Climate Change (generally) | Environmental Law Institute

Delivering Climate Change Progress

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Author

Dan Esty - Yale University

Yale University

Current Issue

March-April 2018

Issue

With all the challenges that humanity faces, there are huge opportunities as well.

Which is not to say that the environmental news isn’t bleak. When the world community met in Bonn last November to advance the Paris Agreement on climate change, Washington signaled it would be leaving the 2015 accord and abandoning the key domestic program for achieving America’s commitment to reduce its greenhouse gas emissions by 26-28 percent over the next dozen years, the Clean Power Plan to cut power plant emissions. But despite the new administration’s actions, the momentum behind America’s Paris pledge remains strong — and emissions reductions in general continue across the world, as 190-plus other nations move to implement the agreement.

On the downside, we face profound challenges not only at the national level with the new administration, where the pullback from environmental regulation has been well documented, but also at the state level, where budget crises are taking a toll. For example, the Connecticut Department of Energy and Environmental Protection (which I led from 2011 to 2014) faces dramatic budget cuts and staff reductions. And the CT Green Bank, which I helped to launch — bringing Republicans and Democrats together to use limited clean energy resources to leverage private capital — faces budget challenges too.

These pressures require us to pursue our environmental agenda in new and better ways. For instance, one of the most profound points of learning from ecological science over the last fifty years is that we must take a systems approach to environmental problems. Air, water, waste, and land use are all connected. Issues at the global, national, state, and local levels are all connected. Thus, we need to use the current crisis to shape a 21st century policy strategy that is more integrated and better captures the opportunities from systems thinking.

The logic of connectedness extends to the political domain. Yet, our elected officials appear more deeply divided than ever. Clean energy can move on a bipartisan basis, but it takes hard work, it takes compromise, and it takes doing things in better ways, not simply reiterating the same old arguments that have kept people apart for so very long.

While a systems approach can and should be deployed across the environmental agenda, climate change looms as the central — even existential — challenge of our times, demanding worldwide collaboration and, at the same time, transformative change toward a clean energy future at the local, state, and national levels. As a young EPA official, I helped to negotiate the 1992 Framework Convention on Climate Change. Maurice Strong, the Canadian diplomat and businessman who chaired the 1992 Rio Earth Summit at which the convention was launched, took me aside and said, “Dan, you’ve got to remember, that when we gather all these presidents and prime ministers, only two outcomes are possible: Success and real success.” Sadly, we have not delivered real success over the ensuing 25 years. Emissions have continued to rise, and we have not transformed the energy foundation for our planet.

The 1992 climate treaty was top-down, reflecting the prevailing wisdom that national governments were the way to deliver transformative change and broad-based outcomes. In contrast, the Paris Agreement shifts toward bottom-up strategies that recognize the reality that presidents and prime ministers don’t actually control most of the decisions that determine the carbon footprints of their societies. Those decisions — about urban development, transportation, housing, and economic activity — fall more directly to mayors, governors, CEOs, university presidents, and the leaders of community organizations. The Paris accord, with its more decentralized structure, reflects the fact that they are the ones who make the actual decisions that will determine whether our society decarbonizes.

The importance of this shift in focus cannot be over-stated. Since the 1648 Treaty of Westphalia, national governments have been in charge. But what was the right structure to solve the religious wars of Europe in the 17th century might not be right for solving 21st century environmental problems. We are not one nation with one leader in one place. We have a much richer tapestry of political and societal leadership. California Governor Jerry Brown, for instance, leads a sovereign state with great potential to deliver greenhouse gas emissions reductions. Likewise dozens of other governors, mayors, and corporate leaders have committed their states, cities, and companies to climate action — thus keeping momentum behind the Paris Agreement.

I argue that this new broader leadership framework should be formally acknowledged and celebrated. In this regard, I would like to see the Paris Agreement opened to signature by mayors, governors, CEOs, and others who are steering society toward a transformed energy future. This same logic would apply, I might add, to all future global agreements where national governments alone cannot deliver successful outcomes.

