offsets in containing costs within a cap-and-trade system.
Furthermore, it is important to recognise that investments in quality offsets are funding real and permanent reductions within the global economy. As far as the climate is concerned, where reductions take place is of no consequence. Yvo de Boer, executive secretary of the United Nations Framework Convention on Climate Change, estimated that if developed economies commit to reduce emissions 60 to 80 percent by 2050, and if half of the emission reductions were met through investment abroad, it could generate up to $100bn per year in green investment flowing to developing countries. Offset inclusive carbon management allows your business to participate in this investment flow, becoming part of a climate solution that greens economic growth and facilitates the transfer of clean technologies to the developing world.
Delivering value from carbon management
Delivering scientifically significant reductions is only one element of corporate carbon management. Business value comes from carbon management strategies that seek to minimise costs, drive revenue growth and enhance reputation.
Carbon offsets are the most cost-effective way to present a credible climate credential to existing and prospective customers who are increasingly interested in low carbon brands, products and services. Implementing an offset inclusive carbon management programme is a simple and immediate way to demonstrate leadership in your market and differentiate you from less environmentally responsible brands.
Equally, improving a business’ carbon position can strengthen corporate reputation. The emergence of the Carbon Disclosure Project confirms that the extent to which a company mitigates its climate impact is now a key measure of business performance. A lack of action and preparedness around climate change puts your brand reputation at risk financially and commercially. An offset inclusive carbon management programme is a high impact, cost-efficient means of reinforcing your environmental credentials and corporate reputation by demonstrating an understanding of the climate change problem and the critical role of offsets in moving to a low carbon economy.
In a future constrained by carbon, carbon management presents both a challenge and an opportunity. Organisations unable to respond quickly and credibly will find themselves increasingly disadvantaged relative to competitors who successfully execute offset inclusive carbon management strategies.
For more information Tel: 0207 833 6000 email: firstname.lastname@example.org or visit: carbonneutral.com
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