Article

Climate Change – The voluntary market

This article was first published in Contact 65 - December 2008

 

In the last edition of Contact, Graham Noriskin wrote of the effect of the impending regulatory environment on business.  In the second article in this series, we will examine the effect of the growing voluntary market or the need to be seen to be green.
 
Green branding is becoming more and more prevalent as consumer awareness of climate change grows at an ever increasing rate.  Organisations as diverse as airlines, energy and oil companies, financial services firms, retailers, and motor vehicle manufacturers are clamouring to position their companies as “carbon neutral” or “green friendly”.  At the same time there is a proliferation of carbon offset options available to individuals and businesses alike to enable them to offset their emissions and become guilt free.
 
Businesses who supply larger organisations that are pursuing this type of positioning are likely to become involved themselves as the desire to recognise all emissions within a supply chain intensifies.  Between 40% and 60% of all emissions for manufacturers are upstream with the figure for retailers being closer to 80%.  This means that upstream suppliers will find themselves having to calculate their carbon footprint and purchase offsets as a condition of supply in the same way that quality assurance (ISO9002) infiltrated business in years gone by.
 
In fact, evidence already exists of suppliers to business already positioning themselves as carbon neutral so that they capture an early break on this growing market.  The ultimate in this respect is certification by the Australian Government’s Greenhouse Friendly TM   initiative  that provides a full life cycle certification of an organisation’s carbon offset strategies.  This process is thorough and consequently time consuming and costly so it is not for the uncommitted.
 
There are difficulties with the informal sector however as there is no single system for calculating carbon emissions.  A study by Sydney University in 2007 found that the emissions calculated by 14 different website calculators varied by 83% and the variation in the cost of offsets was 77%.  In addition, offsets are largely unregulated so it may not be clear where they come from, whether they have been verified, and whether they have been retired or simply sold again and again.
 
Consequently, the ACCC has stepped in to provide some regulation under its misleading and deceptive conduct and false and misleading representations powers.  The ACCC requires claims of carbon neutrality to be supported by evidence that offsets are:

 

  • Additional – the saving in emissions was not going to happen anyway;
  • Retired - the offset cannot be sold more than once;
  • Permanent – a harvested forest is not permanent;
  • Independently verified; and,
  • Timing is disclosed – planting trees is not immediate. 

It also expects claims to be supported with information about the extent of the emissions that are covered.  Are they direct emissions (scope 1), purchased energy (scope 2), or indirect from suppliers (scope 3)?  It is interesting to note that the regulated environment does not yet cover scope 3 (indirect) emissions so the voluntary market, at its extreme, is ahead of Government in this respect.

 

Businesses seeking to purchase offsets should be particularly careful about the veracity of the offset in this relatively unregulated environment.  The Australian Government has verified some sources under its Greenhouse Friendly TM initiative as has the Australian Conservation Foundation.  There are other not for profit organisations such as Greening Australia that have now found a new income stream from offset sales to further their objectives.  Outside of these sources however, the edict of buyer beware should be utmost in the thoughts of would-be offset purchasers.

 

All businesses should conduct an assessment of their own carbon risks in the same way that they would consider any other business risks.  What will the ultimate consumer of their products expect?  If the business is a wholesaler or manufacturer, will retailer customers seek to take a position that will affect it?  Will competitors adopt a green friendly position that will reduce the size of the available market to those that do not?  Will the business be able to attract and retain the best and brightest talent or be seen as a “dirty” company that is not an attractive employment choice.

 

Participation by businesses in the voluntary carbon market will be determined either by a strong strategic direction set internally, or indirectly by the expectations of customers, staff, and the broader community.  For some organisations there will be little need to address these issues.  However, others whose future market share or supply of human resources could be dependent upon their approach, will find a need to proactively address their carbon status, irrespective of Government regulation.

 

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