More generally the game plan of the 1992 framework convention, reflecting 20th century thinking, centered on targets and timetables for emissions reductions. I call this “the lawyer’s mistake,” since those with legal training often think that if you pass a law, write regulations, sign a treaty, or issue rules, people will follow them. No one in business would have made that mistake. They would regard the treaty as a mission statement or maybe a business plan, but lacking a serious implementation strategy. The Paris Agreement gets beyond this error, shifting people’s focus from mere goals to incentives to deliver solutions — particularly new strategies for financing investments in energy efficiency and renewable power infrastructure. And it moves away from a command-and-control model that demands conformity to a single path forward to an approach that asks each country to say what it can do and how it will do it.

To that end, there is no better incentive to reduce emissions and expand the deployment of wind, solar, and other renewable power sources than to make people pay for the harm they cause — thus steering them toward clean energy options. In this spirit, many countries (and companies — and even universities) have begun to put carbon charges in place. Using price signals stands in contrast with the 20th century strategy of regulatory mandates, which require the government to figure out all the answers — and then tell business what to do. But in the 21st century we face a broad-based problem where everyone’s behavior has to change, not just large businesses but the myriad of small businesses and individuals too.

Another contrast with the 20th century is that we now live in the Information Age and have a variety of Big Data and communications tools that did not exist in the past. We can track harms with much greater precision and simultaneously gauge whether our policy interventions are working. Thus, we have the capacity today to measure performance at the national, state, local, and company scales — and to identify leaders, laggards, and best practices. The Paris Agreement reflects this new data opportunity and calls for a “stocktake”every five years to see if the actions being undertaken are delivering at the pace and scale required to mitigate climate change.

With the Paris Agreement, I believe we have turned a corner — and the move toward a decarbonized future is now inevitable. But let me tell you the bad news. The pace of change can be affected by political leadership. President Trump’s push to withdraw the Clean Power Plan will have an impact. Likewise, the administration’s budget cuts and other regulatory changes (including the plan to pull back from using a $40-per-ton “social cost of carbon” in regulatory analyses) will slow the shift toward a clean energy future.

But it will not stop it. Coal is not coming back. Market forces ensure that fact regardless of regulatory changes. And innovation in support of a transformed energy future continues around the world — with or without the United States. While I disagree with much of what the administration is doing, it must be said that the Clean Air Act isn’t the best vehicle for addressing climate change. Simply put, it doesn’t provide a ready way to put a price on emissions. In this regard, I would prefer a carbon charge that begins at $5 per ton of carbon dioxide or equivalent and escalates by $5 every year until the carbon charge reaches $100 a ton at year 20. We know that carbon pricing works. In the Northeast, we already pay a $5-per-ton charge through the Regional Greenhouse Gas Initiative — and top-tier clean energy results.

The Clean Power Plan, by contrast, emerged under the old 20th century regulatory model because there was no other possibility available. Congress had signaled that it would not pass comprehensive climate change legislation. So, we ended up with a primitive tool. Within the constraints of the Clean Air Act, the CPP offers considerable flexibility. Each state has been given a target for reducing emissions. Not each power plant, each state. And which states got the hardest assignments? Those who had already done the most. As the commissioner of Connecticut’s Department of Energy and Environmental Protection at the time, I was furious about this structure that assigned the states that had dragged their feet on climate change more lax targets. I then realized the separate standards were politically shrewd. When the challengers from the foot-dragging states go to court, the judges are going to look at them and say, “Really? When other states are already 90 percent decarbonized, why can’t you take the first easy steps?”

While some might see the current political challenges as dire, I think action on climate change will continue apace — even in the United States. For one thing, President Trump is finding out that he cannot erase the CPP with the stroke of a pen. Our law says that once a regulation has been finalized, you have to take it down by the same notice-and-comment process. American administrative law requires that an agency act furthermore in a manner that is neither arbitrary nor capricious. In re-examining the Clean Power Plan, EPA must make a decision based on science and facts. There have to be hearings, citations of relevant studies, and careful review of the administrative record before a judgment can be made that a different policy would better achieve the statutory goals of avoiding emissions that endanger public health and welfare. In addition, Congress and the courts have roles to play. As the administration has already seen, these co-equal branches will not hesitate to act.

