Published June 2, 2012
Pacific Carbon Trust (PCT) is an innovative policy instrument developed by the British Columbia government to address climate change. This hybrid instrument blends a market mechanism with public investment and regulation as part of the government’s commitment to mitigate greenhouse gas (GHG) emissions. The model is designed to help establish a local carbon offset market as part of a larger framework that regulates carbon neutrality in the public sector to reduce GHG emissions while influencing cultural norms and behaviour.
Pacific Carbon Trust is a Crown corporation created by the provincial government. PCT charges British Columbia public sector organizations (PSOs) by the tonne for their annual GHG emissions, calculated for their carbon equivalency. Funds collected from PSOs are used to invest in pollution reduction schemes to offset the government’s annual operating emissions with the goal of making the government carbon neutral. Pacific Carbon Trust managed to offset close to a million tonnes of GHGs for 2010, the first year of its mandate. As a result, BC has the first senior government in North America to become carbon neutral.
The provincial government has shown leadership in tackling climate change by implementing a series of precedent setting and legally binding GHG reduction goals and committing to carbon neutrality in its operations. This commitment is enshrined in the Greenhouse Gas Reduction Targets Act and applies to all provincial public sector operations. This is part of a larger climate change action strategy that includes policies aimed at both mitigation (reducing the emissions that cause global warming) and adaptation (adapting policies to deal with the effects). B.C.’s compulsory carbon tax is an example of a mitigation policy, while mandatory flood protection is an example of adaptation.
Sustainable Development Characteristics
Greenhouse gas emissions are very likely the cause of global warming (Bernstein et al., 2007) and climate change is a long-term problem with complex environmental, economic and social repercussions for all life on the planet (Aben, Hartley & Wilkening, 2010). The global atmospheric concentration of carbon is now above the level on which the Intergovernmental Panel on Climate Change (IPCC) based its worst-case calculations (Harford, 2008; IPCC, 2007a). Climate change impacts such as water shortages and fire associated with frequent drought, flooding in other areas, species stress and ecosystem collapse may occur more quickly than originally thought, resulting in high social and financial costs to communities and industry (Harford, 2008; Hansen et al., 2010; Guyatt et al., 2011; Min, Zhang, Zwiers, & Hegerl, 2011; Stern, 2007).
Government decision makers who ignore the importance of climate change mitigation and adaptation policies risk increasingly significant impacts in the communities they represent, with potentially devastating repercussions. A government that is proactive about tackling climate change is responding to changing conditions to reduce harm and promote resilience for a more sustainable future.
Climate change mitigation and adaptation strategies have many social benefits including healthier outcomes for human and non-human life, improved living conditions and more sustainable communities (Berkhout, 2005; Bosetti, Carraro & Tavoni, 2009; Garnaut, 2008; Government of British Columbia, 2008a; IPCC, 2007b; Stern, 2007; UNEP, 2011). The United Nations Environment Program (UNEP) has called for urgent action by policy makers to implement new green incentives that promote the transition to a low carbon green economy to reduce environmental risks and enhance human well being (UNEP, 2011). The green, clean or low-carbon economy is defined as the sector of the economy that produces goods and services with an environmental benefit (Muro, 2011).
Critical Success Factors
Changes that have the biggest impact on GHG reductions are often the result of induced technologies developed to save money but provincial regulations are also important drivers of technological change (Aben, Hartley & Wilkening, 2010). The model featured in this case study combines both by regulating public incentives to make a stronger business case for the innovative technology often evident in carbon offset projects. Government support made it possible to establish a viable carbon market in British Columbia; the second largest in North America (personal communication, September 30, 2011). This underscores the value of public incentives to strategically harness market-based mechanisms that address climate change while growing the green economy and catalyzing innovation outside normal channels.
By regulating public service organizations to reduce or pay to offset their annual GHG emissions, the government created a model to fund ongoing activities for Pacific Carbon Trust. This public sector regulation has helped establish a framework for change that provides the support PCT needs to tackle more complex and challenging projects than the private sector would be willing or able to take on.
Stakeholder consultation in the development of BC’s new forest carbon offset protocol or FCOP helped boost the credibility and sustainability of the outcome. This process allowed PCT to benefit from the expertise of other carbon finance, project development and sustainability actors. More consultation in the development of future offset protocols can help promote awareness of what PCT does and broaden support for the program.
Pacific Carbon Trust offsets have created a limited amount of green employment, supporting clean tech innovations. This helps facilitate the transition to a lower carbon economy and can potentially be leveraged to increase support for such initiatives in the private sector. This transference is more likely to happen if successes are well promoted.
The innovations and systems PCT supports help position BC as hub for carbon expertise, while influencing cultural norms to adopt a lower carbon economy. If BC is well marketed as a central location for carbon systems and expertise, this distinction will attract investment from around both the country and the world.
Government leadership and the certainty of carbon price signals help make the business case for offsets while promoting acceptance for innovative programs like PCT. A combination of political leadership and economic incentives made it possible for PCT to achieve its mandate but an uncertain political future may jeopardize the program’s viability.
Community Contact Information
Scott Macdonald, CEO
Pacific Carbon Trust
A local carbon market has been established and PCT has succeeded in helping make BC the first carbon neutral senior government in North America. This allows the Province to show leadership and use this initiative as a demonstration project in support of ecological, social and economic objectives. PCT helped jumpstart the market and mitigate skepticism regarding offsets in certain key sectors, including forestry and oil and gas.
The fact that PCT is part of a larger climate change action framework supported by the government gives the Crown corporation credibility and has helped PCT tackle some complex projects using policy incentives to set long term precedents.
Most stakeholders believe PCT has been successful in achieving emissions that would not have otherwise taken place and that PCT has been successful at promoting green employment. Almost all believe PCT is helping position BC as a green innovation hub and a centre for carbon expertise.
Most stakeholders also believe the carbon-neutral government/PCT framework could work at the federal level with modifications to accommodate context specific political, economic and environmental conditions. Many stakeholders did however express reservations about timing, saying a strong economic climate and support from the federal government are also essential.
Forestry offsets are considered by most to be as valuable as any other carbon reduction strategy, if done properly. In addition, those who are familiar with BC’s Forest Carbon Offset Protocol (FCOP) believe this protocol provides a high level of quality assurance. Many stakeholders believe forestry offsets are often more valuable because of the other environmental benefits they provide, in addition to carbon reduction, such as the promotion of biodiversity, cleaner air and water. Developing a new protocol for forestry carbon offsets in consultation with stakeholders has produced an outcome most forestry and carbon accounting stakeholders now support as a valid process with high standards and credibility.
Some stakeholders are critical of PCT because the organization initially hired people without a background in carbon finance. Many critics also acknowledge that experienced professionals were harder to find at the time and those who have had personal dealings with PCT describe team members as smart and capable, noting staff have worked hard to develop new ways of doing business. Efforts to provide proponents with support helped PCT achieve its challenging first-year target and work is ongoing to improve PCT processes. This includes the development of new protocols and the aggregation of smaller projects in order to make them viable.
What Didn’t Work?
Substantive communication about the complexities of how Pacific Carbon Trust operates and results of the program have been an ongoing problem. Criticism of PCT has dominated media coverage of this sometimes confusing policy instrument, casting doubt upon its efficacy and value, in turn jeopardizing political and public support. One of the most commonly cited barriers to PCT’s effectiveness is the problem of credibility created by having public service organizations fund controversial and difficult to measure offsets in the private sector, particularly with respect to additionality. Some critics question the value of carbon offsetting in general as a means of effectively reducing GHGs. There is concern the practice encourages “free riders” or offset suppliers who might have implemented a particular pollution reduction scheme even without the offset funding because it was already in their best interests to do so. If such a project would have happened anyway under a “business as usual” scenario, the offset is not additional, and therefore of no added value.
Using funds generated from public sector organizations to buy offsets from large natural resource companies whose image is in conflict with that of the green economy has also created controversy. Some observers who recognize the value of investing in these offsets still believe negative perceptions have been harmful to the government’s climate change agenda. The government has been criticized for taking money away from cherished public institutions like hospitals and schools to pay for offsets that benefit large, profitable companies in the private sector. There has been little public defense of PCT methods or effective public outreach to explain the program. These problems are currently being addressed and $5 million in new capital was announced in the spring of 2012 to help school districts pay for energy-efficiency projects to lower GHG emissions and therefore reduce the need to purchase offsets from PCT.
Stakeholders were consulted in the recent development of B.C.’s new forestry carbon offset protocol (FCOP) but engagement was not continuous, leaving some participants feeling left out of the loop until the result was finally announced. Climate change responses must be designed and implemented by engaging a variety of stakeholders to collaborate on how best to achieve desirable yet realistic futures (Dale, 2001). An advisory panel with stakeholder representation from the private and public sectors is being created to better meet the needs of those who purchase offsets from PCT. This panel will also review the structure and diversity of PCT offsets and make suggestions about future opportunities.
Hiring PCT staff without a strong background in carbon finance was initially a barrier that made it even more challenging to meet a tight deadline to achieve carbon neutrality. Staff has since been highly praised for learning quickly on the job. As carbon markets grow, so will the number of professionals with carbon expertise but there is also a need for more education to meet current and future demand.
There has been a mismatch between the sectors where emissions are generated and where offsets have been purchased by PCT. Pacific Carbon Trust staff focussed on larger projects in order to meet the government’s target. One of the biggest barriers for smaller and more innovative projects has been a lack of protocols for certain types of activities. There was also not enough lead-time to allow the corporation to be overly selective and larger projects helped PCT meet its target. Now that Pacific Carbon Trust has successfully helped the government achieve carbon neutrality, more attention is being paid to the aggregation of smaller projects to make them viable, and the development of new protocols to support more innovative offsets.
Financial Costs and Funding Sources
Funding for PCT operations and its investment in carbon offsets is public. In addition to the $25 million dollars in seed money PCT received from the provincial government, public sector organizations (PSOs) are required to purchase offsets from PCT for their annual operating emissions. The current rate is $25/tonne, charged over and above the provincial carbon tax on fossil fuels. The money PCT collects from PSOs helps fund a variety of carbon offset projects across B.C. that include energy efficiency, fuel switching and carbon sequestration projects.
Pacific Carbon Trust leverages this public funding to reduce emissions in support of a carbon neutral government while showing leadership in transitioning to a low carbon future. The organization has also achieved some success in helping stimulate the local green economy and position B.C. as a green innovation hub and a source of systems expertise.
Qualitative data was gathered to evaluate the effectiveness of this policy instrument in a series of interviews with a purposive sample of stakeholders, supplemented by a snowball sample. Interviewees included carbon finance and climate change experts, offset suppliers, proponents and public policy professionals, including representatives from public sector organizations required to purchase carbon offsets from PCT. Effectiveness was evaluated through an analysis of interviewees’ perceptions, based on their knowledge and experience.
Quantitative data was collected from PCT to examine how effectively the organization has targetted the sectors where greenhouse gas emissions (GHGs) are generated. A secondary aim of the research was to evaluate whether PCT has stimulated the local green economy and helped position B.C. as a green innovation hub. The green, clean or low-carbon economy is the sector of the economy that produces goods and services with an environmental benefit.
Detailed Background Case Description
The rationale behind the Pacific Carbon Trust model is to facilitate a carbon neutral government by purchasing offsets on the government’s behalf and to provide a vehicle and incentives for behavior change that would not otherwise take place. Emissions retired by PCT offsets must therefore go beyond ‘business as usual’, which is a distinction known as additionality. More broadly, the PCT model is an attempt to mitigate climate change while also creating economic and social benefits. The requirement to buy offsets acts as an incentive for public service organizations to reduce their emissions, while offset project funding encourages mainly private organizations in the province to implement pollution reduction strategies they can sell to PCT. These projects also help develop and diffuse leading-edge technologies and practices that trigger and support green employment, while helping position BC as a green innovation hub.
