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Carlos Rymer Sustainability and Hospitality Fall 2007
Table of Contents
Global Climate Change………………………………………………... 2 Carbon Offsets…………………………………………………………. 3 Case Studies ………….………………….…………………………….. 5 Economic Impacts……………………………………………………... 7 Designing Carbon Offset Programs……………………………………. 8 Conclusion……………………………………………………………. 10 References…………………………………………………………….. 11
It is now widely accepted that global climate change is caused largely by greenhouse gas emissions resulting from the combustion of fossil fuels in human society. The impacts of climate change on the world economy, and especially on the hospitality industry, are projected to be
significant for this century. As a large contributor to the world economy, the hospitality industry has the responsibility to lead on this issue by designing programs that reduce greenhouse gas emissions, which are blamed for the increasing global mean temperature. Already, companies in the hospitality and energy sectors are beginning to address this issue. One emerging, popular approach is to provide customers the opportunity to offset their greenhouse gas emissions. Carbon offsets, which neutralize greenhouse gas emissions by avoiding or sequestering emissions elsewhere, are increasingly being used as a way to fund projects that reduce emissions. Currently, the costs of this approach to tourists is minimal, and designing carbon offset programs is becoming easier and more flexible for hospitality businesses. Carbon offsets can be an effective tool for hospitality businesses and customers to contribute to reducing greenhouse gas emissions.
Global Climate Change
Global climate change is referred to the biophysical changes happening in the Earth’s ecosystems and climate due to an increase in the global mean temperature, which is being driven by human-made greenhouse gas emissions. Increasing temperatures have risen global sea levels; decreased the extent and thinned the thickness of Arctic sea-ice; forced the widespread retreat of non-polar glaciers; decreased global snow cover; thawed and degraded the permafrost in many regions; intensified El Niño events; shifted plant and animal ranges; extended the spring and fall seasons; increased coral reef bleaching; and increased economic losses globally (IPCC, 2007). These changes are forecasted to accelerate and worsen in the 21st century (see figure below), with a potential economic cost of $20 trillion per year by the year 2100 (Ackerman and Stanton, 2006). With the estimated costs of avoiding dangerous climate change significantly lower than the costs associated with dangerous climate change, it is important for the hospitality industry to begin addressing this issue by reducing its contribution to climate change (Stern, 2006).
Source: IPCC 2007
According to the most recent assessment by the Intergovernmental Panel on Climate Change, the world’s authority on climate change, the forecasted increase in the global mean temperature will affect important economic sectors, including agriculture, energy, forestry, and hospitality. In order to increase the possibility of avoiding the worst case scenario projected, the world must more than halve greenhouse gas emissions by mid-century (IPCC, 2007). The hospitality sector, contributing more than 10% to the global gross domestic product and responsible for about 5% of global greenhouse gas emissions, has the potential to significantly impact the world’s greenhouse gas emissions path (WTTC, 2007). The impacts of global climate change on hospitality are projected to be significant. In Southern Europe, climate change threatens to bring increased drought, fire risk, water shortages, heat stress, beach degradation, flash floods, and tropical diseases. In North America, there may be significant damage to attractive coasts, increased heat index and storm damage risk, and increased tropical disease risks. Island nations in the Pacific and the Caribbean are threatened by sea-level rise, increased beach erosion, coral bleaching and reef damage, aquifer salinization, higher air conditioning costs, more intense floods and droughts, more tropical diseases, and increased pressure on natural resources. Elsewhere, these typical impacts will also be negatively influencing hospitality (WTO, 2003).
