Climate Compass Blog

Companies set their own carbon price to guide decisions

Business leaders know that climate change impacts are here and on the rise. They also know there are significant economic opportunities in the transition to a low-carbon economy. But factoring these risks – and opportunities – into corporate decision-making isn’t always easy.

An internal carbon price is increasingly being used by companies across sectors and geographies to translate the risks and opportunities of a low-carbon economy into business decisions.

Some companies set a theoretical price on carbon, or a “shadow price,” to evaluate investments, test assumptions, and guide business strategy. Some use a “carbon fee” to assign an explicit monetary value to emissions from business units to change behaviors and raise funds for clean energy and energy efficiency projects. Still others use a combination of these or other approaches.

A new C2ES brief, The Business of Pricing Carbon, examines how companies are using internal carbon pricing and why: to prepare for future regulation, reduce greenhouse gas emissions, respond to shareholder concerns, build more resilient supply chains, gain a competitive edge, and showcase corporate responsibility.

According to 2016 disclosures to the CDP (formerly the Carbon Disclosure Project), more than 1,200 companies worldwide are either pursuing internal carbon pricing or preparing to do so soon—up 23 percent from 2015. While most of these companies are based in North America and Europe, more companies in emerging economies, including Brazil, China, India, and Mexico, are exploring carbon pricing.

Among the leaders:

  • Since 2012, Microsoft business groups have paid a fee, from $5 to $10 per metric ton, on the carbon emissions associated with their electricity consumption and employee air travel. The revenue is used to buy renewable energy, increase energy efficiency and e-waste recycling, and buy carbon offsets. Microsoft has been carbon neutral in its global operations since July 2012.
  • Shell has used an internal carbon price of $40 to $80 per metric ton since 2000 to evaluate investment decisions. Its greenhouse gas Project Screening Value has influenced decisions to invest in carbon capture technology, natural gas, and biofuels. Shell reduced its direct greenhouse gas emissions from facilities by 2 million metric tons of carbon dioxide equivalent from 2015 to 2016.
  • Mahindra & Mahindra (M&M), the world’s largest manufacturer of tractors, became the first Indian company to launch an internal carbon fee of $10 per metric ton in 2016. The funds help reduce waste, water usage, and carbon emissions through projects such as LED lighting, energy-efficient motors, and waste-to-energy projects. M&M’s goal is to reduce its greenhouse gas emissions intensity 25 percent by 2019 from 2016 levels.
  • Mining company BHP has had a shadow price of $24-$80 per metric ton of carbon dioxide equivalent since 2004 to inform decisions to improve energy efficiency, reduce greenhouse gas emissions from its existing operations, and diversify its portfolio for a carbon-constrained future. The company reduced emissions 13 percent from 2015 to 2016.

Companies are using an internal carbon price to help advance their greenhouse gas reduction targets. For example, C2ES found that almost half of the companies committed to the RE100 (100 percent renewable energy) and Science-Based GHG Targets have adopted an internal carbon price or plan to do so in the next couple of years.

Most companies that have adopted a shadow price use a level higher than current government carbon pricing levels (which according to experts is $10 per metric ton) to prepare for a transition to a low-carbon world. This is particularly true for companies in the oil and gas and metals and mining sectors, which use shadow price ranges that are compatible with the levels recommended for governments by the High-Level Commission on Carbon Pricing ($40-$80 per metric ton by 2020 and $50-$100 per metric ton by 2030).

Setting an internal carbon price is just one tool in the toolbox for companies seeking to reduce their exposure to climate risks, increase their business opportunities in a low-carbon future, and show sustainability leadership to their shareholders, employees, and customers. We encourage more companies to explore the options.

Read the brief:.

Watch the webinar.

 

What Hurricane Harvey tells us about climate change

The heartbreaking consequences of Hurricane Harvey’s landfall in Texas and Louisiana over the past week have led many public figures to comment regarding the potential connection between hurricanes and global climate change. With Hurricane Irma bearing down on the Caribbean and Florida, this question will likely get another bump in the news cycle.

