Author: WM

PORTFOLIO ENERGY & SUSTAINABILITY MANAGEMENT

Reduce costs with a comprehensive energy & resource management tool
Successful companies adopt sustainable business practices and utilize comprehensive energy & resource management tools. Sustainability is becoming a strategic priority because it can help organizations reduce cost and risk, build brand equity, and generate new revenue. Increase your brand and real estate value through sustainability management.
In order to meet market demands, asset managers require comprehensive insights into the sustainability and energy performance of complete building portfolios. Investment
in green building design and management has dramatically increased in recent years. Green buildings offer tenants energy efficient, eco-friendly and healthy office or living spaces, which is why more and more investors are opting for real estate that meets this growing demand and which enable them to reap the benefits of higher rents and lower risk premiums.

Decrease the cost of compliance and the risk of non-compliance
Provincial and local governments have adopted varying GHG reporting regulations and are planning the integration of energy efficiency and sustainability into new building regulations. In order to meet these different regulatory demands, portfolio managers require powerful system solutions that are multi-jurisdictional and multi-functional covering both energy management and sustainability in one integrated system. This facilitates cost and energy saving opportunities while at the same time significantly reducing the risk of non-compliance, permit cost overruns and data collection headaches.

BC Restructures GHG Emissions Regulatory Framework in Light of LNG Projects

 
On October 20, 2014, Environment Minister Mary Polak announced the first part of a restructuring of BC’s GHG emissions regulatory framework with the release of Bill 2, also known as the Greenhouse Gas Industrial Reporting and Control Act. This piece of legislation will replace the Greenhouse Gas Reduction (Cap and Trade) Act that came into force on May 29, 2008. The restructuring will continue with the release of the relevant Regulations under the new Act once it is given Royal Assent and comes into force. These regulations will include a new GHG Reporting Regulation and a new Emission Offset Regulation. It is expected that the reporting thresholds in the new GHG Reporting Regulation and the resulting obligations thereunder will remain the same. Tim Lesiuk, Executive Director and Chief Negotiator at Climate Action Secretariat, emphasized in a technical briefing the importance and responsibility of companies assuming to be below the lowest reporting threshold of 10,000 t CO2e annually (called non-reporting entities), to also monitor and document their GHG emissions in order to mitigate the risk of regulatory non-compliance and provide proof of their status as a non-reporting entity in case of an inspection.
A new Emission Offset Regulation is expected to offer an independent offset certification process from the BC Government’s Carbon Neutral purchase program. This will be achieved through a new certification and registry system. The BC Government’s existing Carbon Neutral purchase program conducted by the Climate Investment Branch will continue, but they will source their offsets from the new certification and registry system. Existing offset purchase contracts are expected to be grandfathered into the new system.
The functional new aspect in Bill 2 is the introduction of a new carbon intensity performance requirement. This carbon intensity performance target, called Regulated Operations’ Emission Limits in the Act is an additional requirement beyond the reporting obligation that only applies to industries that are listed in the Schedule of Regulated Operations and Emission Limits in the Act.
The only two listed industries so far are coal-based electricity generation operation with a limit of 0 tonnes carbon dioxide equivalent emissions and liquefied natural gas operations with a limit of 0.16 carbon dioxide equivalent tonnes for each tonne of liquefied natural gas produced. However, additional industries may be added and the BC Government has indicated that it will be announcing climate change measures in other sectors going forward.
The emission target carbon intensity performance quantification is limited to the facility level and therefore does not include any upstream or downstream emissions outside of the facility boundary. In order to meet their obligations, regulated entities with prescribed emission limits will have several compliance mechanisms available to them. In particular, they can:
• improve energy efficiency or increase the use of clean electricity through facility design;
• acquire emissions offsets by investing in BC-based emission reduction projects at market prices; or
• contribute to a technology fund at a rate of $25 per tonne of CO2e.

