Climate Compass Blog
|A post-Paris climate action panel at the 2017 Climate Leadership Conference (left to right): UNFCCC Executive Secretary Patricia Espinosa, Microsoft Director of Sustainability Policy Michelle Patron, Business for Social Responsibility Managing Director Edward Cameron, Climate Policy Institute Executice Director Barbara Buchner, C2ES Executive Vice President Elliot Diringer.|
Achieving the goals of the Paris Agreement requires not only commitments by governments, but also innovation and action by the private sector.
“This room is full of non-state actors,” remarked Patricia Espinosa, UNFCCC Executive Secretary, while addressing the audience at the Climate Leadership Conference in Chicago this month. Espinosa along with a panel of experts encouraged members of the private sector to not only continue these crucial efforts, but to take bolder steps as they turn the commitments made in Paris into concrete action.
Espinosa applauded the 12,000 voluntary climate commitments by companies, investors, cities, and sub-national governments, that are reported in the UNFCCC’s Non-State Actor Zone for Climate Action platform. She highlighted the positive domino effect of partnerships such as We Mean Business, C40 Cities, Under2 MOU, and the Global Covenant of Mayors in increasing ambition and encouraging transformational action to meet the Paris goals.
Solutions to mitigate and adapt to climate change
Michelle Patron, director of sustainability policy at Microsoft, who joined Espinosa on the panel, told the audience that climate action is good for business, good for the economy, and good for the environment. Nearly half of Microsoft’s data centers are now powered by wind and solar energy, and the company has committed to procuring half its electricity from renewable sources by 2018, and 66 percent by 2020.
The push for sustainability also extends to Microsoft’s customers. For example, the company collects and analyzes real-time performance from the bus fleet in Helsinki, Finland, using data generated by sensors on the vehicles. The results are reduced fuel consumption and costs, improved performance and safety, and a lower carbon footprint for the city.
To help with the Paris commitment to adaptation, Microsoft is providing cloud technologies to cities in the Middle East prone to heavy rainfall, to help improve flood management and reduce the costs of adapting to extreme weather.
Mobilizing private sector finance at scale
Barbara Buchner, executive director of the Climate Policy Initiative (CPI), told the group that although the total annual global public and private sector investment in climate finance is higher than ever at $392 billion, more is needed. She said funding levels of about $16.5 trillion by 2030 need to be mobilized to limit global temperature increase to 2 degrees Celsius.
CPI serves as the secretariat for The Global Innovation Lab for Climate Finance, created to bridge the finance gap. It links investors—such as financial institutions, insurance companies, and national governments—with low-carbon climate-resilient projects. The lab works to design both the projects and financing tools to help reduce any regulatory risks and knowledge barriers that prevent access to private finance. Since its inception in 2014, the lab has raised $600 million for pilot projects in energy efficiency, climate change risk assessment, and agricultural supply chains across developing countries.
Shaping public policy and taking extra steps
Edward Cameron, managing director of Business for Social Responsibility, told the audience the private sector is designing the architecture of deep decarbonization for the world.
He said the world notices when Wal-Mart pledges to reduce emissions by 50 percent, remove deforestation from supply chains, reduce landfill waste, and obtain 100 percent of its power from renewable energy – or when Apple, Amazon, Google, and Microsoft voice support for the U.S. Clean Power Plan. Such actions, he said, send signals to markets and government, thereby shaping public policy.
However, if businesses want to distinguish themselves as climate leaders and drive transformational change in the post-Paris world, Cameron challenged them to take extra steps:
Act: The benchmark to act on climate has increased. Companies should transition from setting carbon intensity targets to establishing science-based targets across supply chains.
Enable: Be enablers of others’ success. Provide financial and technological solutions to climate change, not only for business operations and consumers, but also for the most vulnerable populations of the world.
Influence: Manage not only a company’s footprint, but also the handprint—the measure of its positive social and environmental actions. Advocating for public policies that accelerate climate action will influence a company’s captive audience, and help them be good consumers and citizens.
Espinosa said non-state actors, including the private sector, will continue to play a crucial role giving governments the confidence to ramp up ambition on climate action as they build toward the 2018 United Nations climate summit, COP 24. That’s when the international community will take stock of the collective efforts toward the goals of the Paris Agreement.
The case for climate action is having a hard time in Washington these days. While public officials acknowledge the climate is changing, they’re not necessarily saying why or what should be done about it.
Let’s clear up a few points.
1.The Earth is heating up.
