Climate Compass Blog

VW-EPA settlement presents opportunities for cities and states

Alternative-fuel and electric vehicles could benefit from the $14.7 billion in penalties Volkswagen will pay for equipping millions of vehicles with devices to cheat U.S. emissions testing.

The penalties are part of a final settlement announced in October between the German automaker and federal and California regulators for installing software designed to beat emissions tests on more than a half million diesel vehicles with 2-liter engines. The software reduced the vehicles’ emissions during testing to levels that were up to four times lower than they were during normal road use.

While a large part of the settlement is being set aside for a leasing and buyback program for VW owners, $4.7 billion will be spilt among two investment projects that mitigate the pollution emitted from these cars and invest in zero emission technology. The billions of dollars in these two programs provide ample opportunity for cities and states to reduce pollution and greenhouse gas emissions by expanding alternative-fuel projects and electrifying existing vehicle fleets.

The Nitrogen Oxide (NOX) Emissions Mitigation Trust and the zero-emissions technology investment plan are intended to reduce the adverse environmental impacts of VW vehicles that violated the law, and to address the fact that consumers bought these cars under the mistaken belief that they were lower-emitting than other commercially available vehicles. 

  • The NOX Emissions Mitigation Trust is a $2.7 billion fund that will be administered to U.S. states, the District of Columbia, Puerto Rico, and Native American tribes over three years, starting once the trust is fully funded. Each has been allocated a certain percentage of the money based on the amount of VW 2-liter vehicles sold and operated there. The awards range from $7.5 million (Alaska, Hawaii, North Dakota, South Dakota, and Wyoming) to $381 million (California). This money can be put toward upgrading aging medium- and heavy-duty diesel-powered vehicles, by repowering them with either new diesel or alternative fuel, or all-electric versions. Additionally, each state can use up to 15 percent of its allocation to install and maintain light-duty zero-emission vehicle (ZEV) supply equipment such as EV charging stations.
  • Through two separate zero-emissions technology investment plans, Volkswagen must invest $2 billion to promote and advance the use and availability of ZEVs in the United States. Some $1.2 billion will be directed toward an EPA-approved national National ZEV investment Investment plan, while $800 million will be earmarked toward a California-specific plan. Volkswagen will be responsible for selecting and granting the funds to proposed projects that install and operate ZEV infrastructure, build public awareness of ZEVs, and improve access to ZEVs without requiring consumers to purchase or lease a ZEV at full-market value (such as developing a ZEV ride-sharing program). 

Cities and states can provide input in the distribution of these two VW programs at several points along the way and may be direct beneficiaries of VW funding. For the NOX Emissions Mitigation Trust, each state must submit a mitigation plan. These plans must incorporate public comments on issues such as states’ overall goals for the fund, the amount of funds apportioned to each project, and an assessment of potential emission benefits, particularly in areas with a disproportionate share of air pollution. These state mitigation plans specifically provide the public with insight into a state’s vision for the use of the money and encourage municipal participation in the process. 

City officials will also have an opportunity to weigh-in on the national ZEV investment plan. Volkswagen has about four months to create a draft of the investment plan. The draft must incorporate meaningful input from states, municipalities, and tribes, and identify opportunities where ZEV investment is needed most. Cities can be on the lookout in November for Volkswagen’s outreach plan, which provides a timeline for receiving comments and guidance. Similarly, the California Air Resources Board will share its state-specific plan with the public for comment.

In the meantime, cities can prepare by identifying key projects in their communities for improving public and private fleet emissions, building EV charging infrastructure, and increasing public awareness of ZEVs. Local officials can also collaborate with school boards, businesses, utilities, charging service providers, and low-income community advocates to help select possible projects to be included in both of VW’s settlement funds.

For more information, C2ES will be releasing a fact sheet detailing more specific ways cities can potentially influence the distribution of the VW settlement. Additional information can also be found on VW’s official settlement website.

 

 

The business of pricing carbon

More companies worldwide are turning to internal carbon pricing as an effective tool to spur the transition to low-carbon technologies, and C2ES is helping organizations to explore this frontier through a new working group to share best practices.