Pacific Carbon Trust is a hybrid policy instrument model that blends a market mechanism with regulation; offsets purchased by PCT help build a local carbon market while public sector organizations are required to pay PCT for their annual operating emissions. ‘Carbon’ is a term used to describe a range of GHG emissions measured in terms of their carbon equivalence.
The carbon-neutral government framework is part of a larger climate change action strategy that includes polices aimed at both mitigation (reducing the emissions that cause global warming) and adaptation (adapting policies to deal with the effects). BC’s compulsory carbon tax is a mitigation policy, while mandatory flood protection is an example of adaptation.
Most climate change impacts will be felt at the regional and local level, making action by these governments even more urgent. Local and regional governance systems and institutions can impede or enhance the transition towards sustainable development. The British Columbia government is a leader in climate change action with a range of initiatives that go well beyond those of other jurisdictions in North America.
The carbon neutrality requirement does not apply to BC municipalities but most (180 of 188) have voluntarily signed on to the BC Climate Action Charter. This charter commits local governments to become carbon neutral by 2012 in exchange for conditional grants equal to what they pay in carbon taxes. Local governments have the option of reducing or offsetting their own GHG emissions or purchasing carbon offsets. Unlike public service organizations, municipalities do not have to purchase their offsets from PCT (Government of British Columbia, 2011).
In addition to establishing a voluntary carbon market, PCT has a mandate to support and grow local green activities and stimulate the growth of a low carbon economy (Pacific Carbon Trust, 2010). PCT can also play an important business promotion role for the local carbon market. It already engages with private sector businesses that want to voluntarily reduce their emissions and PCT could become involved in new green business lines, pending approval from their Board of Directors (personal communication, March 9, 2011). Inherent in the PCT mandate are other social and economic objectives: to promote understanding about the importance of climate change action, and to demonstrate how putting a price on carbon can help contribute to such a strategy.
Many respondents expressed a desire for public bodies to be able to access financing to invest in pollution reduction schemes to reduce their own emissions. Others maintained purchasing offsets is more efficient but went on to complain that this strategy is poorly explained even within the public sector. Since interviews were completed in 2011, access to capital financing has been announced for public school boards to help pay for energy efficiency projects. There has also been an attempt to explain PCT priorities and operating policies in response to a series of critical articles published in the local media.
Skills development is another barrier identified by several interviewees, with some saying BC needs more qualified people to work in the carbon market. The fact that PCT is subject to political change is another identified barrier, often cited by the same interviewees who consider policy certainty to be a crucial component in any climate change action strategy.
The price of carbon was frequently identified as a barrier, with many interviewees insisting it must be higher to effect real change. Most insisted PCT must be willing to pay more in order to make the business case for offsets. It was also noted that paying a higher price would encourage more complex and innovative projects.
When asked whether exposure to green initiatives at work actually influences people to embrace greener choices in their personal lives, many interviewees pointed out this can only happen if realistic options to improve behaviour are readily available. This underscores the need for a massive paradigm shift to support the kinds of behaviour change programs like PCT are designed to encourage.
- Should other jurisdictions be developing similar policy instruments to help establish and grow local carbon markets?
- Should local and regional governments aim to become carbon neutral in order to set an example?
- Who should participate in developing the definition of “carbon neutral”? The Sierra Club, for example, has disputed the exclusion of certain emissions in B.C., such as those associated with mining activities.
- Should the federal government consider adopting a similar policy model to combat its image as an environmental laggard?
- How important is it for a carbon offset program like PCT to be part of a larger climate change action framework?
- Should this policy instrument also be used to demonstrate innovative ways to reduce greenhouse gas (GHG) emissions while helping influence cultural norms and behaviour? Can it play a part in stimulating the green economy and positioning jurisdictions as green innovation hubs?