Scientists have measured global temperatures for over a hundred years and see that the Earth is getting hotter. The trend can be best visualized by comparing each year’s average temperature with the long-term average. This figure shows observations of the world’s annual average temperature made by the National Oceanic and Atmospheric Administration (NOAA). It compares each year’s temperature to the average over the entire century. Blue bars are years that were cooler than average and red bars are years that were warmer than average. In recent decades, the years have always been hotter. If there were no long-term temperature trend, you would expect a mix of red and blue bars throughout the record. That’s not what we see.
Source: The National Oceanic and Atmospheric Administration (NOAA)
2. Human activity is largely responsible for this warming.
Over geologic time, the Earth’s average temperature has changed as a result of the sun’s output, the tilt and position of the Earth in its orbit, and the concentration of greenhouse gases. Scientists have developed a good understanding of the natural variations in these factors by examining different proxies for ancient temperatures. Observations tell us that these natural factors have not been changing over the last hundred years or so in a way that would explain the observed temperature increases.
In contrast, greenhouse gases have been changing in a way that can explain the observed temperature increases. The pre-eminent record of modern atmospheric carbon dioxide (CO2) concentrations is based at the Scripps Institute of Oceanography. Researchers there have been sampling pristine air from a mountaintop in Hawaii every month since 1958 and analyzing its composition. Their observations show that both the concentration and isotopic composition of CO2 is changing, and is consistent with manmade sources, including the carbon emissions from burning fossil fuels.
Moreover, physics tells us how different climate variables will change the temperature of the atmosphere at different heights. For example, changes in solar output will heat the atmosphere uniformly, while changes due to greenhouse gases will warm the surface but cool the higher part of the atmosphere (the stratosphere).
The National Centers for Environmental Information, run by NOAA, conduct monthly observations of atmospheric temperatures at different levels. Its 39-year record shows that the temperature change is not uniform. This is consistent with the effect of greenhouse gases, and inconsistent with other types of natural effects (e.g., changes in the sun’s output).
3. The impacts of climate change are growing, and we need to stop adding to the problem.
The result of this buildup of greenhouse gases is that we’re trapping heat within the climate system. The basic physics behind this has been establish for over 100 years. But climate change isn’t just a matter of the air temperature being a few degrees warmer.
- Higher levels of CO2 in the atmosphere lead to increased acidity in the oceans, which is damaging to shellfish and other marine life.
- Warmer water temperatures and melting of glaciers (due to warmer air temperatures) increase average sea level across the globe.
- Climate change is affecting the frequency and intensity of heat waves, heavy rainfall events, and several other types of extreme weather and disasters.
Some observed climate changes are not bad. For example, growing seasons are lengthening in some parts of the country and costs for winter heating go down when temperatures are mild. But the overall impacts are estimated to be negative and costly.
The good news is that we’re making progress, and that we have many of the tools right now to make a difference, including expanding use of renewable power; zero-carbon nuclear power, carbon capture, use and storage; energy efficiency technologies, and electric vehicles. Many businesses, cities, and states are pursuing clean energy and clean transportation to improve public health, save money, and create jobs.
The question is not whether climate change is happening, but what we want to do about it.
The old definition of a microgrid was usually an electricity source, often a combined heat and power natural gas plant or a reciprocating engine generator, that provided fulltime or backup power for an industrial site, military installation, university, or remote location.
Today’s definition is much broader, incorporating cleaner technologies and more diverse customers, establishing microgrids as a key component of tomorrow’s more resilient, efficient and low-emissions electricity system.
A new brief, Microgrid Momentum: Building Efficient, Resilient Power, by the Center for Climate and Energy Solutions (C2ES) and The George Washington University (GWU) outlines microgrids’ benefits and examines what is standing in the way of accelerating their deployment.
Microgrids currently provide a tiny fraction of U.S. electricity (about 1.6 gigawatts, or less than 0.2 percent), but their capacity is expected to more than double in the next three years.
Three examples of the growing interest:
- Montgomery County, Maryland, recently entered a public-private partnership to develop two microgrids to power county facilities. Ratepayers won’t have to foot the bill, and the government will get more resilient and affordable power with environmental benefits.
- In the Denver suburbs at Peña Station Next, a “smart” city is taking shape that will test LED lighting, autonomous vehicles, and a microgrid that uses solar panels and battery storage.
- In Alaska, the state with the most microgrids, the city of Anchorage is about to deploy a project that will make use of two energy storage technologies and help the area integrate more wind power.