By putting a price on the carbon pollution associated with business activity, companies can account for their operations’ climate impact and incentivize actions to achieve their emissions reduction goals. Pricing carbon also responds to stakeholder and investor calls for climate action and prepares businesses for future carbon pricing regulation.

According to CDP, more than 1,200 companies either currently price their carbon emissions, or plan to within the next two years. Meanwhile, more than 120 companies have joined the World Bank Carbon Pricing Leadership Coalition that brings together government, the private sector, and civil society to support effective carbon pricing systems and policies.

This movement isn’t restricted to developed economies. This month, Mahindra & Mahindra became the first Indian company to implement an internal carbon fee (US $10 per ton) to help achieve its goal of reducing greenhouse gas emissions 25 percent over the next three years.

There are a range of ways to implement an internal carbon pricing strategy. The most direct is an internal carbon fee, such as the one Microsoft uses in its pioneering program.

Microsoft, which pledged in 2012 to go carbon neutral, implemented an internal carbon price in 2013 to help reach its goal. Microsoft charges the fee on the company’s scope 1 (direct) and scope 2 (purchased electricity) emissions, including its global data centers, as well as a part of its scope 3 emissions (business air travel).

The fee has helped the company reduce its carbon dioxide equivalent (CO2e) emissions by 7.5 million tons, achieve $10 million in annual energy savings, and invest in 10 billion kilowatt hours of renewable energy as well as support carbon offset projects around the world.

TJ DiCaprio, Microsoft’s senior director of environmental sustainability, said the benefits of the internal carbon fee include:

  • It’s easier to target action. By quantifying the carbon emissions of different parts of the organization, it became clear where reductions were possible to meet the company’s carbon neutrality pledge.
  • It provides incentive to act. The fee for emissions is charged to each department’s budget. This motivates decision-makers to take meaningful action toward emissions reductions, find low-carbon alternatives, and invest in carbon-saving projects. Even simple steps, such as reducing airline travel, made a real difference in the final accounting.
  • It creates a dedicated funding source for action. The fees charged to departments are placed in a centralized fund that Microsoft uses for a variety of projects, from purchasing carbon offsets to investing in programs supporting e-waste recycling.

Among the key lessons for other companies from Microsoft’s experience:

  • Set clear objectives you would like your carbon pricing model to meet.
  • Align your carbon pricing model to support those objectives.
  • Anchor the carbon price across all business units to drive accountability, employee engagement, and a cultural and behavioral change.

While an internal carbon fee prices carbon pollution directly, companies are also using indirect strategies, such as shadow pricing and implicit pricing.

Shadow pricing—a more common approach—is used by companies including BHP Billiton, Duke Energy, EMC, Google, NRG and Shell, as a risk assessment tool. It is the hypothetical or assumed cost of carbon emissions used to evaluate large investment decisions and profitability of projects in light of government regulation and/or the impacts of climate change. Compared to the more direct approach that companies such as Microsoft are taking, however, shadow pricing is not actually reflected in a company or division’s profit and loss statement, thus it may not have the same incentivizing effect.

Implicit pricing, another form that is used by companies including Unilever and Novo Nordisk, is simply a price calculated based on how much a company spends to reduce its greenhouse gas emissions, including the cost of complying with regulations. Here, the price reflects actions taken, rather than being a charge that drives change. Recognizing how much a company spends to meet its internal greenhouse gas targets and/or regulatory requirements can encourage greater action. Some companies, for example, employ an implicit pricing strategy as the first step before establishing a direct carbon fee.  

Internal carbon pricing is a relatively new tool that can play a critical role in helping companies achieve aggressive greenhouse gas reductions. Through our Business Environmental Leadership Council, C2ES is engaging companies on internal carbon pricing strategies.  Please contact us if your company would like to learn more about internal carbon pricing as a business strategy.

For more information on the C2ES Working Group on Internal Carbon Pricing, contact C2ES Policy and Business Fellow Manjyot Bhan.

