CDM, Carbon Neutrality and CSR-4 Casestudies_Deepa More

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Clean Development Mechanism, Carbon Neutrality and CSR – 4 Case-studies

By Deepa More, first presented at National Conference on Corporate Social Responsibility, 17

th

February 2009at Gitam Institute of International Business, Visakhapatnam, India

Abstract:Carbon credits, Clean Development Mechanism (CDM) and the more recent Carbon Neutralityare all buzz words that we have been listening to for some time now. These are all in context of

climate change

, the effects of which are becoming increasingly evident through erratic climateand weather patterns. There is increasing evidence that points the rapid build up of emissionsleading to climate change to the equally rapid pace of growth in industrial and other economicactivities. Wider understanding and acknowledgement of these risks necessitates action on partof all concerned. The article examines a few cases to understand Corporations’ approach toaddressing these risks as well as the role that they see for themselves in this regard. These casesare picked from across continents and from diverse sectors wherein organizations have opted totarget

Carbon Neutrality

as a primary activity to guide their social as well as environmentalresponsibilities. Carbon Neutrality is the process of neutralizing carbon based emissions (

or carbon footprint

) through combination of in-house energy efficiency, optimal use measures and balancing the remaining with investments or purchase of offsets in CDM and other projects thatresult in emission reductions. The trend and underlying ideologies vary from early adoption of internationally accepted and hence mandated requirements which are likely to become morestringent with time to approaches that genuinely understand and appreciate climate change risks.Organizations opting for the latter are found have a heightened awareness of their own uniqueand influential positions with respect to the world and regional economies and hence seethemselves not only as active participants but as taking leadership roles to bring about requiredchanges in their products as well as processes within participant economies. Finally the paper examines concerns being raised in this regard and includes a few possible measures to addressthe same.Paper:

‘The fourth assessment report of the Intergovernmental Panel on Climate Change says that toavoid serious ecological and economic damage, the global temperature should not exceed 2deg.C from the pre-industrial levels (it has already increased by 0.74deg.C). This in turn needsCO2 concentration in atmosphere not to exceed 350-400ppm. But this figure touched 379ppm in2005. If the world has to remain within the 2deg.C target, there is limited scope for futureexpansion

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’

.The paper takes a look at approaches taken by business organizations to address climate changerisks in particular and environmental impacts in general. All forms of pollution caused as a resultof rapid industrialization, excessive use of fertilizers, chemicals and waste discharges, landdegradation due to excessive mining and deforestation and global warming are some of theimportant environmental impacts. While there have been national and international regulatoryefforts to address these impacts, they have not really been effective in reversing or even stallingthe damages, the regulations themselves have been seen as a compliance measure rather than being adopted as conscientious effort to address issues at hand. Financial institutions whether local or international, private or public have so far been supporting industry and infrastructure projects based on the economic benefits that would accrue to participating economies giving

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Down To Earth, Dec 1-15, 2008

little or no consideration to the social and environmental impacts that would and have comeabout as a result.Unlike environmental impacts such as pollution and land degradation which are ‘local or regional’ in nature, climate change risks are ‘global’ in their effects. Green-house-gas (GHG)emissions that have been attributed as the primary cause of global warming have a global effectclimatologically irrespective of where they are actually emitted. The effects themselves are of catastrophic proportions, as experienced by the numerous natural calamities in recent times thatthreaten the very existence of a healthy society and escalation of economic costs to individuals,organizations and all nations alike.The increasing evidence that points the rapid build up of GHGs and other emissions to theequally rapid pace of growth in economic activities post industrialization necessitates thatCorporations undertake serious

mitigation

and

adaptation

measures in this regard. Mitigationwould involve minimizing the risks by reducing emissions via efficiency in operations, switchingto ‘greener’ sources of fuel and electricity and reducing wastes to the minimum. It also meansmaking available environment friendly choices to society which too can play its role effectivelyin this effort. Adaptation would involve creating allowances to compensate for resulting damagesin order to cope with the impacts.The paper studies the approaches taken by four corporations namely, Yahoo! and Dell of US,HSBC of UK and finally ONGC of India who have opted to target

‘carbon neutrality’

as a primary goal to guide their social as well as environmental responsibilities. These organizationschosen from diverse sectors are united in their efforts in addressing climate change risks byminimizing their

carbon footprints

early enough to be identified as leaders and champions withrespect to the scope and energies put together in the effort. This is not to say that they pursue thegoal of carbon-neutrality only as a corporate responsibility effort, these organizations are gainingkeen insights into the new low-carbon economy that is emerging and are actually making earlyefforts to position themselves, their processes and products to find better acceptability in thechanging market place which will in turn ensure their long term sustainability.We start with explaining a few basics with respect to the carbon terminology. Being

‘Carbon Neutral’

, or having

Zero Carbon Footprint

, means achieving net zero carbon emissions i.e. balancing a measured amount of carbon released into the atmosphere with an equivalent amountvia

sequestration

or through

offset projects.

