FINANCING UK CARBON REDUCTION PROJECTS. Robert Rabinowitz and Jon d Este-Hoare

Transcription

1 FINANCING UK CARBON REDUCTION PROJECTS Robert Rabinowitz and Jon d Este-Hoare

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3 FINANCING UK CARBON REDUCTION PROJECTS Robert Rabinowitz and Jon d Este-Hoare

4 ii FINANCING UK CARBON REDUCTION PROJECTS This work has been funded by BRE Trust. Any views expressed are not necessarily those of BRE Trust. While every effort is made to ensure the accuracy and quality of information and guidance when it is first published, BRE Trust can take no responsibility for the subsequent use of this information, nor for any errors or omissions it may contain. Front cover photograph and photograph on page 24: River Quarter, Sunderland Courtesy of Gentoo Housing Photograph on page 2: Courtesy of Rockwool Limited The mission of BRE Trust is Through education and research to promote and support excellence and innovation in the built environment for the benefit of all. Through its research programmes BRE Trust aims to achieve: a higher quality built environment built facilities that offer improved functionality and value for money a more efficient and sustainable construction sector, with a higher level of innovative practice. A further aim of BRE Trust is to stimulate debate on challenges and opportunities in the built environment. BRE Trust is a company limited by guarantee, registered in England and Wales (no ) and registered as a charity in England (no ) and in Scotland (no. SC039320). Registered Office: Bucknalls Lane, Garston, Watford, Herts WD25 9XX BRE Trust Garston, Watford WD25 9XX Tel: secretary@bretrust.co.uk BRE Trust and BRE publications are available from or IHS BRE Press Willoughby Road Bracknell RG12 8FB Tel: Fax: brepress@ihs.com Requests to copy any part of this publication should be made to the publisher: IHS BRE Press Garston, Watford WD25 9XX Tel: brepress@ihs.com Printed on paper sourced from responsibly managed forests FB 31 Copyright BRE 2011 First published 2011 ISBN

5 CONTENTS iii CONTENTS EXECUTIVE SUMMARY iv 1 BACKGROUND 1 2 WHAT IS A CARBON REDUCTION PROJECT? 2 3 QUALITY CRITERIA FOR CARBON REDUCTION PROJECTS 4 Independent verification 4 Additionality 4 Leakage 5 Double-counting 5 Permanence 5 4 CHALLENGES IN APPLYING QUALITY CRITERIA TO UK PROJECTS 6 5 DEMAND FOR UK PROJECTS 8 Voluntary support by companies for UK-based carbon reduction projects 8 Other mechanisms for the support of UK-based carbon reduction projects 9 CERT/CESP 9 Planning regulations 10 Zero-carbon homes and non-domestic buildings 11 Feed-in tariff 11 Renewable heat incentive 12 Carbon reduction commitment 12 Environmental Transformation Fund (ETF) 12 6 SUPPLY OF UK PROJECTS 13 7 THE COST OF EMISSION REDUCTIONS FROM UK PROJECTS 14 The price of carbon reductions from international projects 14 Difficulties in determining the cost of UK emission reductions 14 Views of organisations engaged in carbon offsetting 15 8 OVERCOMING REGULATORY HURDLES 17 Connecting supply and demand 17 Avoiding problematic jargon 17 Creating a comprehensive reporting framework 17 9 CONCLUSIONS REFERENCES AND ABBREVIATIONS 20 APPENDIX A DRAFT FRAMEWORK FOR REPORTING ON UK PROJECT-BASED 21 CARBON REDUCTIONS APPENDIX B GENTOO HOUSING S RETROFIT REALITY HOUSING REFURBISHMENT SCHEME 24 APPENDIX C APPLICATION OF THE REPORTING FRAMEWORK TO GENTOO HOUSING S 25 RETROFIT REALITY HOUSING REFURBISHMENT SCHEME

