Business

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)

C2ES Events in Marrakech

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Charting a Low-Carbon Course for the U.S. EconomyU.S. Center, Blue ZoneNovember 15, 2016, 4 p.m. -- 5 p.m. (11 a.m.-Noon EST) Side Event: Post-Election: The Outlook for U.S. Climate PolicyIETA Pavilion, Blue ZoneNov 16, 2016, 6 p.m. – 7:30 p.m. Reception: Business-Driven DiplomacyU.S. Center, Blue ZoneNovember 16, 2016, 7 p.m. – 9 p.m.

Charting a Low-Carbon Course for the U.S. Economy

November 15, 2016
4 p.m. -- 5 p.m. (11 a.m.-Noon EST)
U.S. Center, Blue Zone

See a recap of this event on our blog: Businesses continue to lead on climate

American business understands that there is both opportunity in getting ahead of the climate curve, and considerable risk and cost to inaction. The Center for Climate and Energy Solutions (C2ES) and the Edison Electric Institute co-host this side event to showcase the actions of mainstream US businesses, including those who have signed the American Business Act on Climate Pledge, and are members of the C2ES Business Environmental Leadership Council, a group of 30 companies with a combined $2.3 trillion in revenue and over 3 million employees that support mandatory climate policy and are acting to reduce emissions. See our business statement applauding the Paris Agreement.

Speakers

Cathy Woollums
Senior Vice President, Environmental Services and Chief Environmental Counsel
Berkshire Hathaway Energy

Nanette Lockwood
Global Director, Policy and Advocacy
Ingersoll Rand

Kevin Rabinovitch
Global Sustainability Director
Mars Incorporated

Tamara “TJ” DiCaprio
Senior Director of Environmental Sustainability
Microsoft

Eric Holdsworth
Senior Director, Climate Programs
EEI

Moderator: Elliot Diringer
Executive Vice President
C2ES

Post-Election: The Outlook for U.S. Climate Policy

November 16, 2016
6 p.m. – 7:30 p.m.
IETA Pavilion, Blue Zone

U.S. policymakers and business leaders will provide their perspectives on what this pivotal election means for climate progress in Washington and at the state level. 

Speakers

Nathaniel Keohane
Vice President, Global Climate
Environmental Defense Fund

Josh Klein
Senior Professional Staff
Senate Foreign Relations Committee 

Matt Rodriquez
Secretary for Environmental Protection
California

Cathy Woollums
Senior Vice President, Environmental Services and Chief Environmental Counsel
Berkshire Hathaway Energy

Elliot Diringer
Executive Vice President, C2ES
 
Reception: Business-Driven Diplomacy
 
November 16, 2016
7 p.m. – 9 p.m.
U.S. Center, Blue Zone
 
Reception at the U.S. Center recognizing the role of the private sector in addressing climate change and reducing GHG emissions. Attendees are expected to include delegates from the EU, Umbrella Group, and developing countries, as well as business and industry representatives from around the world, environmental NGOs and academia. It will feature remarks by U.S. delegation official TBD, Elliot Diringer (C2ES), and Dirk Forrester (IETA).

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.

Statement on ICAO global aviation emissions agreement

Statement of Bob Perciasepe
President, Center for Climate and Energy Solutions

October 6, 2016

On the agreement on an international framework for controlling emissions from the global aviation sector at the International Civil Aviation Organisation (ICAO) 39th Assembly:

Today’s agreement is another major step in global efforts to combat climate change, and a clear sign that the momentum we saw in Paris continues to build. The agreement provides a practical framework for harnessing market forces to limit the rapid growth in airline emissions.

International aviation is among the fastest growing sources of greenhouse gases. Without new measures, emissions are expected to triple by 2050.

Governments in the United States and around the world are already using flexible market-based approaches to cut emissions cost-effectively. This agreement is the first to apply a market-based climate strategy across an entire sector of the global economy. By allowing airlines to offset emission increases with reductions in other sectors, the agreement provides an economical way to hold aviation emissions at 2020 levels.

With this framework in place, governments and airlines should move quickly to develop rules ensuring a smooth-working market that delivers real reductions.  

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For more information:

To speak to a C2ES expert, please contact Laura Rehrmann at rehrmannl@c2es.org

About C2ES: The Center for Climate and Energy Solutions (C2ES) is an independent, nonprofit, nonpartisan organization promoting strong policy and action to address our energy and climate challenges. Learn more at www.c2es.org.

Business support for the Paris Agreement


 

Businesses urge president to remain in Paris Agreement

Major companies across the economy are urging President Trump to keep the United States in the Paris Agreement on climate change for the good of the U.S. economy

In full-page advertisments in The New York Times, The Wall Street Journal, and New York Post in May and June, companies told the president continued U.S. participation in the agreement will help them manage rising climate risks and compete in growing global clean energy markets. The ads were sponsored by C2ES in cooperation with the sustainability nonprofit Ceres.

The full text of the ad is below. Click on the image to enlarge and download (PDF), or view mobile-friendly versions of ads that appeared May 9, 2017 in the the New York Post, May 8, 9, 16, 18, and June 1 in The New York Times, and May 9, 17, and June 1 in The Wall Street Journal.

 

For more information on business support for the Paris Agreement, contact c2es@c2es.org.

 

Additional Resources

Building sustainability from the ground up

L to R: Tom Cochran, CEO and Executive Director, The U.S. Conference of Mayors; Daniel A Zarrilli, Senior Director, Climate Policy and Programs, Chief Resilience Officer, New York City Office of the Mayor; Josh Sawislak, Global Director of Resilience, AECOM; Mayor Chris Bollwage, Elizabeth, NJ, Mayor Javier Gonzales, Santa Fe, NM; Mayor Stephanie Rawlings-Blake, Baltimore, MD; Bob Perciasepe, President, C2ES.

 

Mayors know what’s going on in their communities. Businesses know how to get a good return on investment. So it seems like a natural fit to have them work together on innovative ways to finance clean energy, strengthen resilience to climate impacts, and reduce greenhouse gas emissions.

To promote that collaboration, C2ES and The U.S. Conference of Mayors formed the Alliance for a Sustainable Future, which held its first public forum during Climate Week NYC.

Baltimore Mayor Stephanie Rawlings-Blake, past president of the conference, told the gathering that cities are where the work is getting done when it comes to addressing climate change. “Nations talk about energy efficiency and climate action, but mayors are doing it every day,” she said.

At the same time, she noted, mayors need tools to get the job done. “We have to do more with less resources. We’re all in this together.”

That’s where business comes into the picture.

Josh Sawislak, global director of resilience for AECOM, a global engineering, consulting and project management company, said businesses want to get involved in building resilience, and they can do more on the local level.

He noted, however, that there needs to be a sound business case for clean energy investments, and for small businesses, the return on investment needs to be immediate.

“Climate change is costing us money. Not investing in these things is costing us money. We’re not doing the math right,” he said.

Some cities are already taking an innovative approach to bridging the gap between the two interests.

Santa Fe, NM, Mayor Javier Gonzales, the alliance’s chairman, explained how his city’s new Verde Fund taps into community needs and business expertise to help low-income residents access clean energy. “More well-to-do people can navigate complicated systems to get rooftop solar on your house,” he said. “The Verde Fund helps disadvantaged residents do the same.”

When low-income residents can save money on their electricity bills by going solar, he said, they have more money to spend on food, clothing and other essentials. The jobs created by these projects benefit the community as well.

Elizabeth, NJ, Mayor Chris Bollwage, whose city’s vulnerability to climate impacts was exposed during Hurricane Sandy in 2012, said some visionary leadership is also needed to imagine today what will be needed tomorrow.

“When we built Elizabeth’s midtown parking garage, we put in five spaces for electric vehicle charging,” he said. “No one used them the first two years, but now three cars are charging there every day.”

In New York City, officials are being proactive in other ways, like working through the city’s OneNYC plan to reduce energy use in buildings, the source of 70 percent of the city’s emissions. Daniel Zarelli, Mayor Bill de Blasio's senior director of climate and sustainability policies and chief resilience officer, said the city’s goal is to reduce greenhouse gas emissions from buildings by 30 percent by 2025 and to retrofit one million buildings so they’re energy efficient.

All the panelists agreed that federal, state, and local policy must become aligned to move in the right direction. One way to do that is by citizens letting both their government and business leaders know that they value sustainability.

Cities flex their muscles to improve existing commercial buildings

With up to 70 percent of total global emissions originating within the boundaries of cities, local governments are at the center of the fight against climate change.

One area where local governments are stepping up to meet this challenge is the building sector, which offers a variety of opportunities to reduce energy demand. Local governments have long sought to improve energy performance among new buildings, however, new buildings aren’t replacing older ones at a fast enough rate to put a noticeable dent in commercial building energy use. In response, cities are working to improve the performance of the existing commercial building stock.

The new C2ES brief, Local Climate Action: Cities Tackle Emissions of Commercial Buildings, explores four commercial building policy strategies that leading cities are adopting: energy use benchmarking and disclosure mandates, retro-commissioning, retrofitting, and requirements for building upgrades to meet current codes. The brief offers examples of how these policies are developed, structured, and implemented. We looked at several examples in an earlier blog post.

These policies are showing promise for reducing emissions in cities that adopt them. For example, New York City is pursuing a suite of building actions, including a local law that requires buildings greater than 50,000 square feet to ensure all lighting systems meet current city standards in common areas and non-residential tenant spaces greater than 10,000 square feet by 2025. Those non-residential spaces must also be sub-metered, and energy use disclosed to tenants. The city intends to extend the policy to include buildings between 25,000 and 50,000 square feet. The move is expected to reduce annual emissions by about 60,000 metric tons of carbon dioxide (MtCO2e) and cut energy costs by $35 million annually.

As we reviewed these four policy categories, two conclusions became clear:

  1. Although policies like New York’s retrofitting requirement are not common in U.S. cities, replicating them broadly could provide widespread co-benefits in our communities and possibly contribute measurable greenhouse gas reductions at the national level.
  2. A larger energy transformation is needed to achieve the aggressive community emissions targets cities have set, and that won't happen without stronger collaboration.

While a number of federal programs provide cities with technical assistance and funding, additional support could be provided by U.S. states and businesses in the form of complementary programs, private investment, and active engagement in policy development. We’ve already seen more of this kind of collaboration through initiatives like the City Energy Project. The increasing number of businesses publicly committing to climate goals indicates there are many more opportunities.

In addition, the Clean Power Plan requires states to meaningfully reduce emissions from the power sector. Properly designed, state implementation plans for the Clean Power Plan could incentivize utilities and commercial building operators to improve the performance of the building stock.

If the actions of New York City, Seattle, and others are any indication, local governments have the potential to enact policies that foster climate action. These key players must continue taking bold actions to help create a policy environment across the country that promotes high-performing buildings, no matter when they were built. 

Local Climate Action: Cities Tackle Emissions of Commercial Buildings

Local Climate Action:
Cities Tackle Emissions of Commercial Buildings

September 2016

By Todd McGarvey and Amy Morsch

Download the brief (PDF)

As a significant source of emissions, cities have an important role to play in addressing the carbon footprint of activities occurring within their boundaries. Among many actions targeting different sectors, cities are actively pursuing improvements in the energy performance of commercial buildings. This brief explores several policies that leading cities are adopting: energy use benchmarking and disclosure mandates, retro-commissioning and retrofitting policies, and requirements for building upgrades to meet current codes. Our review finds these policies stand to deliver and facilitate emissions reductions in cities that adopt them. However, it should be noted that achieving deep reductions and a true market transformation will require collaboration between cities, state and federal agencies, and a range of non-government entities. The need for such a collaborative approach is applicable not just to addressing emissions from buildings, but indeed is relevant broadly to city efforts to reduce emissions.
 
