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Lively Carbon Markets Promise Cooler Earth

One of the largest coal-fired power plants in Europe is owned by Uniper SE in the Scholven district of the city of Gelsenkirchen, Germany. (Photo by Guy Gorek) Creative Commons license via Flickr

One of the largest coal-fired power plants in Europe is owned by Uniper SE in the Scholven district of the city of Gelsenkirchen, Germany. (Photo by Guy Gorek) Creative Commons license via Flickr

 

 

By Sunny Lewis

BERLIN, Germany, March 1, 2018 (Maximpact.com News) – Carbon emissions trading is gaining popularity in established markets and also in emerging economies; in fact trading now covers 15 percent of all emissions globally, finds a new report from the International Carbon Action Partnership (ICAP)  on activity in 2017.

Just one year since the entry into force of the Paris Agreement on climate, 21 Emissions Trading Systems (ETS) are operating around the world at various levels of government.

The past year has seen major developments, with a new system emerging in China and the linking of Ontario’s system with that of California and Quebec.

“While the challenge of climate change grows with every year, so does the competency and determination of the policy response,” said International Carbon Action Partnership (ICAP) Co-Chair Marc Allessie, director of the Dutch Emissions Authority, while releasing the report on Tuesday.

“We are confident that ETS is bound to its promise of delivering a cost-effective tool for implementing national pledges under the Paris Agreement,” Allessie said.

How Emissions Trading Systems Work

Carbon emissions trading works on a cap-and-trade market-based system. A cap is set on the total amount of carbon dioxide equivalent (CO2e) that can be emitted by facilities covered by the system. The cap is reduced over time so that total emissions drop.

Within the cap, companies receive or buy emission allowances which they can trade with one another as needed. They can buy limited amounts of international credits from emission-saving projects around the world. The limit on the total number of allowances available ensures that they have a value.

Each year a company must surrender enough allowances to cover all its emissions or pay steep fines. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another company that is short of allowances.

Trading brings flexibility that ensures emissions are cut where it costs least to do so. A robust carbon price promotes investment in clean, low-carbon technologies.

Since 2005, the share of global carbon emissions capped by an emissions trading system has tripled from five percent to roughly 15 percent, now covering some seven gigatons of carbon dioxide equivalent (CO2e), according to the report.

The Network Expands Its Reach

In November 2017, the EU and Switzerland signed an agreement to link their emissions trading systems, the first agreement of this kind for the EU and the first between two parties to the Paris Agreement.

The world’s largest emitter of greenhouse gases, China now has overtaken the European Union as the world’s largest carbon market, covering more than three gigatons of CO2e.

The initial launch of China’s national emissions trading system for the power sector in December 2017 is what the ICAP report calls “a remarkable and rapid first step for an emerging economy that is powered by the world’s largest coal fleet.”

This development sends a strong signal to the international community as Chinese coal consumption has recently been one of the key drivers of global emissions.

In November, at the UN climate conference (COP23) in Bonn, the EU and China decided to step up their joint cooperation on carbon markets, ahead of the launch of China’s nationwide emissions trading system.

Hosted by China’s Special Representative on Climate Change Affairs Xie Zhenhua, the high-level event took place at the China Pavilion at COP23.

Speaking after the meeting, European Climate and Energy Commissioner Arias Cañete said, “China is ready to launch its nationwide emissions trading system, which is set to cover more than twice as much CO2 as the EU ETS, once it reaches its full scope. This will undoubtedly send a strong signal to the rest of the world in support of carbon markets. The EU is therefore pleased to engage in even closer bilateral cooperation with our Chinese counterparts.”

In September, the European Parliament and Council reached an agreement to revise the EU Emissions Trading System for the period after 2020. This revision is expected to help put the EU on track to achieve a significant part of its commitment under the Paris Agreement to reduce greenhouse gas emissions by at least 40 percent by 2030.

To achieve the 40 percent EU target, the sectors covered by the ETS have to reduce their emissions by 43 percent compared to 2005.

The changes to the EU system will speed up emissions reductions and strengthen the Market Stability Reserve to reduce the current oversupply of allowances on the carbon market.

To this end, the overall number of emission allowances will decline at an annual rate of 2.2 percent from 2021 onwards, compared to the current rate of 1.74 percent.

