Tag: GHG Solutions

National Canadian Clean Fuel Standard to be Rolled Out Soon

The Clean Fuel Standard (CFS) is a proposed regulation under the Canadian Environmental Protection Act, 1999, which aims to reduce greenhouse gas (GHG) emissions by reducing the lifecycle carbon intensity (CI) of liquid fossil fuels used in Canada. While the initial scope of the CFS included liquid, gaseous and solid fuels, the scope of the CFS was narrowed under Canada’s latest climate change plan, A Healthy Environment and a Healthy Economy, to include only liquid fuels.

The objective of the CFS is to decrease the CI of liquid fuels approximately 13% by 2030. The proposed Clean Fuel Regulations (CFR, under the Canadian Environmental Protection Act, 1999) would establish annual lifecycle CI limits per type of liquid fossil fuel, expressed in grams of carbon dioxide equivalent per megajoule (gCO2e/MJ). The liquid fossil fuels that would be subject to the annual CI reduction requirement are gasoline, diesel, kerosene and light and heavy fuel oils. This obligation would be placed on primary suppliers (i.e. producers and importers) who domestically produce or import at least 400 cubic metres (m3) of liquid fossil fuel for use in Canada. Under the proposed CFR, primary suppliers would be required to reduce the CI of the liquid fossil fuels they produce in and import into Canada from 2016 CI levels by 2.4 grams of carbon dioxide equivalent per megajoule (gCO2e/MJ) in 2022, increasing to 12gCO2e/MJ in 2030, at a rate of 1.2 gCO2e/MJ per year. Reduction requirements for the years after 2030 would be held constant at 12 gCO2e/MJ, subject to a review of the regulations and future amendments.

The proposed CFR allows for flexible compliance options to enable primary suppliers to choose the lowest-cost compliance actions. Primary suppliers are required to satisfy their emission reduction requirements by creating or acquiring compliance credits. Primary suppliers can obtain compliance credits by:

1. undertaking activities that generate credits for its own account;
2. acquiring credits from others; or
3. paying into a compliance fund to acquire credits at a price of $350/tonne.

The proposed CFR would establish a credit market, where each credit would represent a lifecycle emission reduction of one tonne of CO2e. Parties that are not fossil fuel primary suppliers would be able to participate in the credit market as voluntary credit creators.

For each compliance period (typically a calendar year), a primary supplier would demonstrate compliance with their reduction requirement by creating credits or acquiring credits from other creators, and then using the required number of credits for compliance. Once a credit is used for compliance, it is retired and can no longer be used. For primary suppliers unable to satisfy their reduction requirement by June 30 following the end of a given compliance period, a market-clearing mechanism that facilitates credit acquisition by primary suppliers would also be available. The proposed CFR would set a maximum price for credits acquired, purchased or transferred in the credit clearance mechanism (CCM) at $300 in 2022 (CPI adjusted) per compliance credit. Where primary suppliers are unable to acquire sufficient compliance units through the CCM, they may carry forward up to 10% of their compliance obligation into subsequent compliance periods for up to two years. However, a 20% annual interest rate applies to amounts carried forward.

Compliance credits may be created by primary suppliers or voluntary credit creators who take one of the following actions:

1. Compliance Category 1: undertaking projects that reduce the lifecycle CI of fossil fuels;
2. Compliance Category 2: supplying low-CI fuels; or
3. Compliance Category 3: end-use fuel switching in transportation.

Environment and Climate Change Canada (ECCC) has identified four initial quantification methodologies for development in respect of Compliance Category 1, including: (i) carbon capture and storage (CCS); (ii) low-carbon intensity electricity generation; (iii) enhanced oil recovery; and (iv) co-processing of biocrudes in refineries and upgraders. In addition, a generic quantification methodology will be developed that can be utilized for activities which do not have their own bespoke quantification methodology, which will apply to such projects as energy efficiency, cogeneration, electrification and methane reductions. Project proponents would apply to ECCC to have a project recognized for credit creation and then submit an annual validation report with a third-party verification report and verification opinion. The credit period is 10 years with a possible five-year renewal for most projects, and a 20-year credit period and five-year renewal for CCS projects.

All low CI fuels supplied to the Canadian market, including fuels used to comply with existing federal and provincial renewable fuel regulatory requirements and British Columbia’s Renewable and Low Carbon Fuel Requirements Regulation, would be able to create credits under the proposed CFR.

To incentivize investments in low carbon fuels, the proposed CFR imposes limits on the proposed compliance options. These include a 10% limit of payment into the compliance fund mechanism, a 10% limit on the trading credits across fuel classes, and a 10% limit on carrying forward a credit obligation.

The CFR will retain the volumetric requirements under the existing federal Renewable Fuels Regulations (RFR) (5% low carbon fuel content in gasoline, 2% low carbon fuel content in diesel/fuel oil). This means that each primary supplier would be required to demonstrate for each compliance period that, of the total number of compliance credits it retires for compliance, a minimum (equivalent to 5% of its gasoline pool and 2% of its diesel and light fuel oil pool) is from low-CI fuels. These compliance credits are part of the total credits used to meet reduction requirements, but the same compliance credit cannot be used to meet the 5% and 2% requirements respectively. Prior to repeal of the RFR in 2024, companies will be entitled to rollover any existing compliance units and convert those units into credits recognized under the CFR.

