Business insight survey sheds new light on the UK carbon market

The survey assessed:   

• Buying trends in both the compliance and voluntary carbon markets
• Barriers and purchasing motives for voluntary carbon projects in the UK and overseas  
• The pros and cons of foresty carbon projects.

The results

Our research underlined the young and fast evolving nature of the voluntary carbon market, both globally and in the UK. Many buyers are grappling with it as much as providers of projects, and success is usually demonstrated by the reaction of customers and stakeholders to investment in a carbon scheme. Nonetheless, our research revealed clear trends and a complex interrelationship between the original concept of offsetting and the realities faced by businesses today.

The Carbon Market in the UK and beyond

Market leading companies have now adopted carbon management as an integral part of their businesses, and others are now following. This is also demonstrated by the burgeoning success of initiatives such as the Prince’s May Day Network (part of Business in the Community), and the Legal Sector Alliance.

However, our respondents demonstrated an increasing level of scepticism about the traditional offsetting route with many questioning the value for money and the lack of transparency of many foreign carbon schemes. Recent fraud allegations targeted at certain carbon exchanges, notably the European Union Emissions Trading Scheme (EU ETS), have also had a negative impact on perceptions of the compliance carbon market and trading.

But many companies are still buying into the carbon market beyond any legal requirements, to achieve carbon neutrality at the lowest possible cost, or to fulfil customer promises.

Other companies though, such as the John Lewis Partnership and BT, are shunning voluntary offsetting, and are concentrating all their efforts on carbon reduction and energy efficiency. A renewed focus on carbon reduction rather than carbon offsetting was a recurring theme with our interviewees. There was also evidence to suggest that the term 'carbon neutral' is increasingly being seen by some as lacking in real meaning.

Other issues raised included the lack of relevance which many overseas schemes have to companies’ UK stakeholders and customers. Whilst many carbon initiatives do bring positive outcomes to communities in the third world they do not always resonate with UK based customers in the same way that a UK based project might. Customers and companies are also looking for an emotive appeal to voluntary projects they invest in.  

These factors combined are leading to a growing appetite for UK based voluntary carbon projects by businesses operating in the UK. And the favourable trend towards voluntary carbon projects goes beyond our shores. 2010 saw a 34% increase in the size of the global voluntary carbon market (Report "Back to the Future: State and Trends of the Voluntary Carbon Markets 2010," published by Ecosystem Marketplace and Bloomberg New Energy Finance). This is attributed to a growing emphasis of corporate social responsibility spending on climate change. The global voluntary carbon market is now worth $424 million. Interestingly our research revealed a distinct lack of information about the UK market, and there does not appear to be any available information about the size of the UK market.

Barriers and purchasing motives for UK voluntary carbon schemes

Barriers to investing in UK carbon schemes have been:

• They are not offsets – the fact the UK carbon projects cannot generate tradable credits and cannot by the terms of Kyoto be deemed as “offsets”
• Questions over additionality – It is important for any carbon ‘offset’ to prove a concept called additionality. The concept of additionality addresses the question of whether the project would have happened anyway even in the absence of revenue generated through carbon trading
• Confusion about UK offerings due to lack of accreditation – gradually changing with Woodland Carbon Code and other standards
• Double-counting - the governments counts all UK offsets towards it's own carbon reduction targets making it difficult for companies to legitimately claim them for themselves

Price – Prices of UK carbon were previous more expensive than overseas.

“There is huge latent demand for UK projects which is currently frustrated by the language used to market them - they are not offsets but they offer many environmental benefits. We need a new narrative to describe them……”

Iain Watt – Principal Sustainability Advisor – Forum for the Future

However, our research showed that market is in transition influenced by a number of factors including the growing level of scepticism surrounding the traditional offsetting market mentioned earlier and uncertainty around the much maligned carbon trading markets.

Purchasing motives include:

• UK benefits resonate well with UK customers
• Strong message to build UK brands
• Strong message and opportunity to engage staff and customers on a local basis
• UK projects perceived as being more robust and trusted than projects in developing countries.

With new standards emerging (such as the Woodland Carbon Code) allowing for UK voluntary carbon projects, the emergence of more UK projects and with prices reducing, the environment and market are all looking increasingly positive towards UK carbon projects. 

UK forestry carbon projects

There are signs that demand both globally and in the UK is growing for forestry projects as people see clear and importantly tangible benefits in comparison with other schemes. However, the forestry carbon market is complex due the nature of the carbon mitigation that it offers i.e. carbon removal rather than avoidance.

In the UK, the Forestry Commission (FC), through the development of the Woodland Carbon Code launching in the Summer of 2011, now aims to provide clarity and credibility to the UK market. There is Government recognition of the cost efficient role that trees and woods can play in combating climate change. They offer one of few ways to actually remove carbon dioxide from the atmosphere and deliver a wide range of co-benefits in terms of conservation, wildlife, social well being and ecosystem services. The FC's Woodland Carbon Task Force (WCTF) is seeking to ease the path for woodland creation on several fronts: regulation (Woodland Carbon Code), new economic models, policy, wood fuel market development, land use change and grants and licences. The aim is that these workstreams will deliver insight on factors affecting woodland creation rates and attempt to remove barriers. The work of the WCTF is closely connected to the Government’s new Independent Panel on Forestry.

Views from interview participants of UK forestry offsets were primarily positive with some reservations: