Is threat of regulation delaying offset action?

If companies believe that they will be caught in a regulatory trap and obligated to measure and reduce their emissions in the near future, will that prompt them to take voluntary action, or will they put everything on hold until they work out what their obligations are likely to be?

As the Copenhagen Summit and the promise of tightening carbon regulations around the world move ever closer, that is the key question concerning many in the UK's offsetting industry. In the words of Lord Stern, taking a "wait and see " approach is just not something that we have time for. However, taking time to make informed decisions about how to organise your business can ensure that you have the appropriate resources and action plan implemented at the right time.

It's a difficult quandary and seems to be one that a growing number of organisations are facing with the increasing number of environmental regulations under development. More often than not, environmental policies, particularly about limiting carbon emissions, are on the agenda for most developed countries and are slowly but surely finding their way into the boardroom at large and small organisations.

When considering how this may affect companies' carbon neutral commitments or aspirations, it is worth noting that the nature of the impact is determined by the type of impending regulation.

For example, in the aviation sector under current plans all airlines flying into the EU will be part of the EU Emissions Trading Scheme (EUETS) from 2012. The ETS typically allows for some carbon offsets and as a result the International Air Transport Association (IATA) has provided guidelines and a toolkit for advice on voluntary carbon offsets and how to implement a successful scheme, while growing numbers of airlines have launched their own voluntary schemes. Going one step further, several airlines are beginning to align these with their future obligations by using the UN certified emission reductions (CERs) that are allowed within the ETS.

That is not to say that airlines are banking the offsets for future use, but they are already learning the ins-and-outs of how to buy carbon credits and how they can get best value for money. This also has the benefit of introducing a cost of carbon to those enlightened customers who choose to offset, which is likely to be on a par with future costs of carbon in a regulated system rather than the lower cost of voluntary offsets. This has some benefits if airlines intend to pass the true cost of carbon on to their customers.

In contrast, larger corporations in the UK that will be caught under the Carbon Reduction Commitment (CRC) cannot use offsets towards meeting their targets. The scheme is described as a cap-and-trade mechanism and companies will have the ability to buy and sell excess allowances, but they are not interchangeable with offsets. So even if companies are within the CRC and they have a carbon neutral commitment, the two do not necessarily directly inter-link.

Of course, the higher the energy efficiency gains achieved, the fewer offsets that have to be bought to balance out the remaining emissions to accomplish carbon neutrality, while learning about carbon trading through use of voluntary offsets may stand companies in good stead for the mandatory CRC. But the legislation doesn't necessarily give them an impetus to launch a separate voluntary offset programme.

In the US, the scenario is different again. The utilities industry is expecting a cap-and-trade mechanism to be introduced in the short to medium term and is positioning itself ahead of the final design. As these companies are due to have a potentially massive liability and are likely to be able to use offsets to meet some of their targets, there are moves towards buying up credits which they expect to be admissable under any future scheme set out as part of the Boxer-Kerry climate bill.

Within both the aviation and US utilities industries, there will be some that choose not to believe that a scheme will ever see the light of day and hence remain with their heels firmly dug in, resisting proactive action.

However, despite regulation, in whatever form, there are and will continue to be companies that choose to do more than they are regulated to do. In a recent survey based on carbon management and offsetting trends, companies stated they were waiting for consolidation of voluntary carbon standards, rather than the threat of incoming regulation, before they embarked on an offsetting scheme.

In addition, in terms of the motivation for having a voluntary offset scheme, the main drivers were environmental benefits over and above regulation. So based on the premise that the environmental benefits of offsets are recognised, there is still a compelling reason to go ahead with offsetting initiatives, with or without the threat of regulation.

Lisa Ashford is Global Head of Voluntary and New Markets at carbon offsetting specialist EcoSecurities