The consultation period for the proposed CFR ended on March 4, 2021. Final regulations are expected to be published in the Canada Gazette, Part II in late 2021. Once the regulations are published, credit creators can register for and begin to create credits in the credit trading system. The CFR is expected to come into force on December 1, 2022.

Climate-related Financial Disclosure Requirements to Access the New Federal Economic Stimulus Fund: Large Employer Emergency Financing Facility (LEEFF) Program

On May 11, 2020, the Government of Canada announced the Large Employer Emergency Financing Facility (LEEFF) program as part of its COVID-19 Economic Response Plan. While the government is still in the final stages of establishing the LEEFF program, it has specified the eligibility to be large for-profit-businesses and certain not-for-profit businesses with annual revenues greater than $300 million.

To have access to the LEEFF, large companies will not only be required to meet the usual criteria (respect union agreements, protect workers’ pensions, adhere to rules around share buy-backs and the salaries and bonuses of top executives), but also be required to commit to publish annual climate-related financial disclosure reports consistent with the Task Force on Climate-related Financial Disclosures (TCFD). This announcement is noteworthy since emergency funds rarely come with such requirements. Moreover, it is meaningful because it shows Canada’s strong commitment to meet its emissions targets and sends a clear signal to the Canadian companies to set their foot in the right path.

Globally, the TCFD has been gaining traction throughout all sectors from collaborative efforts of WBCSD organizing sector-specific Preparer Forums and the Corporate Reporting Dialogue aligning standards and reporting with the TCFD’s recommendations. In the beginning of this year, the world’s largest asset management firm, BlackRock, announced that sustainability will be the firm’s new standard for investing and released a public letter addressed to companies it invests in to disclose climate-related risks.

More Background of Task Force on Climate-related Financial Disclosures (TCFD) can be found here.

 

Task Force on Climate-related Financial Disclosures (TCFD)

Disclosure of Climate Risks increasingly becoming important as more companies support the Task Force on Climate-related Financial Disclosures (TCFD) At the COP21 Paris Climate Change Conference in 2015, the Financial Stability Board (FSB) established an industry-led disclosure task force on climate-related financial risks under the chairmanship of Michael Bloomberg – the Task Force on Climate-related Financial Disclosures (TCFD). Since the establishment, the TCFD developed recommendations on climate-related financial disclosures in 2017 to help businesses disclose clear, comparable and consistent information about the risks and opportunities presented by climate change as well as promote and monitor adoption of its recommendations. In 2018, it published a status report, which stated that the TCFD had more than 500 supporters, including 457 companies and 56 other organizations (e.g., industry associations, governments). The companies represent a broad range of sectors with a combined market capitalization of over $7.9 trillion. This includes over 287 financial firms, responsible for assets of nearly $100 trillion. (2018 Status Report: Task Force on Climate-related Financial Disclosures)

Recent Development in Canadian Regulatory World

This growing voluntary movement is bringing the issue of climate-related financial disclosure to mainstream. In light of TCFD recommendations, Canadian Securities Administrators (CSA) announced a project in 2017 to review the disclosure of risks and financial impacts associated with climate change. The CSA’s review looked at the mandatory and voluntary climate change-related disclosures of 78 large companies from the S&P/TSX composite Index. Currently, the companies are obliged under existing Ontario Securities Commission (OSC)’s rules to disclose information relating to climate change if the information is deemed a “material fact,” but there is otherwise no explicit obligation for companies to disclose climate change related information or risks. (Green Peace Report) Earlier this year, the CSA completed the report with a finding that there was a broad consensus for improvement on disclosure in respect to climate change-related risks and financial impacts. In the near-term, the CSA plans to develop new guidance and initiatives to educate issuers about climate change-related disclosures and consider new disclosure requirements regarding climate change-related risks. The OSC, in its Notice of Statement of Priorities for Financial Year to End March 31, 2019, stated that it will continue to monitor developments of TCFD for a regulatory response.

Recent Development in American Regulatory World

In the U.S., the Securities and Exchange Commission (SEC) requires public companies to disclose any “material” effects on their operations that arise from the direct and indirect effects of existing or pending legislation and regulations related to climate change as well as the effects of physical changes caused by climate change (such as more severe weather events, water availability, and changing patterns of farmland fertility). However, a number of reports point out that these requirements were not prioritized or enforced.

In response to investors’ call for greater SEC scrutiny, Senator Elizabeth Warren introduced a bill with seven co-sponsors in September, 2018 that would require public companies to disclose climate-related risks in their annual Securities and Exchange Commission (SEC) reporting. The bill also directs the SEC, in consultation with climate experts and other federal agencies, to issue rules within one year that require every public company to disclose:

  • Its direct and indirect greenhouse gas emissions
  • The total amount of fossil-fuel related assets that it owns or manages
  • How its valuation would be affected if climate change continues as its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and
  • Its risk management strategies related to the physical risks and transition risks posed by climate change.

