25 June 2014 | Project developers and retailers of carbon offsets are catering more and more to buyer demands for projects that have attractive co-benefits beyond carbon, such as protecting biodiversity or creating an alternative income stream for poor communities. The Carbon Neutral Company is connecting major buyers such as Macmillan, Deutsche Post DHL, Interface and Marks & Spencer with projects featuring these types of verified co-benefits.
Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2014 report reveals that more than a third of offsets transacted under the Verified Carbon Standard (VCS), the leading standard on the voluntary carbon market, in 2013 also adhered to a co-benefits standard – the Climate, Community and Biodiversity Standard or the SOCIAL CARBON standard. Project types such as forestry and clean cookstoves are gaining popularity partly because buyers and customers connect with the ââ‚¬Ëœgood stories’ behind projects that protect endangered species or provide health benefits to women. Forestry and land use projects were in fact the most popular project type on the voluntary market last year, taking home 45% of market share, while the distribution of household devices (cookstoves or water purifiers) garnered 11%.
Zubair Zakir, Global Sourcing Director at The Carbon Neutral Company, which helps corporations set and meet sustainability goals, has had his finger on the pulse of these trends.
Allie Goldstein: How would you describe the voluntary carbon market in 2013?
Zubair Zakir: I think we saw [more people] asking the question of ââ‚¬ËœCan we take the learnings that we have from the carbon market – of which there are many – and apply them to other externalities or outcomes that people are trying to achieve and use that as means to raise finance?
AG: What kind of co-benefits are you seeing the most interest in?
ZZ: It’s hard to say if there is one single one right nowââ‚¬Â¦they each have their own complexities, and many of them overlap. Indoor air pollution overlaps heavily with health. There has been some development around looking at existing metrics that are used within the health sector, such as DALYs, which are disability adjusted life years, to measure health outcomes of improved cookstove projects. It’s hard to say if this has just become popular in the last year, because [co-benefits] have always been there. It’s more of the realization that this mechanism called carbon already does these things and we need to understand how without increasing transaction costs to unsustainable levels and be able to communicate what that impact actually is, and demonstrate the relative efficiency of one approach versus another.
AG: Have you seen many projects quantifying adaptation benefits?
ZZ: There hasn’t been a focus on adaptation in terms of using that term itself – ââ‚¬Ëœadaptation’ – but it is inherently there when using terms like ââ‚¬Ëœsupply chain security’ and ââ‚¬Ëœaddressing vulnerable communities.’ So that’s a little more nascent, but it’s definitely there.
AG: What about watershed services?
ZZ: We’ve seen progress focused on water-related issues, and in our industry, there are various approaches to quantify and standardize those impacts, establishing the link between individual businesses and their water footprints.
AG: To what extent are you seeing a willingness to pay more for verified co-benefits?
ZZ: The factor of that question – willingness to pay – has to be broken down and understood. We think of it as, if the market price is X, then can you achieve X+ by demonstrating separate water benefits or health benefits? I challenge that by saying: In a voluntary marketplace, where there is no obligation to do anything, if the decision to purchase is based on whether or not a particular outcome can be achieved, that in of itself is the premium. So when you see how the spread of project types has changed year by year and the growth of cookstoves and REDD over the last five years, that is a reflection of the interest in the additional benefits those projects deliver. Clients set their selection criteria based on various outcomes from the project, including carbon, and then the conversation on price is about whether projects overall can meet that brief.
AG: That’s an interesting way to think about it. Are there clients that you have that are perhaps only involved in offsetting because of projects with high co-benefits? Companies that wouldn’t be interested in offsets at all but because they can achieve multiple outcomes, they’re interested?
ZZ: Yes, absolutely. The thing to remember is that what they’re getting for whatever investment they’re making is often not solely about the project itself, but rather about what then they’re able to achieve as a business. They have to report to shareholders and share results, and so any activity has to be part of strengthening the business. The philanthropic goodwill only goes so far – until another priority comes up. But if through choosing a particular project relationship, companies are able to demonstrate it’s consistent with what they stand for and what their consumers are interested in, then that’s good for them. There are co-benefits to the businesses themselves.
AG: Do you have an example?
ZZ: [There is] much talk in the US about Microsoft placing that price on carbon internally, which then allows them to do a range of things with those funds. If they hadn’t taken that step, it would be an annual question they would ask themselves. [This way] each business unit thinks about their emissions because there is a price on it.
One of our clients, Marks & Spencer, at the end of last year started a project with UNICEF. A really important part of their carbon offset strategy was to work with one of their existing NGO partners to help their NGO partner benefit from this thing called carbon finance, but also work with the partner that has household recognition to consumers. Unfortunately, most consumers still know relatively little about offsetting. But they know what UNICEF is, and they know what it stands for, and they have trust in that brand.
AG: We often talk about companies that choose offset projects that have some geographic connection to their supply chain. I was wondering if you can think of examples of that?
ZZ: Just about every large corporate that is out there that is a multi-national will source credits from the regions of relevance to them, and make sure they have a diversified portfolio. Marks & Spencer has a supply chain that extends to many regions of the world. Bangladesh is an important location for them and that’s where the UNICEF project is located.
AG: For companies that offset for just one year and then decide not to do it anymore, are there any key factors as to why it didn’t work, or why they didn’t continue the commitment?
ZZ: We’ve seen economic pressure over the last five years impacting decision-making. Mostly what that’s related to is a change in budget or a change in the projects that are selected – going to some of the lower-cost options. In other cases, it has led to decisions being deferred, or programs not being continued. It’s a discretionary spend, and that needs to be understood.
AG: Are there any major trends in demand that you saw in 2013 that are worth noting?
ZZ: The major trends are that Europe continues to be under quite a lot of pressure with the fledgling, almost non-existent EU ETS (Emissions Trading Scheme), which is on our backyard. There is a huge amount of supply out there in what have been challenging market conditions in Europe. The economy has been a little better in the U.S. so we’ve seen a little bit of uptick now.
AG: What do you see as the role of the voluntary carbon market in the emerging compliance markets around the world?
ZZ: I think South Africa is a great example, as California has been, of using the strength of what the voluntary market has been able to do very well – bringing innovation quickly to the table, demonstrating what is possible.