Besides setting up a new technology fund, Bill 2 also requires the establishment of a registry for the purposes of the Act. This registry will be the only place where offset units and earned credits, resulting from performance below the emissions limit, are tracked. This is also the only place where transactions under the Act can be executed for compliance purposes.
If you have any questions about Bill 2 and the proposed changes to the BC emission offset regime or their potential impacts on your operations or offset project, please contact GHG Accounting Services.
 

Global Investors Look to Spur Action on Climate Change

 
At the recent UN Climate Summit in New York, global investors frustrated by the lack of policy progress on climate, issued a call to action through two initiatives: (1) 2014 Global Investor Statement on Climate Change, and (2) Montreal Carbon Pledge.

2014 Global Investor Statement on Climate Change
The 2014 Global Investor Statement on Climate Change has been signed by 354 investors with more than $24 trillion in assets, which represents an important contribution by the global investment community to support the UN Climate Summit and encourage strong domestic and international climate and clean energy policies. The statement sets out the steps that institutional investors (both asset owners and asset managers) can take to address climate change, and calls on governments to support a new global agreement on climate change by 2015 in addition to national and regional policy measures. By articulating their concerns, the signatory investors highlight the climate risk within the context of global investment:
“We are particularly concerned that gaps, weaknesses and delays in climate change and clean energy policies will increase the risks to our investments as a result of the physical impacts of climate change, and will increase the likelihood that more radical policy measures will be required to reduce greenhouse gas emissions. In turn, this could jeopardise the investments and retirement savings of millions of citizens.
There is a significant gap between the amount of capital that will be required to finance the transition to a low carbon and climate resilient economy and the amount currently being invested. For example, while current investments in clean energy alone are approximately $250 billion per year, the International Energy Agency has estimated that limiting the increase in global temperature to two degrees Celsius above pre-industrial levels requires average additional investments in clean energy of at least $1 trillion per year between now and 2050.
This Statement sets out the contribution that we as investors can make to increasing low carbon and climate resilient investments. It offers practical proposals on how our contribution may be accelerated and increased through appropriate government action.”
Now that policy makers have been called on to consider the recommendations in the 2014 Global Investor Statement on Climate Change, the investors are looking forward to a dialogue about the policy frameworks needed to catalyze investment in the clean energy, low carbon future.

Montreal Carbon Pledge
In another initiative, a number of the world’s largest institutional investors (representing more than US$75 trillion in investable assets) launched the Montreal Carbon Pledge at the annual conference of the UN-supported Principles for Responsible Investment (PRI) in Montreal. By signing the Montreal Carbon Pledge, investors commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. Signatories will be accepted until September 2015. Overseen by PRI, the Montreal Carbon Pledge aims to attract US $3 trillion of portfolio commitment in time for the United Nations Climate Change Conference in December 2015. It also allows investors to formalize their commitment to the goals of a recently introduced Portfolio Decarbonization Coalition, co-founded by the United Nations Environment Programme Finance Initiative.
The Montreal Carbon Pledge represents an important first step to measuring and managing the long-term investment risks associated with climate change and carbon regulation. By measuring their carbon footprints, investors will be able to quantify the carbon content of their portfolios. A growing number of investors, including Etablissement du Régime Additionnel de la Fonction Publique (ERAFP), AP4, London Pensions Fund Authority (LPFA) and VicSuper, have already taken steps to measure the carbon footprint of their investments. 78% of the largest 500 publicly listed companies now report their carbon emissions. PRI will manage the online portal where investors can endorse the Montreal Carbon Pledge. In particular, the portal will enable investors to report the size of their portfolio carbon footprint commitment and any associated carbon reduction targets. Business leaders highlighted the importance for investor to understand their carbon risk in order to reduce their risk exposure:
“There is a perfect storm of reported carbon data, reliable portfolio carbon measurement tools and low carbon investment solutions. This makes it possible for investors to understand and act to reduce their carbon exposure like never before.” (Toby Heaps, CEO of Corporate Knights)
“It is hard to dispute that carbon is a risk, so how can we fulfil our duty of trust if we don’t implement the systems necessary to assess this risk in order to reduce it and, worse still, having measured the risk, we don’t disclose it to stakeholders.” (Philippe Desfossés, CEO of ERAFP)
 