What does the science tell us about this connection? In 2014, the White House released the latest update of the congressionally mandated National Climate Assessment (NCA), a report produced by the relevant scientific agencies every few years. The NCA made the following statement:

The intensity, frequency, and duration of North Atlantic hurricanes, as well as the frequency of the strongest (Category 4 and 5) hurricanes, have all increased since the early 1980s. The relative contributions of human and natural causes to these increases are still uncertain. Hurricane-associated storm intensity and rainfall rates are projected to increase as the climate continues to warm.

That remains a good summary as far as hurricanes go, but there is a more fundamental point that I think decision-makers should be focused on as they consider how to direct investments to enhance our resilience to climate change: Precipitation extremes are intensifying and will continue to do so as the climate warms.

Consider the following:

  • In April 2014, southern Alabama and the Florida Panhandle experienced a historic rainstorm that set local records for daily and hourly rainfall totals. In Pensacola, nearly 6 inches of rain fell in an hour and more than two feet of rain fell over two days, causing catastrophic flash flooding.
  • In October 2015, many areas of Alabama, Louisiana, and Texas experienced extreme rainfall and flash flooding. The greatest totals were south of Dallas, where more than 20 inches of rain flooded highways and derailed a freight train. Houston received around 10 inches and experienced flash flooding.
  • In March 2016, Louisiana experienced historic flooding and areas of Arkansas, Missouri, Oklahoma, Tennessee, and Texas experienced extreme rainfall and flash flooding. More than 20 inches of rain fell in Monroe, Louisiana, with one reporting station recording nearly 27 inches over three days.

Now we have Hurricane Harvey.

These events are a small selection of a large number of major flood events to strike Arkansas, Louisiana, Oklahoma, and Texas recently. Gulf states have seen historic flooding disasters from extreme precipitation every year for at least four years running. Many of these events were associated with hurricanes (or tropical storms in general). All of them required an enormous source of atmospheric moisture to generate such extreme rainfall totals in a matter of hours to days. 

That moisture source is no mystery: It is the warm tropical waters of the North Atlantic (principally the Gulf of Mexico) and eastern Pacific oceans. These bodies of water have been warming over recent decades and are evaporating more and more moisture into the atmosphere along the Gulf and Atlantic Coasts. The atmosphere is also warming, and warmer air holds more water vapor. As the climate warms, therefore, more moisture becomes available to supply rainfall.

This fact is basic physics and there isn’t any real uncertainty about it. Moreover, it is well understood that the oceans and atmosphere are warming as a direct result of manmade greenhouse gas emissions. (Without those emissions, the climate system would actually be cooling slightly).

The consequences are not limited to the Gulf Coast. The National Climate Asessment chart below shows the percent increase in the amount of rainfall associated with the heaviest 1 percent of downpours in regions of the United States from 1958 to 2012.

So what does Hurricane Harvey tell us about climate change? It confirms that our risk is rising as the climate warms. Harvey also teaches us about our vulnerabilities and adaptation needs.

As Dan Huber and I have explained, individual weather events are unpredictable, but our overall risk from changing weather patterns is predictable. Reducing our climate-warming greenhouse gas emissions will limit how much we ultimately ratchet up that risk. However, since the climate is already changing and the risk of damages is rising, we also need to adapt to the changes that are in the pipeline. Both reducing emissions and adapting to unavoidable change are essential to managing the risk

Jay Gulledge, Ph.D., is a Senior Adviser to C2ES

Harvey's lessons for flood insurance and resilience

Even as Hurricane Harvey continues to devastate Texas and Louisiana, experts and policymakers are drawing lessons to better prepare for the costly impacts of a changing climate. A key opportunity comes this month, when Congress takes up reauthorization of the nation’s battered flood insurance program. But the broader challenges of protecting communities against climate change require much stronger efforts on all fronts.

The Gulf Coast is historically prone to hurricanes, but climate change has contributed to a greater intensity of extreme weather events like hurricanes and an increase in the amount of rain produced by those events. The rainfall total from Harvey was the most ever in the United States, but this is the third extreme flood the city has faced in the last three years. All across the United States, climate change, sea-level rise and development are driving up the risk of flooding and other climate disasters.

For nearly a century, the country’s primary defense against flood risk has been the National Flood Insurance Program (NFIP), which is intended to reduce the impact of flooding on private and public structures by providing affordable insurance to property owners. But with increasingly expensive weather events, the program’s chronic debt (covered by federal taxpayers) has ballooned to $24 billion and insured losses from Harvey could be between $10 billion and $20 billion, adding to the program’s deficit.

