Author: WM

World’s Leading Investors Issue Guidelines for Company Action on Climate Change

 
At the Investor Summit on Climate Risk & Energy Solutions held at the United Nations in New York in January 2012, the world’s largest investors issued guidelines detailing their expectations of how companies should approach responding to climate change. The guidelines, entitled “Institutional Investors’ Expectations of Corporate Climate Risk Management”, provide a unified global investor voice on the issue for the first time in response to concerns about the impact of climate change on their investments.

Co-ordinated by three leading investor groups on climate change, the US-based Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC) and the Investors Group on Climate Change (IGCC) in Australia and New Zealand, the document outlines seven steps investors expect companies to take to minimize the risks and maximize the opportunities presented by climate change and climate policy:

  • Governance. Clearly define board and senior management responsibilities and accountability processes for managing climate change risks and opportunities.
  • Strategy. Integrate the management of climate change risks and opportunities into the company’s business strategy.
  • Goals. Make commitments to mitigate climate change risks: define key performance metrics and set quantified and time-bound goals to improve energy efficiency and reduce greenhouse gas emissions in a cost-effective manner; and set goals to address vulnerabilities to climate change.
  • Implementation. Make a systematic review of cost-effective opportunities to improve energy efficiency, reduce emissions, utilize renewable energy and adapt to climate change impacts. Where relevant, integrate climate change considerations into research and development, product design, procurement and supply chains.
  • Emissions inventories. Prepare and report comprehensive inventories of greenhouse gas emissions; data should be presented to allow trends in performance to be assessed and it should include projections of likely changes in future emissions.
  • Disclosure. Disclose and integrate into annual reports and financial filings, the company’s view of and response to its material climate change risks and opportunities, including those arising from carbon regulations and physical climate change risks.
  • Public policy. Engage with public policy makers and other stakeholders in support of effective policy measures to mitigate climate change risks. Ensure there is board oversight and transparency about the company’s lobbying activity and political expenditures on this topic.

In addition, the guidelines set out steps that investors will take in the following areas: analysis, inquiry, monitoring, engagement, collaboration and public policy. By moving beyond disclosure and clearly outlining the areas in which investors expect to see companies take action, the guidelines provide a platform from which investors can monitor the performance of companies and engage with them to encourage positive steps on climate change. Investors are already taking action by monitoring alignment with their expectations through initiatives such as the Carbon Disclosure Project, and collaborating with companies through investor networks and the UN Principles for Responsible Investment. This group of investors considers the guidelines to be of particular importance to companies in carbon-intensive sectors, and those who have not have adopted carbon reduction targets or a systematic approach to managing climate change risks.



 



	


	





	

		
		
Leading Global Investors Urge Action on Investment-Grade Climate Change Policy
	


	
	
	

		
 

A group of 285 of the world’s leading investors issued a “2011 Global Investor Statement on Climate Change” urging governments and institutional policy makers to take new policy action to stimulate private sector investment in climate change solutions. According to the Institutional Investors Group on Climate Change (IIGCC), “current levels of investments in low-carbon technology and infrastructure are substantially lower than the $500 billion per year deemed necessary by the International Energy Agency to hold the increase of global average temperatures below 2 degrees Celsius—the target agreed in Cancun...”  Since 2008, investor support for climate action has more than doubled, when 150 investors with $9 trillion in assets under management first urged government leaders to act on climate change. The IIGCC currently manages more than $20 trillion in assets.


IIGCC also released a report with the Statement, entitled “Investment-Grade Climate Change Policy: Financing the Transition to the Low-Carbon Economy“. The report emphasizes the importance of investment-grade policy to encourage institutional investors to allocate capital toward climate change solutions, including appropriate governmental incentives to compensate for increased risk and a sufficient scale for technology deployment. In addition, the report underscores that long-term policy stability is critical and that retroactive policy changes can significantly damage investor confidence.


