New Zealand Celsias

The ETS is giving rise to a host of myths and legends, and not just about taniwha. Professor Anne Smith, Technical and Certification Manager for the carboNZero programme, has identified six easy mistakes about the ETS and the way it affects carbon neutrality and the carbon zero customers.

 

The New Zealand Emissions Trading Scheme (NZ-ETS) is now operating for forestry; companies from other sectors will start participating this year. We congratulate all those involved in government and participating companies for a successful start to New Zealand’s trading regime.

The number of companies involved, outside of forestry, is very small – 5 companies representing liquid fuels and around 45 companies involved in stationary energy are required to participate from 1 July 2010¹. However, all New Zealanders will be affected by the economic impact of carbon in downstream supply chains, i.e. by 0.3 cents per litre for petrol/diesel and 0.8 cents per kWh for electricity².

  There is a lot of confusion about what the NZ-ETS means and myths abound. In this article, we dispel the myths and encourage you to focus attention on the underlying purpose of the NZ-ETS, which is to reduce national greenhouse gas emissions. We refer to UK³ and Australia⁴ government regulations that define the actions that companies should take before making a carbon neutral claim. We also look at what international opinion leaders are saying about carbon neutrality.

1. Participating in the NZ-ETS makes the participating companies carbon neutral? No

• FACT: The NZ-ETS covers only certain emitting activities of the participating companies⁵.

It is essential that regulatory schemes address only Scope 1 (direct) and Scope 2 (indirect) emissions and avoid double counting. This only tells part of the story and is not satisfactory for a carbon neutral claim⁶. A corporate carbon neutral claim must cover a significant portion of the company’s overall climate impacts, including Scope 3 (indirect) emissions⁷.

Both the UK3 and Australian4 regulations make it clear that a corporate carbon neutral claim should base the measurement of emissions on ISO 14064-1:2006⁸.

The NZ Commerce Commission₉ and the Australian Competition and Consumer Commission (ACCC)¹⁰ state that an unqualified claim of carbon neutrality risks misleading consumers if a company has only considered Scope 1 emissions.

• FACT: The NZ-ETS does not impose a cap on emissions of the participants¹¹.

Both the UK3 and Australian4 regulations emphasise that corporate carbon neutral claims must demonstrate what has been done to reduce emissions.

Unless a business measures, reduces and then offsets its carbon emissions, with the second and third of these steps undertaken within an additionality framework, any claims to carbon neutrality should be approached with caution¹².

• FACT: The liquid fuels and stationary energy participants joining the NZ-ETS in July 2010 will surrender one emissions unit (NZU) for each two tonnes of emissions reported¹³.

Surrendered emissions go to the Crown Account in the New Zealand Emissions Unit Register (NZEUR) where they can be used by the Government to meet the national Kyoto obligations or they could be reallocated to another sector in the future.

Both the UK3 and Australian4 regulations make it clear that offsets equivalent to all the remaining emissions must be cancelled, i.e. not able to be further traded or used again as an offset for another organisation.

Both the Commerce Commission9 and the ACCC10 emphasise that the offsets used to make a carbon neutral claim must be additional to business as usual as defined by the Kyoto Protocol. The ACCC points out that complying with regulatory requirements is not additional.

 

2. The petrol and diesel that I purchase will be carbon neutral? No

• FACT: The five companies that will report to the NZ-ETS on liquid fuels are required to report the volume of refined oil products removed from a refinery or imported. The volume of product is multiplied by standard emissions factors specified by the Regulations, based on the 2007 average energy content of the fuels¹⁴.

The reported emissions do not take into account the life cycle emissions associated with the fuel. Both the Commerce Commission9 and the ACCC10 make it clear that carbon neutral claims for products must take account of the life cycle of the product in the measurement of the product’s emissions, i.e. extraction of raw materials, transport of materials, processing, packaging, distribution, retail, use by consumers, and disposal of waste at end of life of the product.

The UK3 and Australian4 regulations state that product carbon neutral claims should base their measurement of product emissions on a suitable life cycle standard, e.g. ISO 14044:2006¹⁵ or PAS 2050:2008¹⁶. Note that PAS 2050:2008 calls up product category rules that can be sourced via the International EPD Consortium¹⁷.

A corporate operational emissions inventory takes into account the emissions due to combustion of any fuel used by vehicles owned and operated by the company, where the calculation is similar to that being used by the NZ-ETS. This is not the same as the measurements required before claiming that a product is carbon neutral. The increase in price of petrol/diesel to reflect the cost of carbon does not confer any offset to your purchase of the fuel.

 

3. My company does not need to take voluntary action because our liabilities are covered by the NZ-ETS? No

• FACT: Regulated companies may wish to take additional voluntary action6.

