Tag: Climate Change

Amendments to Ontario’s GHG Reporting Regulation now in Force

In December 2015, the Ontario Ministry of the Environment and Climate Change filed amendments to the Greenhouse Gas Emissions Reporting Regulation (O.Reg. 452/09) that came into force on January 1, 2016. An amended Guideline for Greenhouse Gas Emissions Reporting was published as well. The amendments include:

  • lowering the reporting threshold to 10,000 tonnes carbon dioxide equivalent (CO2e) from the current threshold of 25,000 tonnes per year, while maintaining the requirement to have emissions greater than 25,000 tonnes per year third party verified;
  • dividing the emission sources into those that only need to report and those that require third party verification;
  • clarification on verification to allow for the use of qualified positive, in addition to positive and adverse verification statements;
  • adding petroleum product suppliers and natural gas distributors to the reporting regulation starting in 2016, to support the implementation of a cap and trade program; and
  • adding other sources to the reporting regulation including:
    – equipment used for natural gas transmission, distribution and storage;
    – electricity imports;
    – electricity transmission and distribution;
    – magnesium production; and
    – mobile equipment at facilities (optional reporting only).

These amendments were made to support the implementation of Ontario’s cap and trade program, the design for which is expected to be finalized in spring 2016. As previously announced by the Ontario government, it will also be releasing a detailed five-year action plan in 2016 which will include specific commitments for the province to meet its 2020 emission reduction targets and establish the framework necessary for Ontario to meet its 2030 and 2050 emission reduction targets.

Paris Agreement Heralds New Era for Climate Change Policies

On December 12, 2015, the Paris Agreement was adopted by 195 members of the UN Framework Convention on Climate Change (UNFCCC), which sets out the terms of a global agreement to lower greenhouse (GHG) emissions and limit the impacts of climate change. Unlike the Kyoto Protocol, this is not so much a regulatory tool with one clear pathway of actions and regulations set at one point in time, but rather a framework with a portfolio of directions for different aspects of climate change mitigation instruments developing over time. This portfolio includes a framework of national GHG emission reduction plans, regular reviews, clean development financing as well as market and non-market approaches to reducing emissions. The Paris Agreement is a global instrument that will develop and solidify over time.

The key element at the national government level is the concept of Nationally Determined Contributions (NDCs), a process which relies on national governments to formulate, implement, monitor, report and update their own national reduction targets and strategies to achieve them. At the sub-national government level, technical and financial commitments in the Paris Agreement will help to facilitate climate action at the local level. However, non-state actors (such as companies and non-governmental organizations) also have a key role and are strongly encouraged to make their contributions to enable lower GHG emission solutions. The Paris Agreement will enter into force on the 30th day after the date on which at least 55 parties to the UNFCCC accounting for at least 55% of total global GHG emissions deposit their instruments of ratification, acceptance, approval or accession.

The Paris Agreement consists of 29 articles, with both binding and non-binding commitments. The aim of the Paris Agreement is to strengthen the global response to climate change on a time horizon towards 2030 and one of the key commitments by countries is to hold the increase in global average temperature to well below 2°C above pre-industrial levels, while pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels. The Paris Agreement also establishes goals to enhance capacity for climate change adaptation, strengthen resilience and reduce vulnerability to climate change.

While each member nation is required to put forward an NDC, there are no legal requirements for specific national emission reduction targets or actions in the agreement itself beyond the overall global climate change mitigation target. However, certain legally binding commitments have been built into the Paris Agreement. This includes a requirement that countries submit updated plans every five years with increasingly stringent emission reduction targets as part of the NDC, starting in 2020. Countries will also be required to carry out a global stocktake in 2023, and every five years thereafter, to assess their collective progress on emission reductions. Countries will also be required to monitor and report on their national emissions inventory using a common reporting format. In terms of financing, developed countries have committed to mobilizing the financial resources needed to assist developing countries with respect to both mitigation and adaptation.

Even though climate change has been on the global agenda for the past two decades, the Paris Agreement marks a major milestone in global climate change policy, where both developed and developing countries have reached a consensus on taking action and making the necessary investments to move the world towards a low carbon and resilient future. Over the next few months, it will become clear to what extent policy makers from all levels of government will engage with stakeholders to initiate the conversation on what actions will be required at all levels of the economy and government to meet our international climate commitments.

 

Manitoba Releases Updated Climate Change Strategy and Confirms Implementation of Cap & Trade

On December 3, 2015, Manitoba released its Climate Change and Green Economy Action Plan (the Plan), which updates the province’s 2008 Climate Action Plan, Beyond Kyoto. The Plan sets out Manitoba’s medium and long-term GHG reduction targets:

  • By 2030, Manitoba will reduce its greenhouse gas emissions by one-third over 2005 levels.
  • By 2050, Manitoba will reduce its greenhouse gas emissions by one-half over 2005 levels.
  • By 2080, Manitoba will be carbon neutral.