The IIGCC calls for both domestic and international policy action, including:


    

  • definition by governments of clear short-, medium-, and long-term greenhouse gas emission targets and enforceable legal mechanisms and timelines;
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  • lasting financial incentives that favor low-carbon assets;
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  • lasting and comprehensive policies that accelerate implementation of energy efficiency, clean energy, and renewable energy;
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  • a legally binding international climate change treaty;
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  • support for the development of the Green Climate Fund and other funds to assist developing countries to address climate change; and
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  • increased efforts to reduce deforestation.
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Québec Prepares to Start Emissions Trading as it Formally Adopts Cap-and-Trade Regulation
	


	
	
	

		
 

On December 14, 2011, Québec formally adopted the Regulation respecting the cap-and-trade system for greenhouse gas emission allowances (the Regulation), which came into force on January 1, 2012 and is based on the rules established by the Western Climate Initiative (WCI).


With the adoption of the Regulation, Québec officially steps to the starting line next to California. The first year of implementation of the system will be a transition year, which will allow emitters and participants to familiarize themselves with how the system works.  In particular, 2012 will provide emitters and participants with opportunities to register with the system, take part in pilot auctions and buy and sell greenhouse gas (GHG) emission allowances in the market. No reduction or capping of GHG emissions will be required during this transition year. Over the course of the year, emitters will also be able to make any adjustments that may be necessary to meet their emission reduction obligations, which will come into force on January 1, 2013.  Starting on January 1, 2013, some 75 operators in Québec (primarily in the industrial and electricity sectors) whose annual GHG emissions equal or exceed the annual threshold of 25,000 tonnes of carbon dioxide equivalent (CO2e), will be subject to the capping and reduction of their GHG emissions.


It should be noted that starting in 2015, companies which import or distribute in Québec fuels that are used in the transportation and building sectors (and whose combustion generates an amount of GHGs greater than or equal to 25,000 tonnes of CO2e per year) will also be subject to the capping and reduction of their emissions.


For all participating WCI members, the adoption of a cap-and-trade regulation a cap is the first of two key steps towards the establishment of a regional North American carbon market. The second step will consist of concluding a series of recognition agreements, among the different partners, to link their systems together.


BC and Ontario in the meantime continue to dither on whether to join the cap-and-trade scheme and businesses in those provinces are losing out on key opportunities to participate in the transitional market, recently valued for 2012 at almost US$ 800 million by Thomson Reuters Point Carbon. By finalizing their cap-and-trade regulations in a timely way, BC and Ontario could continue to be leaders in regional efforts to reduce GHG emissions and to spur technological innovation in their provinces.

 

 



	


	





	

		
		
Durban COP 17 – An Agreement to Agree
	


	
	
	

		
 


From November 28 to December 11, 2011, delegates from 194 countries met in Durban,  South Africa for the 17th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC). With the expiry of the Kyoto Protocol’s initial commitment period looming at the end of 2012, the Durban conference delegates were focused on reaching an agreement to extend or replace the existing UN climate regime.


The negotiators ultimately reached an agreement entitled the Durban Platform for Enhanced Action (the Platform is available online). While the absence of specific details as to what is to be agreed by 2015 introduces considerable uncertainty, for the first time a number of nations which contribute significantly to global GHG emissions have agreed to accept legally binding targets on GHG from 2020. This list includes Brazil, China, India and the US.


Four key actions were agreed upon to build towards a global carbon agreement requiring all major emitters to reduce emissions:


    