Given the level of concern about the impacts of climate change, it is understandable that many companies and individuals want to do more to reduce their impact on climate change than that required by regulation. We cannot afford to dismiss demand for voluntary action, which has a legitimate and potentially powerful role in driving tangible emissions reductions throughout the economy. A vibrant voluntary market complements an emissions trading scheme; it does not distort or interfere with it.

When the Carbon Pollution Reduction Scheme (CPRS) was announced, the Australian Department of Climate Change declared that Greenhouse Friendly, the voluntary government scheme, would cease to operate¹⁸. Companies that had been participating in Greenhouse Friendly made it clear that they wanted to continue taking voluntary action even though many of them would have to participate in the CPRS. As a result, the National Carbon Offset Standard (NCOS) was developed and will start operating from 1 July 2010.

• FACT: The majority of New Zealand companies will not directly participate in the NZ-ETS1.

Many companies report their greenhouse gas emissions even though they are not required to do so by regulation. They do this as part of their annual reporting, because their shareholders are concerned and because their boards require carbon liabilities to be quantified.

Other companies are required to report emissions due to supply chain pressure from overseas retailers such as Tesco, Marks & Spencer, Walmart etc.

• FACT: The NZ-ETS does not require the data reported to be verified. It is effectively a self-declaration. However, there are severe penalties if the regulator decides to check the data and finds that it is incorrect¹⁹.

When reporting emissions on a voluntary basis, there are serious reputational penalties for getting the numbers wrong or for making misleading claims. In one case, of a company that applied to become carboNZero certified, we found that their consultants had missed 26% of the emitting activities that the company owned and operated. In another case, we found an error of over 100,000 tonnes CO2e in the unverified number the company had reported publicly.

We cannot emphasise enough the importance of measuring and reporting emissions in compliance with an internationally recognised standard and having that information verified by a suitably qualified independent third party. This provides assurance over your data and gives your Board and shareholders confidence that your public claims can be relied upon.

Both the Commerce Commission8 and the ACCC9 recommend that you get your carbon claims certified and that your certifier is accredited.

ISO 14065:2007²⁰ is the international standard for accrediting verifiers of greenhouse gas claims. There are 17 companies accredited to this standard by the American National Standards Institute (ANSI)²¹ and three companies accredited by the Joint Accreditation System of Australia and New Zealand (JAS-ANZ)²². The carboNZero programme (including CEMARS, carboNZero certification and Small Enterprise Certification) is accredited to ISO 14065:2007 by JAS-ANZ.

When your company becomes CEMARS or carboNZero certified, your greenhouse gas emissions inventory is certified to ISO 14064-1:2006 and your additional emissions reduction and offset achievements are certified as meeting the requirements of our standards. When your product is carboNZero certified, the product measurement is aligned with PAS 2050:2008.

4. My company will have to prepare two separate inventories for the NZ-ETS and the carboNZero programme? No

• FACT: It is a fundamental principle of CEMARS and the carboNZero programme that companies should be able to prepare one inventory and report into a number of different schemes.

In version 2.0 of our scheme documents, we have integrated regulatory requirements into the measure guidance as well as government guidance on voluntary greenhouse gas reporting. This version is already operating in the UK where our clients can report into the new Carbon Reduction Commitment (CRC) regulation from their CEMARS inventory and we have taken into account the guidance on voluntary corporate greenhouse gas reporting published by the Department for the Environment, Food and Rural Affairs (DEFRA).

The CEMARS inventory is more comprehensive and more robust than regulatory requirements. A number of our UK clients have confirmed this in public presentations. Where the UK regulatory scheme has different emissions factors, we have included these in E-Manage, our online emissions inventory management tool.

For our Australian clients, we have integrated the requirements of the National Carbon Offset Standard (NCOS) into our certification requirements.

We are currently working with New Zealand clients to integrate their NZ-ETS reporting requirements into their CEMARS inventory. We will be adding the NZ-ETS emissions factors to E-Manage.

5. Voluntary schemes like the carboNZero programme will be closed by the government? No

• FACT: The carboNZero Strategic Business Unit is a division of Landcare Research New Zealand Limited, which is a Crown Research Institute owned by the New Zealand Government.

Our assessment by JAS-ANZ included accreditation to ISO 14065:2007 and ISO/IEC Guide 65, which makes the carboNZero programme an accredited greenhouse gas certification programme and the carboNZero Strategic Business Unit a conformity assessment body for product certification. JAS-ANZ was established under international treaty by the Australian and New Zealand governments and is a member of the International Accreditation Forum (IAF). Therefore, our accreditation is recognised by both the New Zealand and Australian governments. Certificates issued by the carboNZero Strategic Business Unit are recognised in all the member states of the IAF.

In New Zealand, a number of government entities and state owned enterprises are CEMARS or carboNZero certified. Over 50 UK companies are participating in CEMARS through our partner Achilles Information Limited and we have clients in Australia, South America and the United Arab Emirates. You can see all our certified clients on the carboNZero website²³.

