Solutions Forum

Volkswagen Settlement Funding: What Cities Should Know

Volkswagen Settlement Funding: What Cities Should Know

December 2016

Download the fact sheet (PDF)

In October 2016, the U.S. government granted final approval of a $14.7 billion settlement against Volkswagen (VW) for equipping more than 500,000 of its diesel vehicles to cheat U.S. vehicle emissions tests in violation of the Clean Air Act. Volkswagen will spend $10 billion on vehicle buybacks and $4.7 billion to mitigate the pollution from these cars and invest in green vehicle technology. This latter amount will be split between two investment programs that states, cities, and tribes can use to expand alternative vehicle projects and access to zero emission vehicles (ZEVs). Cities can play a key role, starting now, by identifying local emissions-cutting and zero-emission vehicle deployment projects that could benefit from increased investment and proposing ideas to states and Volkswagen about ways these funds can best be leveraged.

Since October 25, 2016, when the $14.7 billion settlement for claims related to emissions testing “defeat devices” installed in 2.0 liter diesel-powered vehicles was finalized, Volkswagen (VW) has resolved additional legal challenges with the U.S. Department of Justice. On December 20, 2016, a settlement for claims related to emissions testing “defeat devices” installed in 3.0 liter diesel-powered vehicles was announced, setting aside $1 billion for vehicle buy-backs and fixes and $250 million dedicated toward nitrogen oxide mitigation and zero emission vehicle investments. On January 11, 2017, VW agreed to plead guilty to criminal felony counts and a pay $2.8 billion criminal penalty.  VW also agreed to settle civil environmental, customs, and financial claims by paying $1.5 billion to the U.S. Environmental Protection Agency and U.S. Customs & Border Patrol.

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Bob Perciasepe on Google's milestone of 100 percent renewable energy

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

December 6, 2016

On Google's announcement that it will power its operations with 100 percent renewable energy:

We congratulate Google on achieving its goal of powering its global operations with 100 percent renewable energy.

Google’s achievement is further evidence of the continuing momentum of America’s clean-energy transition. Companies like Google are investing billions of dollars in clean energy and efficiency because it makes sound business sense. Hundreds of companies have not only made commitments like these, but reaffirmed their support for the Paris Agreement and U.S. policies that address climate change.

Businesses like Google are taking climate action because they understand the costs of inaction and see the economic benefits of a clean-energy economy.  Google’s commitment to 100 percent renewable shows that leading companies are committed to making long-term investments that are good for the environment, their consumers and their bottom lines.

Financing carbon capture: Corporate partners lead the way

Addressing climate change will require tremendous investment in low- and zero-carbon energy technologies. Estimates are as high as $1 trillion per year through 2030.

Some of that investment must be in carbon capture technology, which can reduce emissions from both the power and industrial sectors. Carbon capture could provide 13 percent of global emissions reductions through 2050.

Innovative corporate partnerships will play a critical role in launching this investment. That’s because partnerships can bring together the right combination of resources, talent, and experience and combine technical knowhow with business-oriented analyses of commercial viability. To solve our emissions challenges, innovation will be key, not just in technology, but also in investment models and business partnerships.

NET Power

One example of an innovative corporate partnership that is bringing carbon capture technology into the field is the NET Power demonstration project in La Porte, Texas.

The NET Power project, which is expected to come online in 2017, will be the first in the world to use supercritical CO2 (when the gas has the density of a liquid), instead of steam, to drive a turbine. It will make electricity from natural gas using patented technology that captures almost all carbon- and non-carbon emissions at no additional cost: it has equipment costs and fuel usage that are equivalent to or better than best-in-class conventional natural gas combined cycle power plants without carbon capture.  The technology is also capable of very low or no levels of water usage.

Each partner in the project brings a unique competency: 8 Rivers is the technology expert, contributing its invention and engineering oversight capabilities. Exelon Corporation contributes its sizeable network of business contacts, financial resources, project development support, and operations and maintenance expertise and may adopt the technology for commercial use in its operations. CB&I provides engineering, procurement and construction services, as well as financial assistance and experience with sales. Finally, Toshiba provides specialized expertise in high-pressure turbines.

During a recent C2ES webinar on financing carbon capture, some of the partners explained why the collaboration model works better than the venture capital model of investment in this case.