New Zealand Needs to Plant More Trees

New Zealand is the first, and still the only, country to fully include forest landowners in a greenhouse gas emissions trading scheme, according to a report released in 2017 by Motu Economic and Public Policy Research, New Zealand’s leading non-profit economic and public policy research institute.

The NZ ETS is a partial-coverage all-free allocation, uncapped, internationally linked emissions trading scheme first legislated in 2008 and amended twice, in 2009 and 2012.

Has it been effective?

On February 28, New Zealand’s first environmental accounts show greenhouse gas emissions rose more slowly than economic growth in the last 25 years, but the planting of forests to absorb carbon dioxide has slowed since 2013.

Latin America Prepares for Carbon Markets

Efforts to price carbon are also progressing in Latin America and in subnational governments in North America.

Mexico, Latin America’s second largest economy, will start piloting a mandatory emissions trading system later this year.

In addition, Chile, Colombia and Mexico are jointly exploring regionally consistent carbon market design elements such as monitoring, reporting and verification.

In North America, Subnational Governments Lead the Way

The largest Canadian province, Ontario, linked its system to the joint carbon market of California and Quebec  beginning this year.

As part of the Pan-Canadian Framework on Clean Growth and Climate Change, all Canadian provinces and territories will have a price on carbon by the end of 2018.

“A wide range of actions are taking shape across all levels of government, from the municipal level all the way up to the international level. Sub-national governments in particular have played and will continue to play a vital role,” said Jean-Yves Benoit, ICAP Co-Chair, and Director of the Carbon Market, Ministry of Sustainable Development, Environment and Fight Against Climate Change of Quebec.

Established in 2009, the Regional Greenhouse Gas Initiative (RGGI) is the first mandatory market-based program in the United States to reduce greenhouse gas emissions.

RGGI is a cooperative effort among the nine states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.

States sell nearly all emission allowances through auctions and invest proceeds in energy efficiency, renewable energy, and other consumer benefit programs. These programs are spurring innovation in the clean energy economy and creating green jobs in the RGGI states.

Interest in several U.S. States, like Virginia and New Jersey, could see an expansion of cap-and-trade despite inaction on the federal level under the Trump administration.

In New Jersey, Governor Chris Christie, a Republican, withdrew from the RGGI in 2012. On January 29, New Jersey Governor Phil Murphy, a Democrat, signed an executive order directing New Jersey to re-enter the regional compact.

Governor Murphy said. “Pulling out of RGGI slowed down progress on lowering emissions and has cost New Jerseyans millions of dollars that could have been used to increase energy efficiency and improve air quality in our communities.”

By withdrawing from RGGI, New Jersey lost an estimated $279 million in revenue that could have been realized by the state’s participation in RGGI’s carbon emission trading program.

As part of the public comment period on Virginia’s proposed carbon trading rule, the Department of Environmental Quality is holding public hearings throughout the state during the month of March.

After a tough political battle in the California legislature, the state extended its cap-and-trade program until 2030. This will build confidence in an increasingly stringent long-term carbon price signal in the linked Western Climate Initiative carbon market, which includes the provinces of Quebec, British Columbia and Ontario, and the state of California.

The recent legislative changes and regulatory reforms in California have set the cap to decline by about four percent annually from 2021-2030, yielding a 40 percent reduction by 2030 compared to 1990 levels.

These renewed commitments to emissions trading give low carbon investors certainty and have resulted in rising carbon prices, with the EU allowance price passing €10 for the first time since 2011.

The reforms have some common elements: steeper cap trajectories aligning with 2030 climate targets; market stability measures becoming standard practice with continuing design innovation; offset policies with focus on domestic abatement with direct local environmental benefits.

The ICAP report concludes that, “Together, these two trends – the continual spread of ETSs and reforms of major systems – will continue to change the landscape of emissions trading – widening and deepening its role in the low-carbon transformation process worldwide.”

The ICAP Status Report is published annually and features in-depth articles from policymakers and carbon market experts with insights into the latest ideas across the globe. To download the full report, executive summaries in Chinese, English, and Spanish, infographics, and a short video, please visit ICAP Status Report.


