Follow the Money: The Carbon Disclosure Project (by Neil Fairhead)

Following the positive reception of this last post, "Turn Signals," guest blogger Neil Fairhead returns with a look at the Carbon Disclosure Project and what we should take away from its role in the climate debate.  

Two weeks ago, the Carbon Disclosure Project (CDP) held its first workshop in Canada. Who? What? Why should I care?

The CDP is a small NGO based in England that provides questionnaires on carbon consumption and emissions (employing an accounting framework created by the Greenhouse Gas Protocol Initiative and adopted by nearly every GHG standard and program in the world) to the largest corporations in the world.  Moreover, it openly states that the CDP will publish the results, not anonymously but by name. The surprising thing is that these large companies are actually responding! A majority of the Dow Jones index and the S&P 500 have taken the survey! The CDP's 2010 survey achieved an 82% completion rate by the Global 500! How on Earth?

The answer is money. The CDP's request for information is supported by institutional investors representing very substantial funds. Back in 2006 the CDP had 225 investors involved. This year they have 551 institutional investors representing over US$71,000,000,000,000 of assets under management and yes that is the right number of zeroes - $71 trillion. To put it in a Canadian perspective, that is thirty times the total market capitalization of all the 1516 companies listed on the Toronto Stock Exchange at the end of March, and is rivals the figures for global economic output. So why do these investors support this NGO?

Because people with a lot have a lot to lose. They focus significant attention on risk identification, reduction and management. Now I do not claim to read minds but let's try to read between the lines. I suggest these institutional investors back the CDP because they are concerned that there is a significant probability that climate change is real and that we will have to reduce carbon emissions with a resulting reduction in the value of carbon emitting corporations. Their actions suggest further that they believe that the combination of probability and impact (how much they will lose if carbon reduction become necessary) is big enough that they want their investments to measure and to state publicly how much carbon they are emitting.

     "The Carbon Disclosure Leadership Index is a very important metric: the more transparent the company, the less risk to discover additional CO2 emissions (and costs) moving forward" stated Thierry Bros, Senior Gas Equity Analyst, Société Générale

Because institutional investors also have a lot to gain, they are increasingly recognizing that good performance in the environmental, social and governance space is a predictor of good financial performance as well. As noted by Seb Beloe, Head of SRI Research, Henderson Global Investors, "By enabling direct comparisons between companies, improvements in the quality of company strategies and performance in this area will undoubtedly accelerate."

Of course the link to financial performance should not come as a surprise. Carbon dioxide is a waste product. Every bit of it that is emitted is associated with consuming fossil fuel - and fossil fuel (unlike sun, wind, waves or falling water) has to be paid for. Minimizing fuel consumption per unit of production is not only good for the environment, it is also good for the bottom line. It is a proxy for efficient operations processes.

If you read my last entry, you will know that I am interested in getting below the surface and identifying actions that signify a real shift in attitude and behaviour. Over the last year we have witnessed continued doubt being cast on the reality of climate change, or to be precise anthropogenic global warming. To be fair some comments demonstrate the duty of doubt that every scientist owes - but many more are driven by other agendas. When I hear or read about them, I reflect again on these institutional investors, of their knowledge, their resources and of what they have to lose and gain. Guess to whom I give more weight?  That's right, the actions of those with $71 trillion to protect and grow.

(Ed.: Recognizing the importance of emissions information to Canadian investors, the Ontario Securities Commission released CSA Staff Notice 51-333, which provides significant guidance to reporting issuers on the type of environmental, including climate, information they are required to disclose. This Notice was developed with helpful input from the Climate Change Lawyers Network, which provided the OSC with a significant submission on carbon disclosure rates among Canadian issuers.  Read more about the submission here.)

In a post-Kyoto world, institutional investors may be the most effective route to achieving the changes we need to sustain and pass on a good world. The remarkable achievement of the CDP is to provide a focal point for their attention and, I hope, resulting action. 