Microgrids not only improve reliability and resilience – keeping the lights on during a widespread disaster that affects the main grid -- but also increase efficiency, better manage electricity supply and demand, and help integrate renewables, creating opportunities to reduce greenhouse gas emissions and save energy.
But financial and legal hurdles stand in the way of accelerating their deployment.
Each microgrid’s unique combination of power source, customer, geography, and market can be confusing for investors. Microgrids can run on renewables, natural gas-fueled turbines, or emerging sources such as fuel cells or even small modular nuclear reactors. They can power city facilities, city neighborhoods, or communities in remote areas. As we heard during our research, “If you’ve seen one microgrid, you’ve seen one microgrid.”
The legal framework can be confusing, too. Most states lack even a legal definition of a microgrid, and regulatory and legal challenges can differ between and within states. Issues include microgrid developers’ access to reasonably priced backup power and to wholesale power markets to sell excess electricity or other services. Also, franchise rights granted to utilities may limit microgrid developers’ access to customers.
The report identifies tools that can help address these challenges.
- Public-private partnerships could play a growing role in overcoming financial hurdles. Mixed ownership microgrid projects, which can include money from public institutions, utilities, and private entities, have increased from nearly zero in 2013, to a projected 38 percent of the market in 2016. Recent examples include microgrid partnerships at Peña Station Next in Denver, Colorado, and two government facility microgrids in Montgomery County, Maryland.
- States can also play a key role in facilitating microgrid development. Most existing microgrid projects are concentrated in seven states: Alaska, California, Georgia, Maryland, New York, Oklahoma, and Texas. Some states, including California, Connecticut, Massachusetts, New Jersey, and New York, have created clean energy banks, grants, or other funding opportunities for microgrids. For example, New York established a $40 million grant program (i.e., NY Prize) to create community microgrid projects that can serve as templates for other communities. More state grants or low-cost loans could help launch more microgrids.
- Linear programming models like the one outlined in the report can help focus a proposed project on cost savings, emissions reductions, or independence from the larger grid; forecast or estimate cash flows and financing needs; and manage power supply and demand.
Microgrids are not a traditional or typical infrastructure investment for utilities, nor has the existing electric power industry been structured to facilitate development of microgrids by non-utilities. We’ll need more dialogue among the finance community, service providers and implementers, and government and regulatory agencies to develop the frameworks and policies needed to foster microgrid development.
New technologies and industry investments are making electric vehicles (EVs) more affordable and approachable, expanding consumer choice and driving record-breaking U.S. EV sales. However, the continued popularity of pickups and SUVs shows the importance of maintaining federal fuel economy standards to reduce greenhouse gas emissions.
At the recent Washington Auto Show, I test drove the Toyota Prius Prime, the second-generation plug-in hybrid Prius model. The Prime features a larger battery range than its predecessor, is surprisingly roomy, and, once unplugged from the charging station, provides a similar driving experience as a gasoline-powered hybrid.
The Prime is the latest example of automakers developing vehicles that can compete both functionally and financially with traditionally-fueled vehicles.
In the all-electric vehicle market, consumers have had to choose between high costs or low battery.
- Chevy has begun to change the equation with the low-cost, long-range all-electric Bolt, already released in California and Oregon, and slated for a national release within the next year.
- Tesla, famous for its luxury vehicles, is preparing to manufacture the more affordable Model 3 that retains the company’s longer battery range.
- Ford, Volkswagen, and many other major automakers are also developing more affordable EV models, both all-electric and plug-in hybrids, that will compete favorably with traditionally-fueled vehicles.
|Figure 1: Range and Cost Comparison of All-Electric Vehicle Models|
Consumers are responding to these new models and technologies. The reconfigured Prius Prime jumped from a dozen or so vehicles sold per month earlier in 2016 to more than 1,300 vehicles per month in when it was reintroduced in December and this past January, taking second place in the plug-in hybrid market. Of the five best-selling models since December (Chevy Bolt & Volt, Toyota Prius Prime, Tesla Model S & X), only Tesla’s Model S is not new or redesigned within the past 18 months.
2016 was the highest-selling year in the history of the U.S. EV market, with approximately 150,000 vehicles sold. December set a single-month EV sales record at more than 23,000 vehicles.
However, 2016 was also a record year for the U.S. auto market as a whole. Consequently, EV market share rose only slightly, from 0.67 percent in 2015 to 0.84 percent in 2016. (Some estimates can range higher.) In the same timeframe, light trucks (SUVs, vans, and pickup trucks) accounted for more than 60 percent of the U.S. vehicle market, and are expected to remain popular if oil prices stay low. Although EV purchases are increasing, there are at least 70 new light trucks purchased for each new electric vehicle. Plus, Americans are driving more miles than ever.