The bill further directs the SEC to tailor these disclosure requirements to different industries and to impose additional disclosure requirements on companies engaged in the commercial development of fossil fuels.

Following this legislative push, a group of investors representing more than $5 trillion in assets under management petitioned the SEC in October, 2018 to develop a comprehensive framework that would require public companies to disclose environmental, social and governance (ESG) aspects relating to their operations. The petition cites increasing demand from investors for information regarding climate risks, notes that voluntary disclosures by some companies are insufficient and suggests the TCFD’s recommendations as a starting point for the SEC to “promulgate its own Framework for comprehensive ESG disclosure.”

More on TCFD

The TCFD has 32 members that were chosen by the Financial Stability Board to include both users and preparers of disclosures from across the G20’s constituency covering a broad range of economic sectors and financial markets. The TCFD’s recommendations published in 2017 are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets. In addition, there are guidance to support all organizations in developing climate-related financial disclosures as well as supplemental guidance for specific sectors.

One of the TCFD’s key recommended disclosures focuses on the resilience of an organization’s strategy, taking into consideration different climate-related scenarios, including a 2° Celsius or lower scenario. The Climate Disclosure Standards Board (CDSB)—an international consortium of business and environmental NGOs committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital—developed a Framework for reporting environmental information, natural capital and associated business impacts aligned with the TCFD’s recommendations.

As mentioned earlier, as of September 26, 2018, 513 organizations from around the world have expressed their support for the TCFD—of which 32 supporters are from Canada. It is notable that major pension funds, banks and asset management firms from Canada are in support of disclosure of climate risks.

Canadian organizations that support the TCFD

Name Sector Industry Date
AIMCO Financial Asset Management June 2017
Barrick Gold Corporation Materials Metals & Mining June 2017
British Columbia Investment Management Corporation Financial Asset Management June 2017
Caisse de dépôt et placement du Québec Financial Asset Management June 2017
Canada Pension Plan Investment Board Financial Pension June 2017
Ontario Teachers’ Pension Plan Financial Pension June 2017
OPTrust Financial Pension June 2017
PSP Investments Financial Asset Management June 2017
Royal Bank of Canada Financial Banking October 2017
TD Bank Group Financial Banking October 2017
Chartered Professional Accountants of Canada (CPA Canada) Other Accounting Association November 2017
City of Vancouver Government Government Local November 2017
Manulife Financial Corporation Financial Insurance November 2017
Telus Telecommunication Services Diversified Telecommunication Services November 2017
The Co-operators Group Financial Insurance November 2017
Workplace Safety & Insurance Board (WSIB) Financial Insurance November 2017
BMO Financial Group Financial Banking December 2017
Scotiabank Financial Banking February 2018
Canadian Imperial Bank of Commerce (CIBC) Financial Banking March 2018
AGF Investments Inc. Financial Asset Management April 2018
Desjardins Group Financial Asset Management April 2018
National Bank of Canada Financial Banking April 2018
NEI Investments Financial Asset Management April 2018
Suncor Energy Energy Oil, Gas & Consumable Fuels April 2018
Toronto Financial Services Alliance (TFSA) Other Government Organization April 2018
AlphaFixe Capital Financial Asset Management June 2018
Addenda Capital Financial Asset Management July 2018
Export Development Canada Financial Export Credit Agency September 2018
Sun Life Financial Financial Insurance September 2018
Teck Materials Metals & Mining September 2018
Toronto Centre-Global Leadership in Financial Supervision Industrials Professional Services September 2018
Ontario Power Generation Utilities Utilities November 2018

Source: TCFD Supporters as of the One Planet Summit September 2018. https://www.fsb-tcfd.org/tcfd-supporters/

Canadian Federal Carbon Pricing System Comes into Force in Backstop Jurisdictions

The Canadian federal government is committed to pricing carbon emissions and advancing the objectives of the Pan Canadian Framework on Clean Growth and Climate Change. The main components of the  federal carbon pricing backstop system are set out in the Greenhouse Gas Pollution Pricing Act, which was passed in June 2018:

  1. federal fuel charge; and
  2. an Output-Based Pricing System for large emitters, i.e. those facilities with emissions 50,000 tonnes of carbon dioxide equivalent.

On October 23, 2018, the federal government announced that the federal carbon pricing system would come into force in 2019 in so-called “backstop jurisdictions”, i.e. those jurisdictions that have either decided not to implement a carbon price or to implement a system that does not meet federal requirements (the key requirement being a price on carbon of $20 per tonne starting in 2019, increasing by $10 per tonne annually until it reaches $50 per tonne in 2022. The backstop jurisdictions include:  Ontario, New Brunswick, Manitoba, and Saskatchewan. In October 2018, the Department of Finance released details about how proceeds from the federal carbon pricing backstop will be returned directly to residents of backstop jurisdictions through the Climate Action Incentive. Both Ontario and Saskatchewan have launched constitutional challenges to the federal government’s jurisdiction to impose the federal carbon pricing scheme on the provinces. Both cases are expected to be heard in 2019. In the meantime, the federal carbon pricing system will come into force as planned.