Amy Morsch
Todd McGarvey
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The Growing Urgency of Climate Change: How Cities and Businesses Build a Sustainable Future

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1:30 p.m. - 3:00 p.m.NYU Wagner295 Lafayette Street, Second FloorNew York, NY 10012 

The Growing Urgency of Climate Change:

How Cities and Businesses Build a Sustainable Future

 

Hosted by

Wednesday, September 21, 2016
1:30 PM - 3:00 PM 

NYU Wagner
295 Lafayette Street, Second Floor
New York, NY 10012-9604

As nations move forward with the landmark Paris Agreement, cities and business are playing a vital and growing role in building a more sustainable, low-carbon future.

In a new partnership, The U.S. Conference of Mayors and C2ES have jointly launched the Alliance for a Sustainable Future to strengthen cooperation between cities and businesses committed to meeting our climate and clean energy challenges.

Please join Alliance leaders as we examine ways cities and the business community can work together to reduce carbon emissions and meet state and national climate and energy goals.

 

Speakers

Tom Cochran
CEO and Executive Director, The U.S. Conference of Mayors

Daniel A. Zarrilli, PE
Senior Director, Climate Policy and Programs, Chief Resilience Officer
New York City Office of the Mayor

Mayor Stephanie Rawlings-Blake
Baltimore, Maryland

Mayor Javier Gonzales
Santa Fe, New Mexico

Mayor Chris Bollwage
Elizabeth, New Jersey

Josh Sawislak
Global Director of Resilience, AECOM

Bob Perciasepe
President, C2ES

 

 

The enduring power of US-China climate leadership

US-China FlagsIt would have been hard to imagine just a few short years ago that the United States and China would – together – be the ones driving a stronger global response to climate change.

For years, each claimed inaction by the other as an excuse for not doing more. But with their simultaneous acceptance today of the Paris Agreement, the world’s two largest economies and emitters committed themselves to a low-carbon future, and solidified a new global framework that will keep pressure on all countries to keep doing more.

The precise mix of motivations varies between the two. But fundamentally, the heads of both the United States and China have assessed the risks and opportunities presented by climate change, and they have decided it is in their nations’ interests – and is their responsibility as global leaders – to do more.

How faithfully the two countries now follow through on their commitments will depend in part on a host of shifting political and economic currents, and who assumes the reins in the years ahead.

But with their leadership up to and since last year’s Paris conference, the United States and China have helped establish new mechanisms and unleash new energies that ensure a staying power beyond the comings and goings of individual governments.

With the Paris Agreement, countries have applied the lessons of a quarter-century of fitful climate diplomacy to create a new framework that offers the best hope ever of an effective international response.

The agreement binds countries to a set of processes requiring them to: tell the world how they’re going to fight climate change; report regularly on how well they’re doing; undergo review by experts and by other countries; and, every five years, say what they’ll do next.

It is, in essence, institutionalized peer (and public) pressure. And if it works as designed, the agreement will over time strengthen confidence that countries are doing their fair share, making it easier for all to do more.

Beyond the agreement itself, and the role of national governments, Paris also will keep nurturing stronger action through its powerful “signaling” effect. For many mayors, governors, CEOs and other real-world decision makers, Paris was a catalytic moment, and its signals continue to resound.

From Warren Buffett, who cited Paris in his annual letter to shareholders as further impetus for Berkshire Hathaway’s multibillion-dollar investments in renewable power, to Moody’s, which is now taking countries’ Paris pledges into account in rating future investments, mainstream business is internalizing the Paris goals.

Mayors, too, are reading Paris as a cue for stronger action. In a new Global Covenant of Mayors for Climate & Energy, more than 7,000 mayors in 119 countries pledged to set climate goals beyond those of their national governments. C2ES recently joined with The U.S. Conference of Mayors to form the Alliance for a Sustainable Future, bringing mayors and business leaders together to forge collaborative approaches to cutting emissions.

In the long run, this activation of mayors, CEOs and other “non-state actors” could prove as decisive as the actions of national governments in determining the success of Paris.

No one moment and no one agreement can ensure the long-term transformation needed to keep climate change in check. But today’s U.S.-China announcement is the latest in a series of breakthrough moments that could mean the difference between a successful low-carbon transition and a future of climate calamity.

 

 

 

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