  1. Kyoto Protocol Extension. The Kyoto Protocol has been extended for a second commitment period and 35 developed country parties committed to taking on binding emission-reduction commitments after the Kyoto Protocol expires on December 31, 2012. This second commitment period will run from January 1, 2013 to either December 31, 2017 or December 31, 2020, with the final expiration date to be decided upon next year. The parties who committed to a second round of reduction obligations were primarily from the European Union (EU) and have already committed to internally binding emission reduction targets. Certain other industrialized parties, such as Australia, will not take on targets under a second commitment period until a new international climate agreement has been finalized. Japan and Russia have also declared that they will not submit to a second commitment period under the Kyoto Protocol.
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  2. Global Carbon Agreement.  All UNFCCC parties are required to establish, by 2015, “a protocol, another legal instrument or an agreed outcome with legal force” that would come into force in 2020. This agreement will replace the Kyoto Protocol and impose binding emissions reductions on both developed and developing nations (including the US, China and India). The goal remains to limit global warming to 2° Celsius. Nations did ot change the emission reduction commitments they made at the 2009 Copenhagen and 2010 Cancun climate talks. Rules will be developed in 2012.
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  3. Green Climate Fund (GCF).  It was agreed that up to US$100 billion per annum by 2020 will be transferred to developing nations for mitigation and adaptation measures. However, it still remains to be seen how the parties will finance the GCF, but it is expected that the GCF will leverage private sector capital to source results-based investments in emission reduction projects.
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  4. Work Plan. Starting in the first half of 2012, the Durban Platform Working Group will plan its work on matters such as mitigation, adaptation, finance, technology development and transfer, transparency of action, and support and capacity-building.
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Other key outcomes include:


    

  • Carbon Capture and Storage (CCS). CCS was approved to qualify for the Clean Development Mechanism (CDM) and earn carbon credits (under the Kyoto Protocol). 5 per cent of credits issued will be held in a reserve to ensure carbon dioxide does not leak from approved CCS projects for 20 years.
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  • Reduced Emissions from Deforestation and Degradation (REDD). Supportive market-based mechanisms and funding will be discussed through 2012.
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As a result of the extension of Kyoto and a second commitment period, emissions offset markets based on the CDM and Joint Implementation (JI) will remain active. Although details have not been finalized, it is likely that the EU will continue to accept certified emission reductions (CERs), which are awarded under the CDM to emission reduction projects in developing countries, and emission reduction units (ERUs), which are awarded under the JI to such projects in certain developed countries. The EU has committed to a third phase of its Emissions Trading System, which contemplates the continued use of international offset credits such as CERs and ERUs.


It is anticipated that carbon markets will continue to play an important role in the new international climate treaty to be established by 2015. According to Christiana Figueres, the Executive Secretary of the UNFCCC, the extension of Kyoto will enable its accounting rules, flexibility mechanisms and markets to remain as models to inform future agreements.


Within a day of the negotiations closing, Canada announced that it will formally withdraw from the Kyoto Protocol before the end of the year, with the intent that it will no longer have an enforceable emissions reduction commitment. Canada will, however, remain a party to the UNFCCC and a participant in international climate negotiations.


The next key date is February 28, 2012 when parties must submit their views on raising what the conference called the “level of ambition” to achieve significant mitigation, so that a work plan can be launched. The next round of UNFCCC negotiations will take place in Qatar from November 26 to December 7, 2012.

 



	


	





	

		
		
Biogenic
	


	
	
	

		
 

Biogenic emissions: Emissions that result from natural biological processes, such as the decomposition of vegetative matter. Biogenic emissions include emissions of volatile organic compounds from vegetation and emissions of nitrogen oxides from soil that are not caused by human direct or indirect activities.

	


	





	

		
		
Anthropogenic
	


	
	
	

		
 

Anthropogenic emissions: Emissions of greenhouse gas emissions that are produced as a result of human activities. The IPCC describes anthropogenic emissions as: “Emissions of greenhouse gases, greenhouse gas precursors, and aerosols associated with human activities. These include burning of fossil fuels (coal, oil and natural gas) for energy, deforestation, and land-use changes that result in net increase in emissions”.