When the program was last reauthorized, in 2012, Congress ordered updated flood maps to more accurately reflect risk, and higher premiums to whittle down the debt. The premium increases, however, were later scaled back.

This time, bills offered in Congress have a range of objectives, from reducing costs to preserving the program’s affordability, in some cases by bringing in private insurers. Few, however, include provisions to proactively reduce flood risk. One exception, the bipartisan SAFE NFIP 2017 Act, introduced by Senators Bob Menendez (D-NJ) and John Kennedy (R-LA), would provide grants and loans for pre-disaster risk reduction efforts.

With the toll from Hurricane Harvey still rising, Congress could do much more in its reauthorization of the NFIP to address increasing flood risks:

  • Use modern, accurate flood maps based on the best available science that consider climate projections, especially sea level rise.
  • Gradually phase out subsidized rates for high-risk properties to eventually price flood insurance to reflect the flood risk of a property. This should be coupled with targeted assistance for low-income policy holders outside of the NFIP’s rate structure.
  • Incentivize community-led flood risk management and pre-disaster mitigation. Expand the Community Rating System which already offers flood insurance discounts for floodplain management activities to further incentivize mitigation, relocation of high-risk or repeated flooding properties, and natural flood barriers like marshes, wetlands, and floodplains. Mitigation activities that reduce risk to structures or communities should be tied to reduced insurance premiums.
  • Disaster recovery and flood damage payouts should go to resilient design and siting, and not replacement or repair of high-risk structures.

Beyond reforming the NFIP, Congress should reject President Trump’s proposal to ax important programs at the Federal Emergency Management Administration that help communities take steps to prepare before disaster strikes. Chief among these are FEMA’s Pre-Disaster Mitigation and Flood Mitigation Assistance Grant Programs.

While the immediate focus is flooding, a warming climate is increasing many other types of climate-related risks. By mid-century, for instance, Houston will likely experience an increase in occurrences of two or more consecutive days of heat index above 108 degrees, from the current six to 25 per year.

Addressing these risks requires comprehensive community-based resilience planning with strong state and federal support. Smart strategies can address multiple impacts, like planting trees or using pervious surfaces to increase stormwater retention while cooling streets and homes. Many local governments are now actively planning for climate change impacts, but businesses too need to take extra steps to be prepared.

According to FEMA between 40-60% of small businesses permanently close following a disaster, highlighting that businesses are not adequately covered by NFIP. Stories from Houston of businesses investing in individual resilience measures (like the Texas Medical Center’s 2001 installation of floodgates) highlight the value of preparing for climate impacts, and the value of engaging businesses in city climate resilience planning and actions.

While natural hazards have always happened, climate change is increasing the threats that these hazards pose to cities and businesses across the country. Acknowledging and anticipating these risks locally, in flood recovery and disaster-preparedness, and on the national level, in the reauthorization of the NFIP, is key to making cities, towns, states and businesses more resilient to our changing climate.

Best in Class: Back to school on an electric bus

          Photo credit: Fastcompany.net

As kids across the country hop on buses and head back to school, what else are they taking in besides an education? The answer may be pollutants.

School buses, typically powered by diesel engines, can emit dangerous levels of pollutants. Children are particularly vulnerable to the health effects of these emissions. A 2001 study by the Natural Resources Defense Council found that children in the back of diesel-powered school buses could be exposed to toxic pollutants at four times the rate of people in the cars behind those buses, and that riding in school buses powered by diesel could pose 46 times the rate of “significant” risk for cancer. A more recent 2015 study for the California Air Resources Board found that air pollution in diesel-powered school buses continues to put children in danger. The negative effects range from heightened absenteeism to persistent heart and lung conditions, such as emphysema and asthma.

Efforts to improve the tailpipe emissions of school buses could have wide-reaching effects. More than half of all U.S. students, or greater than 25 million children, ride in school buses. A 2015 study by the University of Michigan found that reductions in diesel tailpipe emissions had widely positive effects on children, from improved lung functions to reduced absenteeism.

One straightforward method of eradicating tailpipe emissions would be for school districts to adopt all-electric buses.