From the investor perspective, corporate partnerships are viewed as more mature transactions “both as an investment opportunity, but also as a technology that we think is ready for us to deploy when the time comes,” said David Brown, senior vice president of federal government affairs and public policy at Exelon.

From the developer perspective, NET Power CEO Bill Brown said, “Normally, too many startup firms don’t have market definition as a critical part of their first stage. They should. By reaching out to the customers [like Exelon] to begin with, we were able to get a very good focus on the market.”

What’s Next

More capital is being committed to a low-carbon future:

  • A year ago, 20 nations launched Mission Innovation to double their cumulative annual spending on clean energy research from $10 billion to $20 billion, with CO2 capture utilization and storage being one of the “R&D Focus Areas.”
  • As a complement, leading entrepreneurs launched the Breakthrough Energy Coalition and pledged to invest billions in early-stage clean energy technology.

On Nov. 4, the CEOs of 10 oil and gas companies announced the Oil and Gas Climate Initiative which aims to direct $1 billion over the next decade to accelerate the development of technologies that could reduce greenhouse gas emissions on a significant scale, including carbon capture, use and storage.
As this private capital is mobilized, innovative corporate partnerships can combine business experience and commercial viability with government contributions to research and development to advance the commercial deployment of clean energy technology quickly.

The potential benefits for accelerated clean energy technology deployment are substantial. By reducing the cost of capture, the NET Power project may create an opportunity for U.S. innovation to help achieve emissions reductions globally.

Also, reducing the cost of capture lets us explore re-use of CO2, an area of increasing focus. Launched in January, the Global CO2 Initiative aims to enable the capture and re-use of 10 percent of annual global CO2 emissions by converting them into useful products. Its new roadmap highlights the potential for CO2 reuse in concrete, fuels (methane and liquid fuels), carbonate aggregates, polymers, and methanol.

To solve our emissions challenges, innovation will be key, not just in clean energy technology, but also in investment models and business partnerships.

NET Power demonstration project in La Porte, Texas, expected to come online in 2017.

Bob Perciasepe's remarks at Harvard University

PREPARED REMARKS BY BOB PERCIASEPE

PRESIDENT, CENTER FOR CLIMATE AND ENERGY SOLUTIONS

CHALLENGES FOR THE NEW PRESIDENT

HARVARD UNIVERSITY CENTER FOR THE ENVIRONMENT

Cambridge, MA

November 15, 2016

I want to thank Doctor (Daniel) Schrag and the Harvard University Center for the Environment for inviting me to speak. And my thanks to all of you for coming to listen. Dan and I have been talking for some time about my coming up from Washington to do a lecture. I’m not sure either one of us had quite this backdrop of current events in mind.

What a week. I know folks are still processing what happened seven nights ago and what happens next. The truth is: Elections have consequences. That’s why it’s so important to exercise our right to vote.

It’s too soon to tell exactly what steps the next administration will take on climate and energy policy. The rhetoric of campaigning doesn’t always exactly match the realities of governing. We hope President-elect Trump and his advisers take some time to study the issues and hear a broad range of perspectives.

They’ll find that a majority of Americans support stronger climate action.

They’ll find that many cities and states are promoting energy efficiency, deploying renewable energy, and supporting alternative fuel vehicles.

And they’ll find that business leaders recognize the rising costs of climate impacts, and also see opportunities in clean technologies. You could say they want to “win” in the growing global clean-energy economy.

This evening, I want to explore three questions:

  • What are the climate and energy realities facing this president, and all of us?
  • What might we expect from a Trump Administration?
  • And what can we do to promote environmentally responsible policies in the years ahead?

To put my remarks in context, it helps to know a little bit about my organization C2ES – the Center for Climate and Energy Solutions. C2ES is a nonpartisan, nonprofit think tank. We work to forge practical solutions to climate change. Our mission is to advance strong policy and action to reduce greenhouse gas emissions, promote clean energy, and strengthen resilience to climate impacts.

We believe a sound climate strategy is essential to ensure a strong, sustainable economy. I want to underline that.  It’s a conviction our think tank was founded on.  And it’s a message I hope you’ll leave here with tonight: Environmental and economic progress go hand in hand.

