Making the polluters pay

With its tax­es, tar­iffs and trad­ing schemes, the world of car­bon pric­ing is com­pli­cat­ed. It’s aim, how­ev­er, is clear: to encour­age organ­i­sa­tions to clean up their act or pay for the pol­lu­tion they cause.

Car­bon pric­ing falls into three broad areas, start­ing with the car­bon tax, which has tra­di­tion­al­ly proved unpop­u­lar with both busi­ness­es and gov­ern­ments that have levied it. 

More com­mon nowa­days are emis­sions trad­ing schemes, when gov­ern­ments cap the total lev­el of emis­sions allowed over a giv­en peri­od, with com­pa­nies required to buy per­mits to cov­er the green­house gas­es they emit. As a mar­ket-based sys­tem, the faster emis­sions drop, the cheap­er per­mits become, while com­pa­nies that sur­pass the cap are taxed and those cut­ting emis­sions are allowed to sell unused cred­its.

How­ev­er, accord­ing to Dr Matt Good­win, sales direc­tor at sus­tain­able fuel com­pa­ny Waste Knot Ener­gy: “Car­bon pric­ing is hav­ing an effect, but not at the speed we need it to. Ulti­mate­ly, using the price of car­bon to mit­i­gate cli­mate change is ask­ing the mar­ket to sort the prob­lem. That works to an extent, but the mar­ket is such a com­pli­cat­ed sys­tem with so many com­pet­ing fac­tors that, although we might get there in the end, it’s not going to hap­pen at the pace we need it to. We need CO₂ emis­sions to go into reverse.”

Offsetting Mark II

A third way of pric­ing car­bon is through the vol­un­tary car­bon mar­ket, where com­pa­nies off­set their emis­sions by sup­port­ing schemes that fight cli­mate change. Ten years ago, car­bon off­set­ting dropped off the sus­tain­abil­i­ty radar, amid crit­i­cism it lacked trans­paren­cy, led to bro­ken promis­es and dou­ble-count­ing of cred­its and, in some cas­es, actu­al­ly did more envi­ron­men­tal harm than good.

Now back in the main­stream, its cham­pi­ons believe it has a vital role to play in revers­ing glob­al warm­ing. Cli­mate­Care helps com­pa­nies to find projects in which they can buy off­sets, rang­ing from major renew­able infra­struc­ture, to small­er projects such as sup­ply­ing remote vil­lages with smoke­less fuel.

Accord­ing to com­pa­ny chief exec­u­tive Vaugh­an Lind­say, busi­ness­es should fol­low a hier­ar­chy of action. They need to mea­sure and under­stand their foot­print, before set­ting about reduc­ing and avoid­ing what emis­sions they can by, for instance, switch­ing to a green ener­gy tar­iff. The final step is to deal with hard-to-get-rid-of resid­ual emis­sions and this is where off­set­ting comes in.

“It’s about neu­tral­is­ing emis­sions,” he says. “If you can’t reduce or avoid them, take respon­si­bil­i­ty for them by off­set­ting.” This ensures a company’s impact on the envi­ron­ment remains zero regard­less of resid­ual emis­sions, because for every tonne of car­bon that isn’t avoid­ed, they com­pen­sate by fund­ing a project that takes a tonne out.

And while longer term change is cru­cial, he adds: “Off­set­ting is the most cost-effec­tive way to take action today.”

Hidden costs

The cost of elec­tric­i­ty gen­er­a­tion makes up about 40 per cent of an ener­gy bill, with the rest cov­er­ing charges for net­work trans­mis­sion and bal­anc­ing, and pro­grammes like the cli­mate change levy, which is a tax on non-domes­tic gas and elec­tric­i­ty bills. 

“Although not vis­i­ble on the bill, car­bon costs will be fac­tored into the whole­sale elec­tric­i­ty price,” explains Tim Dixon, an ener­gy mar­ket ana­lyst at con­sul­tants Corn­wall Insight. 

One way to avoid these tax­es is to go off grid and install solar pan­els or oth­er forms of micro-gen­er­a­tion, he explains, although an eas­i­er way to make an impact is to move to green ener­gy. “A lot of busi­ness­es are look­ing at ways in which they can be more sus­tain­able, but the options aren’t amaz­ing­ly clear and trans­par­ent at the moment,” says Dixon.

Take green ener­gy. In the UK, for a sup­pli­er to claim a tar­iff is 100 per cent renew­able, they have to back it with renew­able ener­gy guar­an­tees of ori­gin, or REGO, cer­tifi­cates. But these cer­tifi­cates were ini­tial­ly sold too cheap­ly, devalu­ing the scheme and leav­ing ques­tion marks hang­ing over the true prove­nance of some green tar­iffs, says Dixon. There have since been calls for the scheme to be reformed.

“More busi­ness­es are look­ing at con­tract­ing direct­ly with renew­able gen­er­a­tors, so they know where their elec­tric­i­ty is com­ing from,” he says.

Direct charge 

A way to do this is through a pow­er pur­chase agree­ment (PPA), which gives busi­ness­es greater con­trol over the ener­gy prices they pay. PPAs involve direct­ly con­tribut­ing to a new renew­able ener­gy project by agree­ing to pay the devel­op­er a fixed price for ener­gy when the project comes online. It’s a way of elim­i­nat­ing the car­bon impact of pur­chased ener­gy, while also adding green ener­gy to the grid.

A draw­back of this type of agree­ment, how­ev­er, is it favours large cor­po­ra­tions with deep pock­ets and cred­it rat­ings that enable them to com­mit to long-term projects. 

“It’s dif­fi­cult for small com­pa­nies to get involved because they’re so resource inten­sive,” says Dixon. What’s need­ed are more inno­v­a­tive ways to bring com­pa­nies and sup­pli­ers togeth­er, he says, such as aggre­gat­ed PPAs, which involve a coali­tion of com­pa­nies  sourc­ing elec­tric­i­ty from a sin­gle renew­ables gen­er­a­tor.

“Every­body needs to par­tic­i­pate in this indus­try to reach the goals of the Paris Cli­mate Agree­ment,” says Zach Star­sia, direc­tor of accounts at Seat­tle-based renew­able ener­gy plat­form Lev­el­Ten Ener­gy. “We need to mobilise small­er buy­ers.”

Lev­el­Ten con­nects small­er busi­ness­es with large clean ener­gy projects that are will­ing to sell them a small amount of ener­gy. “By pool­ing their demand, they can act as a sin­gle large pur­chas­er, which opens up oppor­tu­ni­ties that would not have been avail­able had they act­ed alone,” says Star­sia.

But what­ev­er direc­tion car­bon pric­ing takes, ClimateCare’s Lind­say is adamant that pol­luters must con­tin­ue to be made to pay. “The pur­pose of pric­ing car­bon is to change behav­iours,” he con­cludes. “If you pol­lute some­thing, but you don’t have to pay for it and some­body else picks up the bill, you’re nev­er going to change.”