The CarbonNeutral Protocol Index

CarbonNeutral® certification is an action that represents immediate positive impact on GHG emissions. Clearly over time the goal of each organisation should be to reduce GHG emissions to zero, through the application of energy efficiency, switching to renewable energy and through technological innovation. It is our experience that leading organisations use external environmental instruments in parallel with internal reductions as part of the transformation journey and to bridge the gap towards stretching and impactful reduction targets.

The CarbonNeutral Protocol recommends that for all subjects the client should develop a GHG reduction plan to deliver internal emissions reductions, taking into consideration the main sources of GHGs from the subject and the likely cost-effectiveness of alternative emission reduction projects. With time, technological innovation has the ability to make low carbon projects viable. Understanding this project landscape and how much an organisation can invest in low-carbon transformation without impacting competitive performance are important inputs to an effective carbon reduction plan.

An excellent framework to assist organisations in evaluating a range of internal GHG reduction projects is marginal abatement cost analysis, an economic concept that measures the cost of reducing one more unit of GHG emissions. Marginal abatement costs are presented on a marginal abatement cost curve or MAC curve, a graphical representation of the cost and scale of GHG reduction projects. While there are many more aspects to consider beyond scale and cost, they are useful tools to guide corporate decision making among a variety of GHG reduction projects.

Figure 10 illustrates a MAC curve. Each rectangle on the MAC curve represents a different project to reduce GHG emissions. The width of each box represents the emission reduction potential a project can deliver compared to business-as-usual, and the height of each box represents the average cost of reducing one tonne of GHGs through that project. The MAC curve is ordered left to right on a per tonne basis from the lowest cost to the highest cost projects. Projects that appear below the horizontal axis have a negative cost, meaning the low carbon project saves more money than it costs. Projects that appear above the horizontal axis have a positive cost. Corporate MAC curves often rise steeply as more GHGs are reduced.

To plot a project on a MAC curve you need to perform a calculation that considers the lifetime costs and GHG reductions of the project. Table 18 illustrates the calculation for a project to replace desktops with laptops. For this project the marginal abatement cost is $50 per tonne, which would be the height of the box on the MAC curve. The width of the box illustrates the scale of the reduction, which in this case is determined by the number of desktops replaced. Each laptop saves 0.4 tonnes of CO2, so a business replacing 2,000 desktops would save 800 tonnes of CO2. This reduction in GHG emissions is measured relative to the business-as-usual baseline of running desktops for the next four years.

Figure 10: Illustrative MAC Curve

Table 18: Illustrative MAC Calculation
Replacing a desktop PC with a laptop PC has a MAC of ~$50 / tCO2e.

For most subjects, the client will have a number of projects with a negative cost of carbon. The more reduction projects a client has implemented the greater the marginal cost of further reduction becomes. Optimising heating and cooling temperatures is a project with a negative cost of carbon: simply questioning if the heating needs to be so high, or if the air- conditioning needs to be so low, can yield savings and setting temperature policies can then lock in these savings without incurring significant costs.

When it comes to selecting projects to implement, aspects beyond the scale of the reduction and cost per tonne should be considered, and each project will have a unique set of considerations. Keeping with the laptop example, the ability to work remotely and the impact on data security policies, should feature within decision making and may impact the cost if data security resources need to be increased. The administrative burden of implementing a project is another important dimension to consider and such costs can be factored into MAC data. The scale of reductions from introducing laptops is determined by the number of employees that receive new laptops, which is a function of the number of employees, while the administrative burden of adapting policies to facilitate remote working and data security is relatively constant. On this basis, the project might only make sense for a company with a large number of desktop computers to replace where the aggregate reductions are sufficient to justify the administrative burden of implementing the project.

It stands to reason that projects with a negative cost of carbon should be implemented as they improve the bottom line. As clients implement the low-hanging fruit and progress towards their emission reduction target, it becomes increasingly expensive to achieve incremental reductions and there is a point on the MAC curve where it becomes more cost effective to look externally for emissions reductions. The use of environmental instruments, including carbon credits, is the mechanism for implementing external emissions reductions, where an organisation sources and retires credits from verified emission reduction projects.

An impactful carbon reduction plan is a plan that meets a GHG reduction target in the most cost effective way through a combination of internal and external reductions. Marginal abatement cost analysis is a tool to support decision making as part of that planning process. GHG reduction plans should be reviewed periodically to assess progress against planned actions and to assess the feasibility for further reductions, taking into account the availability of new technologies and enabling policies and incentives. GHG reduction plans should be reviewed periodically and where applicable a director or senior manager should be given responsibility for overseeing the development and ensuring the implementation of the plan for reducing emissions.