I came to C2ES a little over two years ago because of its reputation:

  • As a Trusted Source of impartial information. We rank regularly among the top environmental think tanks in the world.
  • As a Bridge-Builder. We bring city, state, and national policymakers together with businesses to achieve common understanding.
  • As a Policy Innovator. We explore market-based solutions and other practical policy approaches.
  • And as Catalyst for Business Action. We work with Fortune 500 companies to strengthen business support for climate policy.

The idea of bringing disparate groups together is part of our DNA. Here are four quick examples:

At the international level, C2ES brought together negotiators from two dozen countries for a series of private discussions that helped lay the groundwork for the landmark Paris Agreement.

Our Solutions Forum is fostering collaboration to reduce emissions, mobilize climate finance, and strengthen resilience to climate impacts. That last one -- climate resilience -- is relatively new.  With communities experiencing climate impacts here and now, it’s something we can’t afford to ignore.

We recently partnered with The U.S. Conference of Mayors to create the Alliance for a Sustainable Future, whose goal is to strengthen public-private cooperation.

And our multi-sectoral Business Environmental Leadership Council is the largest U.S.-based group of companies devoted solely to addressing climate change.

That’s who we are and where I’m coming from. Now, let’s look at the some of the realities facing the next administration.

Realities on the Ground

Depending on your point of view, this was either a “Change Election” or a “Fear of Change Election.” What I can tell you is that it wasn’t a “Climate Change Election” because nobody was talking about it.

Climate change didn’t come up once in any of the presidential debates.  The only question about energy policy came from that guy in a red sweater, Ken Bone. Climate change was not top of mind in the voting booth. Asked before the election where climate change ranked among their concerns, voters put it No. 19 out of 23.

But when asked where they stand, the majority of Americans – of all political viewpoints -- support climate action.  A majority of Democrats, Independents, and Republicans support funding renewables research, providing tax rebates for energy-efficient vehicles or solar panels, and regulating carbon dioxide as a pollutant.

Americans support climate action because they understand that climate change is occurring, and that human actions are largely responsible.

Here are a few more facts:

  • 2014 was the hottest year globally ever recorded. Until 2015. 2016 has been even hotter.
  • Climate change is a matter of science, but also a matter of dollars and cents. This year, the United States experienced a dozen billion-dollar disasters.
  • Climate impacts like rising sea levels and more frequent and intense heatwaves, downpours, and droughts threaten the way we all live our lives.
     

Another reality is that our energy landscape has already changed. This isn’t your grandfather’s energy system. When I was born, the United States didn’t get any commercial power from natural gas or nuclear. Zero. Now those two sources together are responsible for more than half of our electricity.

Let’s talk a minute about those two. First, natural gas. Thirty years ago, before many of you were born, it was illegal to use natural gas in a power plant.  Now it makes up more than a third of U.S. electricity supply. Coal makes up another third of our energy mix, down from about half 10 years ago.  This change is due in large part to market forces. Natural gas is inexpensive, so utilities have switched to if from coal.

These same market forces are posing a challenge for nuclear energy. Nuclear is responsible for more than 60 percent of zero-carbon electricity in the United States – It’s the biggest source. A number of reactors have been closing prematurely, which could make it even harder to meet our climate goals.

Renewables have been surging as costs have plummeted. Wind and solar generation have grown nearly twelve-fold since 2005. That’s nearly eight times greater than expected.
Thanks to diversifying our energy mix, and improving energy efficiency, power sector emissions have fallen by more than 20 percent in the past 10 years.  We’re moving in the right direction.  The challenge will be to keep doing so.

What to expect

What can we expect from the new administration? I’ve been getting two questions for the past week: What will happen to the Clean Power Plan? And what will happen with the Paris Agreement? So let’s talk about those.

Every new president usually halts regulations that are in the process of being formulated, so we can expect that. For a final regulation, like the Clean Power Plan, a simple stroke of the pen can’t undo it. It’s a process. First, they’d have to do a rule-making, which requires public comment.  Then, they'd need to come back with an alternative plan. That’s because under previous Supreme Court rulings, EPA is still under a legal obligation to reduce greenhouse gas emissions. It’s mandatory. They’ll be sued if they don't.

The Clean Power Plan is currently in the courts. So we could find ourselves replacing the current legal uncertainty with new and different legal uncertainty.

On a positive note, the Clean Power Plan prompted a lot of state environmental officials, public utility regulators and other stakeholders to sit down together for the first time to talk about electricity reliability, efficiency and affordability. We hope those conversations bear fruit.