Overseas, we receive positive and welcome support from the New Zealand High Commission and New Zealand Trade & Enterprise (NZTE), just like any other export company.

6. Beware of a new form of greenwash

Some companies are reporting that their emissions inventory is verified to ISO 14064-1:2006 as evidence of their “green” credentials.

Measuring your greenhouse gas emissions to an international standard is an important step in the journey to taking action to reduce your emissions. However, it is only the first step and it cannot be used to claim that you have been certified as improving your environmental performance, i.e. that you are a low carbon or carbon neutral company.

Certification by an accredited verifier that your company’s green house gas inventory meets the requirements of ISO 14064-1:2006 does provide assurance over the numbers that you report, but it is not a “green” credential. It simply means that the emissions that you have reported for one 12-month measurement period have been verified in compliance with ISO 14064-1:2006. The confidence that your stakeholders can have in your numbers depends on the level of assurance and the materiality to which the inventory was verified.

CEMARS and carboNZero certification provide assurance that your inventory is in compliance with ISO 14064-1:2006 and it additionally certifies that you have met the emissions reduction and offset requirements of our standards. The carboNZero programme (including CEMARS and Small Enterprise Certification) are accredited under ISO 14065:2007 as a greenhouse gas certification programme that requires Measure, Manage (and Reduce) and Mitigate (or Offset) requirements to be achieved in order for a company to be certified – see our page on the JAS-ANZ register²⁴. Because both CEMARS and carboNZero certification are confirmation that an organisation has taken action to improve an aspect of its environmental performance, i.e. reduce emissions, these are “green” credentials.

References

1. www.climatechange.govt.nz/emissions-trading-scheme/participating/index.html

2. www.mfe.govt.nz/cabinet-papers/str-09-11-1.pdf

3. UK Government Quality Assurance Scheme for Carbon Offsetting http://offsetting.defra.gov.uk/cms/

4. National Carbon Offset Standard www.climatechange.gov.au/government/initiatives/carbon-offset.aspx

5. www.mfe.govt.nz/publications/climate/development-industrial-allocation-regulation-ets/annex1.html

6. The Climate Group (2009) The role of voluntary action in light of the CPRS and Australia’s ratification of the Kyoto Protocol. www.theclimategroup.org/_assets/files/The-role-of-voluntary-action-in-light-of-CPRS---May-2009.pdf

7. Clean Air-Cool Planet and Forum for the Future (2008) Getting to Zero: Defining Corporate Carbon Neutrality www.cleanair-coolplanet.org/documents/zero.pdf

8. International Standards Organisation (2006) Greenhouse gases Part 1: Specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals.

9. New Zealand Commerce Commission (2009) Guidelines for Carbon Claims. www.comcom.govt.nz//FairTrading/DraftGuidelinesonCarbonClaims/ContentFiles/Documents/guidelinesforcarbonclaims.pdf

10.  Australian Competition and Commerce Commission (2008) Carbon Claims and the Trade Practices Act. www.carbonneutral.com.au/accc_carbon_claims_trade_practices_act.pdf

11.  www.climatechange.govt.nz/emissions-trading-scheme/basics.html

12.  Simpson Grierson (2008) It’s not easy being green. www.simpsongrierson.co.nz/publications/fyis/fyi-climate-change-emissions-trading/its-not-easy-being-green.html

13.  www.mfe.govt.nz/publications/climate/emissions-trading-bulletin-11/index.html#summary

14.  www.mfe.govt.nz/publications/climate/emissions-trading-bulletin-9/emissions-trading-bulletin-9.pdf

15.  International Standards Organisation (2006) Environmental management – Life cycle assessment – Requirements and guidelines.

16.  British Standards (2008) Publicly Available Standard: Specification for the assessment of the life cycle greenhouse gas emissions of goods and services.

17.  www.environdec.com

18.  www.ansica.org/wwwversion2/outside/ALLdirectoryListing.asp?menuID=200&prgID=200&status=4

19.  www.jas-anz.com.au/register

20.  www.carbonzero.co.nz/members/organisations_certified.asp

21.  www.climatechange.gov.au/greenhousefriendly

22.  www.climatechange.govt.nz/emissions-trading-scheme/input-and-engagement/stationary-energy-and-industrial-processes/workshops-ets-reporting-101.pdf

23.  International Standards Organisation (2007) Greenhouse gases - Requirements for greenhouse gas validation and verification bodies for use in accreditation or other forms of recognition.

24.   www.carbonzero.co.nz/members/seccertified.asp,

25.   www.carbonzero.co.nz/members/events_certified.asp

26.   www.carbonzero.co.nz/CEMARScertified/cemarscertified.asp

27.  www.jas-anz.com.au/register