6 iv FINANCING UK CARBON REDUCTION PROJECTS EXECUTIVE SUMMARY This research, commissioned by BRE Trust, responds to strong demand from BRE clients, donors to PURE (the Clean Planet Trust) and others for a way to fund projectbased emission reduction projects in the UK in the absence of a recognised mechanism that will generate carbon credits from such projects. The research has: surveyed potential sources of supply and demand for such emission reductions examined the regulatory hurdles that need to be overcome to put such a mechanism in place. The majority of companies that were interviewed are engaged, or planning to engage, in offsetting and expressed a strong preference for supporting UK-based carbon reduction projects for at least part of their overall portfolio of projects. The degree to which they wish to switch from international offsets to supporting UK-based projects strongly correlated with the degree to which their customer base and supply chain is UK-based. This preference was so strong that several companies stated that, if carbon reductions from UK-based projects are not priced competitively against international offsets, they would be prepared to drop the requirement for a one-to-one match between emission reductions supported and the volume of emissions from the activity to be offset. Their key requirement for the support of UKbased projects is the creation of a standard that has: widespread adoption endorsement by an environmental organisation recognised by their customers. The research also examined the suite of policies that the UK Government is currently putting in place to generate project-based reductions in the UK. While these policies are expected to generate millions of tonnes of emission reductions annually, currently there is no uniformity in how these reductions are calculated and quantified. A review of research from BRE and others found that at least 110 million tonnes of annual emission reductions can be achieved cost-effectively within these sectors: housing non-domestic property covered by the carbon reduction commitment agriculture and land-use. A large proportion of these emission reductions can be achieved on a project basis and many of them are suitable for voluntary support by individuals and companies. Transport emission reductions have not been quantified in this study. The largest stumbling block to creating a financial mechanism to connect this supply and demand is the absence of a mechanism that will provide recognition for the voluntary funder for the volume of emission reductions achieved by that project. The aspiration of many companies and organisations is to be able to create a carbon-offsetting system for domestic UK projects. However, the authors believe that this is the wrong approach for the following reasons. The UK Government is opposed to domestic offsets. The term offsetting has unhelpful connotations which are a barrier to engagement on the part of regulators, non-governmental organisations and potential funders. The binary nature of carbon offsetting (ie it either crosses a quality threshold or not) does not reflect the complexities of carbon reduction projects in the UK. Many of the organisations that wish to fund UK projects on a voluntary basis do not require ownership of a tradable instrument in return for their funding. The authors therefore recommend the creation of a comprehensive reporting framework for carbon reduction projects in the UK that can accommodate the variety of projects and carbon accounting and financial methodologies already in place for funding such projects. This will have two major benefits: create uniform criteria by which the effectiveness of carbon reduction projects of all types, whether created to meet regulatory requirements or on a voluntary basis, can be compared. create a mechanism whereby companies and individuals who wish to provide funding to carbon reduction projects in the UK on a voluntary basis can gain recognition for the emission reductions that they have financed. The ultimate goal of such a reporting framework will be to create a new asset class, namely project-based carbon reductions in the UK, so that the massive investment capital required to fund such emission reductions and help the UK to meet its climate change targets can be deployed most effectively across the entire range of voluntary and regulated projects in the UK.

7 1 BACKGROUND 1 1 BACKGROUND This research was commissioned by BRE Trust to ascertain the feasibility of creating a mechanism whereby individuals and organisations can support carbon reduction projects in the UK on a voluntary basis. In recent years, the market for voluntary carbon offsets has seen dramatic growth. The total value of the global voluntary carbon offset market in 2009 was around $390 million, with around 100 million tonnes of offsets traded [1]. Many leading UK organisations offset their emissions, have pledged to do so or enable their customers to offset the emissions associated with particular products. They include Barclaycard, Marks & Spencer, Eurostar, British Airways, easyjet, BSkyB and the UK Government. Feedback from BRE clients and donors to PURE, the Clean Planet Trust, often based on customer surveys, indicates a strong demand to offset emissions through UK projects. At the moment, however, there is no recognised mechanism whereby individuals and organisations can fund such projects and gain recognition for the volume of carbon reductions that they have financed. The research was divided into three primary components. 2 Analysis of UK demand for carbon reduction projects The authors met with leading companies that are engaged in offsetting or that are active in the field of environmental sustainability to gain an understanding of the potential demand to fund UK-based carbon reduction projects. We asked them to provide details of: their carbon management strategies the role of carbon offsetting within their strategies the type of project currently supported whether or not they would be interested in supporting projects in the UK. 3 Analysis of policy barriers to the creation of voluntary carbon reduction projects in the UK A crucial element to the take-up of carbon reduction projects is the way in which carbon savings are attributed. In the absence of an official system for issuing carbon credits in recognition of emission reductions achieved in the UK (known as Joint Implementation in the jargon of the Kyoto Protocol), it is important to understand what recognition potential funders would need in order to invest in UK carbon reduction projects. 1 Analysis of possible UK carbon reduction projects A review was undertaken of a variety of measures that can be taken to tackle carbon emissions and can be turned into projects, ie discrete actions that allow a direct, verifiable connection between the investment made and the reductions achieved. As part of this exercise, we reviewed what measures are currently being supported or developed.

