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FT Investing in a Sustainable Future March 24, 2010, New York

White Paper

The Path to Carbon Neutrality

By Jay Carlis / Community Energy

Six steps to reduce your organization's impact

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The conversation about climate change has taken a dramatic shift recently. We are no longer debating whether or not rising greenhouse gases are causing significant ecological changes. The focus has shifted to carbon neutrality, zero-emissions products and a larger discussion among business leaders on the most effective strategies and tactics for reducing the climactic impact of our organizations.
The path to carbon neutrality is one of continual improvement. Zero impact is a goal not easily achieved. But if we sit on the sidelines, we risk losing competitive advantage in this shifting landscape. Each organization must set its own pace and it is critical we do not hesitate.

Step 1

Clearly defining the purpose of our company’s actions on climate change will guide the choices we make along the path to carbon neutrality. Reducing greenhouse gas emissions from our operations is the “right thing to do.” We need only attend one of the near-weekly sustainable business conferences in North America to witness this growing consensus. In tough economic times, however, that may simply not be enough of a reason for organizations to prioritize climate strategy. Business leaders need to carefully consider the goals of their actions. Do we anticipate regulatory oversight in the near future? Are we trying to build our reputation as a “green” or “sustainable” brand? Are our customers focusing on sustainability metrics in purchase decisions? The answers to these types of questions will be an important frame for our climate strategy.

Step 2

Setting emission baselines for activities with clearly defined boundaries builds a solid foundation for measuring success. Setting baselines is critical because it helps evaluate and effectively communicate our success. A total greenhouse gas inventory can be time consuming and costly, depending on the size of the business and the diversity of emission sources. Community Energy recommends breaking down emission sources along clearly defined boundaries.

The path to carbon neutrality is one of continual improvement.

The World Resources Institute model has been widely accepted as the tool of choice.
WRI breaks emission sources into three scopes. Scope I sources include “direct emissions” from company-owned equipment, such as vehicles, boilers, furnaces, etc. Scope II sources comprise “indirect emissions,” are defined as grid-connected electricity use, the emissions from power plants that generate the energy we take from the electric grid. Scope III sources are also “indirect emissions,” where baselining can become very complicated. Scope III emissions are everything else: business travel on commercial airlines or in rental cars, emissions generated by suppliers in processing raw materials, outsourced shipping and logistics, and basically any emissions generated by outsourced activities. One rule of thumb is that our Scope III emissions are always someone else’s Scope I or Scope II emissions.

Some companies choose to calculate emissions by scopes and some may choose specific activities within those scopes, like a product line or a vehicle fleet with clearly defined boundaries. Our conclusions in Step 1 should be a guide.

Step 3

Seeking emission reductions through efficiency will uncover some low-hanging fruit, but finding deep cuts will take time and money. Once the baselines are set, look to efficiencies as the first order of business. There are often simple and inexpensive
ways to reduce fuel and/or electricity use, including lighting retrofits and video conferencing. Once we’ve picked the low-hanging fruit, finding greater efficiencies can take a significant amount of research, planning, time and money. This is where we look to the purpose of our efforts. If we are trying to rapidly introduce a green product or meet customer demands, quicker action may be required.

Step 4

Renewable Energy Credits (RECs) are a quick and easy way to reduce emissions and gain public recognition. Offsetting Scope II “indirect emissions” from electricity use is a simple, cost-effective way to balance a portion of greenhouse gas emissions in our operations. Renewable Energy Credits (also known as RECs or Green Tags) are the currency for tracking and trading renewable energy. RECs have been adopted by state governments in Renewable Portfolio Standards, utility companies in green pricing programs, and at Intel, PepsiCo and some of the largest and most successful

If we sit on the sidelines, we risk losing competitive advantage.

corporations in the world.

Balancing Scope II emissions is easy because the baseline is accessible on utility bills. We can offset specific facilities or a percentage of our total operations.
Regardless of the choice, an REC purchase by a large company or major brand is a significant step on the path to carbon neutrality and always captures media attention.
When making an REC purchase, look for a Green-e Certified renewable energy marketer – such as Community Energy. Because RECs are intangible products, Green-e requires its certified marketers go through an independently verified audit each year to protect consumers.

Onsite generation of renewable energy, like wind and rooftop solar, may be available to some organizations based on local conditions and state incentives. Where facilities use significant amounts of electricity, this is worth exploring.

Step 5

Look to carbon offsets as a final piece of the carbon neutral puzzle for balancing non-electricity based emissions. The widely accepted best practice is for companies to purchase carbon offsets or Verified Emission Reductions (VERs) to balance Scope I and III emissions. The voluntary market for carbon offsets is evolving, so here are some rules of thumb:
Ensure offsets are:
1) Real. Meaning that emission reductions are quantifiable through a credible methodology.
2) Permanent. Look to renewable energy projects, methane capture or other projects that prevent the release of emissions permanently.
3) Additional. Meaning the offset projects would not be built under a business-as-usual scenario.
4) Verified. Meaning a third party has signed off on the validity of 1, 2 and 3 above.
The voluntary offset market in North America is coalescing around four verification standards: the Gold Standard, the Voluntary Carbon Standard (VCS), Green-e Climate and the Clean Development Mechanism (CDM) of the Kyoto Protocol. Look for certified products based on one of these standards.

Step 6

Communication is the final step because it provides return on our investment in climate action. There is much to gain from communicating our environmental initiatives to customers, employees, shareholders and other key stakeholders. Potential gains include increasing sales and brand loyalty, talent retention, a reputation for leadership and other accolades. Communications must be clear, credible and transparent. We must be careful not to overstate the impact of our efforts. Companies that make environmental claims are always subject to scrutiny. If it is an advertisement, scrutiny could come from the Federal Trade Commission (FTC) or enviro-conscious consumers. (NOTE: Look for revised FTC Green Guides in late 2008 or early 2009.) When we are cautious in our communications and have credible calculations backing our claims, our actions stand up to any scrutiny.

As the focus on the environment and “green” consumers intensifies, we must begin walking the path to carbon neutrality or risk falling behind our competition. These six steps are a road map, a flexible guidebook that organizations should use to develop their climate strategy and begin taking action. For many it will be a long journey, so we must not hesitate. Every action counts.

Cap and Trade;Marketing & Communications;Risk Management ;

*Footnotes