Just as governors and mayors are stepping up to the issue of climate change, so too are corporate leaders. In the wake of Trump’s pullback on climate change, the business community has not, by and large, walked back from its commitments to reduce emissions. To the contrary, nearly 2,000 companies have joined the We Are Still In climate coalition. Citizens will also be critical in delivering a sustainable future. People are putting their environmental values into action as consumers — signaling their interest in sustainability by buying green products, such as electric vehicles. Likewise, an ever-wider swath of investors are saying, “I want the companies in my portfolio to align with my values” and therefore are asking for more information on the environmental, social, and governance performance of companies, including details on corporate climate change action plans. I see this trend as continuing, with more and more of us factoring carbon footprints into all kinds of decisions, including how we do our business, how we lead our lives, how we raise our children, and how we engage with our communities.

We have entered an era of sustainability. Not everyone yet recognizes it, but a growing number of people and institutions and businesses have come to accept that we face a sustainability imperative. In this regard, we have to gauge progress not just in terms of economic results but also environmental and social outcomes. Multiple goals that entail inevitable tradeoffs makes policymaking more difficult. With this broader perspective in mind, we can achieve real success on climate change and other challenges, but it will require transformation of our environmental policies — and our politics. TEF

TESTIMONY ❧ No baseball team picks players in 2018 the way it did in 1978. Nor does any business do marketing today the same way it did in decades past. Environmental protection, however, remains stuck in a top-down 20th century regulatory model. But new tools and strategies, including carbon pricing, could unleash a sustainability revolution that drives innovation — and delivers a transformed energy future.

Revenue Use Matters

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Author

Donald Goldberg - Climate Law & Policy Project

Dave Grossman - Green Light Group Consulting

Climate Law & Policy Project

Green Light Group Consulting

Current Issue

March-April 2018

Issue

Pricing carbon and using some or all of the proceeds to provide strategic, cost-effective subsidies could achieve deeper, faster emissions cuts than a conventional price alone — without increasing costs to industry or consumers.

Donald Goldberg and Dave Grossman Donald Goldberg is the executive director of Climate Law & Policy Project. Dave Grossman is principal at Green Light Group Consulting.

We are not reducing greenhouse gas emissions quickly enough. Sure, renewable energy is proliferating, electric vehicles are starting to gain market share, and countless numbers of innovations and policies are being pursued all over the world to reduce the amount of carbon released to the atmosphere. Yet we remain far from the needed decarbonization trajectory. After remaining flat for three straight years, worldwide emissions ticked up another 2 percent in 2017 and are predicted to continue rising in 2018, according to a report by the Global Carbon Project. The U.S. Energy Information Administration has projected that world energy-related CO2 emissions will rise 16 percent between 2015 and 2040. The UN Environment Program, in its latest “emissions gap” report, found that the existing national pledges under the Paris Agreement are only a third of what is needed by 2030 to meet internationally agreed temperature targets.

At the same time, climate science seems to paint a bleaker picture with every new study. In November, the U.S. Global Change Research Program released its part of the National Climate Assessment, finding that climate change, driven by human activities, is causing global and U.S. temperatures to rise, heat waves to become more frequent, the incidence of wildfires to increase, the frequency and intensity of heavy rainfall to grow, ocean temperatures to warm, and sea levels to rise. All of that is occurring with only about 1°C of warming. To have a two-thirds chance of limiting warming to 2°C at the end of the century, the Intergovernmental Panel on Climate Change has concluded that global greenhouse gas emissions must be net zero by the latter half of the century — and significant amounts of negative emissions will probably be needed thereafter. Humanity is not even close to being on pace to achieve that.