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OECD: Climate Change Action Will Boost Economic Growth

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Construction workers and Fiji’s Prime Minister Frank Bainimarama at the official groundbreaking ceremony for a new cyclone resistant market in Rakiraki on Viti Levu, Fiji’s largest island. May 8, 2017 (Photo by Ariana Yett, UN Women) Creative Commons license via Flickr

By Sunny Lewis

PARIS, France, May 30, 2017 (Maximpact News) – Incorporating climate change preventive actions into regular economic policy will have a positive impact on economic growth over the medium and long term, finds a new report “Investing in Climate, Investing in Growth” from the Organization for Economic Cooperation and Development (OECD).

“Far from being a dampener on growth, integrating climate action into growth policies can have a positive economic impact,” said OECD Secretary-General Angel Gurría, presenting the report to German Chancellor Angela Merkel at the Petersberg Climate Dialogue in Berlin.

“There is no economic excuse for not acting on climate change, and the urgency to act is high,” Gurria said.

Thirty-five ministers from all regions of the world took part in the eighth Petersberg Climate Dialogue on May 22-23 to discuss the practical implementation of the Paris Agreement on Climate and prepare for the UN Climate Conference, COP23, set for November in Bonn under the Presidency of Fiji.

Fijian Prime Minister Frank Bainimarama urged quick and concerted climate action, saying, “Only by the entire world coming together as one to address the impacts of climate change can we effectively tackle this crisis.”

“Climate change affects every person on Earth and especially those in vulnerable countries like Fiji,” he said on May 23. “I am convinced that when we act in the interest of the most vulnerable, we are acting in the interests of us all. Because we are all vulnerable and we all need to act.”

German State Secretary for Environment Jochen Flasbarth, and OECD Secretary General Angel Gurría jointly present the new OECD study "Investing in Climate, Investing in Growth" at the Petersberg Climate Dialogue, Berlin, Germany, May 22, 2017. (Photo by Thomas Koehler courtesy BMUB)

German State Secretary for Environment Jochen Flasbarth, and OECD Secretary General Angel Gurría jointly present the new OECD study “Investing in Climate, Investing in Growth” at the Petersberg Climate Dialogue, Berlin, Germany, May 22, 2017. (Photo by Thomas Koehler courtesy BMUB)

The report, “Investing in Climate, Investing in Growth” shows that bringing the growth and climate agendas together, rather than treating climate as a separate issue, could add one percent to average economic output in G20 countries by 2021 and lift 2050 output by as much as 2.8 percent.

If the economic benefits of avoiding climate change impacts such as coastal flooding or storm damage are factored in, the net increase to 2050 GDP would be nearly five percent, according to the report, written by OECD experts with input from a distinguished international Advisory Council.                      

Prepared in the context of this year’s German Presidency of the G20, the report says G20 countries, which account for 85 percent of global GDP and 80 percent of CO2 emissions, should adopt a combination of pro-growth and pro-environment policies in developing their overall growth and development strategies.

This means combining climate policies such as carbon pricing with supportive economic policies to drive growth centered on investment in low-emission, climate-resilient infrastructure.

Infrastructure investments made over the next 10-15 years will determine whether the 2015 Paris Agreement’s objective to stabilize the global climate can be achieved.

The report calculates that delaying action until after 2025 would lead to an average output loss for G20 economies of two percent after 10 years as compared with taking action now.

The delay would mean that, eventually, even more stringent climate policies would have to be introduced more urgently, risking greater environmental and economic disruption and leaving more fossil fuel assets as economically unviable, the report warns.

Limiting the global temperature rise to below two degrees Celsius, in line with the Paris Agreement, will require US$6.9 trillion per year in infrastructure investment between now and 2030.

This amount is roughly 10 percent more than the carbon-intensive alternative, the report calculates.

The report points out that infrastructure is at the heart of economic growth, and yet, in most G20 countries there has been chronic underinvestment in infrastructure.

In addition, climate-friendly infrastructure is energy-efficient and would lead to fossil fuel savings totaling US$1.7 trillion annually, more than offsetting the incremental cost.

Even in countries where the transition to a low-carbon economy will be economically challenging, such as in net fossil-fuel exporters, the report states that “the right combination of policies can mean that low-carbon growth offsets the cost in terms of the economy and jobs of putting in place mitigation policies.”

