Climate Compass Blog

Lessons learned from climate transparency

One of the key issues at COP 22 in Marrakech was how to implement the transparency provisions of the Paris Agreement through which countries can hold one another accountable for their promises.

The agreement requires that this “enhanced transparency framework” build on parties’ experiences with existing transparency processes under the U.N. Framework Convention on Climate Change (UNFCCC). A new C2ES brief highlights some of the key lessons countries are drawing from their experiences – lessons underscored by many parties in Marrakech.

The Paris Agreement requires all countries to report regularly on their greenhouse gas emissions and their efforts to reduce them. Their reports will be subject to two levels of international review – first, a review by technical experts, then a “multilateral consideration of progress” where countries put questions to one another. The new system is to provide “built-in flexibility” for developing countries with limited capacity. 

Under the existing system, which sets different requirements for developed and developing countries, the latter have only recently begun to undergo any form of international review. While many initially approached that prospect with trepidation, they’ve discovered more to be gained than feared.

One of the most important lessons shared by both developed and developing countries is that fulfilling their international transparency requirements has produced significant domestic benefits. Collecting the information needed for reporting starts important conversations across sectors and actors, between different levels of government, and among relevant stakeholders. Transparency as a government-wide effort can help identify mitigation opportunities and challenges as well as track and inform domestic policy implementation.

Another lesson is that the processes’ facilitative approach has helped parties overcome apprehensions about reporting and review. The process is more of a technical dialogue than an interrogation where experts judge or criticize parties. This friendly exchange helps parties learn and improve each time they go through technical analysis, since mistakes actually lead to identifying obstacles and areas for improvement as well as capacity-building needs.

Parties also have stressed that building stronger in-country capacity is crucial to effective developing country participation in transparency. Episodic project funding for the preparation and submission of greenhouse gas inventories makes it hard for developing countries to continuously collect data or provide regular training to their inventory experts. In-country capacity helps incentivize key players and institutions and establish a sense of ownership at the national and institutional level.

In Marrakech, seven developing countries went through their first Facilitative Sharing of Views (FSV) workshop under the existing International Consultation and Analysis (ICA) process. FSV is essentially a Q&A between the party or parties being assessed and other parties on the basis of their biennial update reports. 

At a side event, several parties, a technical expert and the secretariat reflected on further lessons from the ICA process. Namibia and Tunisia both said the process helps them improve the quality of their reports and promotes the institutional arrangements needed to form the basis for a national measurement, reporting and verification system. The secretariat noted that even it has capacity issues: with its supplementary budget depleted, its ability to undertake technical analysis is limited.

Like the FSV, the multilateral assessment is another peer review forum where parties are free to ask questions of a party on its biennial report. At COP 22, 24 developed countries went through a second round of Multilateral Assessment based on their second biennial reports under the International Assessment and Review process.

The Paris Agreement established a Capacity-building Initiative for Transparency (CBIT), which will strengthen the institutional and technical capacities of developing countries to meet the enhanced transparency requirements and to improve over time. The CBIT just approved its first set of projects in Costa Rica, Kenya, South Africa, and 11 donors announced pledges totaling nearly $55.3 million. Other countries like Japan have declared their intention to support the fund.

Although no final decisions on transparency were taken in Marrakech, parties have made initial progress in negotiating the details of the Paris transparency framework. If all goes as planned, parties will wrap up their work on these decisions in 2018, to be adopted by the first meeting of the parties to the Paris Agreement.

Countries chart pathways toward deeper decarbonization

Globally, countries are committing to near-term actions to address climate change and many, including Canada, Mexico, Germany and the U.S., are beginning to look much further ahead to the long-term strategies needed to reduce the significant risks of a changing climate. These strategies highlight options that can yield the necessary reductions to avert the worst impacts of climate change.

In addition, on Thursday the climate champions Laurence Tubiana and Hakima El Haite announced the 2050 Pathways Platform to support other countries in the development of their mid-century strategies. Twenty-two countries have signed up for the initiative, and many have indicated they will work toward their own strategies. In addition, 15 cities, 17 state and regions, and nearly 200 companies have joined the initiative to support national strategies.

All of the plans submitted thus far focus on technology pathways rather than specific policies. Another common element is a focus on changes to land use and forestry that can absorb some of the carbon dioxide already in the atmosphere. The strategies also prioritize which sectors of the economy really need to transform: energy, transportation, land-use and forest sequestration, and short-lived climate pollutants.

The decision to release the U.S, Canadian and Mexican mid-century strategies together at COP 22 in Marrakech was made at a joint leaders’ summit in Ottawa in June, building on the countries’ economic ties and shared energy and transport infrastructure.

In the U.S., there are three focus areas for achieving significant emission reductions: decarbonizing the energy sector, improving the U.S. land sink, and reducing emissions of non-CO2 greenhouse gases. The U.S. strategy identifies positive trends over the last decade in each of these areas, and puts forward priorities for strengthening those trends.

These priorities include improved efficiency throughout the energy system, transitioning almost completely to non-emitting energy sources (including nuclear and fossil fuel with capture capture technology for electricity generation), enhancing carbon sequestration on U.S. lands, developing negative emissions technology (BECCS, or Beneficial Bioenergy with Carbon Capture and Storage), and reducing methane, nitrous oxide, and hydrofluorocarbon emissions.

The U.S. strategy does not give a preferred balance between these priorities, but does include model scenarios showing that overachieving on any one priority would mean other priorities would need to contribute less. For example, the analysis that underlies the strategy includes a scenario with no CO2 removal technology. If negative emission technologies do not become available, the U.S. could still meet its 2050 goal by creating a larger land sink and achieving larger reductions in the energy sector.

While the mid-century strategy does not specify policy recommendations, it does note that “a key priority for future policymakers is a transition to efficient carbon pricing over time,” either at a subnational or economy-wide level.

Mid-century strategies can guide the private sector to make long-term investments consistent with the 2050 goals. It may also provide a framework for collaboration between governments and cities, states, and companies around a vision for deep decarbonization. C2ES looks forward to working with businesses and governments at all levels to provide vital input to these strategies.

(Contributing author: C2ES Solutions Fellow Ashley Lawson)

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.”

 

VW-EPA settlement presents opportunities for cities and states

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

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

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

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

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

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

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

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

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

 

 

The business of pricing carbon

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Contributing: Ryan McCoy)