45. In January 2007, aware of these problems and in particular of the increasing damage to consumer confidence in the offset market, DEFRA launched its consultation on establishing a voluntary code of Best Practice (hereafter, the code) for the provision of carbon offsetting to UK consumers. In its memorandum Defra said:

Government considers that establishing a code will provide a framework to support the development of robust, transparent, reliable and timely carbon offset products that offer consumers genuine value for money.[57]

It went on to explain that it did not think at this stage that a regulatory or legislative code would be appropriate given the early stage of development of voluntary offset market. It is felt that a voluntary code will allow for flexibility and innovation in the market place. The deadline for responses to the consultation was April 2007 and DEFRA hopes to have the code in place by autumn 2007.

46. Although we have not produced a formal response to the DEFRA consultation on establishing a voluntary code of best practice for the provision of carbon offsetting to UK customers, important and often contentious issues and considerations raised in the course of our own inquiry overlap in many areas with the questions raised by the consultation. We have conducted a detailed and comprehensive inquiry into the voluntary carbon offset market and we expect therefore the Government to take serious and active consideration of the conclusions and recommendations of this report in the further development of its code.

47. The consultation asks for interested parties to submit their views on a number of questions about the proposed code. The first of these concerns whether people think that the Government should publish a code at all, whether parties agree with the proposed aims of the code and whether the Government ought to consider making it mandatory. It then goes on to talk about the different types of credit available in the market. It sets out the arguments against using VERs, citing the lack of overarching internationally agreed project approval and verification procedures and the lack of an international registry for tracking and cancelling VERs as reasons for their exclusion from the code's standards. It follows with the arguments in favour of using mainly CERs and EUAs, and "less easily" ERUs as "appropriate credits to demonstrate best practice in offsetting".[58] These arguments include the fact that compliance market credits only allow for credits to be created after an emissions reduction has actually been made, that there are set standards for assessing and approving projects and an international registry for tracking credits and that they "better reflect the cost of carbon." The consultation then asks for views about whether parties agree that CERs, EUAs and ERUs are the most appropriate credits to use, but somewhat surprisingly does not specifically ask for views on whether VERs are at all appropriate or not. The consultation leans strongly in favour of CERs being the credit of choice in the proposed code.

48. The possibility of double-counting issues with EUAs is also raised. The consultation proposes that where an offset is already accounted for under one of the Kyoto mechanisms, that consumers are made aware that their 'emissions reduction' is more akin to a charitable donation that may or may not be additional. It asks for views of whether parties agree that this is the best way to deal with this issue.

49. The code proposes an accreditation quality mark. This would allow offset providers to advertise the "quality" of their offset to customers and "provide assurance that their service meets the government code."[59] DEFRA proposes that the quality mark would apply to the offset product, rather than the business supplying or buying the offset product. There is no invitation to submit views specifically on this question. An accreditation body is proposed to administer the code which will ensure that the quality mark is used correctly by an initial assessment and then by annual auditing. It raises the question for consultation of what evidence the offset provider should have to show to demonstrate compliance with the code, but does not offer any suggestions itself. The consultation also discusses the characteristics of an accreditation body which is says will be an "appropriate third party". This will have the characteristics of being independent, trusted, technically and commercially competent, with the ability to provide a communicative and advisory role. No further organisational detail is professed.

50. The consultation proposes the introduction of a 'carbon calculator' a database of Government-agreed carbon emissions and factors for households, private road transport and aviation. Offset providers would have to use this database when calculating the effects of their activities order to comply with the code. Business emissions will remain outside the scope of this database. Offset providers selling credits to offset emissions from this sector would have to use the relevant emissions factors in the Government's guidelines for Company Reporting of Greenhouse Gas Emissions instead. The consultation asks whether parties agree with the database being the approved method of calculating emissions and whether there should be any guidance on how to calculate emissions from businesses. The Act on CO₂ Calculator has very recently been introduced by DEFRA but it is as yet too early to say whether the accuracy and fairness of its calculations for emissions has received critical approval. DEFRA has also pointed out that a final version of the Calculator will be launched at the end of the year following any useful feedback received. Moreover, the department also stated that the standardized set of emission factors and calculations for use within the Code of Practice for offsetting would probably be informed by the Act on CO₂ Calculator but would involve a separate process.[60]

