Paris Agreement – GHG Accounting

Manitoba Introduces “Made in Manitoba” Carbon Price and Climate Change Plan

On 27 October, the Manitoba government released its proposed climate change strategy, A Made-in-Manitoba Climate and Green Plan (the Plan). The Plan, which is currently open to public input, is based on four strategic pillars – climate, jobs, water and nature – and includes 16 keystones for priority action. These keystones are associated with each pillar and include clean energy, carbon pricing, green infrastructure, agricultural and land use, water quality, forests and conservation, among others. The Plan also sets out a made-in-Manitoba approach to carbon pricing with a price of $25 per tonne beginning during 2018 – this amount will not increase over time and is half the amount mandated by the federal government (under the Pan-Canadian Framework on Clean Growth and Climate Change, the federal government established a carbon price benchmark of $10 per tonne of carbon dioxide equivalent starting in 2018, which will increase by $10 per tonne annually until it reaches $50 per tonne in 2022).

It should be noted that the Manitoba has erroneously stated that the federal government’s carbon pricing plan “lets Ottawa decide where to spend new carbon price revenue in Manitoba”. However, as committed by the federal government in its October 3, 2016 document Pan-Canadian Approach to Pricing Carbon Pollution, carbon price revenues will remain in the jurisdiction of origin and each jurisdiction can use carbon pricing revenues according to their needs (including to address impacts on vulnerable populations and sectors, and to support climate change and clean growth goals).

The provincial government posits that a Made-in-Manitoba plan with a lower carbon price is justified because historically, Manitoba has invested billions of dollars in clean, renewable hydroelectricity. The Plan credits early investments in Manitoba Hydro that have kept the province’s GHG emissions low. The Plan states specifically that the “federal backstop is wrong for Manitoba” and it “does not respect Manitoba’s green record”. Also, the provincial government argues that the Plan will produce more emission reductions than the federal carbon levy over the next five years. In particular, the Plan states that the federal $50 per tonne carbon pricing plan would actually result in 80,000 tonnes fewer emissions reduced by 2022, compared to the Made-in-Manitoba carbon pricing plan. Manitoba will be relying on sector-specific reductions to achieve what it considers to be greater results. Specifically, the provincial government anticipates that the sector emissions reductions (based on output-based pricing for large emitters) set out in the Plan will generate over 1 million more tonnes of cumulative carbon emissions reductions over the next five years, compared to the federal carbon tax. The provincial government expects that together, these initiatives will reduce carbon emissions by 2,460 kilotonnes, more than twice as much as the federal carbon tax. A full review of Manitoba’s carbon pricing plan will take place in 2022. An independent expert advisory commission of Manitobans will also be established to help develop five-year Carbon Savings Accounts to achieve meaningful emission reductions across sectors of the economy.

The Plan confirms exemptions for agricultural emissions. The carbon levy will also not be applied to marked fuels used by farmers for their farming operations. Agricultural operations will also be able to contribute to carbon sequestration and offset trading systems to be established in Manitoba and other provinces. The Plan also sets out a range of new initiatives to protect wetlands and watersheds, water quality, and wild species and habitats. In addition, the provincial government looks to support the creation of low carbon economy jobs through green infrastructure, clean technology, innovation financing, and skills and training.

While the Manitoba government’s commitment to take meaningful action on climate change is laudable and the Plan represents a step in the right direction, pitting the provincial carbon pricing plan against the federal carbon pricing backstop risks undermining efforts across the country to help Canada achieve its commitment under the Paris Agreement.

Investors Increasingly Backing Shareholder Resolutions on Disclosure of Climate-related Risks

In the past few months, an increasing number of investors have been pushing shareholder resolutions on the risks related to carbon regulations. Ceres (a leading sustainability non-profit organization) reports that in 2017 so far, almost half of investors in fossil fuel and utility companies are backing resolutions for carbon intensive companies to undertake and disclose 2-degree scenario analysis, in order to better align their business plans with the goals of the Paris Climate Agreement and the accelerated transition to a low-carbon economy that is already underway. The following are highlights from the 2017 shareholder season so far, as reported by Ceres:

Highlights from the 2017 shareholder season include:

A historic majority vote of 62% at ExxonMobil. At ExxonMobil’s annual meeting on May 31, 2017, 62% of shareholders voted in favour of a proposal calling on the company to assess and disclose how it is preparing its business for the transition to a low-carbon future. Institutional investors with more than $5 trillion of combined assets under management co-filed the proposal, including lead-filers from the New York State Common Retirement Fund and the Church Commissioners for England.
A first evermajority vote of 57% at PPL Corp. While the company has divested much of its power generation, it has not disclosed a long range greenhouse gas reduction strategy or goals.
A 48% vote at Dominion Resources.Ceres indicates that the company appears to be relying too heavily on natural gas, which is not aligned with a 2-degree scenario, and the company ranks at or near the bottom for delivery of energy efficiency and renewable energy to customers.
A 45% vote at DTE Energy.In an encouraging development, just one week after the vote, DTE Energy Chairman and Chief Executive Gerry Anderson announced that the company would reduce carbon emissions by 80% by 2050 and close its coal plants.
A 46% vote at Southern Company. In a climate-related vote held on May 24, 2017, 46% of its shareholders asked the Southern Company to report on how it plans to align its business operations with a 2-degree global warming scenario, up from 34% last year. The company has made sizable, high risk bets on nuclear and carbon capture and storage (CCS) technologies and has not set long-range GHG reduction goals or disclosed plans for aligning its business with a 2-degree scenario.
A 50% vote at PNM Resources. While the company recently proposed a shift from coal to natural gas and renewables, it has not disclosed a long range strategy consistent with a 2-degree Scenario.
A 46% vote at Duke Energy. Duke Energy is the second largest emitter in the US, and does not have long range GHG reduction plans.
Xcel Energy agreed to disclose its long-range GHG reduction plans. This move indicates that it is well-positioned to meet the expectations of international climate goals.

Ceres analyzed the resolutions and saw an average of 45% support this year for resolutions asking companies to report regularly on the kind of impact regulations aimed at reducing carbon emissions would have on their operations. The percentage in favor is up from 21% in 2014 and 34% in 2016.

These shareholder votes send a strong message that investors are slowly sitting up and taking notice of the material financial implications of climate change. Many investors recognize that if companies take advantage of a near term weakening of regulations and make investments that are not prudent over the long time horizon that these investments demand, they risk stranding assets and potential future write-downs on financial statements.

This trend in shareholder voting is taking placing within a broader push by global institutional investors to spur action at the governmental level to fully implement the Paris Agreement. Ahead of the G20 Summit in Hamburg, 400 investors with $22 trillion in assets under management sent a clear signal that climate action is essential through support of both the Paris Agreement and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD has laid out an ambitious five-year path for full implementation of the Paris Agreement, which will depend on companies taking a leadership role to start implementing the recommendations this year.

Setting our sights on 2050: Canada announces Mid-Century Long-Term Low-Greenhouse Gas Development Strategy at COP 22

At COP 22 in Marrakech, Morocco, federal Minister of Environment and Climate Change, Catherine McKenna, announced Canada’s Mid-Century Long-Term Low-Greenhouse Gas Development Strategy (the Strategy). As one of the first countries to release a long-term greenhouse gas (GHG) strategy focused on 2050, the Strategy describes various pathways for innovative and creative solutions consistent with the Paris Agreement’s goal of holding the global average ‎temperature rise to well below 2 °C, while pursuing efforts to limit the temperature increase to 1.5 °C. In particular, the Strategy considers an emissions abatement pathway consistent with net emissions falling by 80% in 2050 from 2005 levels.

The federal government acknowledges that in order to achieve emission reductions in line with this goal will require substantial effort on the part of all Canadians, with a fundamental restructuring of multiple sectors of the economy. Cost-effective abatement opportunities will need to be realized from virtually every greenhouse gas emissions source and activity. In the energy sector, this will include enhanced energy efficiency and conservation, finding cleaner ways to produce and store electricity, and switching towards non-emitting electricity or other low-GHG alternatives.

The Strategy notes that the risks of inaction are threefold:

Ongoing emissions of anthropogenic GHG will cause atmospheric concentrations to continue to rise, leading to higher global average temperatures and a cascade of related impacts, including increases in severe weather, and rising sea level.
Failure to act now means that costs will likely rise in the future as the required pace of decarbonisation increases. This raises the probability of misallocation of investment and infrastructure, as well as stranded assets.
As the world moves to address climate change, Canada should not be left behind in the emerging global markets for clean energy and related goods and services.

The Strategy identifies the following key messages:

Most Canadians recognise the need to mitigate climate change and limit the increase in the global average temperature, but the magnitude of the challenge is less well understood, with a requirement for very deep emissions cuts from every sector by mid-century.
Mitigating greenhouse gas emissions is necessary to avoid the increasing threat presented by climate change. Benefits of action to reduce climate risk will outweigh costs and the international community is moving towards low-greenhouse gas economies. A particular focus on short-lived climate pollutants is also required if we are to stay below the 1.5°C – 2°C temperature goal.
Canada has worked closely with the United States and Mexico in the development of this report. Our continental partners have also described ambitious mitigation action by 2050 in their respective strategies.
Encouraging international efforts, including reducing emissions in other countries will be key to the global response.
Working collaboratively with Indigenous peoples by supporting their ongoing implementation of climate change initiatives will be key. Consultations with Indigenous communities must respect the constitutional, legal, and international obligations that Canada has for its Indigenous peoples.
The Strategy will help inform the pan-Canadian framework for clean growth and climate change.