In North America, there has emerged a voluntary carbon market similar to the clean development mechanism used to meet the binding targets of the Kyoto Protocol. The clean development mechanism allows nations that must reduce their greenhouse gas emissions to receive credits from projects in developing countries that reduce emissions and promote sustainable development. Similarly, the voluntary carbon market allows businesses, governments, organizations, events, and individuals to take responsibility for their greenhouse gas emissions by purchasing carbon offsets, which are credits that negate greenhouse gas emissions somewhere by avoiding or sequestering emissions elsewhere through renewable energy, energy efficiency, reforestation, or other projects (Taiyab, 2006). Carbon offsets are typically conducted through large projects, such as wind farms and large reforestation or forestry management projects. The key concept with these is that there is an additional emission reduction as compared to the business-as-usual scenario. In order to measure these additional emission reductions, a baseline of projected greenhouse gas emissions is used for comparison. While carbon or emission allowances are based on transactions in regulated trading schemes, carbon offsets are based on specific projects and sold to voluntary customers under a retail market (Taiyab, 2006). Voluntary carbon offset buyers have two options from which to choose their credits: Kyoto-related offsets and non-Kyoto offsets. Kyoto-related offsets have to undergo verification under the Clean Development Mechanism or the Joint Implementation, programs that are within
the Kyoto Protocol. No offset can be used to meet Kyoto-related greenhouse gas reduction targets. As of 2006, prices ranged from $5-35 per ton of carbon dioxide equivalents (CO2e) in a market that removed over 9 million tons of CO2e (Taiyab, 2006). The table below shows a list of non-profit and for-profit organizations serving the hospitality industry. Provider CarbonFund.Org e-BlueHorizons Driving Green Terrapass CarbonNeutral Standard Carbon Cleaner Climate Sustainable Travel Int. Uncook the Planet Price ($/Ton CO2) 4.30 - $5.50 5 8 8.30 - 11 14 - 18 15 15 - 18 15.25 Non- or For-Profit Non-Profit For-Profit For-Profit For-Profit For-Profit For-Profit For-Profit Non-Profit Projects Renewable Energy (RE), Efficiency, Reforestation RE, Reforestation RE RE, Efficiency RE, Efficiency, Methane, Reforestation Methane, RE, Efficiency Renewables, Efficiency Renewables Verification Environmental Resources Trust, UNFCCC Environmental Resources Trust, CCX SES Center for Resource Solutions, CCX Edinburgh Center for Carbon Management CCX CDM Gold Standard N/A CDM
19.45 For-Profit Efficiency Source: EcoBusiness Environmental Directory
In the hospitality industry, these voluntary carbon offsets can provide an opportunity for customers to show responsibility for climate change by paying for the emissions their travel and tourism activities have generated. With increased public pressure for action on climate change and the recent declarations by the World Tourism Organization, the Intergovernmental Panel on Climate Change, and other recognized bodies for strong action, it is clearly in the hospitality industry’s best interest to aggressively address this issue.
The Chicago Climate Exchange The Chicago Climate Exchange (CCX) is a voluntary carbon exchange program that legally binds participating companies to reductions in greenhouse gas emissions. Launching trading operations in 2003 with 13 large companies, it created the world’s first multi-sector
market for reducing and trading greenhouse gas emissions. Operating solely in North America, it is the only emission reduction trading system that includes all six greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perflurocarbons, and sulfur hexafluoride), with over 300 members trading under the system (CCX, 2007). The exchange is based on the cap-and-trade model used last century to reduce sulfur dioxide (SO2) emissions. To reduce acid rain, the U.S. Environmental Protection Agency put a cap on SO2 emissions from electric power plants. Power generators that found it expensive to cut sulfur emissions bought allowances from those that made emission cuts at lowest cost. While the first compliance year was 1995, trading started several years earlier. The first EPA auction was administered by the Chicago Board of Trade in 1993. Through private transactions and annual auctions, electric power generators traded emission allowances to arrive at an efficient use of mitigation resources. The program was very successful, reducing emissions faster than required and at costs far below many forecasts (CCX, 2007). Upon membership in the CCX, new members had to make a voluntary but legally binding commitment to reduce greenhouse gas emissions. By the end of Phase I in December 2006, all members were to have reduced direct emissions 4% below a baseline period of 19982001. Phase II, which extends the reduction program through 2010, will require all members to reduce emissions 6% below baseline levels by 2010. The