The Plan also outlines projects that will be undertaken through Manitoba’s new five-year $5 million Climate Change Action Fund. Funds will be invested across sectors to continue driving innovation in the province’s transportation and agriculture sectors, assess local climate risks and develop solutions, expand climate change work on the ground by partnering with communities, and expand innovative energy projects in First Nation communities. Manitoba will also look at how carbon pricing can be used as a tool to drive innovation and boost economic growth while reducing GHG emissions. Manitoba, a member of the Western Climate Initiative, reiterated its commitment to implement a cap and trade program for 20 large emitters in the province and will look at other innovative measures, such as a made-in-Manitoba Carbon Stewardship model for sectors not covered by cap and trade. To that end, Manitoba will carry out public consultations on carbon pricing to explore a range of opportunities. Under the Plan, the Manitoba government will also reduce emissions from government operations through increased energy efficiency, a greener vehicle fleet and equipment, greener office spaces, and waste reduction. Manitoba will provide a complete inventory of its own GHG emissions and develop a comprehensive policy framework to enable it to become a carbon neutral government. The Plan also addresses key sectors such as buildings, transportation and agriculture. Manitoba has demonstrated its climate leadership with the development of new zero-emission battery electric transit buses and transformative research into new crops and natural bio-products.

Alberta Releases Details of Climate Leadership Plan in Advance of Federal/Provincial Climate Change Meeting and COP 21

In advance of a meeting with Prime Minister Justin Trudeau and fellow premiers, Alberta Premier Rachel Notley unveiled the details of the province’s Climate Leadership Plan on November 22, 2015. The plan, which is based on the advice of the Climate Change Advisory Panel (the Panel, led by Dr. Andrew Leach), will also be promoted by Premier Notley at the United Nations Climate Change conference that will take place in Paris from November 30 to December 11, 2015.

Alberta’s Climate Leadership Plan accelerates the province’s transition from coal to renewable electricity sources and sets an emissions limits of 100 megatonnes for the oil sands with provisions for new upgrading and co-generation (the level of current emissions from the oil sands is approximately 70 megatonnes). To ensure that the policy is progressive and protects the competitiveness of Alberta’s core industries, the Panel has recommended a consumer credit which will offset the impact of the policy for households and allocations of emissions credits for industrial emitters. A copy of the Panel’s Report to the Minister, which was also released on November 22nd, is available Leadership Report Online.
Alberta’s Climate Leadership Plan sets out the following policy objectives:

Carbon Pricing
Carbon pricing provides the backbone of the Panel’s proposed policy architecture. Alberta will phase in carbon pricing in two steps:
o $20/tonne economy-wide in January 2017.
o $30/tonne economy-wide in January 2018.

The Panel has also proposed that the existing Specified Gas Emitters Regulation be replaced by a Carbon Competitiveness Regulation in 2018, which would:
a) broaden the carbon pricing signal in Alberta to cover approximately 90% of the province’s emissions, up from less than 50% today;
b) provide a consumer rebate to mitigate the impacts of carbon pricing on low- and middle-income Albertans, fund complementary emissions-abatement programs and, where applicable, support a sound and just transition for labour and communities and strategies to protect small- and medium-sized businesses;
c) improve the mechanism by which trade-exposed industries are protected to ensure their competitiveness while encouraging and rewarding top performance;
d) increase stringency at the same pace as peer and competing jurisdictions; and
e) avoid the transfer of wealth outside of Alberta.

Electricity and Renewables
• Alberta will phase out all pollution created by burning coal and transition to more renewable energy and natural gas generation by 2030.
• Three principles will shape the coal phase-out: (i) maintaining reliability; (ii) providing reasonable stability in prices to consumers and business; and (iii) ensuring that capital is not unnecessarily stranded.
• Two-thirds of coal-generated electricity will be replaced by renewables – primarily wind power – while natural gas generation will continue to provide firm base load reliability.
• Renewable energy sources will comprise up to 30 per cent of Alberta’s electricity production by 2030.

Methane Reduction
• In collaboration with industry, environmental organizations, and affected First Nations, Alberta will implement a methane reduction strategy to reduce emissions by 45% from 2014 levels by 2025.

Revenue Neutral
• One-hundred per cent of proceeds from carbon pricing will be reinvested in Alberta.
• A portion of collected revenues will be invested directly into measures to reduce pollution (including clean energy research and technology), green infrastructure (such as public transit), and programs to help Albertans reduce their energy use.
• Other revenues will be invested in an adjustment fund that will help individuals and families make ends meet; provide transition support to small businesses, First Nations, and people working in affected coal facilities.

Alberta’s Climate Leadership Plan is expected to reduce emissions from current trends by approximately 20 Mt by 2020, and approximately 50 Mt by 2030. This would roughly stabilize emissions, by 2030, just above current levels at approximately 270 Mt.

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)
 

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.