Other Resources:

Other carbon initiatives relevant to Canadians and Canadian investors, apart from government mandated reporting, e.g. Environment Canada's Facility Greenhouse Gas Reporting requirement or Alberta's Greenhouse Gas Reporting Program, include:

1. The Climate Registry:  A nonprofit collaboration among North American states, provinces, territories and Native Sovereign Nations that sets consistent and transparent standards to calculate, verify and publicly report greenhouse gas emissions into a single registry. The Climate Registry Information System (CRIS) is the Registry’s online GHG calculation, reporting, and verification tool. CRIS also provides public access to the Registry’s verified emission reports.
2. The Regional Greenhouse Gas Initiative: The first market-based regulatory program in the United States to reduce GHG emissions. Ten Northeastern and Mid-Atlantic states (CT, DE, MA, MD, ME, NH, NJ, NY, RI, VT) have capped and will reduce CO2 emissions from the power sector by 10% by 2018. The ten states participating in RGGI have established a regional cap on CO2 emissions and are requiring power plants to possess a tradable CO2 allowance for each ton of CO2 they emit. 
3. Three major investor coalitions focused on climate change risks, the European Institutional Investors Group on Climate Change (IIGCC), the North American Investor Network on Climate Risk (INCR) and Australia/New Zealand Investor Group on Climate Change (IGCC), are launching an international survey of investment practices relating to climate change early in 2011.
4. C40: Originally the Large Cities Climate Leadership Group and now a group of 40 very large cities, who recognise that “home to half the world’s population and growing rapidly, cities consume over two-thirds of the world’s energy and account for more than 70 percent of global CO2 emissions.” Toronto is a member of C40 and formerly held the position of Chair under former Mayor David Miller.

~ Neil Fairhead

Cancun - 3 Questions & Answers

The following guest blog is a cross-post from Zizzo Allan Climate Law. Co-founder Travis Allan made the rather enviable early Winter trek to Cancun to gain a personal, real-time perspective on the event as it unfolded. This summary of Cancun follows my earlier post - COP16: Dispatches from the Front Lines - which provided a mid-conference update on the negotiations.
These are some answers to the most common questions we’ve received after Cancun.

1. What do the decisions mean?

Cancun ended with a series of decisions that should help developing countries reduce their Greenhouse Gas (GHG) emissions and adapt to a changing climate, solidify the role of Carbon Capture and Storage, clarify rules around forestry and international reporting and create a new framework for technology transfer to developing countries. Negotiators did not create a new treaty to replace or extend Kyoto, but they did put in place some stepping stones that will increase the chances of that happening next year in Durban, South Africa.

Funding for Developing Countries – The Parties decided to create a “Green Climate Fund” that will oversee a  “significant’ share of new funding from developed countries to developing countries. The decision creating the Green Climate Fund also recognized that developed countries have committed to a goal of making 100 billion US dollars per year available to developing countries by 2020. The Green Climate Fund is expected to manage a portion of the 100 billion USD commitment.

Carbon Capture and Storage (CCS) – After much wrangling, it was decided that CCS (which usually involves storing carbon below the ground instead of letting it release into the atmosphere) is eligible as a project activity under the Clean Development Mechanism (CDM) subject to a number of issues being resolved. The CDM covers the most well-known carbon offset credits, which are allowed into the European Emissions Trading System and governed by the UN. Even though Canada is not eligible to host CDM projects, this decision is still relevant since the Federal and some provincial governments have invested and continue to invest significant resources into CCS technology and research. This could also be relevant because CDM methodologies are often used as a template for voluntary carbon credit protocols (assuming a CDM CCS methodology is developed and Canada still doesn’t have an applicable GHG emissions cap). 

Forestry – The Negotiations agreed that “Parties should collectively aim to slow, halt and reverse forest cover and carbon loss, according to national circumstances…” The parties also made progress the longstanding question of how to measure a country’s carbon stored in forests. Forestry accounting will now generally be done at a national level, but negotiators agreed that sub-national reference levels could be used as a temporary measure (based on national circumstances). This is a step forward for REDD (Reducing Emissions from Deforestation and forest Degradation) because it provides important guidance to countries getting ready to put a number of their forest carbon, but the decision didn’t answer important questions such as whether countries can use financial mechanisms (such as carbon offset credits) to incent REDD activities. 

