Carbon Offsets and Emissions Trading Schemes
Reducing the Carbon Footprint and Environmental Impact of Business
Jun 27, 2009
Environmentally responsible business practices are one of the main tenets of corporate social responsibility. Two ways that business can be environmentally responsible are through the voluntary purchase of carbon offset credits or through government regulated emissions trading schemes. In order to take part in either scheme to improve environmental sustainability of business, the carbon footprint associated with production of the goods or service must be calculated.
Carbon Offsets
By purchasing carbon offsets, a business is investing in projects which reduce greenhouse gas emissions or otherwise remove carbon from the atmosphere. Carbon offsets a form of compensation to the environment for the environmental harm the business causes. After calculating the business’ carbon footprint, the business can choose to purchase carbon offsets for all of its business activities or for specific activities such as vehicle or airline travel or manufacturing pollution.
Carbon offsets are sold by carbon offset providers and the United Nations through the United Nations Framework Convention on Climate Change has a database of carbon offset providers and buyers, known as CDM Bazaar.
Environmentally friendly activities that carbon offset providers undertake include:
- renewable energy projects (for example: solar energy, wind turbines, hydropower, geothermal energy and biofuel);
- reforestation and tree planting projects; and
- energy efficiency projects.
The practice of using carbon offsets as a method of showing environmental sustainability concerns has been criticised by environmental organisations, as not going far enough to address the environmental damage caused by business operations.
Emissions Trading Schemes
Unlike carbon offsets, which are voluntary purchases by business, emissions trading schemes are government regulated schemes, predominately working on “cap and trade” systems. Emissions trading schemes target the largest contributors to environmental pollution, the heavy industries such as electricity generation, metals manufacturing and mining and paper production industries.
Emissions trading schemes have been designed to reduce the greenhouse gas in the environment by placing a cap on the amount of pollution allowed in business operations and forcing businesses to either increase environmentally sustainable production methods or purchase emissions allowances in an open market trade.
In an emissions trading scheme, each business is given an allowance, if the business’ greenhouse gas emissions over the whole year will total more than the allowance, the business has a choice of either adopting practices which will reduce emissions or purchasing unused allowances from another business which has reduced its emissions levels to below the allowance level. The aim is that regardless of whether a business reduces its own emissions or chooses to purchase unused allowances from other business, emission reductions will occur and they will be at the cheapest possible rate.
The largest emissions trading scheme in the world is the European Union’s Emissions Trading Scheme, which came into effect in 2005. Under this scheme, member countries of the European Union are required to allocate emissions allowances to companies in their country. Currently in the United Kingdom, one emission allowance is equivalent to a tonne of carbon dioxide. The aim of the European Union’s Emissions Trading Scheme is to business related emissions to the levels set out in the Kyoto Protocol.
Both carbon offsets and emission trading schemes aim to reduce the environmental impact of business and be good corporate citizens.
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