In the United States, the Trump administration has abdicated leadership on climate change and is attempting to roll back climate-related regulations. Many subnational actors — states, cities, businesses, universities — have stepped up to assert climate leadership, pledging to meet the commitments the United States made under the Paris Agreement. This leadership is most welcome, but achieving our Paris commitments, much less achieving true deep decarbonization, will be a heavy lift. There is a suite of existing policies in U.S. states (and around the world) to address climate change, but given the scale of reductions needed, we need to boost these policies significantly to increase their emission-reducing power.

There is a growing consensus that carbon pricing is one of the key policies needed to achieve meaningful emission reductions. Putting a price on carbon, whether via a tax or a cap-and-trade mechanism, sends an economic signal that the atmosphere is no longer a free dumping ground for greenhouse gas pollution, spurring emission reductions and clean energy deployment. Some of the states leading the way on climate change, such as California and the northeastern and mid-Atlantic states in the Regional Greenhouse Gas Initiative, already have carbon pricing policies in place.

Carbon pricing alone, however, is unlikely to get us to the levels of emission reductions needed. Analyses of carbon prices around the world have found that most are far below estimates of the social cost of carbon (a measure of the cost of the damages caused by emitting one ton of carbon dioxide). There is a way, though, to make carbon pricing policies much more powerful drivers of reductions. Here’s the key: how the revenues are used can matter just as much as the price itself.

The uses of carbon revenues are starting to get more attention. Disagreement over revenue use may have been the primary factor that torpedoed the Washington state carbon tax referendum in 2016. Generally speaking, there are three broad categories of revenue use that are being implemented or at least discussed. The first is to support activities that bear some relation to climate change, such as achieving additional emission reductions and adapting to climate impacts, or that mitigate negative effects of the climate policy, such as offsetting the regressive effects of a carbon price on the poor. Another approach is to promote economic efficiency through a revenue-neutral tax swap that would replace economically undesirable taxes, such as business or payroll taxes. The third route is to provide a “dividend” to all citizens, whether based on the premise that the atmosphere belongs equally to every individual or based on the political calculus of building public support.

While all of these uses of revenue could be socially beneficial, and each has its supporters, there is a strong argument to be made for pursuing the first approach and devoting some meaningful portion of revenues to achieving additional emission reductions. First, as just noted, most carbon pricing policies are not that robust; political constraints create a significant hurdle to implementing carbon pricing policies at levels sufficient to achieve the reductions required. Second, there are some needed reductions that a carbon price will be unable to reach (e.g., some energy efficiency measures), requiring other types of solutions that carbon revenues could help fund. Third, to achieve the global targets of keeping warming well below 2°C (and below 1.5°C if possible), the reduction trajectory has to be so steep that it seems imprudent to give away resources that could be used to help. Finally, even if a cap or tax could get enacted that could achieve some jurisdictions’ share of the 1.5°C or 2°C targets, the fact that we are already experiencing significant adverse impacts at about 1°C of warming suggests that those targets do not necessarily represent what is “safe” — just what would provide a reasonable chance of avoiding the worst impacts of climate change. In addition, emissions in other jurisdictions, especially in the developing world, will not be declining on a trajectory to meet global climate targets, so jurisdictions leading the way will have to go above and beyond.

Using carbon revenues to achieve additional reductions likely would have strong public support. Several polls over the past few years have shown that the preferred use of carbon revenues is to support the development of clean energy. For instance, a 2016 Yale poll found that 81 percent of registered voters support using carbon tax revenues to support the development of clean energy, more than for any other use; the least popular uses of tax revenues were reducing corporate taxes (26 percent), reducing payroll taxes (46 percent), and returning the money as dividends to households (48 percent). Similarly, a 2014 National Surveys on Energy and Environment poll found that a carbon tax with revenues used to fund research and development for renewable energy programs received 60 percent support, including support from majorities of Democrats, Republicans, and independents — and greater support than rebate checks or deficit reduction.