Monitoring, Reporting and Verification One of the biggest sticking points in negotiations between developed and developing countries is transparency. Developing countries often complain that developed countries are secretive about their aid commitments, while developed countries are worried that developing countries either can’t, or won’t properly report their GHG emissions information. In Cancun, both sides made commitments on these fronts, a big stepping-stone in advance of Durban (see also the World Resources Institute analysis under “Transparency and Reporting” here). 

Technology Transfer – Developing countries and many international climate commentators believe that developed countries are obligated to share technology that will help developing countries reduce their GHG emissions and also adapt to a changing climate. The negotiators agreed to establish a technology mechanism that includes a Technology Executive Committee and a Climate Technology Centre and Network.

While the technology mechanism is a big step, it isn’t yet clear how these bodies will function in the UN system and a lot of technology issues were left undecided. In particular, negotiators didn’t address intellectual property, which is the most contentious technology issue. 

Kyoto (and post Kyoto) Cancun didn’t create a replacement for the Kyoto Protocol (KP) and it didn’t set up binding targets for the period after the KP’s first commitment period, which ends in 2012. It did, however restore trust and come to decisions that will hopefully set the stage for success in Durban.

Some of the important decisions reached around the Kyoto Protocol include taking note of the commitments for additional reductions made by Annex 1 (developed) countries in the lead up to Copenhagen and confirming that emissions trading mechanisms will continue to be available to Annex 1 countries (as an aside, the Cancun decisions also took note of developing country pledges leading up to Cancun). 

2. Does the UN still have a role to play in climate regulation?

Many commentators have argued that the success of Cancun has kept the United Nations Framework Convention on Climate Change (the UNFCCC – the UN body that coordinates the UN system’s approach to climate change) relevant.

Claire Demerse, the Pembina Institute’s Associate Director of Climate Change concluded “Although the result is very far from perfect, the Cancun talks took real steps forward — and along the way, showed that the inclusive UN process for climate negotiations can work, despite the vast differences between the countries that took part.”

Before Cancun, Jennifer Morgan at the World Resources Institute wrote “If Cancun does not bring progress, much of the energy around an international agreement will likely move from the United Nations Framework Convention on Climate Change (UNFCCC) to other fora.” The WRI team concluded after Cancun was over that this pressure was a key factor in the success of the negotiations.

One of the most interesting last-minute developments was the decision by Mexican Foreign Secretary and Conference President Patricia Espinosa to approve the agreements over the objections of Bolivia. She noted that while decisions are made by consensus, this doesn’t “mean that one country has the right to veto” decisions supported by everyone else. 

3. How did Mexico do as host?

The short answer is that Mexico did a great job. Mexican government representatives were roundly applauded for being committed to transparency and for finding consensus on some difficult issues. CTV notes that “Espinoza garnered praise from delegates and media alike for managing the egos of countries such as Japan and Russia, who resisted calls to agree to further emissions cuts after targets agreed to under the Kyoto Protocol expire in 2012. Zoë Caron Climate Policy & Advocacy Specialist at WWF-Canada’s writes “This year’s president of the conference, Patricia Espinosa, however, focused first and foremost on rebuilding an effective and transparent international process. And she succeeded.”

While they were extremely clean and efficiently run, it was unfortunate that the conference facilities spilt up civil society events from the negotiations. Negotiations, held in a hotel called the Moon Palace, were a 15-20 minute bus ride from the main hall (Cancun Messe) where NGOs and UN agencies had their side events. Side events are presentations and Q&A sessions held by interested groups to updated conference delegates, including negotiators, on key issues around climate. Separating the facilities might have increased security and led to more room, but it also made it very hard to attend side events and negotiations on the same day, and likely resulted in a decrease in the number of negotiators and national leaders attending side events.