There’s no doubt that the Clean Power Plan could reduce power plant emissions faster and further than no plan at all. But progress has already been made and I think there are ways it can continue.

Mr. Trump has also said he wants to “cancel” the Paris Agreement. The bottom line is that he could legally pull the U.S. out of it. Let’s think through, practically, how that would work out for us. Consider that virtually every country in the world has committed to taking climate action. The Paris Agreement is a bottom-up, flexible framework. It relies on peer pressure. If we want to hold other countries accountable, we have to hold up our end. If we walk away from our commitments, we also give up being a player in the innovative energy and transportation technologies that can create U.S. jobs. China, Brazil and the US led the world last year in employment in renewable energy.

The Paris Agreement has widespread support among the business community. Eleven major companies we work with, including Berkshire Hathaway Energy, Microsoft, National Grid, and Shell, signed onto a C2ES statement applauding governments for bringing the agreement into force so quickly this month. Businesses say the agreement provides long-term direction, promotes transparency, and addresses competitiveness.

Because the Paris Agreement is flexible, there are a lot of ways for an individual country to tailor its efforts. It was also designed to be durable – It can survive shifts in political currents. The nearly 100 other countries that have already ratified it are reducing emissions for a variety of reasons, including economic opportunities and health benefits to their people. I expect they will remain committed to moving forward.

As for what else we can expect – we’ll have to wait and see. From opening up public lands and offshore areas to more drilling to re-assessing pipelines to appointing agency leaders with very different priorities from the past eight years, we’re going to see changes.

What we can do

So that brings me to my final question tonight: What can we do to promote environmentally responsible policies in the years ahead? Let’s look at four vantage points – federal, state, local, and business.

First: The executive branch has been the focus of climate action for a number of years.  That’s going to change. I want to posit that it may be time to return our focus on the legislative branch. Three areas where bipartisan support already exists are: building infrastructure, incentivizing carbon capture technologies, and preserving the nuclear fleet.

Both presidential candidates talked about the need to modernize our aging infrastructure. That’s not just roads and bridges. We need to modernize our electric grid to move renewable power from where it’s generated to where it’s needed. We need to improve the natural gas pipeline system to reduce leaks. And we need to expand electric vehicle charging. The electric grid should be able to accommodate clean energy technologies like energy storage, time-of-day pricing, and grid-to-vehicle interfaces.

Millions of miles of pipes carrying drinking water and wastewater are nearing end of life.  And it takes a lot of energy to move a gallon of water. The nation’s utilities lose about $2.6 billion dollars annually from trillions of gallons of leaked drinking water.

Infrastructure projects can also help communities be more resilient to extreme weather, make communities more livable, increase property values, and save energy and water. And, of course, infrastructure projects create jobs.

The second area where we could make progress is carbon capture, use and storage, or CCUS. Some of you might be skeptical about this as “clean coal.” The truth is, there’s no scenario for achieving the emission cuts we need globally without carbon capture. We need to keep emissions out of the air not only from coal and natural-gas power plants around the world, but also the industrial sector like steel, chemical, and cement plants. The industrial sector is responsible for more than 20 percent of U.S. greenhouse gases.

Right now, there are bipartisan bills in the House and Senate that would spur carbon capture technology. Imagine Senate Majority Leader Mitch McConnell and Hillary Clinton’s running mate, Senator Tim Kaine, on the same bill. It’s true.

A third area where we might get some bipartisan agreement is preserving our nuclear fleet. There’s a bill right now that both Senators Whitehouse and Inhofe support. From a climate perspective, it doesn’t make sense to prematurely close nuclear plants when, in the short- and medium-term, they cannot realistically be replaced by zero-emission power sources. Keeping these reactors operational also buys us time to address energy storage and transmission challenges to support more renewable generation.

Let me add one more area as a possibility where we might see some agreement at the federal level: helping the communities most affected by the transition to clean energy. Remember that market forces – not regulations -- have mainly been driving the decline of coal.  And natural gas will continue to displace coal in our power generation fleet at current prices.  There are no plans for new coal-fired power plants in the United States. What coal communities need is opportunities for new jobs. The United States could be world leaders in manufacturing clean energy and transportation technologies. More Americans work now in the solar industry than work in either oil & gas extraction or coal mining. It will take a concerted effort involving education and training, but we have to help.