Sequestration

means physical capture of carbondioxide and other green house gases and storing them in water bodies or underground althoughthe costs for this would be quite enormous. Trees are the original sequestrators and hence thechosen route for carbon capture is via afforestation in vacant lands and reforestation in degradederstwhile forested areas.

Offsets

are made for those emissions which can be neither minimizednor can be sequestered locally and hence need to be done elsewhere either through plantations or via energy efficiency / greener energy projects through mechanisms such as those under theKyoto Protocol and other routes. The underlying logic is again driven by economics, offsets arechosen where ever it is more cost-effective to adopt energy efficiency or energy substitution projects. Offsets can also be purchased through international commodity exchanges where theyget listed in the form of either

certified emission reductions (CERs)

or

verified emissionreductions (VERs)

or directly from organizations having a surplus in any of these

carbon credits

.

Carbon credits, CERs and VERs

are all units of carbon dioxide removal or reduction for allforms of sequestrations and offsets.

One carbon credit equates to saving or sequestering of one tone of carbon dioxide equivalent(tons CO2e or tCO2e) emissions. In addition to carbon dioxide, there are other GHGs beingconstantly identified, prominent among them and those identified under the Kyoto Protocol withtheir

global warming potential (GWP)

are listed below;GHGsGWP (in CO2e) (source: IPCC)Carbon dioxide (CO2) 1Methane (CH4) 21 Nitrous oxide (N2O) 310Hydroflourocarbons (HFCs) 140 - 11700Perflourocarbons (PFCs) 560 - 9200Sulphur Hexaflouride (SFCs) 23900To explain the above figures take for example methane (CH4) which is 21 times more potentthan carbon dioxide and hence one ton of methane saved/sequestered would equate to 21 tons of carbon dioxide meaning earning 21 carbon credits. Again carbon dioxide (CO2) is not as potent aGHG as compared to the others, however due to it being emitted in huge quantities,

its effect is greater than all GHGs combined.The Kyoto Protocol (KP)

was launched in 1997 under the United Nations Framework Convention on Climate Change (UNFCCC) and came into force in 2005 with Russia’s joiningresulting in necessary number of ratifications by countries who accounted for 55% of carbondioxide equivalent emissions of 1990 levels. KP requires developed countries (listed in Annex 1of the protocol) to limit their greenhouse gas (GHG) emissions to individual targets, resulting inan average 5.2% reduction in the GHG emissions from their 1990 levels in the

first commitment period 2008-12

. Via the mechanisms - Joint Implementation (JI), Clean DevelopmentMechanism (CDM) and International Emissions Trading (IET), it enables public or private sector initiatives of developed countries to meet their GHG emission reduction commitments byinvesting in GHG mitigation projects in other industrialized and more importantly in developingcountries. JI considers offset projects amongst developed countries while CDM caters to offset projects located in developing countries. Carbon credits earned under the Kyoto mechanisms arecalled CERs and all those earned outside KP are called as VERs

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. All mechanisms are market- based, JI and CDM are project based, where as IET is a trading mechanism and allows trading incarbon credits between developed countries.The stages to achieve carbon neutrality begin with assessment of existing carbon footprint,taking measures to minimize the same at source and then balancing out the remaining via abovementioned options of sequestration or offsets. We now take a look at the cases-studies. In thecases the approach taken was to trace out company carbon footprint, performance with respect totarget deadlines, leadership approach towards addressing climate change risks and respectiveactions taken to achieve carbon neutrality. Wherever data was available, attempt was also madeto include company’s efforts in addressing other environmental impacts and safety measures for both employees as well as end-users. Finally analysis is made to identify possible issues that

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Verified Emission Reductions or VERs are emission reduction projects that are outside the Kyoto-CDMMechanism which lays down stricter criteria for eligibility, projects that do not fulfill the CDM criteria are registeredunder the VER route and are usually associated with shorter cycle times.

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