Turning to the conference as a whole, however, the Mexican hosts and the UNFCCC worked extremely hard to create an open and productive atmosphere to make progress on an international response to climate change. With the building blocks noted above and others, such as

Thanks Travis!
~Rob 

A Bright Idea: Energy Services Agreement

Versions of this entry can also be seen at Tyler Hamilton's Clean Break blog (http://www.cleanbreak.ca) and here at Energy Management (http://www.energymanagementcanada.com).

Introduction

Energy retrofits of industrial and commercial buildings have recently proven to be one of the more popular initiatives for Canadian landlords and tenants (“project proponents”) seeking to brandish their green credentials or, simply enough, to save money. However, comprehensive retrofits can be quite costly with high initial capital costs and long payback periods. Incentives such as the federal government’s ecoENERGY Retrofit, BOMA Toronto’s Conservation and Demand Management (CDM) $60 million fund and Toronto Hydro’s Business Incentive Program have been attempts to make some of these investments more palatable to building owners and operators.

Unfortunately, for energy efficiency enthusiasts, these programs are generally limited-time offers and may not coincide with building maintenance or budget cycles. (In fact, both the ecoENERGY Retrofit and the BOMA Toronto CDM programs will be shut down by March 31, 2011.) What other options does a cash-strapped business have to conduct electricity conservation projects on their properties? One solution that is currently overlooked, but may prove more appealing as incentive programs are phased out, is employing an Energy Services Agreement (“ESA”).

BC Opens Consultation Period on Cap-and-Trade Regulations

While California's low carbon regime faces an existential crisis (see previous post California Dreaming: Why Ontarians Need to Wake-Up to Proposition 23), its Western Climate Initiative (WCI) partner British Columbia is moving full speed ahead with its introduction of a greenhouse gas (GHG) offset and emissions trading regulation. 

The BC Ministry of Environment announced on October 22 that a public consultation period had begun on its proposed regulations for large GHG emitters. The Ministry is seeking comments from stakeholders including First Nations and the general public on the proposed regulation. The consultation period will last for 45 days and end on December 6, 2010. The timing is in line with BC's commitment under the WCI to meet a planned start date of January 1, 2012 for linking a live cap-and-trade system with the other WCI members including seven US states and the Canadian provinces of Manitoba, Ontario and Quebec.

A cap-and-trade system will permit these governments to issue allowances to entities that emit GHGs and then if those entities reduce emissions below their limits, the entities will be able to sell or bank surplus allowances for future use.

For further information on the BC consultation process, please click here.

For a more in-depth review of the process, please check out my colleague Svend Andersen's site GHG Accounting.

California Dreaming: Why Ontarians Need to Wake-Up to Proposition 23

The UK’s George Monbiot recently declared the international process to address climate change to be broken beyond repair and called on like-minded folks to begin a dialogue that could provide an alternative path to reducing global greenhouse gas (GHG) emissions. Since attending COP15 in Copenhagen, I have shifted my faith to local and regional actions that encourage the experimentation and development of locally appropriate responses to emission reductions. For instance, British Columbia is committed to creating carbon neutral municipalities and Ontario has witnessed the implementation of its Green Energy and Green Economy Act. I’d like to see this turn into a novel kind of race-to-the-bottom whereby these movements lead to successful initiatives that prompt neighboring jurisdictions to outdo each other in reducing their GHG emissions.

For Ontarians interested in seeing our province continue its participation in this race, I suggest you turn your attention to events transpiring in California. As the 2010 U.S. midterms draw to their climactic conclusion on November 2, California voters face a few choices that could radically impact on how (or if) climate change is addressed at the state, national, continental and perhaps even global level. When they go to the polls, Californians will be asked to choose a new governor and cast their votes on Propositions 23 and 26, which could all impact the development of climate change solutions.

Last week, I furthered my understanding of the issues at stake by listening in on the Climate Action Reserve’s October 21 webinar that included as speakers California State Senator Fran Pavley and Erin Rogers, Western Region Manager for the Union of Concerned Scientists.