That’s why it’s important to maintain the federal fuel economy standards, which require automakers to improve the average emissions of the vehicles they sell over the next decade.
The fuel economy standards allow for consumers to choose SUVs and pickups under a separate “footprint,” but require that the greenhouse gas emissions of the larger footprint improve. The U.S. Environmental Protection Agency and the California Air Resources Board have reviewed the standards and found them to be practical, achievable and affordable. With the transportation sector now the heaviest-polluting sector in the nation, these fuel economy standards are critical to reducing greenhouse gas emissions.
Manufacturers are making great strides to expand the EV consumer base beyond early adopters. Many reputable analysts, such as Bloomberg New Energy Finance and the International Energy Agency, expect that consumer EV adoption will rise rapidly in the coming decades, helping to deeply decarbonize the sector. In the meantime, federal fuel economy standards can help reduce greenhouse gas emissions from all vehicle model and fuel types.
Photo courtesy of Task Force on Climate-related Financial Disclosures
Bank of England Governor Mark Carney and task force chairman Michael Bloomberg at the Task Force on Climate-Related Financial Disclosures recommendations report launch.
Most large companies recognize the risks climate change poses to their facilities, operations, and supply and distribution chains. And many of these companies are letting their stakeholders know how climate risks and opportunities will affect their bottom line.
Currently, much of this information is made public through voluntary reporting to non-profit organizations, in corporate sustainability reports, and, for publicly-traded companies, filings with the Securities and Exchange Commission. In our research on company strategies to manage climate risks and opportunities, we have found that the quality of reporting and level of detail varies extensively from company to company, and sector to sector.
Reflecting the growing importance of climate change as a material set of risks for companies to manage, finance ministers from 20 major economies asked the Financial Stability Board (FSB) to review the financial implications of climate change. The G-20 Finance Ministers established the FSB after the 2008 financial crisis to monitor and make recommendations on the global financial system. The FSB convened an industry-led task force to develop voluntary recommendations to better, and more consistently, integrate into financial filings the risks and opportunities posed by physical climate impacts and the transition to a lower carbon economy.
In a speech, “The Tragedy of the Horizon,” describing the impetus for creating the FSB task force, Bank of England Governor Mark Carney said: “We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix.”
In December 2016, the task force, chaired by Michael Bloomberg, released recommendations focused on four areas of climate-related financial disclosure: governance, strategy, risk management, and metrics and targets.
C2ES commends the task force on its efforts to shine a light on the risks we are already facing from climate change, and to enhance the transparency we need to better understand and address them over the long term.
In our comments submitted on the recommendations, we suggested that the task force:
- Provide additional guidance on the timeframes companies would use for conducting scenario analysis of their business models and portfolios. For example, if a company is reviewing an investment with a short time horizon, a scenario running out to 2050 or longer might not be helpful.
- Provide additional guidance for companies on how to select the appropriate scenario tools to assess climate risks.
- Provide additional guidance on how mainstream financial filings can interact with corporate sustainability reports in a consistent way given that financial data and sustainability data have different levels of precision and timelines.
- Consider how implementation of the recommendations could involve a “maturity model” that would allow companies to self-assess their progress, benchmark against peers, and influence executive decision-making. An example of this type of model is the Electric Power Research Institute’s Electric Power Sustainability Maturity Model.
- Provide additional implementation guidance for sectors that the recommendations currently do not reference specifically, such as for information technology, telecommunications, health care, consumer products, and professional services. Translating climate risks and opportunities into material financial impacts on income statements and balance sheets requires sector-specific guidance. As a starting point, the recommendations provide sector-specific guidance for sectors with high greenhouse gas emissions and energy and water use. Climate-related financial disclosures will be more helpful if they are adopted economy-wide so additional sector-specific guidance may be useful.
- Engage with stakeholders to identify ways to promote consistency across voluntary reporting regimes to reduce the burden on data preparers.
Many companies will be interested in demonstrating to investors and stakeholders that they are reviewing their corporate sustainability reports and environmental, social, and governance disclosures in line with the task force’s recommendations. An iterative process for enhancing climate-related financial disclosure will likely be needed to make this possible.
We believe the task force recommendations will help ensure that companies take a long view and avoid the “tragedy of the horizon.”