Reduce What You Can, Offset the Rest – part one

For much of human history, carbon dioxide emissions have been treated as an ‘externality’ of doing business. Carbon didn’t appear on companies’ balance sheets or on their list of investment criteria. But as the concentration of carbon dioxide in the atmosphere increases to unprecedented levels – the last time they were this high was 5 million years ago, when humans didn’t exist – we are seeing that the impacts of climate change do, in fact, affect businesses and the day-to-day stability of the global economy.

The more than 1800 companies that now disclose emissions information to CDP (formerly the Carbon Disclosure Project) reportedly experience the impacts of climate change. Many of them are cement companies. HeidelbergCement noted that in 2013, construction activities slowed during an unusually cold and icy winter in Europe, impacting demand for building materials. Italcementi reported that its transportation and supply chain activities were ‘paralysed’ after an extreme flood event in Thailand. Holcim recognises that intense wind and rain negatively affect both construction activity and its direct operations. Shree Cement pointed out that, since water is required for some cooling processes in cement manufacturing, shortages ‘can bring unprecedented disruptions in our operations.’

While no specific weather event can be tied definitively to climate change, experts assert that the increased concentration of carbon dioxide in the atmosphere is ‘loading the dice’ – it’s increasing the likelihood of events like Superstorm Sandy or Typhoon Haiyan. What was previously a once-in-a-lifetime flood may now occur once per decade.

Setting (and meeting) an emissions reductions target

Companies that understand the risks of climate change are beginning to ‘internalise’ the real costs of greenhouse gas emissions, delineated in tonnes of carbon dioxide equivalent (tCO₂e). This means that emissions are in some way accounted for in business decision-making. The first step is usually setting a target to reduce greenhouse gas emissions, either in absolute or intensity terms.

For instance, Italcementi has an absolute target to reduce CO₂ emissions to 14% under 2010 levels by 2020. By 2015, Cemex has a target to reduce by 25% the intensity of CO₂ per tonne of its cement product.

To meet emissions reductions targets, companies are undertaking a wide range of initiatives, from installing energy efficiency equipment in their buildings, to designing lower-carbon products, to rethinking their logistics to reduce travel distances.

Many of these activities save money in the long run. Companies reporting to CDP in 2013 spent US$208& billion on emissions reductions activities, but they estimate that these same initiatives save them US$50 billion annually – with investments paying off in an average of 5.2 years.

Offsetting as part of a carbon-management strategy

No matter how innovative a company is in its efforts to reduce its contribution to climate change, there usually comes a point when some emissions are inevitable. This is especially true for the cement industry, which contributes about 6% of global greenhouse gas emissions and is by its nature carbon-intensive.

Rather than ignore these inevitable emissions, some companies are now purchasing carbon offsets to further reduce their carbon footprints beyond the emissions they can cut directly. An offset represents a tonne of carbon dioxide that has been reduced by a third-party somewhere in the world. That reduction is auditor-verified, after which the offset can be sold to a company or government that is either required to reduce its emissions by law (compliance carbon markets) or chooses to do so voluntarily (voluntary carbon markets).

As the impacts of climate change intensify and as more carbon regulations are implemented by governments around the world, from South Korea to South Africa, a growing number of companies are engaging in carbon offsetting. Last year, 56 major companies reporting to CDP were regulated under compliance carbon markets such as the European Union Emissions Trading Scheme (EU ETS) or California’s cap-and-trade regulation. In fact, Cemex, which falls under the EU ETS, was among the largest compliance buyers of carbon offsets by volume in 2013.

Meanwhile, at least 214 companies reporting to CDP purchase offsets voluntarily. In many cases, companies that anticipate carbon regulation in the jurisdictions where they operate will engage with voluntary offsetting in order to gain experience with carbon markets ahead of compliance. But voluntary carbon offsetting can also be part of a general corporate social responsibility strategy or a tool for managing reputational risk. There are now thousands of voluntary offset projects around the world that prevent deforestation, install wind energy, distribute cleaner-burning stoves to poor households, destroy methane emanating from landfills, and more. Many voluntary buyers choose an offset project in part based on its proximity to their operations or supply chain.

This is part one of a two-part article written by Allie Goldstein for World Cement’s October 2015 issue and abridged for the website. Subscribers can read the full issue by signing in, and can also catch up on-the-go via our new app for Apple and Android. Check back later today for part two of the article on www.worldcement.com.

Read the article online at: https://www.worldcement.com/europe-cis/01012016/reduce-what-you-can-offset-the-rest-part-one-13/