Carbon offsetting – friend or foe?

In 1978, Ronald Higgins in his book ‘The Seventh Enemy: The Human Factor in the Global Crisis’ outlined the six major threats he saw facing the human race at that time. These ranged from environmental abuse to shortage of renewable resources. The seventh, and perhaps the deadliest he claimed, was apathy; our own inability to get off our backsides and do something about the problems facing us.

The ‘Seventh Enemy’ has now long been out of print and some thirty years later there is a real sense that we have moved on. Climate change issues are now openly discussed and are being tackled to some degree at both governmental and personal levels. In our industry, investment continues to be made in energy efficiency and it is encouraging that the need for training of staff and education of end-users are commonly debated topics.

The concept of carbon neutrality is probably at least a decade old but the interest by businesses in reducing and ultimately neutralising their carbon footprint has grown dramatically in the past couple of years. It is no longer just a few companies looking to improve their environmental credentials, there are also sound financial reasons for them to try and reduce their energy consumption given the instability of energy prices.

As the threats posed by climate change become more obvious, not only to scientists but also to the general public, the concept of being able to go ‘carbon neutral’ is an attractive one. Carbon neutrality offers individuals and companies the opportunity to take responsibility for the greenhouse emissions caused by their activities.

For users of refrigeration and air conditioning, it is natural that our industry should become a focal point and in response we continue to develop the tools and capabilities to rise to the challenges. We are in demand and our skills are an essential part of the solution. Or are they?

Before we get too carried away with a sense of our importance it would pay us to take a quick look over our shoulder at a new enemy lurking in the shadows. The sale of carbon neutral products and services is a rapidly growing market. Whilst the ACR industry gets caught up in arguing timetables for refrigerant phase-outs and training qualification start dates, the market for carbon neutrality is moving at a frightening pace; so fast in fact that an alternative ‘solution’ has been sought and found.

The new solution being considered by many is carbon offsetting. This solution offers individuals and companies a guilt free opportunity to consume as much as they want. Many companies, and particularly the ones that our industry deals with, have very little chance of easily becoming carbon neutral simply due to the nature of what they do. Therefore by acknowledging the damage they are causing and by paying to offset, they are seen to be doing something about it. Whether the motive is cynical or not, research has shown that being seen as green can be profitable.

The perceived advantages of carbon offsetting are so attractive to many that a multi-million pound industry has sprung up to service this requirement. A recent survey found that 73% of the British public would be willing to pay £5 of offset carbon emissions for a short-haul flight and £15 for long haul. It is only a matter of time before this willingness to pollute first and pay later reaches industrial users on a larger scale where the offsetting, and hence the figures involved are even greater.

However, when one looks closely at the carbon offset industry it is clear that these carbon experts do not agree on many things and that the carbon offset calculation itself is a guesstimate. Some experts even argue a very strong case that the whole concept of carbon offsetting fundamentally flawed and that it is impossible to state categorically that buying any carbon offset actually neutralises the damage made by greenhouse gas emissions.

The danger for the planet is that money spent on carbon offsetting is not being spent on reducing the damaging emissions in the first place. The danger for the ACR industry is that money could diverted away from projects that could genuinely reduce emissions. It may be cheaper to plant a few trees than to invest in new plant and for the ACR industry, herein lies the problem.

Is carbon offsetting a new enemy, albeit one with a smiling face? Time will tell.

Carbon is a cabaret, old chum.

“Money makes the world go around” sang Liza Minnelli in the musical ‘Cabaret’. Set in 1931 Berlin, a particularly dark and gloomy historical period with Germany polishing her guns in preparation for war, the story’s Kit Kat Klub is a decadent, seedy and immoral place where anything is for sale. Unperturbed by the growing unrest around them, the Kit Kat Klub-goers party on with raucous delight.

In 2008 London, the deepening low in the financial crisis inevitably prompted comparisons with the 1929 Wall Street crash, however the champagne parties that marked the end of the likes of Lehman Brothers had a more distinct ‘cabaret’ feel to them. The pattern of dishonesty and outright greed on the part of the financial institutions together with the staggering incompetence on the part of policy makers will make a great musical in a few years. As the FTSE-100 nosedived and British banks imploded, the Lehman Brothers PA system, known as the hoot, blared out the R.E.M. song as “It’s the End of the World as We Know It”; surely someone can choreography that into a great West-end finale?

Fun for the future perhaps, but rather depressing now, especial when one considers that similar models to these that are so spectacularly failing in the financial world form the basis of modern environmentalism. Cap and trade policies which involve putting limits on greenhouse-gas emissions and allowing companies to buy and sell the right to produce carbon is the equivalent of the sub-prime fiasco because at the end of the day no one will accept the high carbon prices that are required to make a significant dent in global warming.

Far from accepting that high fuel prices are a fair short-term trade for averting long term climate change, a little economic pain has been enough to quickly undo much of the good work done so far. The environmental movement may have made us care about global warming but they haven’t really made us willing to sacrifice anything financial tangible about it.

If the £37bn of taxpayers money to save the banks is seen as rewarding the irresponsible, what would you call the almost £7 million wasted every day by UK industry due to poor energy efficiency? This is not through lack of knowledge or awareness. As many as 80 per cent of all energy saving surveys that show significant energy savings are not being implemented even though they would produce very quick paybacks against any upfront investment. If greed fuelled the banking crisis, reticence, intransience, and let’s face it, incompetence by many energy wasting users will continue to pile on the pressure to the environment long after this current credit crisis is forgotten.

To help the money flow in the energy saving direction, the Carbon trust has announced it has doubled the maximum size of its interest-free Energy Efficiency Loans from £100,000 to £200,000 for small businesses. This will surely help those companies that are prepared to jump through the hoops to secure the loan and not worried about having them treated as ‘on balance sheet’ under statutory accounting rules and the resultant negative affect on certain key business indicators.

An alternative of funding energy saving projects is to rent the whole project from a leasing company. This allows net cost savings to be made right from the start and qualifies as an ‘operating lease’ and thus is accounted for ‘off balance sheet. For example, take a refrigeration project that can be shown to save electricity worth £30,000 a year but requires a capital investment of £60,000. The leasing company pays the £60,000 and rents the plant to the client over five years. The rental is £13,000 per annum which is more than covered by the energy saving of £30,000 per annum. So the project is cash rich from the start. Mary Poppins would perhaps see the £17,000 annual saving is the ‘spoonful of sugar that helps the medicine go down’; carbon reduction ‘in the most delightful way’.

Many organisations have trapped themselves into a dead-end by only considering payback periods of eighteen months or less. This is ‘cutting your nose off to spite your face’ when you consider that under some rental schemes, provided the project has a break even of four and a half years or less then the rental payments will be more than covered by the energy savings.

There is money available in the forms of loans and other financial schemes available to make significant energy reduction a possibility. Perhaps money really will 'help the world go around' after all.