Food for Thought: Assessing the Impacts of Our Dietary Choices on the Climate

Changing food consumption patterns and associated greenhouse gas (GHG) emissions have been a matter of scientific debate for decades. In a study by the Potsdam Institute for Climate Impact Research and the University of Potsdam Department of Geo- and Environmental Sciences , researchers undertook to assess the potential for climate change mitigation through optimal management and dietary changes in light of the agricultural sector’s role as one of the world’s major GHG emitters. Current agricultural practices are resource intensive, requiring fuel and fertilizer as well as significant water use (agricultural accounts for approximately 70% of global water withdrawal). In terms of GHG emissions, the study indicates that agriculture contributes between 10% to 14% to the total anthropogenic GHG emissions. The study also projected emissions and examined dietary patterns and their changes globally on a per country basis between 1961 and 2007.
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Global population growth and poverty reduction are driving changes in food consumption both in terms of total amount and composition. Lifestyle-related changes in diet are also driving increases in food demand. A dietary shift towards a reduction in meat consumption has the potential to significantly decrease GHG emissions, but current trends are heading in the opposite direction. While an increase in the consumption of animal products, vegetable oils and sugar sweeteners has occurred primarily in developed countries over the past few decades, a westernization of diets has also been occurring in developing countries. However, animal protein, animal fat and vegetable oil intake remains significantly higher in developed countries as compared to developing countries.
In order to better understand diet related emissions, researchers identified typical dietary patterns of food consumption and composition per country for the period from 1961-2007. Detailed analyses show that food consumption patterns are moving from low to higher calorie diets, which is consistent with an overall trend of improvements to long-term nutrition. While low calorie diets are decreasing worldwide, there is a change in parallel diet composition as well. In particular, there is a discernible shift towards more balanced diets in developing countries and the move towards more meat-rich diets in developed countries is characteristic of this trend. As a result, environmental impacts in terms of fossil fuel requirements and total GHG emissions generally increased as diets become more calorie rich. Low calorie diets, which are mainly observable in developing countries, show a similar emissions burden as moderate and high calorie diets. This can be explained by a less efficient calorie production per unit of GHG emissions in developing countries. Very high calorie diets are common in the developed world and exhibit high total per capita emissions of 3.7–6.1 kg carbon dioxide equivalent (CO2e) per day due to high carbon intensity and high intake of animal products. In case of unconstrained demographic growth and changing dietary patterns, the projected emissions from agriculture will approach 20 Gt CO2e per year by 2050, which represents a 40% increase in agriculture-related GHG emissions compared to 2005 levels. This highlights the tremendous potential the food sector can play with respect to helping us achieve climate protection goals, particularly with the introduction of less energy intensive agricultural practices. The study suggests that optimized management of agriculture may contribute to emission reductions of up to 7 Gt CO2e per year in 2050. The authors also highlight the importance of the livestock sector for diet-related GHG emissions; emissions from this sector are increasing rapidly according to their estimates and approximately 14 Gt CO2e per year by 2050 will be related to the consumption of animal products. The authors conclude by saying that agricultural intensification should focus on an optimization of emission intensities, which keeping other environmental stresses and anthropogenic inputs as low as possible. Or as Michael Pollan, author of the Omnivore’s Dillema, says: “Eat food, not too much, mostly plants.”