8 28 FINANCING UK CARBON REDUCTION PROJECTS OTHER REPORTS FROM BRE TRUST FB 1 Subsidence damage to domestic buildings: lessons learned and questions remaining R M C Driscoll and M S Crilly. September 2000 FB 16 Knock it down or do it up? F Plimmer, G Pottinger, S Harris, M Waters and Y Pocock. June 2008 FB 2 FB 3 FB 4 FB 5 FB 6 FB 7 FB 8 FB 9 FB 10 FB 11 FB 12 FB 13 FB 14 Potential implications of climate change in the built environment H M Graves and M C Phillipson. December 2000 Behaviour of concrete repair patches under propped and unpropped conditions: critical review of current knowledge and practices T D G Canisius and N Waleed. March 2000 Construction site security and safety: the forgotten costs! R Knights, T Pascoe and A Henchley. December 2002 New fire design method for steel frames with composite floor slabs C Bailey. January 2003 Lessons from UK PFI and real estate partnerships: drivers, barriers and critical success factors T Dixon, A Jordan, A Marston, J Pinder and G Pottinger. November 2003 An audit of UK social housing innovation K Ross, J Honour and F Nowak. February 2004 Effective use of fibre reinforced polymer materials in construction S M Halliwell and T Reynolds. March 2004 Summertime solar performance of windows with shading devices P Littlefair. February 2005 Putting a price on sustainability BRE Centre for Sustainable Construction and Cyril Sweett. May 2005 Modern methods of house construction: a surveyor s guide K Ross. June 2005 Crime opportunity profiling of streets (COPS): a quick crime analysis rapid implementation approach J Oxley, P Reijnhoudt, P van Soomeren and C Beckford. November 2005 Subsidence damage to domestic buildings: a guide to good technical practice R Driscoll and H Skinner. June 2007 Sustainable refurbishment of Victorian housing: guidance, assessment method and case studies T Yates. September 2006 FB 17 FB 18 FB 19 FB 20 FB 21 FB 22 FB 23 FB 24 FB 25 FB 26 FB 27 FB 28 FB 29 Micro-wind turbines in urban environments: an assessment R Phillips, P Blackmore, J Anderson, M Clift, A Aguiló-Rullán and S Pester. December 2007 Siting micro-wind turbines on house roofs P Blackmore. May 2008 Automatic fire sprinkler systems: a guide to good practice C Williams. June 2009 Complying with the Code for Sustainable Homes: lessons learnt on the BRE Innovation Park C Gaze. November 2009 The move to low-carbon design: are designers taking the needs of building users into account? M Hadi and C Halfhide. December 2009 Building-mounted micro-wind turbines on high-rise and commercial buildings P Blackmore. March 2010 The real cost of poor housing M Roys, M Davidson, S Nicol, D Ormandy and P Ambrose. February 2010 A guide to the simplified building energy model (SBEM): what it does and how it works R Hitchin. April 2010 Vacant dwellings in England: the challenges and costs of bringing them back into use M Davidson and K White. April 2010 Energy efficiency in new and existing buildings: comparative costs and CO 2 savings F MacKenzie, C Pout, L Shorrock, A Matthews and J Henderson. September 2010 Health and productivity benefits of sustainable schools: a review C Murphy and A Thorne. September 2010 Integrating BREEAM throughout the design process: a guide to achieving higher BREEAM and Code for Sustainable Homes ratings through incorporation with the RIBA Outline Plan of Work and other procurement V Cinquemani and J Prior. November 2010 Design fires for use in fire safety engineering C Mayfield and D Hopkins. December 2010 FB 15 Putting a price on sustainable schools A Surgenor and I Butterss. May 2008 FB 30 Ventilation for healthy buildings: reducing the impact of urban pollution V Kukadia and D Hall. January 2011

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10 FINANCING UK CARBON REDUCTION PROJECTS This publication explores the funding of project-based carbon reduction projects in the UK by: surveying potential sources of supply and demand for such emission reductions examining the regulatory hurdles that need to be overcome to put a funding mechanism in place. It recommends the creation of a comprehensive reporting framework for carbon reduction projects in the UK that can accommodate the variety of projects and carbon accounting and financial methodologies already in place for funding such projects. The ultimate goal of such a reporting framework will be to create a new asset class, namely project-based carbon reductions in the UK, so that the investment capital required to fund such emission reductions and help the UK to meet its climate change targets can be deployed most effectively across the entire range of voluntary and regulated projects in the UK. RELATED TITLES FROM IHS BRE PRESS INTEGRATING BREEAM THROUGHOUT THE DESIGN PROCESS A guide to achieving higher BREEAM and Code for Sustainable Homes ratings through incorporation with the RIBA Outline Plan of Work and other procurement routes FB 28, 2010 ENERGY EFFICIENCY IN NEW AND EXISTING BUILDINGS Comparative costs and CO 2 savings FB 26, 2010 SUSTAINABILITY IN THE BUILT ENVIRONMENT An introduction to its definition and measurement BR 502, 2009 THE GREEN GUIDE TO SPECIFICATION, FOURTH EDITION BR 501, 2009 IHS BRE Press, Willoughby Road Bracknell, Berkshire RG12 8FB FB 31