The report recommends that G20 countries:

  • Ensure the integration of climate objectives in pro-growth reforms to deliver better resource allocation, stronger investment and structural reforms in line with the low-emission transition.
  • Strengthen climate mitigation policies, including carbon pricing, fossil fuel subsidy reform, smart regulations and the use of public procurement to help drive low-carbon innovation
  • Scale up efforts to mobilize private investment in low-emission and climate resilient infrastructure through further efforts to green the finance system.
  • Engage local governments, employers and workforce in the transition of exposed activities and communities, to deliver a just transition for workers.

“Finally,” the report states, “international co-operation remains fundamental to managing climate risks. Countries’ current contributions to emissions reduction beyond 2020 are not consistent with the Paris temperature goal, and need to be scaled up rapidly.”

“Support for action in developing countries will be important, not just for mitigation but also to improve the resilience and adaptive capacity of countries facing the greatest climate challenges.”

“Climate impacts will grow, even if we achieve the Paris temperature goal,” the report warns. “We need flexible and forward-looking decision-making to increase resilience in the face of these risks.”

“Managing the interdependences between climate, food security and biodiversity goals will be critical to achieving the Sustainable Development Goals and long-term robust growth.”


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Top 10 U.S. Carbon Market Trends of 2017

LouisianaTribalLand

Sea level rise caused by climate warming has inundated Louisiana’s Isle de Jean Charles, displacing the Biloxi-Chitimacha Tribe, the first official U.S. climate refugees. (Photo by Karen Apricot) Creative commons license via Flickr.

By Sunny Lewis

PORTLAND, Oregon, January 24, 2017 (Maximpact.com News) – The Climate Trust, a nonprofit that specializes in mobilizing conservation finance for climate benefit, announced its fourth annual prediction list of 10 carbon market trends to watch in the coming year.

Trends range from U.S. citizens becoming climate refugees in one of the hottest years on record, to more native tribes joining carbon markets, to China taking the global climate leadership role, to environmental justice concerns playing an increased role in climate policy decisions.

These trends were identified by The Climate Trust based on interactions with their group of working partners: governments, investors, project developers, large businesses, and the philanthropic community.

Our team has identified areas of potential advancement, despite the anticipated inaction around climate at the federal level,” said Sean Penrith, executive director for The Climate Trust.

This year, more than ever, we felt there was a need for positivity, and have primarily chosen to share industry insights that are positive in nature, yet still strongly based in reality,” said Penrith. “We expect that the New Year will bring together unlikely, yet strong, domestic partnerships with corresponding resolve to address climate change, and we look forward to seeing what we can accomplish by banding together.

The Top 10 U.S. Carbon Market Trends

1. As our nation heads into uncertain times with respect to climate change policy and action, states, cities, and regional collaborative groups are going to lead the fight against climate change.

In New York City, former Mayor Michael Bloomberg warned that if the Trump Administration withdraws from the Paris Accord, mayors from 128 cities will pick up the cause.

In the Midwest, wind turbines continue to rise out of the cornfields.

In Oregon, U.S. District Judge Ann Aiken recently issued an opinion and order  denying the U.S. government and fossil fuel industry’s motions to dismiss a climate change lawsuit filed by 21 young people.

In Oregon, the Department of Environmental Quality is wrapping up the draft considerations for a cap-and-trade program for the state. In the vacuum created by a Scott Pruitt-led EPA, and a Rex Tillerson-led State Department, rulings like the one issued by Judge Aiken, and statements like the one from California Governor Jerry Brown challenging Trump on climate change, indicate where the action on climate change is going to be for the next four years.

2. Progressive states and foundations will pick up support for domestic climate finance in the absence of federal action. We expect that climate denial from federal leaders will alarm foundations and progressive states. Many foundations previously had an international climate focus, and The Climate Trust anticipates that these institutions will refocus on their U.S. agenda.

The political will for carbon pricing will grow in progressive states, demanding more immediate state action.

Increasingly, public entities are aware that their dollars are most effectively used when they leverage private capital. In 2017, states and foundations will look for opportunities to mitigate risks to private climate finance providers investing in the United States through new financial mechanisms like first loss capital contributions, loan guarantees, credit enhancements, and other new structures.

YouthPlaintiffs

The 21 young plaintiffs in Our Childrens’ Trust’s landmark lawsuit against the federal government celebrate the judge’s order backing their right to sue. November 2016 (Photo courtesy Our Childrens’ Trust) Post for media use.