All-electric buses that plug in to the electric grid virtually eliminate children’s exposure on school bus trips to dangerous pollutants such as nitrogen oxides and volatile organic compounds. The buses also safeguard children’s futures by reducing greenhouse gas emissions that are contributing to climate change. A switch to electric buses provides a double win of protecting our kids’ health and their environment.

Electric school buses have recently become available in the North American market. Only a few companies manufacture purpose-built electric school buses, but some school districts in the United States and Canada have committed to deploying them. Quebec company Lion manufactures electric school buses, and U.S. bus maker Blue Bird plans to produce electric school buses by the end of 2018 that will be able to put power back onto the grid or into a building. The capacity to operate buses with two-way power would improve the financial outlook of purchasing electric buses, which are more expensive to purchase but are less expensive to fuel and operate.

U.S. interest in electric buses is growing, although mostly for use in public transit systems (Los Angeles, for example, plans to switch its entire transit bus system to electricity by 2030). Recently, city planners have expressed the need to expand the benefits of zero-emission electric buses, such as better air quality and helping develop neighborhoods, to low-income residents and vulnerable populations. Falling battery prices and the introduction of new electric bus manufacturers to the school bus market will help extend these trends to school districts. Children, among the most vulnerable of groups, may soon be enjoying the quiet, pollution-free benefits of electric transportation.

US companies, communities rely on federal climate science

Businesses rely on government for factual, unbiased information to help them make decisions about where and how to grow.

They need U.S. Census data to see how patterns of population growth could affect the demand for goods and services. They need energy supply and demand data from the U.S. Energy Information Administration to understand this critical input to productivity.

And they need climate data to help them identify the risks climate impacts pose to their facilities, operations, and supply and distribution chains.

The National Climate Assessment -- mandated by Congress -- is one of the tools that helps companies understand and prepare for climate risks – risks that more than 90 percent of major companies recognize. The latest version (still in draft form) is the product of researchers at 13 federal agencies and has undergone rigorous, independent peer-review by a 14-member committee at the National Academies.

But the administration is disbanding the federal advisory panel that helps policymakers and private-sector officials incorporate the National Climate Assessment into long-term planning. And researchers say they are worried the findings in the final release will be altered or suppressed by administration officials who oppose federal action on climate change.

That would be a mistake.

Government officials concerned about the health and competitiveness of U.S. businesses and the U.S. economy need to know that businesses rely on unbiased federal scientific data for decision making.

Sea-level rise projections let coastal property owners choose the right amount of flood protection for their needs. Accurate counts of frost-free days help farmers understand how growing seasons are changing so they can adjust their practices. City and state governments also need reliable data to ensure infrastructure is built to last and communities are prepared for more extreme heat waves, droughts, and downpours.

It is in the interest of the U.S. economy to see strong support for science continue at the federal level.

The National Climate Assessment is a valuable tool companies and communities use to plan for the impacts of climate change. It is by no means the only government report that gives evidence of the reality of climate change. Countless observations show us that the world of today is unlike the world of our parents. The annual State of the Climate report -- edited by National Oceanic and Atmospheric Administration (NOAA) scientists, peer-reviewed, and published in August in the scientific journal Bulletin of the American Meteorological Society --  assembles the latest observations, including:

  • 2016 was the hottest year globally on record (surpassing record-setting 2015 and 2014)
  • Global mean sea level in 2016 was the highest since satellites began making measurements
  • Arctic temperatures reached 3.5°C above 1900 levels, a new high.
  • Greenhouse gas concentrations topped 400 parts per million for the first time in at least 800,000 years

Every credible line of evidence tells us that the Earth’s climate will continue to change in mostly harmful ways. That means governments, communities, and companies need to reduce climate-altering emissions and strengthen resilience to climate change impacts we’re already experiencing and that will grow worse without emissions reduction.

To help planners and risk managers in the public and private sectors make use of existing government climate data, C2ES is hosting a webinar to discuss “Using Climate Data in the Real World.” Government scientists from NOAA and Argonne National Lab will describe the climate datasets available for public use and how climate model outputs can be “downscaled” to provide granular data relevant to resilience planners. Business representatives will share their experience using this data in real world decision-making.

The September 27 webinar is just one component of C2ES’ work to promote information-sharing and collaboration between scientists, businesses, and governments to assess climate vulnerabilities and develop resilience strategies.