All three choices facing California voters turn on how much support its landmark 2006 Global Warming Solutions Act, also referred to as Assembly Bill 32 (AB 32), will continue to enjoy from the state government. AB 32 is bipartisan piece of legislation designed to reduce the California’s overall GHG emissions in the year 2020 back to 1990 levels.

The choice of the Guvernator’s successor is significant because of the proposed approaches to the implementation of AB 32. The Democratic nominee has vowed to move “full speed ahead.” On the other hand, the Republican candidate is more inclined towards suspending all activity on AB 32 for at least a year until the economy improves.

Similarly, approval of Prop 23 would suspend the implementation of AB 32 until the state’s current 12.4% unemployment rate drops to 5.5% for four consecutive quarters (a phenomenon that has occurred exactly three times in the past 40 years). Rogers predicts this will not happen for at least the next 6 - 11 years. This would create a situation where the affected programs might not even start until past their 2020 end date. She cautions this would create huge uncertainty in the state’s business climate as its clean energy initiatives are put on indefinite hold (or cancelled outright) and the development of a GHG cap-and-trade system is effectively terminated.

The timing is particularly discouraging as the state’s Air Resources Board is preparing to release its draft rule for a proposed compliance carbon offset market in the next couple of weeks. This is consistent with its obligations under AB 32 to adopt a cap-and-trade regulation by January 1, 2011 and put the program itself into operation in 2012. While creating a large offset market in California, it would also link up with six other Western U.S. states and four Canadian provinces in the Western Climate Initiative (WCI). Rogers believes if this process is blocked through the passage of Prop 23 that it “will spell the demise of the WCI initiative.”

The WCI’s stated objective is to reduce overall member GHG emissions by 15% from 2005 levels by 2020. A cap-and-trade system is the lynchpin of this process. And with just over half of all emissions among WCI members (approximately 480 million tonnes), California is the keystone of the proposed trading system. Ontario is the next largest emitter at 190 million tonnes and has actually put in place its enabling legislation (see Environmental Protection Amendment Act (Greenhouse Gas Emissions Trading), 2009) but it has not yet announced the specifics of its proposed system. The incentive to do so diminishes considerably without the market liquidity provided by California’s inclusion.

Rogers identified Prop 26 as a “backdoor approach to achieving same goals of Prop 23.” Prop 26 has a lower profile, but could be just as harmful to the low carbon economy transition. This proposition claims to stop “hidden taxes on goods like food and gas,” but it actually redefines certain “fees” as “taxes.” According to Rogers, this will make it impossible to levy fines on organizations causing an adverse environmental or health impact.

According to California law, taxes go to government general funds, while fees must go to address problems linked to the activity the fee is attached to. Thus, passage of Prop 26 could be another way to block the state’s cap-and-trade system, as a fee would be levied on GHGs. At the very least, the resources required to run the AB 32 program would be tied up in litigation for the foreseeable future.

According to both Rogers and Senator Pavley, the majority of funding in favour of these propositions is coming from out-of-state sources. The suggestion is that these organizations are wary of effective climate change policies emerging on a national level once California’s are firmly in place. Senator Pavley contrasted this apprehension with the “$10 billion that has flowed into California for research and development in cleantech, renewable energy and other alternative fuels” since AB 32 came into existence. The powerful signal that the state is open for business would be abruptly switched off. While it is possible that Ontario could continue its North American leadership role as a haven for cleantech investment, widespread business uncertainty in other jurisdictions would undoubtedly make the business case less robust.

Fortunately, Senator Pavley indicated that recent polls show voters are opposed to Prop 23 by a margin of 49-32%. In addition, Rogers assured listeners that the campaign against both propositions  recognizes the harm that Prop 26 could also inflict and resources are now being marshaled to ensure the same fate befalls that proposition. Over 1000 California-based groups and business, 45 newspaper editorials and 118 PhD economists are endorsing the “no” vote.

