Through the creation of their carbon bank in 2007, Morgan Stanley has aimed to bring the voluntary carbon credit market up to par with the regulated one.
“With companies that aren’t required to do anything by regulation, there has clearly been a growing interest in choosing to address their carbon footprint,” says Vice President, Olivia Hartridge. “That’s partly because shareholders are beginning to exert some pressure. And partly because customers are beginning to ask questions about the carbon intensity of the products they buy and the services they use.”
So in 2007, Morgan Stanley stepped in to make sure the reputations of the companies taking voluntary measures would be safeguarded with high standards.
“A lot of the services that existed prior to the Morgan Stanley carbon offsetting service were small scale services that weren’t guaranteeing a certain quality level,” says Olivia Hartridge. “In addition, the degree of transparency that existed, didn’t meet the level you’d expect in a regulated carbon market like the EU emissions trading scheme. There’s no particular reason why you can’t meet that regulated market standard. In fact, it’s in large brand names’ interest to meet the standard of the regulated carbon market because otherwise they are taking a risk with their reputation. We decided to launch the offsetting service as a means of filling that gap and meeting the needs of our customers.”
There has also been a growing concern that not setting standards of quality in the voluntary market would lead to the perception that there was a problem with carbon trading in general.
“People were getting confused between the voluntary and regulated carbon markets and thinking there was a problem with the carbon market as a whole, which isn’t the case,” says Olivia Hartridge. “That confusion was dangerous because if you damage people’s faith in the regulated carbon market, you’re dealing a hammer blow to the best chance we have of dealing with climate change cost effectively.”
The DNV connection
DNV is involved in the verification stage of Morgan Stanley’s carbon offsetting service. After assessing the customer’s emissions inventory (their current emission sources) DNV verifies the total greenhouse gas emissions from this inventory (their current carbon footprint). Morgan Stanley will then ensure that high-quality carbon credits equal to the verified carbon footprint are procured and cancelled on behalf of the customer. DNV is also often chosen by project developers to validate the design of an emission reduction project and/or verify the total quantity of carbon credits generated by that project.
Throughout each step of a customer offsetting its carbon footprint, and for each emission reduction project in the carbon market, maintaining DNV’s independence from both Morgan Stanley and the customer is critical. As Managing Director, John Woodley, says, “The implementation of impartially administered verification standards is key to any market. DNV is well positioned to provide that service in the carbon market.”
“We work together through the carbon offsetting service in providing an A to Z service that meets international standards,” continues Olivia Hartridge. “But part of meeting those international standards is that both of us maintain our distance and DNV maintains its independence. It’s extremely important that when a verifier does its job, it does so completely independently. That’s why DNV has such a high reputation. DNV’s independence from Morgan Stanley and the customer is 100% protected throughout our carbon offsetting service.”
Empowering people
As he gets more in depth on what effect the carbon market has globally, John Woodley’s passion about it is evident.
“The concept of real investment for real projects and real value transfer to less developed regions of the world, to communities that otherwise would be largely dependant on aid… it’s fantastic,” he says. “It’s a far better result than simply providing aid. We’re providing real value to the world at large. It’s a wonderful result.”
Olivia Hartridge continues where he leaves off. “Carbon flows are likely to be much more financially meaningful than aid flows in the future, should a global carbon market develop,” she says. “In fact, they already may be in some parts of the world.
“To give an example, there is a community of farmers in India that are now aware that manure and waste biomass have monetary value, whereas before, it may have just been dumped. Now they are apparently watching to see where the price of carbon is when they charge a price to the local utility for the biomass, which burns it in place of fuel in order to sell those emissions reductions into the EU.”
“It’s empowered them in a fantastic way,” says John Woodley, “giving them meaningful negotiating power with a local utility. Now local farmers know that if the local utility doesn’t give them fair value they could go elsewhere and get someone else to fund a project that they could, as a community, own and operate.
“A general interest of ours is bringing a level of simplicity and faith in markets,” he summarises, “both for participants and regulators, and for the public at large.”
Date: 13 June 2008