The RGGI states and California already direct most of the revenues from emission allowance auctions toward climate-related purposes, investing both in reducing emissions (through renewable energy and energy efficiency) and in moderating the economic effects of carbon prices on their citizens. At present, the RGGI states and California simply allocate the proceeds from emission allowance auctions into particular programs, many of which seem to be chosen in a rather piecemeal fashion. There does not seem to be a disciplined effort to tailor the spending of auction revenues in order to achieve both the biggest emission-reducing bang for the buck and reductions beyond what their caps alone would achieve. We need our leading states to do even better.

A price-and-subsidy system is one way to do better. This approach not only puts a price on CO2 and possibly other greenhouse gas emissions to create a financial disincentive to emit those gases, but also uses the revenues generated to provide targeted subsidies that cost-effectively encourage investment in additional reductions of emissions — reductions well beyond those that would have been achieved by the carbon tax or cap itself.

The basics of the price-and-subsidy approach are pretty straightforward. The first step, clearly, is having emitters pay for their emissions, whether via a carbon tax or allowance auctions in a cap-and-trade system. Some portion of the proceeds are then pooled in a fund and used to subsidize additional reductions. If revenues are to be directed toward achieving additional cuts, it makes sense to do so cost-effectively, which can be achieved by utilizing mechanisms, such as reverse auctions, that “buy” additional reductions, starting with the cheapest beyond what the price signal or cap alone would achieve. It also makes sense to limit subsidies to the difference between the carbon price and the abatement cost of the reduction, to avoid offering excessive subsidies that duplicate the incentive of the price. In addition, reductions should be paid for only as they occur, rather than offering up-front, multi-year payments to projects. Combined, these cost-effective features maximize the amount of additional reductions that can be achieved with the pooled revenues.

Let’s make this even clearer with a simple example. Imagine a jurisdiction enacts a tax of $20 per ton of CO2. Any entity that can reduce emissions for less than that cost will do so, to avoid having to pay the tax. That is the effect of the price signal. If a reduction costs $21 a ton, however, the emitter’s incentive is to pay the tax and save a dollar. If, instead, that emitter is given a subsidy of $1 per ton, and emitters with $22-per-ton reductions are given subsidies of $2 per ton, then those reductions also would get made. The cost to emitters would be the same — $20 per ton — but instead of paying it as a tax, they would spend it, in concert with the subsidy, to achieve reductions. (Giving these emitters subsidies of, say, $5 a ton would be wasteful.) Any emitter or project developer who wants to could submit a bid for a way of achieving reductions. The subsidies would go first to the cheapest reductions beyond the price signal, working up the reduction cost curve until all of the designated carbon revenues have been spent.

Over time, as the carbon tax rises, some activities that had received subsidies would no longer qualify. For instance, the emitters with the $22-per-ton reductions would no longer receive subsidies once the tax rises higher than that level, as the price signal alone should then drive those reductions. The risk of receiving smaller or no subsidies in later years as the tax level rises — and therefore having to bear more of the reduction costs themselves — should give emitters incentive to use the subsidies to make their reductions early. Activities performed earlier to achieve reductions mean less greenhouse gases added to the atmosphere.

None of these policy mechanisms are novel in and of themselves. Carbon prices are being implemented in many jurisdictions. Reverse auctions are already used to purchase renewable energy, energy efficiency, and emissions reductions. Subsidies to support clean energy, energy efficiency, and other ways of reducing greenhouse gas emissions are also common. What the price-and-subsidy approach does is to link up these elements into a single, systematic, turbocharged whole. Carbon prices send out the signal to reduce emissions, and reverse auctions for subsidies amplify that signal, increasing the incentive to abate and, therefore, the scale and rate of emission reductions.