Alberta, British Columbia, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec and Yukon have either developed their own carbon pricing systems that meet federal requirements or chosen to adopt the federal backstop.

The following table summarizes the carbon pricing initiatives across all provinces and territories as of January 1st, 2019:

Jurisdiction Carbon Pricing Approach
British Columbia:  

Carbon tax = $35 per tonne, which will increase by $5 per tonne on April 1, 2019 until it reaches $50 per tonne by 2021.
Alberta:  

Carbon levy = $30 per tonne.  No further increases planned at this time.
Saskatchewan:  

The federal backstop will apply, in part, in Saskatchewan:

·   Saskatchewan will implement its output-based performance standards system on January 1, 2019 (applicable to industrial facilities that emit ≥25,000 tonnes of CO2e per year).

·   Federal OBPS will apply to electricity generation and natural gas transmission pipelines beginning January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Manitoba:  

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Ontario:  

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Québec:  

Cap & Trade System – Allowance Price of CAD $20.27 (based on results of November 14, 2018 auction)

 
New Brunswick:  

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Nova Scotia:  

Cap-and-trade program will start on January 1, 2019.

 
PEI:  

The federal backstop will apply in PEI, in part:

·   A carbon levy on fuel will come into force on April 1, 2019.

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).
Newfoundland and Labrador:  

Newfoundland & Labrador’s own carbon pricing plan came into force on January 1, 2019:

·   Provincial carbon tax rate of $20 tonne will commence on January 1, 2019.

·   A performance-based system for offshore and onshore industries will establish GHG reduction targets for large industrial facilities and large scale electricity generation; exemptions for certain sectors are available.
Nunavut:  

·   Federal OBPS will apply from July 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from July 1, 2019.
Yukon:  

·   Federal OBPS will apply from July 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from July 1, 2019.
Northwest Territories:  

Northwest Territories will introduce a carbon tax on fuels starting July 1, 2019 = $20/tonne of GHG emissions; this will increase annually until it reaches $50/tonne.

 

Federal Government Announces Next Steps in Climate Change Plan, including Climate Action Incentive Payments

On October 23, 2018, the federal government announced that it is moving forward with the next steps in its Pan-Canadian Framework on Clean Growth and Climate Change (the Framework), including a price on carbon. In January 2018, the government released the Greenhouse Gas Pollution Pricing Act, which set out a carbon pricing system based on a two-pronged approach: (1) a charge on fossil fuels that are consumed within a province or territory (which will generally be paid by fuel producers and distributors), which will be administered by the Canada Revenue Agency; and (2) an output-based pricing system (OBPS) that will apply to emissions-intensive industrial facilities, which will be administered by Environment Canada and Climate Change (ECCC).

Under the Framework, provinces and territories have the flexibility to design their own carbon pricing systems. The federal government’s plan requires provinces and territories to implement a carbon price of $20 per tonne of CO2e starting in 2019, which will increase by $10 per tonne annually until it reaches $50 per tonne in 2022. BC, Alberta, Newfoundland & Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec and Yukon have all adopted carbon pricing systems that meet the federal benchmark. Four provinces – Ontario, New Brunswick, Manitoba and Saskatchewan – have decided either not to implement a carbon price or they have implemented system which do not meet federal standards. As a result, they will have the federal carbon pricing backstop implemented in their jurisdictions on January 1, 2019. As part of the federal government’s announcement, the Department of Finance Canada released a set of draft regulatory proposals under the Greenhouse Gas Pollution Pricing Act. The federal government will return the proceeds of the federal carbon pricing system to the province or territory of origin:

  • directly to the governments of those jurisdictions that choose to adopt the federal system;
  • directly to individuals and families, through the proposed Climate Action Incentive payments, as well as to particularly affected sectors in those other jurisdictions that do not meet the federal standard (i.e. Ontario, New Brunswick, Manitoba and Saskatchewan); and
  • proceeds from the OBPS in Ontario, New Brunswick, Manitoba and Saskatchewan will be returned to the province of origin (the mechanism by which such proceeds will be returned will be determined at a later date).

The federal government has committed to provide annual updates on how the proceeds of the federal carbon pricing system were allocated.

Finance Canada also released the following details on the application of the federal backstop in the four provinces that do not have carbon pricing systems in place that meet federal requirements:

  • The fuel charge rates that will apply starting in 2019. For example, in 2019, the price on gasoline will be $0.0442 per litre and the price on aviation turbo fuel will be $0.0516 per litre, both based on a carbon price of $20 per tonne. The fuel charge will come into effect on April 1, 2019.
  • The proceeds from the fuel charge that forms part of federal carbon pollution pricing system will be returned directly to individuals and families through Climate Action Incentive These payments will be delivered as part of federal tax returns, and the government has indicated that most people should receive more in rebates than they pay as a result of the fuel charge.
  • There will be some exemptions and/or supplements from the fuel charge for greenhouse operators and power plant operators that generate electricity for off-grid communities, which will include farmers, fishers and residents of rural and remote communities.
  • The federal government has also announced that it will provide support to municipalities, universities, colleges, schools, colleges, hospitals, non-profits and Indigenous communities that incur an additional cost as a result of pricing carbon pollution. Finance Canada has provided estimates of support available for municipalities, public sector organizations and Indigenous communities in each of the four provinces:
Table 1: Estimated Support for Municipalities, Universities, Schools and Colleges, Hospitals, Non-Profits, and Indigenous Communities, 2019-20 to 2023-24
Province 2019-20 2020-21 2021-22 2022-23 2023-24 Total
Ontario $50 million $75 million $100 million $125 million $125 million $475 million
Saskatchewan $15 million $25 million $30 million $40 million $40 million $150 million
Manitoba $5 million $10 million $15 million $15 million $15 million $60 million
New Brunswick $3 million $4 million $5 million $5 million $5 million $22 million
Note: Annual amounts under $5 million are rounded to the nearest million; those over $5 million are rounded to the nearest $5 million. Estimates are illustrative and subject to adjustments as more information becomes available. Costs to administer the support are not included in the above figures and will be borne by the Government of Canada.

 

In addition, universities, schools and hospitals can seek funding from the Low Carbon Economy Fund (LCEF) for GHG emission reduction initiatives under both the Low Carbon Economy Leadership Fund and the LCEF Challenge.

  • In recognition of the importance of small and medium-sized enterprises (SMEs), the federal government has committed to providing additional support to help them take climate action. To that end, Finance Canada has provided estimates of support available for SMEs in each of the four provinces:
Table 1: Estimated Support to Small and Medium-Sized Businesses, 2019-20 to 2023-24
Province 2019-20 2020-21 2021-22 2022-23 2023-24 Total
Ontario $105 million $155 million $205 million $255 million $255 million $975 million
Saskatchewan $30 million $45 million $60 million $80 million $80 million $295 million
Manitoba $15 million $20 million $25 million $35 million $35 million $130 million
New Brunswick $5 million $10 million $10 million $15 million $15 million $55 million
Note: Numbers are rounded to the nearest $5 million. Estimates are illustrative and subject to adjustments as more information becomes available. Costs to administer the support are not included in the above figures and will be borne by the Government of Canada.

Under the LCEF, the federal government has so far contributed over $300 million to provincial/territorial programs for eligible SMEs including energy retrofits, energy efficient equipment upgrades and fuel switching.

Further design details on the various support programs will be outlined in early 2019. Finance Canada is accepting comments on the draft regulatory proposals until November 23, 2018.

With respect to the OBPS, the government has indicated that draft regulations will be released in the next few weeks. Impacted industrial facilities in the four provinces that are subject to the federal OBPS will need to register by December 31, 2018.

News Round-Up from the Global Climate Action Summit & Call to Global Climate Action

From September 12 to 14, 2018, citizens, political and business leaders from around the world gathered in San Francisco for the Global Climate Action Summit to “Take Ambition to the Next Level.” The Summit represented not only an opportunity to celebrate the achievements of states, regions, cities, companies, investors and citizens with respect to climate action, but also served as a launch pad for deeper worldwide commitments and accelerated action from countries to achieve their commitments under the Paris Climate Agreement.

The Summit ended with delegates calling on national governments to join forces to step up climate action ahead of 2020 – the year when global greenhouse gases (GHG) need to peak and fall sharply thereafter to avoid the worst impacts of climate change. The meeting of leaders from states and regions, cities, business, investors and civil society at the Summit also underscored the transformational action they are already pursuing. For example, over 100 leaders are now committed to carbon neutrality, with the Governor of California bringing the date forward for California achieving this to 2045. Leaders also unveiled a range of bold new commitments across five specific challenge areas aimed at taking their collective ambition to the next level. These are aimed at avoiding risks and seizing the opportunities outlined in a suite of reports including the new Unlocking the Inclusive Growth Story of the 21st Century by the New Climate Economy.  The report finds that a stepped-up transition to a low-carbon economy can:

  • Result in $26 trillion in economic benefits worldwide through 2030.
  • Generate over 65 million new low-carbon jobs in 2030, equivalent to today’s entire workforces of the U.K. and Egypt combined.
  • Avoid over 700,000 premature deaths from air pollution in 2030.
  • Generate, through just subsidy reform and carbon pricing, an estimated US$2.8 trillion in government revenues per year in 2030, funds that can be used to invest in other public priorities or reduce distorting taxes.
  • By a shift to more sustainable forms of agriculture combined with strong forest protection, deliver potentially more than US $2 trillion per year of economic benefits, generating millions of jobs, improving food security—including by reducing food loss and waste—and delivering over a third of the climate change solution.
  • By restoring natural capital, especially our forests, degraded lands and coastal zones, strengthen our defenses and boost adaptation to climate impacts, from more extreme weather patterns to sea-level rise.