Moving to the states, which have always been the incubators of policy, we’ve seen a lot of progress on clean energy. Twenty-nine9 states require electric utilities to deliver a certain amount of electricity from renewable or alternative energy sources. Ten states that are home to a quarter of the US population already have a price on carbon and are successfully reducing emissions. Those states are California and the nine Northeast states, including Massachusetts, in the Regional Greenhouse Gas Initiative (RGGI). RGGI has added $243 million in value to Massachusetts’ economy. Massachusetts has also been named the most energy efficient state in the country for the last six years.

Every state has either an operational wind energy project, a wind-related manufacturing facility, or both. Some of the biggest wind energy producers are Texas and Iowa. They won’t want to reverse the economic prosperity they’ve seen as a result. America’s first offshore wind farm has just come online off Rhode Island, launching new industry with the potential to create jobs in manufacturing and the marine trades.

Time and again, we’ve seen leadership at the state level and I expect that will continue.

On environmental policies, so much often comes down to the local level.  Many cities have already taken the ball and are running with it. They’re improving the energy efficiency of buildings, deploying cleaner energy, and encouraging cleaner transportation.

Cities see the real and rising risks of climate change. They’re dealing with the impacts now. They also see opportunities to for energy and transportation systems that are cleaner and more efficient than today. To keep their efforts moving forward, partnership and collaboration will be key, especially between cities and companies.

That’s why we at C2ES recently launched a partnership with The US Conference of Mayors called the Alliance for a Sustainable Future. The main goal is to spur public-private cooperation on climate action and sustainable development in cities. Santa Fe Mayor Javier Gonzales is leading the steering committee. Founding sponsors include JPMorgan & Chase Co., Duke Energy, and AECOM, and the mayors of Austin, Des Moines, New York City, and Salt Lake City.

Finally, business leadership has been and will continue to be crucial in transitioning to a clean energy and clean transportation future. A C2ES study found more than 90 percent of the companies in the S&P Global 100 Index see climate change as a business risk. They see rising sea level and more frequent and extreme heat waves, downpours and drought damaging and disrupting their facilities and operations, supply and distribution chains, and water and power supplies.

More than 150 companies -- from Alcoa to Xerox -- signed the White House American Business Act on Climate Pledge.  They committed to cutting emissions, reducing water usage, and using more renewable energy. Business leaders see opportunities in clean energy and transportation.

Here’s another thing to think about, the power of the consumer. In the past year, three in 10 Americans say they’ve rewarded companies for taking steps to address climate change.

The reality is that we have strong momentum in the right direction.  Our economy has begun decarbonizing. Power sector emissions are down, thanks largely to market forces and to incentives for renewable energy that have strong bipartisan support. Many cities, states and companies, along with a number of congressional Republicans, want to keep that momentum going. Smart investments and technological innovation have started America on a clean-energy transition. Building on that momentum will protect communities from rising climate damages and will contribute to strong and sustained economic growth.

The longer we wait to address climate change, the costlier it will be. I urge all of you to work at the local and state level to support common-sense policies that lead us toward a sustainable future.

Businesses continue to lead on climate

Business leaders at COP 22 in Marrakech, Morocco, explain how investments in clean energy and efficiency make good sense for everyone. L to R: Elliot Diringer, Executive Vice President, C2ES; 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.

Businesses have invested billions in clean energy and efficiency because it makes business sense.

At a side event at the U.N. climate talks in Marrakech, Morocco, leaders of major companies reiterated the benefits of those investments – for their companies, customers, the environment and the economy -- and said they will keep moving toward sustainability.

“We see a clear business case for this,” said Kevin Rabinovitch, Global Sustainability Director at Mars Inc. The global food and candy company has committed to eliminate all greenhouse gas emissions from its operations by 2040. Working toward energy efficiency helps the company cut costs, he said, but also motivates employees who are working toward a higher purpose.

“These targets, these programs, these goals need to transcend individual leaders, be they in government or in corporations,” Rabinovitch said. “We’re solving long-term problems. We need to put structures and systems in place that are consistent and durable.”