Latest IPCC Report Concludes that the World is Not Well Prepared for Meeting the Climate Change Challenge

Working Group II of the Intergovernmental Panel on Climate Change (IPCC) issued its contribution to the Fifth Assessment Report on March 31, 2014.  The second of three “Summaries for Policymakers” (the first report from Working Group I on the physical science of climate change was issued in September 2013) addresses climate change impacts, adaptation and vulnerability, and says the effects of climate change are already occurring on all continents and across the oceans. The IPCC report explains that in many cases, the world is ill-prepared to deal with climate change risks and concludes that while there are opportunities to respond to such risks, these risks will be difficult to manage with high levels of warming.

The report, entitled Climate Change 2014: Impacts, Adaptation, and Vulnerability, is designed to guide global lawmakers as they devise policies to reduce emissions and make their infrastructure, agriculture and people more resilient to a changing climate.  The report details the impacts of climate change to date, the future risks from a changing climate, and the opportunities for effective action to reduce risks. A total of 309 coordinating lead authors, lead authors, and review editors, drawn from 70 countries, were selected to produce the report. They enlisted the help of 436 contributing authors, and a total of 1,729 expert and government reviewers.

Observed impacts of climate change have already affected agriculture, human health, water supplies, ecosystems on land and in the oceans. One of the striking things is that observed impacts are occurring from the tropics to the poles, from small islands to large continents, and from the wealthiest countries to the poorest. The researchers documented how climate change affects everything from retreating glaciers in East Africa, the Alps, the Rockies and the Andes to the bleaching of corals in the Caribbean Sea and Australia’s Great Barrier Reef. Mussel-beds and migratory patterns for salmon are changing off the west coast of North America, grapes are maturing faster in Australasia and birds are flying to Europe earlier in the year.  One of the IPCC’s starkest findings relates to water availability and food production. Where there was less certainty seven years ago about the potential damage to staple crops, the latest IPCC report found that global wheat and maize production are already being negatively impacted by warmer temperatures, with yields of wheat declining by about 2% per decade and those of maize by 1%.  While he report does mention some positive impacts of climate change such as improved crop yields in southeastern South America, it also refers to “future risks and more limited potential benefits”.

Chris Field,  co-chair of Working Group II, said the rising trajectory of greenhouse emissions is projected to lead to more than 3 degrees Celsius of additional warming this century. This is on top of the 0.85 degrees of warming already observed since 1880. UN treaty negotiators are aiming to limit the total rise to 2 degrees Celsius.  The researchers wrote that economic losses accelerate with greater levels of warming, noting that little analysis has been done for levels of warming of 3 degrees Celsius beyond present temperatures. The report warns that this amount of additional warming would lead to “extensive biodiversity loss”.

The report concludes that responding to climate change involves making choices about risks in a changing world. The nature of the risks of climate change is increasingly clear, though climate change will also continue to produce surprises. It finds that risk from a changing climate comes from vulnerability (lack of preparedness) and exposure (people or assets in harm’s way) overlapping with hazards (triggering climate events or trends). Each of these three components can be a target for smart actions to decrease risk. In particular, adaptation can play a key role in decreasing these risks.

Field also said that: “Understanding that climate change is a challenge in managing risk opens a wide range of opportunities for integrating adaptation with economic and social development and with initiatives to limit future warming. We definitely face challenges, but understanding those challenges and tackling them creatively can make climate-change adaptation an important way to help build a more vibrant world in the near-term and beyond.”

Now the ball is in the policymakers’ court as industry and the public look to their governments to take decisive action and facilitate the implementation of creative solutions to meet the climate change challenge.

The third report from Working Group III (WGIII) of the IPCC will address climate change mitigation and is expected to be released in April 2014.
 

Regulatory Additionality

Regulatory additionality is a quality requirement for an emission reduction to be recognized as such.

In order for an emission reduction to be recognized, a project proponent must provide evidence that the project activities and all equipment and substances involved in the achievement of the emission reduction are beyond what is required based on applicable regulatory requirements. Only those emission reductions that are achieved beyond regulatory requirements are considered additional and therefore meet the regulatory additionality requirement test. Reductions that only meet the regulatory required levels are not considered to be real emission reductions.