The announcements made during and prior to the Summit are aimed at meeting the goals under the Paris Climate Agreement. The following is an overview of the announcements made at the Summit:

Zero Emission Vehicles

  • An alliance of more than 60 state/regional, city governments and multinational businesses are now committed to a 100% zero emission targets through the ZEV Challenge.
  • 12 regions – including Catalonia, Lombardy, Scotland, and Washington State – representing over 80 million people and over 5% of global GDP will have 100% zero emission public fleets by 2030.
  • 26 cities with 140 million people are committed to buy only zero emission buses starting in 2025 and creating zero emission areas in their cities starting in 2030.
  • Business is stepping-forward with 23 multinational companies in EV100, with revenue of over US $470 billion, committed to taking fleets zero emission.
  • IKEA Group will transition to EV in Amsterdam, Los Angeles, New York, Paris, and Shanghai by 2020 – to reach 100% zero emissions for last mile home delivery.
  • More than 3.5 million additional zero emission vehicle charging points will be installed by 2025, and a goal for transport hydrogen to be zero-emissions by 2030 was launched.
  • Almost 400 global companies along with health care providers, cities, states and regions now have 100% renewable energy targets. This includes nearly 150 major global companies such as Tata Motors and Sony who have joined the RE100 initiative: collective annual revenues of these companies total well over US $2.75 trillion and their annual electricity demand is higher than that of Poland.
  • Over 30 energy intensive industry and property players have set smart energy and net zero carbon buildings targets through EP100.

Private Sector Initiatives

  • 488 companies from 38 countries have adopted emission reduction pathways in line with the science of the Paris Agreement – up nearly 40% from last year. Collectively, these companies represent US $10 trillion of the global economy, equivalent to the value of the NASDAQ stock exchange.
  • Nearly a fifth of Fortune Global 500 companies have now committed to set science-based emissions reduction targets including big emitters like India’s Dalmia Cement. Another example is Levi Strauss & Co, which has an approved Science Based Target for a 90% reduction in emissions in all owned-and-operated facilities and 40% reduction in its supply chain by 2025.
  • At the Summit, 21 companies announced the Step Up Declaration, a new alliance dedicated to harnessing the power of emerging technologies and the fourth industrial revolution to help reduce greenhouse gas emissions across all economic sectors and ensure a climate turning point by 2020. Signatories include several established climate leaders: Akamai Technologies, Arm, Autodesk, Bloomberg, BT, Cisco Systems, Ericsson, HP, Hewlett Packard Enterprise, Lyft, Nokia, Salesforce, Supermicro, Symantec, Tech Mahindra, Uber, Vigilent, VMware, WeWork, and Workday. Companies Autodesk, Safaricom and Unilever became the first to join a new Pledge for a Just Transition to Decent Jobs. They pledged to only buy from renewable energy providers that uphold fundamental workers’ rights including social protections and wage guarantees.

Sustainable Communities

  • Over 70 big cities – home to some 425 million citizens – are now committed to carbon neutrality by 2050, including Accra, Los Angeles, Tokyo and Mexico City. These actions will lead to a 2.5% cut of annual global GHG emissions and the avoidance of 12 billion tonnes of carbon dioxide equivalent by 2050. A further 9,100 cities representing 800 million citizens are now committed to city-wide climate action plans. This could lead to reductions of more than 60 billion tonnes of carbon dioxide equivalent between now and 2050.
  • Mayors of over 70 of the world’s key cities reaffirmed their commitment to delivering on the highest ambitions of the Paris Agreement, namely to keep a global temperature rise to below 1.5°C.

Land and Ocean Stewardship

  • A powerful Leaders Group and a new alliance linking over 100 NGOs, businesses, state and local governments, indigenous groups and local communities was launched to fire up action across the forest, food and land agendas.
  • Over 100 global supply chain actors (including supermarket chain Tesco and investors managing over US $5.6 trillion) pledged to work with a variety of organizations to halt deforestation and native vegetation loss in the Cerrado, Brazil.
  • Walmart announced a new platform to identify high-risk jurisdictions and source palm oil and paper and pulp from jurisdictions with no deforestation. Unilever – an anchor partner and supplier to Walmart – will support farmer certification as well as restoration in the Sugut, Kinabatangan and Tawau river basins in Sabah, Malaysia.
  • Through the Pacific Coast Collaborative, states and cities on the United States’ West Coast committed to reduce food loss and waste by 50% by 2030, a commitment with the potential to reduce 25 million tons of GHG emissions per year from the often-overlooked food sector.
  • The Global Environment Facility announced $500 million in funding to drive improved land use and forest conservation.
  • Nine of the world’s leading philanthropic foundations announced their intent to commit at least $459 million through 2022 to the protection, restoration and expansion of forests and lands worldwide—the announcement underlined indigenous peoples’ and traditional communities’ collective land rights and resource management.