exchange has been successful to date and has experienced record-breaking transaction volumes. As a result, the company that owns the CCX has expanded operations to Europe through the European Climate Exchange and the Northeast through the New York Climate Exchange and the Northeast Climate Exchange (World Bank, 2007). Beyond Petroleum Target Neutral The British oil company Beyond Petroleum (formerly known as British Petroleum) launched a non-profit organization called Target Neutral in 2006 to offer customers in the United Kingdom (and now in the Netherlands) an opportunity to offset their greenhouse gas emissions. The initiative is aimed at generating awareness about greenhouse gas emissions to improve driving behavior. The program follows a 3-step structure called “reduce, replace, and neutralize,” where offsetting emissions is the very last step customers take to reduce their greenhouse gas emissions after they have taken practical steps. All of their carbon offset projects come from India and Mexico (TargetNeutral, Wikipedia, 2007). Continental Carbon Offset Program In 2007, Continental Airlines began to offer its customers the opportunity to offset their flight’s greenhouse gas emissions through its Eco-Skies program. The company has partnered with Sustainable Travel International, a non-profit organization that provides carbon offset services to hospitality businesses. Continental has made available a carbon footprint calculator on its website so that customers can quickly assess how many tons of greenhouse gases their
flight will emit and how much they have to pay to offset those emissions (Continental Airlines, 2007). The program directly collects proceeds from responsible customers, which are invested by Sustainable Travel International in reforestation, renewable energy, and energy efficiency projects around the world. These offset projects are verified by third-party companies under the CDM Gold Standard or the Green-e Certification from the Center for Resource Solutions. Recently, the non-profit was ranked the best in a study by Clean Air-Cool Planet that assessed non-profits that provided carbon offset programs in the United States (Continental Airlines, 2007). Delta Carbon Offset Program In April 2007, Delta Airlines launched the world’s first carbon offset program for air travel customers. The airliner partnered with The Conservation Fund, an environmental nonprofit organization dedicated to protecting land and water resources. The program began on Earth Day with a donation to offset the greenhouse gas emissions of all customers travelling with Delta Airlines during that day and to plant one tree for each of its 47,000 customers. Since last summer, Delta customers have the opportunity to offset the carbon dioxide emissions associated with their air travels. The Conservation Fund uses these proceeds to plant trees around the world that sequester carbon dioxide and to fund outreach activities run by the organization. The airliner also hopes to engage customers in select cities in planting trees to further sequester carbon dioxide. This carbon offset program is the latest addition to Delta’s “Force for Global Good,” a program that united Delta employees and customers in effecting positive social and environmental change around the world (Delta, 2007). Leading Hotels of the World-Sustainable Travel International In April 2007, the Leading Hotels of the World company partnered with Sustainable travel International to launch a carbon offsets program for customers using the company’s resources. Leading Hotels of the World is a company dedicated to helping find the most luxurious hotels and resorts for high-income travelers. Sustainable Travel International, on the other hand, is a non-profit organization that promotes sustainable tourism and responsible travel. The partnership opens up the Sustainable Travel International’s new carbon offset program, Leading Green Initiative (Miner, 2007). The Leading Hotels of the World donates $0.50 per guest, which goes to offset the carbon dioxide emissions from the accommodations. Sustainable Travel International invests the funds directly in solar and wind power. In addition to this, Sustainable Travel International provides other “green” services, including sustainability consulting, eco-directory, local purchasing guide, education and training, and green market travel information. With this new carbon offset
program, customers have the opportunity to be more responsible for their greenhouse gas emissions and environmental impact during their travel (Miner, 2007). These case studies show that carbon offsets are becoming popular and are increasingly being used by businesses to offer customers the opportunity to contribute to mitigating climate change. With these models, it becomes easier for hospitality businesses to adopt these programs for their customers and potentially work together to create a standard for the hospitality industry, with the goal of raising awareness, funding climate change mitigation, and eventually developing more non-voluntary programs to achieve greenhouse gas reduction targets.