As Ontario moves into an election year, politicians of all stripes are no doubt watching California to see which way the wind is blowing. With growing public concern emerging around the province’s green energy strategy, GHG mitigation proponents could use some sunny news from California to indicate there remains sufficient support for the development of a North American cap-and-trade system. Otherwise, it’s a rather hollow victory if the race’s fiercest competitor has dropped out.

Sunny Days,
~Rob

PS  A big shout-out to Joseph Pallant at Carbon Project Solutions for putting this issue on my radar over a nice cuppa in Van earlier this month.

Got Java? My Afternoon Coffee Industry Education

On Sunday, September 26, 2010 I took my complimentary pass (courtesy of local indie cafe and roaster Te Aro Roasted) to the Canadian Coffee & Tea Show as the latter made its return to Toronto. I arrived looking for my daily cuppa and left with a buzz that could have powered more of the city than its landmark urban windmill.

I'm a bit of a Johnny-come-lately to the coffee world having only embarked on my java journey three years ago, but I feel that my four years in Japan at least provided me with a crash course in tea appreciation. Realistically, my goal was more along the lines of identifying legal issues unique to the coffee and tea industry than it was to find the next post-Kopi Luwak trend.

Some of the fun highlights from the trade show included:

• Ice-Drip Coffee:  Te Aro's booth hosted the first ice-drip coffee maker I have ever seen (or tasted). The process looks like something out of a science class where every couple of seconds, a drop of ice water falls into a coffee filter, soaks the grounds and then winds its way into a glass pot. Viola! Six to eight hours later you have a deliciously smooth cup of coffee.
• Cups of Excellence:  I learned there is a global competition that selects the best coffee produced in a country for a particular year and sells these coffees to the highest bidder during an Internet auction. Apparently 80-85% of all coffees so designated end up in Asia while only a very few, if any, arrive in the Canadian market and are made available to the general public.
• Innovation:  Besides the ice-drip process, I discovered both the coffee and tea industry continue to innovate with new processes, new flavours, localized growing methods and gorgeous presentation. One personal favourite was the delicate rosewater tea on offer by a Chinese tea supplier. 
• Marketing:  Hands down, the Social Coffee & Tea Company wins the award for cheekiest marketing based on the names of their coffee blends. For instance, depending on how aggressive you feel, you may have a hard time choosing between Imperialiste Noir and Western Liberation.

Now all of these lessons were well and good but did I have any take-aways from a legal perspective?  While I'm hesitant to suggest there were broad trends, a few anecdotes stuck out:

• Carbon Credits:  A number of roasters have established close relationships with coffee growers in developing countries and are looking for ways to increase the growers' ability to benefit from sustainable practices. One roaster even directed me to a Smithsonian report demonstrating that shade-grown coffee farms outshine sun-grown coffee farms on sustainability measurements. However, no one has yet heard of a way for these growers to benefit from any additional carbon sequestration that may occur on a shade-grown farm.
• "Fair Trade":  More than one roaster and supplier indicated that not all "fair trade" labeled products are easily traced and in those cases they may choose not to offer a fair trade blend (e.g. chamomile) or, more likely, they attempt to source a coffee or tea that is "beyond fair trade." One roaster in particular mentioned that he prefers to purchase a Cup of Excellence crop and then work in a long-term relationship with that grower to develop their sustainability methods.
• Labeling Consistency:  A Japanese importer of matcha tea bemoaned the patchwork of national labeling standards for "organic" products. This made it a challenge to encourage consistent standards among growers who may have to select a particular market for their "organic" tea rather than be able to offer their matcha as "organic" on a global basis. This lack of consistency was echoed by some of the fair traders.
• Leases:  One of the more interesting anecdotes was provided by a coffee/tea distributor who suggested that cafes owners may not always find themselves in advantageous lease situations.  Apparently, a lack of standards is endemic in the industry and provisions that might be useful in a cafe context are not always found in cafe leases. 

I am intrigued by some of the feedback I received at the Show and would love to hear from more experienced industry hands to see if anything I heard is something you've experienced or heard about.  Perhaps it's something we can discuss over a cup of Social's Western Decadence!