A Code for Best Practice

On 18 January the Government published a consultation paper setting out a voluntary Code of Best Practice for the provision of carbon offsetting. The proposed code will set out best practice for companies that offer offset products to individuals or businesses within the UK. The key element of this is an accreditation process through which offset providers can obtain a quality mark for offset products that meet the Code’s voluntary standards.

An independent (government-appointed) body will be responsible for initial offset product assessments and annual audits to verify ongoing compliance.

The Government’s proposed Code of Best Practice includes the following criteria:

Use of regulated carbon credits

Carbon Credits must be one of three types:

  • EU Allowances (EUAs)
  • Certified Emissions Reductions (CERs)
  • Emissions Reduction Units (ERUs).

EUAs are the official allowances issued by EU Member States to installations with an emissions cap under the EU Emissions Trading Scheme (EU ETS).

CERs are generated by emissions reduction projects located in developing countries registered under the Kyoto Protocol’s Clean Development Mechanism.

ERUs are generated by emissions reduction projects located in developed countries with binding emissions reduction targets, registered under the Kyoto Protocol’s Joint Implementation mechanism.

Both types of project have to undergo formal validation and registration procedures; the emissions reductions they generate are also subject to ongoing monitoring and verification requirements.

Calculation of emissions

At the moment, most offset providers quantify the emissions to be offset using their own emissions data or calculation methodologies. This can cause wide market discrepancies. For emissions from businesses the Government proposes that offset providers use the emissions factors in its Guidelines for Company Reporting of Greenhouse Gas Emissions to quantify emissions. It also plans to create a database of carbon emissions for households, private road transport and aviation.

Use of quality mark

Under the Code, companies that offer offset products would be able to seek accreditation of those products and apply the quality mark to any accredited product.

Rather than using an offset provider a business could choose to buy CERs, ERUs or EUAs directly. The business could then sell those carbon credits to customers alongside its products or services – allowing customers to offset, for example, the carbon footprint associated with their supermarket shopping, electricity consumption or air travel. The business could seek accreditation under the Code and associate the quality mark with that offset product.

The quality mark could only be applied to a qualifying offset product – not to a company’s general branding. A business using an offset product to offset its own emissions would not, for example, be eligible to use the quality mark. Nor could the standard be used by a business to claim that it is carbon neutral.

Consumers information

Under the Code, certain information about offset products would be made available to consumers, to reassure them that they are getting value for money and to inform their choice of offset product.

This includes background information on climate change and the concept of offsetting, an explanation of the source of the carbon credits and details of projects supported. They would also be able to choose the projects from which they would like to buy carbon credits.

Consumers would also be given a written statement setting out whether the credits come from the provider’s portfolio or through a third party broker, along with written confirmation that the carbon credits have been purchased and cancelled.

To allow consumers to compare prices, they would be informed, at the point of sale, of the volume of emissions being offset, the cost per credit being purchased, the total cost of credits purchased, any charges for processing and administration, and the total cost of the offsetting service being purchased.

Cancellation of credits

At first, offset providers would have up to six months after an offset product is sold to a consumer to buy the required amount of credits. Once that is done, the credits should be cancelled and removed from the offset provider’s emissions registry account within 48 hours.

Our view 

Carbon offsetting is an increasingly popular means by which businesses and consumers can address the unavoidable emissions associated with their everyday activities. The fact that the Code (in its proposed form) will only recognise regulated carbon credits is, in the Government’s opinion, crucial to the long-term credibility of carbon offsetting.

Carbon offset providers are likely to disagree. They will argue that there are many examples of good quality unregulated projects generating credible VERs. The problem, however, is that there is no universally accepted standard for approving these ‘voluntary’ offsets. They also make no contribution towards the Government’s official greenhouse gas reduction commitments. For these reasons, the Government seems likely to stick to its proposal to recognise only regulated carbon credits in its Code for Best Practice.