Transformative Investments

  • The Investor Agenda was formally launched bringing together nearly 400 investors managing US $32 trillion of assets including CalPERS, the largest US pension fund; La Caisse de dépôt et placement du Québec (CPDQ), Danish pension fund PKA, and Sumitomo Mitsui Trust Asset Management. These investors are focused on accelerating and scaling-up financial flows into climate action and building a more sustainable, low-carbon, global economy.
  • CDPQ, Canada’s second largest pension fund has, for example, committed to increase its low-carbon investments by 50% by 2020, representing more than US$6.2 billion in new investment, and pledged to reduce the carbon intensity of its portfolio by 25% by 2025.
  • PKA, Denmark’s labor market pension fund manager, announced it plans to increase its investments in low-carbon climate solutions to 10 percent of its assets.
  • APG, the Dutch pension fund manager, announced it would no longer be investing in any coal related infrastructure going forward.
  • New York City announced it would be doubling its investments in clean energy and climate solutions to $4 billion over the next three years.
  • 296 investors have now joined Climate Action 100+ which is working with some of the highest emitting companies to assist them in lowering emissions, getting on track with clean energy and the goals of the Paris Agreement.
  • The Green Bond Pledge announced founding signatories including the City of Mexico, Luxembourg Green Exchange and SFPUC who join the state treasurers of California, New Mexico and Rhode Island; some major cities including the City of San Francisco; Australian pension fund LGS and two financial firms – together, this should spur the goal of seeing US $1 trillion-worth of green bonds issued by the end of 2020.
  • A Global Green Bond Partnership, (GGBP) backed by the World Bank, International Finance Corporation, Amundi and major climate finance and sustainability groups was launched with the aim of supporting and assisting sub-national and corporate green bond issuance.
  • 42 financial institutions gathered under the mainstreaming Climate Action in Financial Institutions initiative, representing over $13 trillion in assets, announced a commitment to helping cities, states, and regions finance climate action, including Multilateral Development Banks, members of the International Development Finance Club as well as leading private financial institutions from developing and developed countries.

Call to Global Climate Action

At the end of the Summit, delegates issued the following Call to Global Climate Action:

We, the people gathered at the Global Climate Action Summit, and communities around the world calling for climate action, commit to a climate-safe future for all.

The climate crisis calls for urgent action. We have seen the human impact on health, disease, famine, conflict, refugee crises, and livelihoods. We have seen thousands of people die each year from worsening storms and floods, heat waves, droughts, and wildfires. These impacts disproportionately affect the poor, disadvantaged, and vulnerable.

Now is the time for all leaders to step up and take bold action. Climate change is a threat to all humanity, and it can only be solved by a global cooperative effort. Only together will we transform our communities and energy systems, create employment opportunities and economic prosperity, protect our oceans and natural environment, and complete the transition to a zero-carbon world.

Under the Paris Agreement, the global community has agreed to confront the climate crisis by keeping the rise in global temperature well below 2 degrees C, and pursuing efforts to limit it to 1.5 degrees. 

Delivering this future requires collaborative and transformative action at all levels and in all sectors of society. Recognizing this imperative, over 500 commitments were made at the Global Climate Action Summit. Our continued global leadership includes: 

  • Over 100 Mayors, state and regional leaders, and CEOs have committed to become emissions neutral by 2050 at the latest and in line with the 1.5 degree goal of the Paris Agreement.
  • 488 businesses will set science-based targets to ensure that they are part of the climate solution.
  • More than 60 CEOs, state and regional leaders, and mayors are committed to delivering a 100% zero-emission transport future by 2030, putting us on an irreversible road towards decarbonization.
  • 38 cities, major businesses, state and regional governments have committed to net-zero carbon buildings, cutting emissions equivalent to more than 50 coal-fired power stations.
  • More than 100 indigenous groups, state and local governments, and businesses launched a forest, food and land-focused coalition to deliver 30% of climate solutions needed by 2030.
  • Nearly 400 investors, with $32 trillion under management, will work to ensure a low-carbon transformation of the global economy with the urgency required to meet the challenge.

We dedicate our actions, commitments and determination to give national leaders the confidence and assurance needed to increase their ambition and accelerate climate action by 2020 for the security of our planet, now and for generations to come. We call on the national governments of the world to: 

STEP-UP AMBITION NOW: Commit to increased climate ambition, including in the form of strong national policies and updated, enhanced Nationally Determined Contributions (NDCs) by 2020, consistent with what science tells us is needed to achieve the goals of the Paris Agreement;

CHART A CLEAR PATH TO YOUR ZERO-CARBON FUTURE: Develop net-zero mid-century emissions plans to inform future NDCs and to guide long-term economic and technological transformation that ensures decent jobs and increasing community resilience; 

EMPOWER BOTTOM-UP CLIMATE ACTION: Support and accelerate climate action at the local and regional level, with legislation, regulation, financing and policies that incentivize zero-carbon development, and through inclusive, transparent planning, dialogues and consultations that empower businesses, cities, states, investors, civil society, and individuals.

The whole world has to do more. Building on this positive wave of climate action, there are critical milestones for stepping up ambition by 2020, including the Talanoa Dialogue at COP 24 and the UN Secretary-General’s Climate Summit in 2019. By working together we can do more to transform our politics, our thinking, our values, and our way of life. It is up to all of us to roll back the forces of carbonization. Together we will rise and converge on a new climate-safe agenda for the world.

 

Federal Government Adjusts Output-Based Carbon Pricing System for Industrial Emitters

The federal government remains steadfast in its commitment to implement a price on carbon in 2019. As a cost effective way to reduce emissions while incentivizing clean innovation, carbon pricing is a key policy tool in the fight against climate change.