Some simplified modeling — such as using a linear marginal abatement cost curve — can make clear the potential power of using carbon revenues to accelerate reductions under a price-and-subsidy approach. First, let’s assume that all such revenues are directed toward achieving additional reductions. Modeling suggests that a price-and-subsidy approach could boost a conventional carbon pricing policy that would achieve a 20 percent reduction to one that theoretically could achieve a 60 percent reduction — without increasing costs for emitters or consumers. Relatively stringent reduction targets could become even more ambitious: a 40 percent reduction could theoretically become an 80 percent reduction, a 60 percent reduction could become a 92 percent reduction, and so on. These numbers, of course, are purely theoretical. Reality is not a simplified model. Technology, reliability, or other constraints may limit the number of additional reductions that are achievable during a given period. Some projects take time to get up and running. Still, the potential of the approach is clear.

Few jurisdictions are likely to devote all the revenues generated by a carbon tax or cap-and-trade program to achieving additional reductions, as there are other political, social, and climate realities that could benefit from carbon revenues. Some percentage probably should go to offset the regressive effects of the carbon price on the poor. Some could go to help coal communities transition. Some may have to go to tax relief, dividends, or other areas needed to garner political support. Some revenues probably should be used to promote adaptation and resilience to climate impacts. The need for urgent climate action, however, suggests that a meaningful portion of the revenues should go toward cost-effectively achieving additional near-term reductions.

Using even a relatively small percentage of the revenues could give a significant boost to reductions. Again, simplified modeling shows the potential power of this approach. For example, given a price that would achieve a 20 percent reduction alone, it is theoretically possible to boost reductions to 27 percent using only a tenth of the revenues, to 35 percent using a quarter of the revenues, or to 45 percent using half of the revenues.

Jurisdictions implementing a price-and-subsidy approach will have to determine which types of additional reductions qualify for the reverse auction subsidies. The price-and-subsidy approach presented here works best when the additional reductions are ones already subject to the price, which enables the subsidy to provide emitters with enough of an incentive to take further action. (Carbon revenues could, of course, also be used to support reductions of emissions not covered by the price, but that is outside the scope of this proposal.)

Price-and-subsidy could be technology-neutral, designed to simply accelerate the next-cheapest reductions available beyond what the cap or tax would achieve. Constraints could also be implemented to support additional objectives. For instance, to address environmental justice concerns, priority could be given to bids to achieve additional reductions in low-income communities or to achieve reductions in local air pollution as well as in greenhouse gases. In addition, there should probably be a constraint to prevent using revenues in ways that achieve cheap, near-term reductions but that lock in technologies or infrastructure incompatible with deep decarbonization pathways.

While price-and-subsidy can work with either a carbon tax or a cap-and-trade system, there is an extra step required for the latter. To ensure the reductions subsidized by the reverse auction are additional to what the cap alone would achieve, an allowance must be retired or otherwise removed from the system for each subsidized ton of reduction. Otherwise, excess allowances could be banked, or other emitters could use them instead of making reductions (which means the subsidized reductions would end up displacing reductions required by the cap instead of being additional). Assuming the universe of bidders for allowances is the same as the universe of bidders for subsidies, a jurisdiction could even have the allowance auction and the reverse auction rely on the same bids and only sell the allowances that are actually needed. Alternatively, and more simply, it probably would be sufficient to reduce the number of allowances sold in subsequent auctions to reflect the number of reductions that, to date, have been achieved by means of subsidies. Reducing allowance sales to account for prior subsidized reductions would allow a jurisdiction to ratchet its cap down further — and then continue to use allowance revenues to drive even more reductions.

The core idea is to accelerate reductions and to do so cost-effectively. A price-and-subsidy approach would enable governments to use carbon revenues to achieve deeper, faster emission cuts without increasing costs to emitters or consumers. Looked at another way, governments could achieve higher levels of reductions far more cheaply with a price-and-subsidy approach than with a conventional price alone. Even if it utilizes only a portion of revenues, a price-and-subsidy system can help jurisdictions dramatically accelerate their drive toward a zero-carbon future.