- Should publicly funded organizations like PCT provide whatever support proponents require to effectively prepare and package their offset projects? Or should staff make a conscious effort to defer to local carbon professionals whenever and wherever possible in order to promote the green economy?
- Should an offset purchaser created by the public sector and the public body responsible remain silent in the face of widespread criticism? Or should such organizations engage in a coordinated communications strategy to explain why the policy instrument was created, how it operates and why people should support it? If so, how should such a communications strategy respond to public criticism of government climate change objectives and programs?
- How important is it for communication to be transparent? Should past problems be explained along with details about how these problems are being addressed?
- How can the benefits to society of particular sustainability programs be explained broadly enough to encourage support for a new lower carbon economy?
- How can these benefits be personalized to encourage behaviour change?
- Most stakeholders believe PCT should pay more money per tonne to compete with the “business as usual” scenario. Because of the abundance of hydroelectric power in B.C., it is more expensive to find emissions reductions, with less “low hanging fruit” to pick. Should jurisdictions that have more carbon intensive energy sources such as coal-fired generating plants charge less for carbon? Or should price signals be low only in the early stages of the transition period until all the less expensive projects have been picked up?
- Should communication regarding initiatives like PCT include reassurances of policy certainty, including clear price signals for carbon to allow business to respond?
- How important is it for public climate change action policy to be integrated across agencies and departments both horizontally and vertically? What can be done to achieve this sort of synergy if total integration is not possible?
- How important is an integrated communications strategy to express public values and explain governance priorities and actions in support of a new paradigm focussed on sustainability?
- How can the public be encouraged to visualize the future change sustainability initiatives can deliver with the right level of support?
- If the value of sustainability communications is recognized, how can the story of a pioneering government as both leader and catalyst be made compelling?
- Do public educators have a role to play in telling these stories?
- Is it also necessary to show people how they can contribute to positive change in realistic and meaningful ways?
- How can complex carbon finance issues be made both interesting and easy to understand?
- Should carbon finance education be explored as both a tool of engagement and a means to increase the green talent pool? If so, should offset program principals and government experts be involved in helping develop carbon finance curriculum? Should existing carbon professionals also be consulted to ensure the education provided is relevant enough to increase the local knowledge base and encourage further growth in the market? Could this also help position the jurisdiction as a source of green expertise?
- Should the government offer carbon education directly to its own employees, to other interested parties and to the general public? (In B.C., the publicly funded Pacific Institute for Climate Solutions (PICS) offers an online course on climate change to government employees that is now also available to the general public.)
- To what degree should resources be invested to encourage and support smaller and more innovative projects to increase ecological benefits and garner more support for the program? Could this investment be justified because it stimulates the local green economy while helping position the jurisdiction in question as a green innovation hub?
- Since the government can borrow at a low rate of interest, with private sector returns estimated at between 10 and 20% in some industries (personal communication, December 7, 2011) does this also help justify public investment to support some of the more creative and challenging offset projects? How important is it to tie this to the potential development of innovative technology, the creation of green jobs and the associated co-benefits of offset projects that create atmospheric benefit while protecting other important ecosystem services?
- Should the government be willing to pay more for better quality offsets that can withstand public and private criticism?
- Since administrative costs are a major deterrent to smaller and more innovative projects, could public investment to encourage and aggregate these projects help improve the narrative for the offset program?
- How high should the price of carbon be (or set for the future on a clear price schedule) to make the business case for innovative carbon offsets? Should this vary by sector? How can the most effective price signals be determined in each sector?
- How important is it to monitor the success of the program to both keep it on track and justify public investment and support?
- How can a public offset purchaser like PCT effectively target the sectors where emissions are being generated, to demonstrate how such projects can be done? Is the match between where emissions most frequently occur and where offset projects are implemented important to the general public? Is there potential to develop a narrative around the benefits and potential co-benefits of innovative projects in the sectors where GHG emission reductions are most needed?
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