In the hospitality industry, like in other industries, there is strong opposition to increases in regulation that may involve costs. Over the past decade, for example, there has been opposition to regulation to reduce greenhouse gas emissions because of the associated costs. With carbon offsets, customers voluntarily decide to pay an extra charge to reduce greenhouse gas emissions elsewhere. By making it voluntary, the industry does not have to worry about incurring additional costs due to increases in prices associated with reducing greenhouse gas emissions. If carbon offsets are to be used widely as a tool for reducing greenhouse gas emissions, then over time the total costs of doing so will increase as more customers volunteer to pay for the offsets and eventually demand that these become mandatory or included in the cost of travel. The table below shows the associated costs of carbon offsets with current prices and reductions of 10%, 50%, and 100% from air travel and all other hospitality-related activities. Assumptions: Air Travel’s Share of Global Greenhouse Gas Emissions = 3% or 1.14 Gtons of CO2e Other Share of Global Greenhouse Gas Emissions = 2% or 0.76 Gtons of CO2e Total Arrivals (2003) = 695 million Total Revenues (2003) = $515 billion Average Price of Offset per Ton = $12.50 $ per Arrival 10% Offset 50% Offset 3.4 17 Total Cost ($) 2.4 Billion 11.9 Billion
Share of Revenues 0.5% 2.5%
Sources: IPCC, WTO, EcoBusiness According to these conservative estimates, the associated costs of carbon offsets to the hospitality industry would be minimal. Under a 10% offsets scenario where the industry itself would take in the cost, it would lose only about 0.5% of revenues. With 50% and 100% offsets scenarios, this grows to 2.5% and 5% of total revenues, respectively. With hospitality growing at 3-4% per year and global real income growing at 5% per year, all of these options are economically viable and would represent increasingly responsible options (WTTC, CIA, 2007). The economic impact of assuming a fair share of the necessary carbon offsets for the hospitality interest would be minimal and could well be used as a tool to increase demand through strategic communication.
Designing Carbon Offset Programs
The role of carbon offset programs in mitigating and raising awareness about climate change is becoming increasingly important. Not only are businesses in hospitality and other sectors using these programs to demonstrate climate responsibility, but they are also using it as a way to further satisfy customers who are increasingly becoming worried about the consequences of climate change. Designing a carbon offset program that meets customers’ needs, increases awareness, and helps incentivize technologies that reduce greenhouse gas emissions is therefore important. In order to start a carbon offset program, a hospitality business must take into account the following components:
Provider: The for-profit or non-profit organization that will provide the carbon offset service. The business must choose to support a for-profit or a non-profit organization Verification: The way in which the provider ensures that all projects follow a certain standard to ensure correct offsets. This is very important as good verification systems can help avoid future problems with the claims of critics. Verification systems include the Chicago Climate Exchange, the CDM Gold Standard Verification, the UN Framework Convention on Climate Change Verification System, and the Environmental Resources Trust System. Outreach: The strategy and educational package in which the business will educate customers about climate change, practical steps, and carbon offsets. This may involve online tools, ads in newspaper, magazines, or travel commercials, and any other means of getting to the customer.
Payments: The business must decide to either allow customers to pay for the full costs of offsets or to pay itself all or part of the necessary carbon offsets. Types of Projects: While some providers offer projects such as methane combustion, renewable energy deployment, energy efficiency, and reforestation, some choose to only use renewable energy or energy efficiency because of the more valid measurements that can be made with those. The business must decide whether it wants to include projects that could be harder to measure, such as reforestation projects. This choice will influence the provider the business decides to work with.
Once these considerations have been taken, the hospitality business must begin to design an effective outreach program that will reach a significant amount of customers. The initial key decisions to be taken include the type of projects that the business will support, the provider it will choose, and the source of payments (whether it will be on one side or shared). The program design could also be modeled from existing examples, such as those of Delta, Continental, and the Leading Hotels of the World. Finally, initiating carbon offset programs are potentially a way to increase competitive advantage, as customers may choose those businesses that include the cost of greenhouse gas emissions in tourism and travel activities. With increased pressure from the public to aggressively promote renewable energy, energy efficiency, alternative transportation, and other means of reducing greenhouse gas emissions, it will become imperative for the hospitality industry as a whole to mainstream carbon offsets programs or design an industry program that can be used as a standard.
