Voluntary Carbon Offsetting Not Yet Crisis Victim
Date: 16-Oct-08
Country: UK
Author: Nina Chestney
Carbon offsetting entails paying someone else to cut greenhouse gas emissions. It has become increasingly popular despite criticism it is simply a means to pay to avoid taking significant action against global warming.
This voluntary market could be vulnerable to budget trimming by companies and members of the public facing recession, unlike the regulated carbon market for energy-intensive industry that was set up by the European Union and the Kyoto Protocol.
But many large companies, such as Marks & Spencer or Yahoo! Inc have committed to tackling climate change and will be under pressure to maintain investment in reducing their carbon footprint for fear of harming their reputations.
"Companies who made very public statements about their climate change aims will find it difficult to go back on them," Shelagh Whitley, voluntary asset portfolio manager at carbon offset sellers Camco, said at the conference this week.
Spending on carbon offsetting as part of what is known as "green branding" is also quite low in comparison to other costs.
"Most companies shouldn't feel the pinch too much. (Green branding) will not necessarily be pinpointed as a line item which needs to go," said the director of analysts New Carbon Finance, Guy Turner.
The voluntary carbon market sold about 65 million tonnes of avoided carbon dioxide emissions in 2007, worth some US$330 million, and still has room to expand.
Regulated markets in emissions permits under the European Union and the Kyoto Protocol involve binding caps on planet-warming gases, while the voluntary market is a matter of choice for brand-conscious companies and concerned individuals.
"At this point it remains to be seen what (the crisis) means for the expected growth of the voluntary market but it is too early to start writing any obituaries," Martin Berg, carbon emissions originator at Merrill Lynch Commodities, told Reuters.
MANDATORY
One source of continued growth was businesses, especially in the United States, testing their readiness for a possible mandatory US carbon scheme expected in the next three years.
"We haven't seen any blip in new entrants coming to the market, especially in the States. Launching into the market and being successful are two different things but (climate change) isn't going to go away," MF Global carbon emissions broker Grattan MacGiffin said.
A tighter economy could dent funding for carbon reduction projects or shift investment into sustainable energy such as windfarms, which is less vulnerable to volatility swings.
"Reduced access to capital for project developers would have a negative impact," said Johannes Ebeling, senior consultant at EcoSecurities. But he added that this would mostly affect large offsetting projects that require more investment at the outset.
The biggest impact of the credit crunch will be felt by individuals, rather than corporate buyers.
But only 5 percent of the purchasing of Voluntary Emissions Reductions (VERs) is generated by individuals who decide to offset their carbon emissions from air travel or buy credits for retirement.
"You could see an impact here. A lot of consumers would view offsetting as a luxury item which will be cut," Ebeling said.
VER prices have declined recently but they have been supported by corporates' sustained interest, traders said.
VERs for projects awaiting UN registration were down around a dollar to around US$7-8 a tonne this week, while credits issued under the Chicago Climate Exchange traded around US$1.75.
(Reporting by Nina Chestney; Editing by Anthony Barker)