The federal carbon pricing backstop, which will come into force on January 1, 2019, is made up of two components: (1) a charge on fossil fuels that will generally be paid by fuel producers or distributors, and (2) a separate pricing system for industrial facilities that are emissions intensive and trade-exposed, known as the output-based pricing system (OBPS).

Following stakeholder consultations in spring 2018, Environment and Climate Change Canada (ECCC) released its preliminary competitiveness assessment on July 27, 2018. Based on its assessment and feedback received from emissions intensive and trade-exposed industries, the federal government announced that it is updating its proposed approach to setting output-based standards. In particular, ECCC will adjust the benchmark under the proposed OBPS from 70% to 80% of an industry’s average emissions, and from 70% to 90% for producers of cement, iron and steel, lime and nitrogen fertilizer. This means that emissions generated above these benchmarks will be subject to the carbon price. The federal carbon pricing backstop will be imposed on provinces that do not have a carbon pricing system that meets the federal benchmark. The tax is set for $20 a tonne in 2019, and will increase by $10 each year until it reaches $50 in 2022. The federal government has said that it will release a detailed paper on the draft OBPS regulations for public comment in fall 2018.

Overview of the OBPS

In January 2018, ECCC released the draft regulatory framework for the OBPS, which set the benchmark at 70% of an industry’s average emissions performance.  The OBPS is designed to incentivize companies to reduce their greenhouse gas (GHG) emissions and spur innovation, while maintaining competitiveness and protecting against carbon leakage.

Instead of paying the charge on fuels that they purchase, industrial facilities subject to the OBPS will face a carbon price on the portion of their emissions that are above a limit, which will be determined based on relevant output-based standards (emissions per unit of output). The OBPS will apply to industrial facilities located in jurisdictions where the federal carbon pricing system applies and that emit 50,000 tonnes of carbon dioxide equivalent (CO2e) or more per year; smaller facilities (emitting 10,000 tonnes of CO2e or more) will have the choice to opt in voluntarily. Facilities that emit less than their annual limit will receive surplus credits from the federal government for the portion of their emissions that are below their limit. A facility can trade surplus credits it earns, creating an incentive for facilities to reduce emissions below the limit when cost effective to do so. In May 2018, ECCC released additional details on the proposed compliance options under the output-based pricing system.

Summary of Preliminary Competitiveness Analysis

As noted above, the January 2018 regulatory framework proposed that output-based standards be set at 70% of an industrial sector’s average greenhouse gas emissions intensity, with the possibility to adjust the standard based on an assessment of the potential impacts of carbon pricing on sector competitiveness and to carbon leakage. In the framework, ECCC identified two factors by which the competitiveness of industrial sectors or specific facilities within a sector may be impacted by carbon pricing:

  1. the carbon emissions intensity associated with the production of the products of the sector or facility (the carbon emissions per unit of net output is representative of the cost exposure of the sector or facility to carbon pricing); and
  2. the extent to which facilities in the sector are able to pass on the costs of carbon pricing without significant loss of market share, an indicator of which is its degree of trade-exposure.

As part of its assessment, ECCC is undertaking a three-phased approach to determine the level at which the output-based standards are set for a given sector:

  1. Phase 1 consists of a “static” test that considers historical data at the national level to calculate sector-level estimates of emissions intensity and trade exposure. These metrics are then combined to provide an indication of competitiveness risk due to carbon pricing. This approach is similar to the quantitative tests used in several other jurisdictions with carbon pricing, including Alberta, Québec and California.
  2. Phase 2 is a “dynamic” test using economic modeling that uses projected emissions and economic data to evaluate the same emissions intensity and trade exposure metrics as phase 1, for the year 2022.
  3. In Phase 3, stakeholders are invited to submit additional supporting information and analyses on aspects of competitiveness to supplement the results of Phases 1 and 2.

Phase 1 and 2  preliminary assessments have been completed for the following sectors: base metal smelting and refining, cement, petroleum refining, bitumen and heavy oil upgrading, upstream oil and gas, oil sands and heavy oil, natural gas pipelines, iron and steel manufacturing, lime, pulp and paper, nitrogen fertilizers, ethanol, food processing, potash, mining, and iron ore pelletizing.

Based on its findings from the Phase 1 and 2 analyses, ECCC is making the following two adjustments to the output-based standards:

Four sectors were assessed to be in a high competitive risk category and will have their output-based standard adjusted to 90%of the sector’s average GHG emissions intensity:

  1. cement
  2. iron and steel manufacturing
  3. lime
  4. nitrogen fertilizers

The starting point for all remaining industrial sectors is revised from 70% to 80% of the sector’s average GHG emissions intensity.

With Phase 3 of ECCC’s analysis now under way, stakeholders have been invited to submit additional supporting information (e.g. evidence of significant facility-level impacts, domestic or international market considerations, and a consideration of indirect costs on sectors associated with carbon pricing). ECCC has said that further sectors or sub-sectors may see adjustments to their output-based standards based on the results of the Phase 3 analysis. Once Phase 3 of the analysis is complete, ECCC will release draft OBPS regulations for public comment.