51. The consultation invites views on whether the Code should apply to companies providing offsets as part of a package of goods and services, and whether companies which offer offsetting at the point of sale should be required to make it an opt-out rather than an opt-in choice—also referred to as a "compulsory choice option". It proposes that the quality mark should be for accredited offsetting products only and should not be used to label businesses that have offset their own emissions. It asks for views on this, and on whether any other conditions should apply to the use of the quality mark.

52. The consultation proposes that the code will require offset providers to provide six pieces of "necessary information" for consumers purchasing an offset. This includes: a clear and simple explanation of offsetting; information on climate change and the importance of reducing energy consumption; an explanation of the mechanisms which have been used to source the carbon credit; details of the projects supported; a statement of whether the credits come from the provider's portfolio or through a third party broker; and confirmation that the credits have been purchased and cancelled. Views on whether these six points are necessary, whether consumers should be allowed to choose the projects that they fund from an offset provider's portfolio and whether written confirmation of credit purchase and cancellation should be provided to all customers, or on request only, are invited.

53. The proposed code also sets out stipulations for providing pricing information to consumers at the point of sale. These include: the volume of emissions being offset; cost per credit being purchased; total cost of credits purchased; any charge for processing and administration; and total cost of offsetting service being purchased. It asks whether this breakdown of prices should be provided to consumers and whether it should be provided at the time of purchase or by request only.

54. Timescales for purchasing and cancelling carbon credits are also discussed. Offset providers will have to set up an account in the UK emission trading registry in which credits can be stored and cancelled and transactions recorded. It suggests that providers should have six months after a purchase by a consumer to buy the necessary amount of credits. When credits are purchased, the appropriate number of credits from their account must be cancelled within 48 hours and removed from the UK registry. Here, the consultation asks whether more guidance is needed on how the process of purchasing and cancelling credits works, and whether the timescale for purchasing and cancelling credits is appropriate. The consultation then ends with "housekeeping" questions about how the administration of the code might be financed, whether the code should be reviewed on a regular basis and if so, how frequently. It also asks for views on whether industry could have a role in promoting the code.

55. The consultation is accompanied by a partial regulatory impact assessment which explores the options which were considered when formulating the code. These options were: option 1, do nothing; option 2a, produce a voluntary code based on all credit types; option 2b, produce a mandatory code based on all credit types; option 3a, produce a voluntary code based on CERs, EUAs, and ERUs; and option 3b, produce a mandatory code, based on CERs, EUAs and ERUs. It examines the reasoning behind why the Government has produced the code as presented in the consultation and weighs up the different timescales, costs and benefits of all of the options. It examines the impact on the carbon market that all the options might have, looks at the potential business take-up of the code and effects that it might have on competition in the voluntary carbon offset market.

56. It concludes that option 3a is the preferred option and that a number of "significant players" would be willing to adopt the code's standards without the burden of it being mandatory. It argues that this option minimises the potential competition impacts of the other options and that it could encourage the market to develop a "robust system for the quality control, verification and tracking of VERs."[61]

58   Department for Environment, Food and Rural Affairs, Consultation on establishing a voluntary Code of Best Practice for the provision of carbon offsetting to UK customers, January 2007, p 16 Back

59   Department for Environment, Food and Rural Affairs, Consultation on establishing a voluntary Code of Best Practice for the provision of carbon offsetting to UK customers, January 2007, p 23 Back

60   Defra press release, 20 June 2007. Back

61   Department for Environment, Food and Rural Affairs, Consultation on establishing a voluntary Code of Best Practice for the provision of carbon offsetting to UK customers, January 2007, p 49 Back