3. Global climate litigation campaigns will gain momentum during 2017, legitimizing our children’s right to a healthy planet.

This is no ordinary lawsuit,” U.S. District Judge Ann Aiken wrote in her ruling on November 10, 2016 on a landmark case filed in Oregon by 21 young people and Our Children’s Trust. The plaintiffs allege that over the last 50 years, the government, including President Barack Obama, violated their constitutional rights and imperiled their future by failing to adequately reduce greenhouse gas emissions.

Also acting as a plaintiff is world-renowned climate scientist Dr. James Hansen, serving as guardian for future generations and his granddaughter, who is a youth plaintiff in the case.

Whether the case is heard in federal court or settled, it provides a solid legal foundation for future climate litigation, and gives hope to the growing ranks of youth climate activists and their supporters.

We believe that more judges will acknowledge that the climate change crisis is within their purview, and that the constitutional rights of youth plaintiffs will be upheld against other governmental branches.

The world is watching this historic precedent set in Oregon. We predict the optimism gained from this victory will encourage judges and activists to look to the courts to validate the science behind climate change and allow judicial systems to require governments to take tangible action.

4. Private industry picks up U.S. government slack, making progress towards Paris commitments. During his campaign, President-elect Trump referred to climate change as a Chinese hoax and asserted that he will cancel the Paris Agreement. While he has walked back these statements, most recently saying that “nobody really knows” if climate change is real, his choice of Oklahoma Attorney General Scott Pruitt to lead the Environmental Protection Agency suggests that Trump is going to try and make his campaign promises.

In the days after the November 2016 election, business leaders called on Trump to honor America’s agreement to the Paris Accord. Savvy business leaders and people like Bill Gates who recently drew attention to his $1 billion clean-technology fund, not only understand that climate change is real, but understand that taking no action will have a negative impact on their bottom line.

Progress will be made toward our U.S. Paris commitments due to the efforts of private industry. The Climate Trust anticipates that the Trump Administration will be left on the sidelines while the rest of the world rallies to meet the commitments made in Paris to keep greenhouse gas emissions at levels that will prevent global climate change increasing more than 2 degrees Celsius above pre-industrial levels.

5. Environmental justice community concerns are increasingly built into climate policy discussions throughout the United States. The environmental justice community in California has brought into sharp focus the need to balance the impact on disadvantaged communities with climate policy and programs.

Meeting the ambitious greenhouse gas goals now required by law in California in the cheapest manner possible is a central equity issue.

There will be continued attention given to these environmental justice concerns both in California and across the country as state climate policy evolves.

6. U.S. citizens become climate refugees in one of the hottest years on record. The top 10 hottest years in human history have all occurred since 1998, and 2016 is among them. It is anticipated that this continued trend will give rise to an increasing number of climate refugees within U.S. borders.

The Biloxi-Chitimacha Tribe in Louisiana is considered the first official community of climate refugees in this country. Whether it’s a 1,000-year flooding event in Louisiana, or wildfires on the west coast, global warming is altering the country in ways that will displace thousands of Americans.

This changing geography will necessitate the development of new solutions that not only sequester carbon, but also focus on adaptation. Some of these solutions are already under development, such as the Blue Carbon Initiative, which seeks to restore coastal wetlands to sequester carbon in plants and soils and protect against dangerous storm surges.

7. More native tribes will join carbon markets. The California Compliance Offset Protocol, U.S. Forest Projects, now has more than 34 million offset credits issued, including over 7.7 million tons from properties owned by Native American Tribes; nine projects located in six different states. The second largest individual issuance to date in the California carbon market is from the White Mountain Apache tribe project in Arizona.

Tribes that have taken part in carbon transactions have indicated that credit sales provide a new way to make money while improving wildlife habitat, expanding the tribe’s natural resource program, and acquiring and protecting land in its ancestral territory.

Last year, the protocol rules for the California market were expanded beyond the lower 48 U.S. states to include Alaska, opening the door for even more tribes to engage.

8. China takes the lead in carbon markets, encouraging linkages. The year of the rooster in the Chinese calendar is also the year China will take a leading role in using markets to fight global climate change.

