The LGiU has been working with local authorities over the past six months to identify the challenges and opportunities they see in carbon trading. "Learning by doing" seem to be the best way forward. Gemma Roberts from LGiU explores.
The pictures published last week, showing the largest ice shelf in the Antarctic collapsing, were a stark reminder that we need to act quickly to reduce our carbon emissions. The Climate Change Bill with its legally binding target to reduce carbon emissions by 60% by 2050 shows government leadership, but we are still lacking the clarity needed to deliver real change quickly.
The government has put its faith in a market-based approach to climate change – carbon trading. The first UK trading scheme will be the Carbon Reduction Commitment (CRC), which is to be launched in January 2010. The Department for Environment and Rural affairs has been consulting on this idea for the past couple of years. Their latest report suggests that more than 5000 public and private organisations will be involved in the CRC. Frustratingly it is still not clear which ones. Key decisions that will affect whether a local authority will be involved have been left hanging.
If the CRC is put in place effectively, this mandatory “cap and trade” scheme has the potential to save 1.2 million tonnes of carbon. Trading is a way of putting a price on the carbon we use, which should give an added incentive to hit that carbon reduction target. At the moment the cost of pollution is not accounted for in our purchases and it is difficult for low carbon options to compete for investment. Some commentators have warned that keeping environmental issues ‘off balance sheet’ is like taking an Enron approach to accounting because it misrepresents the action organisations are taking to protect the environment and eventually we will pay the price of ignoring it.
Developing a carbon market is a much more attractive way to make the polluter pay than through abundant taxes. In creating a market the government can fix or ‘cap’ the amount of carbon that organisations are allowed to use. Organisations have their own carbon allowance and they can buy and sell on the carbon market to make sure they keep to budget. So if you reduce your emissions and trade your carbon allowance you are set to make some financial gain.
This will take a whole new set of skills for local authorities. While trading is not new, it is certainly not a day-to-day occurrence. The investor, Warren Buffet, now in the top spot in the Forbes list of world billionaires, is famous for his principles for trading - preaching ‘if you don’t understand it, don’t do it!’ through the dot-com boom. Unfortunately local government does not have that choice for CRC. And as local authorities will start planning their 2009-10 budgets this autumn, the learning curve will have to be steep so they know what to set aside for the scheme.
The LGiU has been working with local authorities over the past six months to identify the challenges and opportunities they see in carbon trading. The conclusion was that ‘learning by doing’ was the only way to get to grips with its intricacies and if you can do it in a risk-free environment even better. So to get local authorities ahead of the game and help them prepare, the LGiU will be launching a voluntary trading scheme in April – Carbon Trading Councils. Through a simulation of carbon trading, local authorities will be able to test their skills and take some risks without having to pay out if things do not go to plan.
The potential to lose money is not the only daunting part of a cap and trade scheme. Before you can even be in a position to start buying and selling you need to be able to forecast how much carbon you are likely to need throughout the year. This means detailed metering and ongoing monitoring of the carbon you are using across a local authority’s estate and services like street lighting.
Many local authorities that have been part of the Carbon Trust’s carbon management programme will have measured their carbon emissions. This is no simple task with data coming in from all directions, on bills and meters, in different formats and timescales. Any measurements are, more often than not, a one-off snapshot of a local authority’s carbon footprint. They may not have the processes in place to keep a regular and thorough account of the carbon they are using.
Being a part of Carbon Trading Councils should help local authorities manage their carbon data. To be able take part in the voluntary scheme they need to have baseline carbon data and be able to monitor the emissions throughout the year. In the first year councils will put a portfolio of buildings or services into the scheme, which will give them a manageable load so they can get an effective process of monitoring in place. From this experience they will be able to scale up the resources they need and make the investment needed to monitor all their emissions for the CRC.
There are more than 15 councils already signed up to take part in Carbon Trading Councils. This is not simply a training programme, with a tight cap on the market - it will challenge local authorities to reduce their carbon emissions even more than they planned to and much sooner.