Climate change is being increasingly perceived as the most important, decisive issue of the 21 century. From academies of sciences to known deniers of human-made climate change, this issue has been widely acknowledged as a human-caused problem. The science on climate change has clearly demonstrated that the global consequences of climate change will be significant if the world does not act promptly, and that the associated costs of action will be minimal. The debate has clearly moved from science to action. In the next few years, the world must begin to significantly reduce its greenhouse gas emissions to pave the way for a stable climate.
Carbon offsets are becoming an increasingly used tool for businesses to contribute to climate change mitigation. In the absence of regulation, carbon offsets provide a means for voluntary payments to reduce greenhouse gas emissions elsewhere. In the last year, many businesses have begun programs that allow customers to offset the greenhouse gas emissions associated with their activities. In the hospitality industry, especially with air travel, this tool is gaining momentum as large companies begin to offer the service.
The associated costs of offsetting greenhouse gas emissions related to hospitality are minimal. As estimated, they can range from 0.5% to 5% of global revenues related to hospitality businesses, depending on the level of offsets. These are costs that many customers would be willing to pay, and would likely not affect businesses economically. In fact, such programs could be used to increase customer satisfaction as the public is becoming increasingly aware of climate change and is demanding strong action from governments and businesses on the issue. Finally, designing a carbon offset program is not a hard task for a business. The program is very simple, comprising of a provider (includes the verification system), an outreach program, and the associated payments. It is likely feasible for most hospitality businesses to adopt a carbon offset program. Ideally, the hospitality industry as a whole would adopt a strong carbon offset standard program that could be replicated across all hospitality businesses. In the future, carbon offsets may prove to become an essential tool for hospitality businesses to help mitigate climate change, with new explorations being integrated, such as emission reductions in hospitality businesses themselves.
Ackerman, Frank and Stanton, Elizabeth. 2006. Climate Change: The Costs of Inaction. Global Development and Environment Institute. Tufts University Press. Beyond Petroleum. 2007. TargetNeutral: How It Works. BP Oil International Ltd. Source available at: http://www.targetneutral.com/TONIC/targetneutral1.jsp. Last Accessed: December 8, 2007. Central Intelligence Agency. 2007. World Factbook. U.S. Department of Defense. Chicago Climate Exchange. 2007. Overview. CCX. Source available at: http://www.chicagoclimatex.com/content.jsf?id=821. Last Accessed: December 8, 2007. Continental Airlines. 2007. Flying Greener Skies. Continental Magazine. Delta Airlines. 2007. Delta to Launch Worldwide Carbon Offset Program for Customers This Summer. Source available at: http://news.delta.com/print_doc.cfm?article_id=10650. Last Accessed: December 8, 2007. Intergovernmental Panel on Climate Change. 2007. Synthesis Report of the IPCC Fourth Assessment Report. UN Framework Convention on Climate Change. Mann, Mark. 2004. Global tourism: growing fast. PeopleAndPlanet. Source available at: http://www.peopleandplanet.net/doc.php?id=1110. Last Accessed: December 9, 2007.
Miner, Jennifer W. 2007. Carbon Offset Program for Travel. Suite101. Available at: http://luxuryresorttravel.suite101.com/article.cfm/carbon_offset_program_for_travel. Last Accessed: December 8, 2007. Nicholas, Stern. 2006. The Stern Review on The Economics of Climate Change. UK Treasury. Taiyab, Nadaa. 2006. Exploring the market for voluntary carbon offsets. International Institute for Environment and Development, London. Wikipedia. 2007. Target Neutral. Source available at: http://en.wikipedia.org/wiki/Target_Neutral. Last Accessed: December 8, 2007. World Bank. 2007. State and Trends of the Carbon Market 2007. The World Bank. World Tourism Organization. 2003. Climate Change and Tourism. Proceedings of the 1st International Conference on Climate Change and Tourism. World Travel and Tourism Council. 2007. Progress and Priorities 2007/2008. WTTC.
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