Developments in carbon accounting — European initiatives and Canadian responses

With Phase 1 of the Kyoto trading period now at an end, there has been an upswing in the number of new initiatives targeted at carbon-based trading mechanisms. The belief is that Phase I emissions allowances were widely thought to be over-allocated, with industry sector caps too high to stimulate an effective market-based system — hence the market price slumped. In just one year, the value of a unit of account dropped from 30 EUR to below 0.15 EUR.

By Peter Ion

As Canada continues to languish in terms of operating a viable carbon-based trading system, Kyoto supporters such as Australia are putting in place the foundations of an exchange with minimum trading volumes (100 tonnes) and an initial trading level ($AUS8.50). The EU trading system has now established itself as the leading example of an operational system, with expansion to include most EU nations (currently all 25 member-states are actively participating) and verified reductions in line with national allocation plans falling between 99 and 100 per cent ( Italy is the worst offender with 98.2 per cent compliance). With penalties for non-compliance currently sitting at around ten times the value of a unit of account on the Chicago Climate Exchange, there are strong incentives for nations to meet their targets.

According to the Centre for European Economic Research (ZEW), based in Mannheim, Germany, the inclusion of Canada (and nations such as Japan and the U.S.) would not “substantially affect the national competitiveness for EU member states” but would likely worsen the terms of trade for EU member states. The institute thinks that incorporating all potential (emissions trading) schemes would have “a slightly positive effect.”

Steps to reduce carbon footprint

In response to several high-profile articles highlighting the true carbon “footprint” of air travel, many airlines are now trying to put the onus on the passenger by introducing voluntary payment options to passengers who wish to offset their carbon footprint through a separate company in business to channel these payments to specific projects.

This is happening within the EU in advance of the requirement for trading in pollution allowances due to come into play in 2011. In light of past trends, it is a matter of time before Canadian airlines follow suit. Aviation emissions are expected to be included in Phase 2 of the scheme for the first time. Clean development mechanisms and joint implementation credits are expected to be included.

 The UK Carbon Trust (a government-funded initiative to redirect corporate electricity consumption levies to renewable energy projects) set up a series of strategic alliances with organizations such as Boots, a high street drug company equivalent to London Drugs. They claim to have reduced the “carbon footprint” of a range of shampoos by 20 per cent. Their most popular range of potato chips are now “carbon-labelled” along with a range of smoothie drinks. Carbon labelling is designed to provide the consumer with a point-of-purchase indication of the full “embodied greenhouse gases” associated with the life cycle of the product, including waste disposal. The Carbon Trust has, in years past, established a working relationship with The Federation of Canadian Municipalities (for example, to launch the Low Carbon Technologies Alliance in 2004).

 In a parallel initiative, Quebec became the first Canadian province in 2007 to introduce a carbon tax on petroleum companies that will raise around one cent on every litre of gasoline sold. It is a tax based on hydrocarbon concentration (higher for denser fractions and lower for increasingly refined products), and is seen as either a government royalty or a refinery tax, and will most likely be borne by the consumer.

Vancouver-based Planktos, a company specializing in the novel technique of “fertilizing” the ocean with iron dust, announced their sponsorship of the world’s first carbon-neutral sovereign state as they facilitated the offsetting of the Vatican’s carbon emissions via the purchase of “forestry credits” in central Europe.

The EU-based Carbon Asset Trading (Catapult) framework enables the rural sector, whose overhead absorption capacity is not as high as other business sectors, to generate carbon credits from activities including open-cast mining site reforestation and afforestation of unused agricultural land. These types of initiatives are being targeted at sectors that countries such as China are likely to have a capability for — it is thought that China will account for 41 per cent of all carbon credits issued by 2012.

In the summer of 2007, the UK government re-branded its Energy Performance Commitment cap and trade scheme as the Carbon Reduction Commitment. It applies mandatory emissions trading to cut carbon emissions from large commercial and public sector organizations (supermarkets, hotel chains, government departments, local authority buildings, etc.). It is a continuation of the allowance-auction system focusing upon less energy-intensive large emitters.

Peter Ion MSc, MBA, (pete-van@hotmail.com) is a Vancouver-based technical author with specializations in alternative energy, emissions accounting and related business environmental issues.

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