After several years of piloting regional emissions trading programs, China will launch a national system that will cover over four billion tons of greenhouse gas emissions, making it twice as large as the next biggest market in Europe.

As a developing nation and large emitter, China’s bold commitment to carbon markets will send a signal that will be felt in America and beyond,” says Erika Anderson, a climate change attorney doing business in China.  

9. U.S.-based institutional investors will increase commitments to investments that hedge out carbon risk. Following the example of Norway’s sovereign fund, and other large European institutional investors, U.S.-based pensions and family offices will continue to de-risk their portfolios from the negative impacts of climate change, and take advantage of opportunities in the sustainable real assets space.

Lindsey Brace Martinez, founder of StarPoint Advisors, LLC and advisor to institutional investors and asset managers, says, “Given the prevailing sentiment for a low return environment, U.S. institutional investors are looking for investment managers who have a competitive edge and can deliver value over the long-term. Investment managers who systematically review and update their risk management approaches and apply their expertise through focused strategies will have a competitive edge.”

10. California Air Resources Board prevails in CalChamber lawsuit and commits to cap and trade. A long-standing lawsuit filed by the California Chamber of Commerce, Morning Star Packing Co.,and the National Association of Manufacturers has hung over the cap and trade market. The lawsuit argues that the auctioning of the cap and trade allowances constitutes an illegal tax since it does not have the approval of two-thirds of the Legislature.

Oral arguments are scheduled in Sacramento for January 24, 2017.

There are three possible outcomes for the lawsuit. It may be deemed a tax, and cause California to have a cap and trade system without the auction element unless the Legislature approves with a two-thirds vote.

It could be deemed a regulatory fee, and thus uphold the validity of the allowance auctions. Or, the third possibility is that the court finds that the auction is neither a tax nor a fee but something else not subject to the strictures of tax voting requirements under the state constitution.

The Climate Trust believes that this third option will be the outcome of the suit and be a complete victory for the cap and trade program.

In 2016, a number of our predictions came to fruition, including an increased number of institutions committing to divest from fossil fuel companies as part of the transition to a clean energy future,” said Kristen Kleiman, director of investments for The Climate Trust.

The divest movement has provided a valuable market signal to support the needed flows of conservation finance,” Kleiman said. “Riding this wave of interest from large institutions, late last year, The Trust executed a milestone contract with the David and Lucile Packard Foundation, securing a $5.5M Program-Related Investment to seed our first-of-its-kind carbon investment fund.


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Carbon Pricing Gathers Momentum

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By Sunny Lewis

WASHINGTON, DC, April 26, 2016 (Maximpact.com News) – “There is a growing sense of inevitability about putting a price on carbon pollution,” said World Bank Group President Jim Yong Kim on the eve of the April 22 signing ceremony at UN Headquarters of the Paris Climate Agreement.

Kim joined government and corporate leaders in issuing a set of fast-moving goals – to expand carbon pricing to cover 25 percent of global emissions by 2020, and achieve 50 percent coverage within the next decade.

“In order to deliver on the promises of the historic Paris Climate Agreement, a price on carbon pollution will be essential to help cut emissions and drive investments into innovation and cleaner technologies,” said Kim.

“Prices for producing renewable energy are falling fast, and putting a price on carbon has the potential to make them even cheaper than fuels that pollute our planet,” he said.

Currently, some 40 governments and 23 cities, states and regions put a price on carbon emissions, accounting for 12 percent of annual global greenhouse gas emissions. This is a three-fold increase over the past decade.

The latest call for action comes from members of the Carbon Pricing Panel, including: Canada’s Prime Minister Justin Trudeau, Chile’s President Michelle Bachelet, Ethiopian Prime Minister Hailemariam Dessalegn, French President François Hollande, German Chancellor Angela Merkel, and Mexican President Enrique Peña Nieto, together with World Bank Group President Kim, International Monetary Fund Managing Director Christine Lagarde, California Governor Jerry Brown, Rio de Janeiro Mayor Eduardo Paes and OECD Secretary-General Angel Gurría.

Kim_Legarde

World Bank Group President Jim Yong Kim, left, and International Monetary Fund Managing Director Christine Lagarde at the Spring Meeting, Washington, DC, April 16, 2016. (Photo courtesy World Bank Group) Creative Commons via Flickr

The Vision Statement accompanying their announcement defines three steps to widen, deepen and promote global cooperation on carbon pricing.