	


	





	

		
		
New GHG Standards for Corporate Value Chain and Product Life Cycle Released
	


	
	
	

		
 

On October 4, 2011, the Greenhouse Gas Protocol launched two new standards that will enable businesses to better measure, manage, and report their greenhouse gas (GHG) emissions. Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the Corporate Value Chain (Scope 3) and Product Life Cycle Standards are aimed at saving money, reducing risks, and gaining a competitive advantage for companies. These new standards were created in response to businesses that want to better understand and measure their climate impacts beyond their own operations. By using these new standards, companies will be able to create better products and improve efficiency throughout the value chain.


Corporate Value Chain (Scope 3) Standard


The Corporate Value Chain (Scope 3) Standard is designed as a first tool that companies can use to assess their entire value chain impacts and to identify opportunities for them to make more sustainable decisions about their activities and the products they produce, buy and sell. In particular, the new standard provides a harmonized global methodology for businesses to measure corporate value chain and product GHG emissions, which will help drive strategic business decisions regarding GHG reductions. Total corporate emissions often come from Scope 3 sources (i.e. indirect emissions that occur in the value chain, including both upstream and downstream emissions), which means that many companies have been missing out on significant opportunities for improvement. Users of the new standard can no account for emissions from 15 categories of Scope 3 activities. The Scope 3 framework also supports strategies to partner with suppliers and customers to address climate impacts throughout the value chain. As a result, both large and small companies can look strategically at GHG emissions across their value chain and focus limited resources in order to yield the biggest impacts.


Product Life Cycle Standard


The Product Life Cycle Standard is a tool to help users understand the full life cycle emissions of a product and focus efforts on the greatest GHG reduction opportunities. The new standard covers raw materials, manufacturing, transportation, storage use and disposal, and is aimed at facilitating the improvement and design of new products. The results can create competitive advantage by enabling better product design, increasing efficiencies, reducing costs and minimizing risks. In addition, the new standard will help companies respond to customer demand for environmental information and make it easier to communicate the environmental aspects of products. Like the Corporate Value Chain Standard, the Product Life Cycle Standard represents a globally consistent approach to measure and manage GHG emissions.

 




The new standards are available in our link section.

	


	





	

		
		
Court gives California Green Light to Proceed with Cap-and-Trade
	


	
	
	

		
 

On September 28, 2011, a California Supreme Court judge ruled that the state’s Air Resources Board (ARB) can proceed with implementation of the California’s cap-and-trade program. The ruling was issued in the case of California Air Resources Board vs. Association of Irritated Residents, in which anti-poverty environmental justice organizations have argued a market-based approach exposes poor and minority communities to higher levels of pollution.

The implementation of the cap-and-trade program, which is scheduled to begin in California in 2012, has been held up because of a March 2011 court ruling that required the ARB to further consider alternatives to cap-and-trade that might provide more effective ways of reducing greenhouse gas (GHG) emissions. ARB says that it has adequately considered alternatives such as a carbon tax, and is appealing the March 2011 decision in Superior Court. The September 28th ruling allows the ARB to move forward on cap-and-trade before the Superior Court rules.

California’s proposed cap-and-trade program is a major component of AB32, the state’s 2006 landmark climate change legislation. Under the law, California must reduce its GHG emissions to 1990 levels by 2020. In addition, the legislation sets an overall limit on emissions from sources responsible for 85% of California’s GHG emissions. The cap-and-trade program is designed to work in collaboration with other complementary policies that expand energy efficiency programs, reduce vehicle emissions, and encourage innovation.

More information on the status of California’s cap-and-trade program is available on the ARB web site.

 



	


	





	

		
		
Australia Passes Legislation for Offsets from Farming and Forestry
	


	
	
	

		
 

On August 22, 2011, Australia’s parliament endorsed the world’s first national scheme to regulate the creation and trading of carbon credits from farming and forestry, which will complement government’s plans to put a price on carbon emissions from mid-2012.