(Contributing: Ryan McCoy)

Nations agree on historic HFC phasedown

Nations came together Saturday and agreed to take a big bite out of future increases in global temperatures. Following nearly a decade of talks, a landmark agreement to phase down hyrofluorocarbons (HFCs) was reached at the conclusion of the 28th Meeting of the Parties of the Montreal Protocol in Rwanda.

The Kigali Amendment sets out a schedule of targets and timetables for all developed and developing countries to phase down their use of HFCs,a family of industrial chemicals used worldwide in air conditioners and refrigeration that are one of the most potent and rapidly expanding greenhouse gases.

The amendment links these control requirements with a renewed commitment by developed countries to provide financial support for developing countries through the Protocol’s Multilateral Fund. The agreement sets out key principles for how the fund will transition from supporting projects aimed at safeguarding the ozone layer to spurring action focused on climate protection.

Curbing HFCs is a relatively inexpensive way to achieve significant near-term reductions in climate pollution and is essential to achieving the Paris Agreement goal of limiting temperature increases to well below 2 degrees Celsius.  More than 100 nations came together at the recent U.N. General Assembly to press for an ambitious reduction schedule.

In the final stages of negotiations in Kigali, it was clear that only a few  countries stood in opposition. To break the logjam, the agreement provided the flexibility for reluctant developing countries (India, Pakistan, Iran, Iraq, and the Gulf States) to meet a phasedown schedule with a baseline and reduction steps delayed by four years. It also included a separate provision for an alternative baseline and compliance schedule for Russia, Belarus and several neighboring countries. 

Phasing down HFCs offers a unique opportunity for a significant double win for the climate. HFCs themselves are a potent, fast-growing climate pollutant. Reducing HFCs can reduce global warming by as much as 0.5 degrees by the end of the century. Because they are widely used in rapidly expanding, high energy-consuming refrigeration and air conditioning sectors, the transition to alternatives also provides an opportunity to reduce climate change through enhanced energy efficiency. 

The Kigali Amendment seeks to capture these benefits first through a fast start fund created by 19 philanthropic groups and individuals who have contributed $53 million to move from HFCs to more energy-efficient alternatives.

In addition, a decision reached in Kigali calls for the Multilateral Fund, in developing and supporting projects shifting to alternatives, to fund investments aimed at maintaining and enhancing energy efficiency. 

The adoption of the HFC amendment is an important accomplishment, but much work lies ahead in making a successful transition to energy-efficient, low or zero global warming alternatives. For example, hydrocarbon refrigerants and foam blowing agents represent important alternatives, but because they are flammable, changes in national and industry standards and codes will be required to ensure that they can be used safely. The Parties agreed on a decision aimed at facilitating the necessary revisions to standards and codes and supporting enhanced training of air conditioning and refrigeration technicians in the safe use of these alternatives through the Multilateral Fund.

Hydrofluorooleinfs (HFOs) are also a family of chemical substitutes to replace HFCs. India and China raised concerns  about whether patents held by transnational chemical companies on the production and use of HFOs would block their access to them. Over the coming years the availability of HFOs will need to be advanced through expanding commercial arrangements between companies, which could  be facilitated by financial support from the Multilateral Fund.

The Kigali Amendment on HFCs caps an extraordinary couple of weeks for global climate protection. Enough countries have ratified the Paris Agreement that it has already met its conditions to formally enter into force. In addition, a path-breaking agreement was reached to limit emissions from international air travel.

After years of slow and difficult global efforts to address climate change,  these recent developments demonstrate a new and stronger commitment to tackle the near and present danger of this critical threat to our global community.

 

A critical opportunity to build on the Paris Agreement

International negotiators are gathering in Kigali, Rwanda, with the goal of phasing down one of the most potent and rapidly expanding greenhouse gases affecting the climate.

Momentum is building for taking action on hydrofluorocarbons (HFCs), a family of industrial chemicals used worldwide in air conditioners, refrigeration, foam products, and aerosols.

