House of Commons Environmental Audit Committee The Voluntary Carbon Offset Market Sixth Report of Session 2006–07 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed Tuesday 3 July 2007 HC 331 Published on Monday 23 July 2007 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Environmental Audit Committee The Environmental Audit Committee is appointed by the House of Commons to consider to what extent the policies and programmes of government departments and non-departmental public bodies contribute to environmental protection and sustainable development; to audit their performance against such targets as may be set for them by Her Majesty’s Ministers; and to report thereon to the House. Current membership Mr Tim Yeo, MP (Conservative, South Suffolk) (Chairman) Mr Martin Caton, MP (Labour, Gower) Mr Colin Challen, MP (Labour, Morley and Rothwell) Mr David Chaytor, MP (Labour, Bury North) Mr Tim Farron, MP (Liberal Democrat, Westmorland and Lonsdale) Mr David Howarth, MP (Liberal Democrat, Cambridge) Mr Nick Hurd, MP (Conservative, Ruislip Northwood) Mr Mark Lazarowicz, MP (Labour/Co-operative, Edinburgh North and Leith) Mr Shahid Malik, MP (Labour, Dewsbury) Mr Ian Pearson, MP (Labour, Dudley South) [ex-officio] Mr Mark Pritchard, MP (Conservative, Wrekin, The) Mrs Linda Riordan, MP (Labour, Halifax) Mr Graham Stuart, MP (Conservative, Beverley & Holderness) Dr Desmond Turner, MP (Labour, Brighton, Kempton) Mr Ed Vaizey, MP (Conservative, Wantage) Joan Walley, MP (Labour, Stoke-on-Trent North) Powers The constitution and powers are set out in House of Commons Standing Orders, principally Standing Order No. 152A. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at: www.parliament.uk/parliamentary_committees/environmental_audit_committee.cfm. A list of Reports of the Committee in the present Parliament is at the back of this volume. Committee staff The current staff of the Committee are: Mike Hennessy (Clerk); Sara Howe (Second Clerk); Richard Douglas (Committee Specialist); Oliver Bennett (Committee Specialist); Louise Smith (Committee Assistant); Caroline McElwee (Secretary); and Jonathan Wright (Senior Office Clerk). Contacts All correspondence should be addressed to The Clerk, Environmental Audit Committee, Committee Office, 7 Millbank, London SW1P 3JA. The telephone number for general inquiries is: 020 7219 6150; the Committee’s e-mail address is: [email protected] References In the footnotes of this Report, references to oral evidence are indicated by ‘Q’ followed by the question number. References to written evidence are indicated by page number as in ‘Ev12’. number HC *-II 1 Contents Report Page Summary 3 Introduction 5 Understanding the compliance and voluntary carbon markets 6 The compliance carbon market 6 The Clean Development Mechanism (CDM) 6 Joint implementation (JI) 7 Emissions trading 8 The voluntary carbon market 8 Emerging voluntary market standards 9 The role and purpose of offsetting 11 Defining and communicating the role of the voluntary offset market 11 Encouraging and understanding emission reducing behaviour 13 Individuals 13 Business 14 The current state of the voluntary market: a summary 15 Growth and strengths 15 Current problems 17 Problems with offset projects 17 Problems with offset provision to consumers 18 The Government’s consultation on establishing a voluntary code of best practice20 The compliance market: a benchmark for voluntary market credits? 24 Regulation and offset criteria 30 Need for offsets to be robust 31 Criteria and approval 33 Land-use, Land-use Change and Forestry 35 Avoided deforestation 36 Forestry projects in the voluntary market 37 The importance of forestry offset projects to the climate 39 Aviation 40 Airlines’ diverse approach to offsetting 43 The EU ETS and offsets 45 Mandating offsets for flights 47 Variation in offset price and radiative forcing 48 Conclusions and recommendations 50 2 Formal minutes 56 Past reports from the Environmental Audit Committee since 1997 60 3 Summary The challenge of man-made climate change requires speedy and significant action across all fronts. While the principal need is to reduce emissions directly through changes in behaviour or technological improvements, some emissions, at least in the short to medium term, continue to be unavoidable. Encouragement and assistance must be given to individuals, organisations and companies to offset because robust and credible offsetting can have a useful if limited role in mitigating current levels of, and projected short-term trends in, emissions. There is at the moment very little evidence as to the effect of offsets upon the behaviour of those who purchase them. While it might be the case that offsetting beneficially exposes those who participate in it to a greater understanding of the challenge which climate change poses, it is clearly important that thorough and independent research be conducted into this area as a matter of priority. The UK has the opportunity to lead the international field in developing robust and helpful guidance and codes of practice at a national government level which will endorse meaningful offsets and assist people in choosing the best way to offset their emissions. The UK’s financial and carbon markets have much to gain from a rapid growth in what is increasingly seen as a vital component of commercial activity and corporate responsibility. The international offset industry, if managed responsibly, will only grow over the short to medium term as many governments, like the UK Government, develop their own guidance or best practice or perhaps themselves move towards offsetting their own emissions, for their official travel or for their activities, as is the case in the UK. The recent DEFRA consultation is a well-intentioned attempt to help assist consumers and lend confidence to a market that has recently been assailed by critics for its lack of clarity and integrity. While elements of the market are no doubt less than robust, offsets as a whole currently risk this taint from a few failed projects. The suspicion that always dogs unregulated markets could affect its prospects for growth and curtail its benefits in reducing emissions globally. The current consultation offers the opportunity for the Government to bring forward measures not just to encourage responsible and robust offsetting but also to set out clear criteria which offsets ought to meet. It must also work with the offset industry, with those businesses interested in offsetting, with those working in the international carbon market, and with NGOs, to establish an independent, authoritative body to vet and quality-mark those providing offsets, their credits and their projects. These criteria must also cover the provision of clear and accurate information by the offset industry to the public without which the act of offsetting will continue to lack the intelligibility the public require. The Government must act quickly, and the costs of this initiative must be borne principally by the offset industry itself which will only benefit from increased market confidence and increased sales. 4 The current restriction proposed within the DEFRA Code of Practice which limits the approval of credits to those from the compliance market unfortunately risks devaluing projects and credits which are not only as methodologically sound and verifiable as those within the Clean Development Mechanism but which also often carry greater sustainable development benefits outside their principal benefit to the climate. This unnecessary restriction could seriously affect the growth of the Verified Emissions Reduction market. This market will only prosper if the Government allows for the approval of both Certified Emission Reductions and Verified Emissions Reductions within its scheme as long as they all meet the correct criteria. Although there is still uncertainty about the future of the Clean Development Mechanism post 2012, the Government must work as hard as possible to improve how it operates over the next few years. It needs to be less bureaucratic, less costly, and less restrictive in terms of the methodologies, and the scale and nature of the projects, which it approves and permits. The Government must also work to ensure that any successor to the Clean Development Mechanism embraces smaller projects, projects in the most poor and unstable countries, and also forestry and land-use projects founded upon preservation as well as planting. Avoided deforestation needs a much greater priority accorded to it both within and outside the Clean Development Mechanism. In many people’s eyes, offsets are connected principally with forestry projects of one sort or another, although there has in fact been a steady shift away from such projects by many offsetters over recent years, not least because of the reputational damage caused by media- reported project failures. However, some offset companies still retail only forestry credits; and it would be entirely wrong to consider this part of the market as either a cheap or a disreputable one. Some of the most rigorous and environmentally beneficial of all projects come from the stewardship of tropical forests and the well-judged re-forestation or afforestation of land in the tropics. Indeed, figures