“You’re now looking at decades of investment. Businesses are not going to walk away from this,” said Nanette Lockwood, Global Director, Policy and Advocacy at Ingersoll Rand. The maker of air conditioners and refrigeration systems has committed to invest $500 million by 2020 to develop alternative refrigerants to HFCs and to reduce emissions by 50 million metric tons by 2030. “Once we set a direction and we create value and markets, we continue down that path.”

The C2ES event, co-sponsored with the Edison Electric Institute, featured senior representatives from Berkshire Hathaway Energy, Ingersoll Rand, Mars and Microsoft. They are among the more than 150 U.S. firms that have committed to specific climate actions as part of the American Business Act on Climate Pledge.

“Microsoft is committed to its sustainability goals, to its clean energy goals. Our investments in innovation in this area are good not only for the environment, but also for our business and for the economy,” said Tamara “TJ” DiCaprio, Senior Director of Environmental Sustainability at Microsoft, whose operations have been carbon neutral since 2012. Microsoft uses an internal carbon fee to fund energy efficiency, renewable energy, and sustainable communities.

As the largest regulated owner of renewable energy generation in the U.S., Berkshire Hathaway Energy has invested more than $15 billion in renewable projects, and has pledged to invest up to another $15 billion going forward.

“We can bring renewable solutions to our customers at very low cost and sometimes no additional cost,” said Cathy Woollums, Senior Vice President for Environmental Services and Chief Environmental Counsel. “It’s a win for the environment; it’s a win for our customers; and it’s a win for us.”

In a C2ES statement released in October when the Paris Agreement reached the threshold for entry into force, 11 leading companies said they are “committed to working on our own and in partnership with governments to mobilize the technology, investment and innovation needed to transition to a sustainable low-carbon economy.” The statement notes that the Paris Agreement facilitates stronger private sector action by providing long-term direction, promoting transparency, addressing competitiveness, and facilitating carbon pricing.

Speakers at the event agreed on the importance of consistency, transparency and partnerships moving forward. The Paris Agreement, with nearly all of the world’s nations committing to move in the same direction, is sending signals that the business and investment community are internalizing in their long-term investing and decision-making. And working together with cities and states, and other companies, helps them share best practices and go further, faster to reach their goals.

A lot of the progress that has been made, especially in the United States, in reducing emissions has been driven by market and technology forces, and those forces will continue even in the absence of federal action on climate change.

Asked what will change under the new U.S. administration, Woollums said, “We need to give the new administration a chance to develop rational policies. The President-elect understands business. To the extent that the things that we’ve been doing make business sense, we will continue to do those things.”

 

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)

Cities and businesses join to build resilience

How does a city become resilient? With more communities facing climate impacts, including more severe storms, heat waves, and sea level rise, it’s a question many city planners are struggling with. And it’s a question best answered through collaborative efforts.

To move its resilience planning forward, the City of Providence brought together state officials, city departments, local businesses, universities, hospitals, utilities, and others for a two-day workshop facilitated by C2ES. At the workshop, AECOM and IBM led city and community officials through the Disaster Response Scorecard where participants discussed the risks they face, strategies in place or needed to lessen those risks, and how they can respond now and in the future to minimize loss of life and damage to critical infrastructure.

Providence has already seen rising sea levels and increased flooding. In Rhode Island, sea level could rise as much as 2 feet by 2050 and 7 feet by 2100. The Third National Climate Assessment says the region will experience heat waves, more heavy downpours, and more coastal flooding.

With its extensive waterfront, Providence is on the frontlines of climate change. As Mayor Jorge Elorza told the Providence Journal, “We simply can’t afford to kick the can down the road. By planning ahead we can make wiser investments … to minimize our risk and enhance resilience.”

Cities like Providence are one of many working to strengthen their resilience to climate change now, rather than waiting for a disaster to occur. C2ES held a similar exercise with the City of Anchorage, and will soon hold resilience workshops with Kansas City, MO, Miami Beach, FL, and Phoenix, AZ.

