We recently caught up with Dan Lewer, the Co-Founder of the recently launched Carbon Retirement.
So what is your company all about?
Carbon Retirement was founded in 2008 by me and two colleagues. We wanted to offer a service focused on emission reductions. While we could see that there have been lots of interesting innovations in the voluntary market, we felt that it’s often difficult to evaluate the environmental benefits of offsetting projects. Retirement of allowances from EU Emission Trading Scheme – which is what we do – is a process that delivers unambiguous reductions in carbon emissions and we wanted to give everyone the opportunity to do it. We started taking orders in July this year.
How is Carbon Retirement different to other types of offsetting?
Existing types of offsetting work by investing in projects in the developing world that reduce emissions or absorb greenhouse gas from the atmosphere. Typical projects include tree planting and building renewable energy generators. Carbon Retirement is a fundamentally different approach – it works by buying heavy industry’s rights to release carbon dioxide.
What is the EU Emission Trading Scheme?
It’s a system that European governments use to support their commitments to reduce greenhouse gas emissions. It limits carbon dioxide emissions from a range of industries, including power generation, offshore extraction, cement production, iron and steel, paper and pulp and chemical processing. The EU Emission Trading Scheme is the world’s largest cap-and-trade scheme. In a cap-and-trade scheme, an authority allocates a fixed number of pollution permits to the participants. Each permit is a right to release pollution (in the EU Trading Scheme, each is the right to release one tonne of CO2). Permits can be traded between the participants. This creates a market in permits and a market price.
How is the price calculated?
One of our key principles is to be transparent about where our customers’ money goes. The price we charge is based on the market price of EUAs. For customers using our website, we add an admin fee of 10% (which pays the company’s overheads) and a ‘spread fee’ of 5%. The spread fee covers the risk of the price moving upward between the order being made and Carbon Retirement purchasing EUAs. If the price goes down, we reserve the surplus for retirement of further EUAs. This breakdown is published on our website. For organisations that are thinking about retiring more than a couple of tonnes, the price would work differently.
Why does the price of EUAs change?
Fundamentally, the market price of EUAs is determined by the perceived cost of complying with the reduction required by the EU Trading Scheme. During trading, the market participants’ views of the cost of achieving the reduction can change, which is why the EUA price changes. Energy markets are important drivers. When demand for energy is high, demand for EUAs to cover the generation rises too. Burning coal produces particularly large quantities of greenhouse gases, so the price of EUAs is sensitive to demand for coal.
Where do you buy EUAs from?
From an exchange, a market broker or a regulated participant in the market. EUAs are freely tradable between market participants, so the source of an EUA does not affect the environmental benefits of retiring it.
Project-based offsets often have social benefits. Are there any social benefits to taking EUAs out of circulation?
We don’t think we’re fence-sitting here by saying sort of. We facilitate emission reductions in Europe, and we’re dealing with major energy-intensive industries, so there’s less opportunity for helping out communities at the same time.
The social benefits of offsetting projects can be hard to measure and we need to remember that our aim here is to reduce emissions. Globally, emission reduction and mitigation of climate change will have plenty of social benefits. We’re focused on making sure the emission reductions happen.
How does your calculator work?
Our website gives individuals the option of calculating the emissions associated with flights, driving or other activities, and then retiring a corresponding number of allowances.
Once data has been entered into the calculator, we multiply it by emissions factors. For example, if you input that you have driven a certain number of miles in a large petrol car, we multiply that distance by a factor showing the greenhouse gases released for each mile.
The factors and methodology behind the calculator follow the UK government’s guidelines for calculating a carbon footprint.
Where can I go to find out more about climate change and the EU Emission Trading Scheme?
For the trading scheme, I’d recommend the European Commission’s website. There’s also a straightforward overview on Carbon Retirement‘s site. There is a wealth of information about climate change out there. The BBC’s website is a pretty good place to start.