First, the number of countries and businesses that participate in a carbon pricing system needs to increase.

Second, prices need to be significant enough to account for pollution as an operating cost, and incentives for investments in low carbon solutions need to be established.

And third, better links between the various regional and national pricing systems already in place need to be set up.

There are two main types of carbon pricing – emissions trading systems and carbon taxes.

An emissions trading system, such as the EU’s pioneering system established in 2005, is sometimes called a cap-and-trade system. It caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters, establishing a market price for greenhouse gas emissions.

The cap helps ensure that the required emission reductions will take place to keep all emitters within their pre-allocated carbon budget.

A carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or on the carbon content of fossil fuels. It is different from an ETS – the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.

Other forms of pricing carbon emissions can occur through fuel taxes, the removal of fossil fuel subsidies and regulations that incorporate a “social cost of carbon.”

Greenhouse gas emissions also can be priced through payments for emission reductions. Private entities or sovereigns can purchase emission reductions to compensate for their own emissions (so-called offsets) or to support mitigation activities through results-based finance.

In any case, say the carbon pricing leaders, carbon emissions must be priced so that pollution becomes an operating cost.

Speaking at this month’s high level meeting of the Carbon Pricing Leadership Coalition, the IMF’s Lagarde emphasized the value of cutting emissions.

“If the top 20 emitters in the world were to impose carbon charges that reflect only their domestic and environmental benefits, this would already reduce global emissions by over 10 percent,” she explained.

The Carbon Pricing Leadership Coalition is a global initiative that includes more than 20 national and state governments, more than 90 businesses, and civil society organizations and international agencies, aims at garnering public-private support for carbon pricing around the world.

As 175 world leaders signed the Paris Agreement at United Nations Headquarters on April 22, Earth Day, UN Secretary-General Ban Ki-moon said the next critical step is to ensure that the landmark accord for global action on climate change enters into force as soon as possible.

“Today is an historic day,” Ban told reporters after the signing event. “This is by far the largest number of countries ever to sign an international agreement on a single day.”

Ban said the participation by so many countries and the attendance by so many world leaders leaves “no doubt” that the international community is determined to take climate action. He also welcomed the strong presence of the private sector and civil society, saying they are “crucial to realizing the great promise of the Paris Agreement.”

Adopted in Paris by the 196 Parties to the UN Framework Convention on Climate Change at a conference known as COP21 last December, the Agreement’s objective is to limit global temperature rise to well below 2 degrees Celsius, and to strive for 1.5 degrees Celsius.

It will enter into force 30 days after at least 55 countries, accounting for 55 per cent of global greenhouse gas emissions, deposit their instruments of ratification.

“If all the countries that have signed today take the next step at the national level and join the Agreement, the world will have met the requirement needed for the Paris Agreement to enter into force,” Ban said, congratulating the 15 governments that have already deposited their instruments for ratification.

Ban has said, “We must put a price on pollution and provide incentives to accelerate low carbon pathways. Market prices, market indices, and investment portfolios can no longer continue to ignore the growing cost of unsustainable production and consumption behaviors on the health of our planet.”

At the Spring Meetings of the World Bank Group earlier this month in Washington, DC, Kim said more action is needed on carbon pricing to help halt global warming and spur more investments into clean technologies.

“The current situation won’t put us on a pathway to limiting global warning. We need greater ambition, and greater leadership,” he said.

Globally, momentum for putting a price on carbon emissions is growing. At least 90 countries included mention of carbon pricing in their national plans, called the Nationally Determined Contributions (NDCs), prepared for the Paris climate conference.

In addition, more than 450 companies around the world report using a voluntary, internal price on carbon in their business plans and more plan to follow suit in the next two years.

The number of implemented or scheduled carbon pricing plans has nearly doubled since 2012, amounting to a total value of US$50 billion.


 

Main image:  A steel works emits carbon dioxide at Teesside, England. (Photo by Ian Britton) Creative Commons license at Freefoto.com

 

Aligning Institutional Investment With Sustainable Development

By Sunny Lewis

NEW YORK, New York, September 22, 2015 (Maximpact News) – The largest public pension fund in the United States, the California Public Employees’ Retirement System (CalPERS), with upwards of US$300 billion in assets, takes sustainability seriously.