Cities across the U.S. are looking to change how they prepare for and respond to extreme weather and climate change impacts. Strategies to improve resilience include:

  • Working with community leaders. Cities are working together with diverse community groups to raise citizens’ awareness of climate change and extreme weather. For example, Providence recently held a workshop with faith-based organizations on hurricane preparedness.  
  • Partnering to pool resources. The adage “There’s strength in numbers” holds true. Through memorandums of understanding, cities are partnering with their local businesses and non-profits to prepare for and respond to extreme weather. Some businesses are funding collaborative resilience efforts. PG&E will award $1 million  to local governments in their utility territory that propose resilient solutions, focused on disadvantaged communities, that others can replicate.
  • Visualizing and combining information and data. Mapping of climate change risks can help people understand vulnerabilities. The Rhode Island Coastal Resources Management Council has mapped sea level rise, storm surge, and other risks to coastal communities in the state.
  • Developing innovative solutions. The City of Hoboken, N.J., which experienced devastating flooding during Hurricane Sandy, is partnering with BASF to build a park and parking garage that can double as floodwater storage. Once finished, it could hold at least 1 million gallons of excess water.

Innovative solutions like these could help communities improve their resilience to climate change and extreme weather events, and C2ES will continue to share new approaches and best practices

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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Two ways to help cities finance climate action

The world is increasingly looking to cities to deliver transformative change toward a low-carbon future. Recent studies point to the great carbon reduction potential resting within city limits by cutting building energy use and improving transportation systems. But very real barriers, especially finance, are hindering progress.

Cities need access to dollars to finance both tried-and-true and innovative pilot projects. Nearly 90 percent of local governments consider lack of funding a significant barrier to sustainability efforts in their community, according to a recent survey.

Initiatives are emerging to improve the financial environment. A C40 Cities Climate Leadership Group report released this month characterizes six ways local governments can access dollars: green bonds, city-backed funds, financial institutions/agency finance, equity capital, emissions trading programs, and climate funds.

The first two financing mechanisms are likely familiar to city leaders. Bonds are common tools to catalyze major projects and more local governments are establishing revolving loan funds to promote certain investments. Some of the others may be less understood, and here we take a closer look at two.

Climate Funds

Climate funds are buckets of money to finance clean energy and resilience action. Although commonly used in developing countries, there are a few examples in the United States. The most prominent type are state climate funds that use revenue from programs such as the Regional Greenhouse Gas Initiative (RGGI) in the Northeast and California’s cap-and-trade program to support programs like energy efficiency initiatives run by local governments.

A C2ES webinar on financing resilience featured another type of climate fund in the New Jersey Energy Resilience Bank (ERB). The ERB described its work to enhance distributed energy projects for critical facilities like hospitals and utilities by providing low-interest loans drawn from a $200 million federal disaster recovery fund made available after Hurricane Sandy. For example, the ERB is providing a $4.4 million grant and a $3.1 million loan to finance a 2 MW combined heat and power natural gas system at Saint Peter’s University Hospital. The investment will ensure the hospital maintains power – and continues providing life-saving services –  even if the surrounding electric grid shuts down in future storms.

Emissions Trading Programs

Emissions trading programs are typically created for major emitters and implemented by state and national governments. So how would a city participate here? Well, emissions trading programs accomplish a unique thing, which is to create new monetary value, in the form of credits, for clean energy projects. This would involve projects like solar installations; energy efficiency programs for neighborhoods, commercial buildings, and even water treatment facilities; methane capture projects at landfills; basically, the kinds of projects cities facilitate or even spearhead. The credits awarded to such projects can be sold to the polluters who have to meet certain quotas.

Outside of municipal utilities in California and RGGI states, there are currently no local governments participating in emissions trading programs in the United States. An interesting opportunity on the horizon is the Environmental Protection Agency’s (EPA) proposed Clean Energy Incentive Program (CEIP), which is nestled within the currently stayed Clean Power Plan.

The CEIP is meant to incentivize renewable energy projects and energy efficiency investments in low-income communities by offering tradable credits to project developers. This program could establish a financial incentive that local governments can benefit from directly or indirectly by drawing development dollars and jobs to cities, but whether that happens is up to each state (more on that process here).

Ultimately, for the CEIP to become a funding source that appeals to local governments, a number of challenges will have to addressed. There will need to be:

  • Certainty around Clean Power Plan and the value of credits to minimize the risk associated with the post-project financial incentive,
  • A clear definition of "low-income community,"
  • Certainty around available credits, and  
  • Guidance on attracting CEIP projects.

Besides the six types of finance discussed by the C40 report, there are other financing mechanisms available to cities that intrepid leaders have used to overcome this barrier to action. However, given the competition for government attention and resources, it is no surprise that lack of access to finance results in lower prioritizing of sustainability projects. This is an outcome we cannot afford.

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