The new law is a precursor to carbon price legislation that will be put before parliament in late 2011. Known as the Carbon Farming Initiative (CFI), the new law allows farmers and investors to generate tradeable carbon offsets from farmland and forestry projects. Land use, including agriculture, accounts for 23% of Australia’s emissions. Projects backed by the CFI include reforestation, protection of native forests, curbing methane emissions from livestock, better fire management of savannah grasslands as well as capturing methane emissions from some landfills. Excluded projects include those deemed to affect the availability of water, threaten the richness of plant and animal species in an area or might threaten jobs. Managed investment schemes for forestry are also excluded. Under the rules, a project can only earn carbon credits if the investment is additional to those that would occur normally, with the lure of revenue from credit sales making the project financially viable.

Modeling by the Australian Treasury estimates the CFI will generate credits totalling 7 million tonnes of GHG reductions by 2020. ClimateWorks, a non-profit organization focusing on low-carbon growth, has calculated the CFI could reduce emissions by up to 41.5 million tonnes by 2020, mainly through greater investment in carbon tree plantations.


The CFI scheme is expected to start off slowly until the approval of laws parliament passes laws to put a price on carbon emissions from July 2012. Under the scheme, a government panel will vet and approve the rules for each project activity and an agency will administer the scheme’s offset registry. A number of project types have already been approved, see www.climatechange.gov.au/cfi. Successful projects will earn Australian carbon credit units, or ACCUs, that can either be traded domestically or overseas. ACCUs can be compliant under the U.N.’s Kyoto Protocol, depending on the project type. Or projects can sell non-Kyoto Australian units that can be used in the domestic voluntary carbon market to help firms meet carbon neutral goals. Kyoto-compliant units can be converted into credits that can be traded internationally and sold to companies or governments with Kyoto emissions targets. To provide investor certainty, the initial crediting period for native forest protection is 20 years, 15 years for reforestation projects and 7 years for all other eligible offset projects.


Pricing of the ACCUs will depend on the demand for offsets from certain types of projects, and particularly on the price for carbon in Australia. Some analysts expect ACCUs to closely track the national price on carbon emissions from power generators, smelters, refiners and others.

Prime Minister Julia Gillard plans a carbon tax starting at A$23 a tonne on about 500 of Australia’s biggest polluters from July 2012, ahead of emissions trading from mid-2015. Agriculture is not included in the carbon price scheme, but the government wants farmers to be able to benefit from the market for carbon credits. Under the carbon price plan, Australian industries which buy carbon offsets will need to ensure at least 50% of the offsets are domestic credits.


The government estimates that the CFI will help Australia reduce its carbon emissions by 460 million tonnes by 2050. The government has committed to cut total emissions by five percent of year 2000 levels by 2020. While Australia accounts for only about 1.5% of global emissions, it is the highest per capita polluter in the developed world because coal is used to generate most of the country’s electricity.

 



	


	





	

		
		
U.S. EPA Accepts Electronically Submitted GHG Reports
	


	
	
	

		
 

The U.S. Environmental Protection Agency (EPA) has launched a new tool to allow 28 industrial sectors to submit their 2010 greenhouse gas (GHG) emissions data electronically. Prior to being finalized, the electronic GHG Reporting Tool (e-GGRT) was tested by more than 1,000 stakeholders (including industry associations, states and non-governmental organizations) to ensure clarity and user-friendliness.


The data collected with e-GGRT will provide information about the nation’s largest stationary sources of GHG emissions. Industries and businesses will also be able to use the data to help find ways to decrease carbon emissions, increase efficiency and save money.


The EPA expects to receive 2010 GHG data from approximately 7,000 large industrial GHG emitters and suppliers, including power plants, petroleum refineries and landfills.


EPA’s GHG Reporting Program, launched in October 2009, requires the reporting of GHG data from large emission sources across a range of industry sectors. Suppliers of products that would emit GHGs if released, combusted, or oxidized are also required to report GHG data. Under this program, covered entities are required to submit GHG data to EPA annually and the first round of data will be submitted electronically by September 30, 2011.  The EPA plans to publish non-confidential GHG data collected through the GHGRP by the end of 2011. More information is available at: Link