	


	





	

		
		
Québec’s First Cap & Trade Permit Auction Results
	


	
	
	

		
 

In the first auction of permits under Québec’s cap-and-trade scheme on December 3, 2013, bidders purchased only about one-third of the emission allowances offered – or 1.03 million of the 2.97 million 2013 permits. As a result of the low demand, the permits cleared at the lowest possible price of $10.75 per metric tonne of carbon dioxide equivalent.


Québec said it sold a combined CAD $29 million in 2013 and 2016 allowances in the auction.  The province plans to sell the remaining 2013 carbon allowances in future auctions, which will be held every quarter starting March 4. Regulated entities will have until November 1, 2015 to acquire carbon allowances covering emissions generated in 2013 and 2014.


Yves-François Blanchet, Québec’s Minister of Sustainable Development, Environment, Wildlife and Parks said that the province is very satisfied with the results of the first auction and is confident that the remaining units will be sold at the upcoming auctions.  Bloomberg New Energy Finance market analyst William Nelson observed that it was a “surprisingly under-subscribed auction”, but went on to say that the province’s failure to sell all the allowances in the first auction was a “one-time freak result”. Nelson anticipates that future auctions will fare better as the entities that did not participate in the auction this week will eventually show up as they still need to cover their emissions for the next two years.


Quebec’s program will be integrated with the larger California cap-and-trade market in 2014, when entities from both jurisdictions will be able to buy and sell emission allowances and offsets in either jurisdiction. At California’s last auction on November 19, 2013, the state sold 16.6 million tons of carbon allowances at a price of $11.48 each, which was in line with market expectations.


The results of the Québec auction are available online (in French only)


The results of California’s November 2013 auction are also available from the state’s Air Resources Board.

 



	


	







	

		
		
Global Investors Call on Energy Companies to Disclose Financial Risks of GHG Emissions
	


	
	
	

		
 

A group of 70 global investors managing more than $3 trillion of collective assets has called on 45 of the world’s top energy companies (including Suncor Energy Inc., Canadian Natural Resources Ltd., Exxon Mobil Corp., Royal Dutch Shell PLC and Total S.A.) to assess the financial risks that climate change poses to their business plans. The investor effort, called the Carbon Asset Risk (CAR) initiative, is being coordinated by Ceres and the Carbon Tracker initiative, with support from the Global Investor Coalition on Climate Change.


In a letter sent to energy companies in September 2013, investors wrote: “We would like to understand [the company’s] reserve exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80 percent by 2050…We would also like to understand what options there are for [the company] to manage these risks by, for example, reducing the carbon intensity of its assets, divesting its most carbon intensive assets, diversifying its business by investing in lower carbon energy sources or returning capital to shareholders.”  Investors signing the letters include California’s two largest public pension funds, the New York State and New York City Comptrollers, F&C Asset Management and the Scottish Widows Investment Partnership.  The investors have requested detailed responses before their annual shareholder meetings in early 2014.


Most energy companies produce sustainability reports and use a shadow carbon price to assess the viability of projects, but the financial risks of climate change driven policies are not usually disclosed.  According to the report Unburnable Carbon 2013: Wasted Capital and Stranded Assets  , the 200 largest publicly traded oil and gas companies collectively spent an estimated $674 billion on finding and developing new reserves in 2012 alone – some of which may never be utilized. The CAR initiative is part of a growing trend to assess the present value of fossil fuel companies and their long-term reserves, based on expectations that government policies will lower demand for the most carbon-intensive energy sources in the longer term.  Analysis from HSBC suggests that equity valuations of some oil and gas companies could be reduced by 40 – 60% in a low emissions scenario where a portion of their reserves would become stranded assets. This highlights an opportunity to redirect this capital, rather than investing it in high carbon assets that could become stranded.