In addition, the Strategy identifies a number of building blocks that could provide the foundation for Canada’s long-term climate change mitigation strategy:

Cities are home to 70% of the world’s energy related carbon dioxide emissions. Canadian cities host 80% of the national population, compared to 62% sixty years ago. With a continuing trend in urbanization for the upcoming decades, cities across Canada cannot afford to wait to increase climate change mitigation and adaptation efforts.
Canada’s forests and lands will continue to play an important role in sequestering substantial amounts of carbon dioxide from the atmosphere. This sequestration can be augmented through policies and measures that better manage our forests and forest products. Without consideration of the global land sector, the 1.5 to 2°C temperature goal will be very hard to achieve.
Energy efficiency and demand side management are key to achieving deep GHG reductions. Efficiency gains are also key enablers of electrification technologies and consumer savings.
Electrification has been identified as an essential step in all deep GHG mitigation analyses. The electrification of end-use applications that are currently using fossil fuels is fundamental, e.g. using electricity to power certain cars, trucks, building appliances and heating systems, and energy requirements for some industries.
Concurrent trends towards decarbonization of the electricity generating sector are needed. Electricity generation in Canada is already more than 80% non-emitting, with a trend towards non-emitting generation expected to continue, including through increased government action.
Some sectors such as heavy industries, marine transportation, some heavy freight transportation, and aviation could move to lower or low-carbon fuels such as second generation biofuels or hydrogen. Alternatively, new and emerging technologies in synthetic hydrocarbons or energy storage would be needed.
Abatement of non-carbon dioxide greenhouse gases, such as methane and hydrofluorocarbons, is a priority given their high global warming potentials. Reductions of these pollutants can often help slow the rate of near-term warming and contribute to achievement of the global temperature goal. Although black carbon is not classified as a greenhouse gas, it has strong global warming effects that must also be addressed.
Innovation will also be crucial. A sustainable energy transition is possible with currently deployed or near-commercial technologies, but the long-term transition will be eased with the near-term accelerated deployment of clean energy options, or the development of more innovative technologies. The private sector has an important role to play in this respect including spurring investment and innovation towards low GHG alternatives. Carbon pricing will be an important element to achieving this objective.
Collaboration with provinces and territories, Indigenous peoples, municipalities, business and other stakeholders will be essential to Canada’s long-term success in enabling clean growth, reducing emissions and seizing the opportunities of the low-carbon global economy.

Dealing with climate change will ultimately require net-zero anthropogenic greenhouse gas emissions over the course of this century. The Strategy document concludes by noting that Canada will need to fundamentally transform all economic sectors, especially patterns of energy production and consumption.

Carbon Offsetting and Reduction Scheme for International Aviation

Since the adoption of the Kyoto Protocol in 1997, ICAO has been under increasing pressure to produce a plan to reduce emissions from aviation. Notably, aviation emissions were excluded from the Paris Agreement. On 6 October 2016, a deal was reached by 191 countries at the Plenary Session of the International Civil Aviation Organization’s (ICAO) 39^thAssembly to manage carbon dioxide (CO2) emissions from international aviation through a new global market-based measure known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). With the adoption of CORSIA, the aviation industry is signaling its intent to shoulder its responsibility for emission reductions by mitigating GHG emissions from its sector.

CORSIA, which is designed to complement the basket of mitigation measures the air transport community is already pursuing to reduce CO2 emissions from international aviation (including technical and operational improvements and advances in the production and use of sustainable alternative fuels for aviation), will commence with a pilot phase from 2021 through 2023. Starting from 2021, airlines that opt in to the scheme will have to purchase offsets to balance their emissions growth above 2020 levels. More than 65 countries representing over 85% of global air traffic have said they will participate from the beginning. The pilot phase will be followed by a first phase from 2024 through 2026. Participation in both of the pilot and first phases will be voluntary and the next phase from 2027 to 2035 would see all states on board. Some exemptions were accepted for Least Developed Countries (LDCs), Small Island Developing States (SIDS), Landlocked Developing Countries (LLDCs) and States with very low levels of international aviation activity. The scheme will be reviewed every three years.

In 2010, the aviation industry had agreed on an aspirational goal to cap its emissions after 2020, so that future growth would be carbon neutral. IATA reported that aviation in 2015 emitted 781 million tonnes of CO2, meaning that if it was a country, it would be the world’s sixth largest emitter. Since the industry is expected to grow at an average rate of around 5% per year over the next two decades, it will need to find ways to significantly increase its efficiency or balance its own emissions through emissions reductions in other sectors.

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.

Paris Agreement Adopted – Full Text Released

On the 12 December 2015 the Paris Agreement was adopted by the
COP 21 UN Climate change conference in Paris. The official signature is scheduled for the 22nd of April 2016. It is expected that all 195 nations will have ratified /approved the agreement by this date. The full text can be found here: Link