  • On the sidelines of the recent U.N. General Assembly, more than 100 nations signed a declaration calling for an amendment to the Montreal Protocol to ambitiously deal with HFCs, with an early freeze date for developing countries and an early first reduction step for developed countries.
  • To jump start the transition away from HFCs, 16 donor nations have offered $27 million in new and additional money for use by developing countries in limiting HFC use in 2017. Donor countries are also committing to support the longer-term phase-down costs under the Montreal Protocol’s Multilateral Fund.
  • In an unprecedented move, a group of philanthropists (19 foundations and private individuals including Bill Gates and Tom Steyer) have offered an additional $53 million to developing countries to support efforts to move from HFCs to more energy-efficient alternatives.
  • More than 500 companies and organizations issued a call to action in support of an ambitious agreement on an HFC phasedown at the 28th Meeting of the Parties to the Montreal Protocol October 10-14.

Action on HFCs is the single most significant step nations can take this year to advance the goal established in the Paris Agreement of limiting global temperature increases to well below 2 degrees Celsius. Estimates are that an ambitious HFC amendment would reduce global warming by as much as 0.5 degrees by the end of the century. 

While momentum for an ambitious agreement this year is strong and building, it is by no means assured. Even with more than 100 nations on board, reaching an international consensus in Kigali will not be easy. 

A large number of developed and developing countries have supported a developing country freeze in HFC use beginning around 2021, but India has supported a 2030 freeze date and Gulf Cooperation Council countries proposed a 2028 freeze. 

Issues under discussion include the costs and availability of alternatives, the role and timing of patent protections, the rules governing support of projects under the Multilateral Fund, and the need for updated standards for the safe handling and use of more flammable refrigerant alternatives. While there is general support for incorporating enhanced energy efficiency into the transition away from HFCs, there are questions about the ways to achieve this objective.

Solutions are on the table for all of these issues. Given progress to date and the financial resources now available to developing countries to support an ambitious HFC amendment, agreement in Kigali is well within reach. The costs of acting to reduce HFCs are small compared to the very real and present costs of inaction to limit changes to our climate.

A new flight path for reducing emissions from global aviation

After years of intense negotiations, governments have agreed on a framework for limiting greenhouse gas emissions from international aviation.

It’s the first climate agreement encompassing an entire sector of the global economy. It’s also the first to employ a market-based climate strategy across a global sector, which will help reduce emissions cost-effectively and expand international carbon markets.

International airline travel is among the fastest growing sources of greenhouse gases. Aviation emissions are expected to triple by 2050 without additional action, making this agreement urgent.

Governments agreed earlier this year at the International Civil Aviation Organisation (ICAO) to phase in new standards for more efficient aircraft design. ICAO is also encouraging operational efficiencies, such as altering flight routes, and the development of lower-carbon fuels.

But these efforts alone won’t meet the goal set by airlines and governments: to freeze aviation emissions at 2020 levels.

That’s why the centerpiece of the ICAO agreement reached October 6 is a market-based measure that will allow airlines to offset any growth in their emissions beyond 2020 levels with reductions in other sectors.

A market-based approach gives businesses the flexibility to choose the most economically efficient way to reduce emissions, which ultimately saves money for consumers. Emissions reductions can be achieved at a lower cost outside the aviation sector, particularly given the projected growth in air traffic in coming decades.

Having an entire sector of the global economy using a market-based approach could spur governments to undertake market approaches in other sectors. The ICAO agreement also comes as nations work toward guidelines under Article 6 of the Paris Agreement to ensure the environmental integrity of offsets and avoid double counting.

Initially, participation in the ICAO program will be voluntary. The United States, Canada, Mexico, China, Singapore, and 44 European nations have committed to sign up from day one. Eventually the program will be extended to all countries, with the exception of least developed countries, landlocked developing countries, and those with only a minor share of global international aviation.

Each individual airline’s offsetting responsibility will be based at first on the overall sector’s emissions growth, to be fairer to fast-growing airlines, and then shift toward an individual airline’s emissions growth.

While the agreement provides an initial framework, details remain to be negotiated. For example, the agreement sets a deadline of 2018 to set Emissions Unit Criteria that will determine what types of offsets are eligible.

The ICAO agreement falls short of universal participation in its earliest stages, but still provides a sensible and practical framework that we can build on to reduce commercial aviation emissions and expand market-based approaches to climate change.