Just days ahead of a United Nations summit in New York that will adopt new Sustainable Development Goals to guide international efforts through 2030, CalPERS has joined the UN Environment Programme (UNEP) in issuing a report that calls on regulators to build a new culture of sustainable investing.

Entitled “Financial Reform, Institutional Investors and Sustainable Development: A review of current policy initiatives and proposals for further progress,” the report calls for proactive policies putting sustainability at the core of new institutional investment frameworks.

Henry Jones, who chairs the CalPERS Investment Committee, said, “At CalPERS we have no doubt that our focus on sustainability is entirely consistent with our fiduciary duty – indeed it is an essential part of it.”

JonesHenryHenry Jones heads CalPERS Investment Committee (Photo courtesy CalPERS)

“Where doubts on this score remain, they must be dispelled,” Jones said. “And we need institutions that have the knowledge, the skills and the ways of working that are required to embed sustainability in their investments – to manage the risks it brings, and to capitalize upon the opportunities it offers.”

In his forward to the report, Jones writes, “Of all the sustainability challenges we face, climate change is one of the most pressing.”

“This report is being published just a few weeks before the Paris Climate Change Conference. At CalPERS, we earnestly hope the world’s governments will reach an ambitious global agreement to address climate change. Bold action is needed in particular to introduce stable, reliable and economically meaningful carbon pricing, and to strengthen regulatory support for clean energy. This will enable us, as investors, to manage the risks and take the opportunities that climate change brings. We hope every country will reflect on how it can best address these challenges,” Jones wrote.

The report’s author, Rob Lake, is a UK-based independent responsible investment advisor and expert, working with asset owners.

With an estimated annual financing gap of up to US$7 trillion a year in infrastructure investments alone, the global financial system, worth more than US$300 trillion, has a potential to transform the international economic landscape to better serve the needs of humanity, Lake’s report concludes.

The report had its genesis in the Inquiry into the Design of a Sustainable Financial System initiated by UNEP in January 2014 to advance policy options that could improve the financial system’s effectiveness in mobilizing capital towards a green and inclusive economy.

Nick Robins, who serves as co-director of UNEP Inquiry, said, “A package of measures is needed to deliver the full sustainability potential of institutional investors. Disclosure is important, but without effective governance frameworks and incentives, this will not drive sufficient change.”

The report shows that policy intervention has evolved from focusing on disclosure obligations and statements about investors’ core legal duties to a “second generation” approach that addresses the synergy between sustainability and other policy objectives.

CalPERSbuildingSolar panels on the roof of CalPERS’ Sacramento, California headquarters generate some of the electricity that powers the building. (Photo courtesy CalPERS) – Building for the Future, Protecting the Environment.

Seven critical policy objectives that hold the strongest potential for positive change are explored in the report together with 14 policy tools to achieve them.

The seven policy objectives are:

  1.  Aligning Institutional Investment System Design with Sustainability
  2.  Removing Policy Barriers
  3.  Stimulating Demand for Investment that Integrates Sustainability
  4.  Strengthening Asset Owner Governance and Capabilities
  5.  Lengthening Investment Horizons
  6.  Aligning Incentives along the Investment Chain
  7.  Ensuring Investor Accountability

The 14 policy tools are:

  1.  The Design of Pension Systems Investment
  2.  Performance Measurement
  3.  The Legal Duties of Investment Institutions
  4.  The Legal Duties of the Directors of Risk-Taking Financial Institutions
  5.  Solvency and Risk Regulations
  6.  Prudential Regulation
  7.  Investor Disclosure Rules
  8.  Corporate Disclosure Rules
  9.  Fiscal Incentives
  10.  Rules on Equity and Credit Research
  11.  Investor Rights, Codes and Stewardship
  12.  Risk Mitigation and Market Development for Green Assets
  13.  Soft Law Sustainability Frameworks
  14.  Professional Qualifications and Knowledge Transfer

The report concludes, “Enormous potential exists to pursue new policy initiatives designed to achieve sustainability goals through the institutional investment chain while simultaneously strengthening other public policy objectives: better governed asset owner institutions that serve their beneficiaries more effectively, enhanced prudential regulation, increased economic welfare meeting energy, water and food needs, and restored public trust in the financial system.”


 

Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.