Given that the U.S. government is likely to remain actively hostile to efforts to fight climate change for the foreseeable future, leading states trying to ensure the country meets its Paris commitments — and goes even further to achieve deep decarbonization — could use a price-and-subsidy approach to take climate leadership. They should combine carbon prices with cost-effective subsidies to spur much larger, much faster emission reductions. True climate leadership should include using the money collected from a tax or an allowance system to get onto an emissions-reduction trajectory that is more commensurate with the urgency of the climate challenge. Revenue use matters. TEF

CENTERPIECE ❧ Pricing carbon and using some or all of the proceeds to provide strategic, cost-effective subsidies could achieve deeper, faster emissions cuts than a conventional price alone — without increasing costs to industry or consumers.

An Essential Strategy

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Author

Alan Biller - Consultant

Consultant

Current Issue

March-April 2018

Issue

Achieving an energy economy based entirely on renewables quickly enough to meet the Paris goal of 2ºC is a high-risk strategy. Removing carbon dioxide from emissions waste streams and burying it is necessary — as may be extraction of the gas from the atmosphere.

Alan Miller retired from the Climate Business Department at the International Finance Corporation in December 2013 and is now an independent consultant on climate finance and policy

An evaluation of current trends and country commitments by the United Nations Environment Program, the “Emissions Gap Report 2017” estimates that only about a third of the necessary reductions to realize the Paris Agreement’s temperature goals have been pledged. “The gap between the reductions needed and the national pledges made in Paris is alarmingly high,” the report concludes. Reductions must be achieved quickly due to the long atmospheric lifetime of carbon dioxide. Thus, “If the emissions gap is not closed by 2030, it is extremely unlikely that the goal of holding global warming to well below 2°C can still be reached.”

In response to this intimidating challenge, experts have devised many scenarios showing how the Paris goals might be achieved. While continued rapid growth in use of clean energy is central to all such analyses, it is insufficient without a concomitant, radical transition away from current technologies for burning of fossil fuels and particularly coal — which amount to about 40 percent of the world’s electricity and is a key source of energy for cement manufacturing, steel making, and other industrial processes. Yet dozens of new coal plants are currently under construction or planned around the world, and new coal mines have opened even in Germany. Enormous economic and political costs will be incurred if these plants are to be closed in the near future. So any realistic policy scenario must allow for the role of fossil fuels.

To offset this trend and ensure the Paris goals can be met, carbon removal and sequestration (or storage) will be essential. As the International Energy Agency stated in 2016, “There is no other technology solution that can significantly reduce emissions from the coal and gas power generation capacity that will remain a feature of the electricity mix for the foreseeable future.” Indeed, as you shall see we may need to go even beyond that.

A discussion of carbon dioxide removal encompasses a wide range of methods, some natural, some sophisticated, expensive technologies. A National Academy of Sciences review of the subject in 2015 provides several helpful definitions and associated acronyms: “Carbon Dioxide Removal (CDR) refers broadly to efforts to remove carbon dioxide from the atmosphere, including land management strategies . . . and direct air capture and sequestration (DACS). CDR techniques complement carbon capture and sequestration (CCS) methods that primarily focus on reducing CO2 emissions from point sources such as fossil fuel power plants.” Where combined with the use of the captured gas, systems are referred to as CCUS.

Thus, carbon removal can refer to natural, biological processes such as afforestation (planting trees) as well as engineering methods for removing carbon from flue gas or even directly from the air. However, only CCS (as defined by the NAS) attempts to reduce emissions from power plants and thus to address the problem created by the widespread use of coal at its source. While CDR and DACS may prove necessary in the long run, the near term policy focus needs to be on CCS.

Effective CCS requires effective storage as well as carbon capture; leakage into the atmosphere negates the benefits of reduced emissions and could create liability issues deterring investment. Currently, there is substantial opportunity for storage in depleted oil and gas fields. CO2 can also be used for enhanced coal bed methane, the generation of natural gas from deep, unminable coal seams. The effective reduction of CO2 emissions from such methods depends on site conditions and appropriate engineering but provides both some reduction in emissions as well as an economic incentive for the further development of carbon removal. How effective is this technology? An IEA assessment concluded that “the volume of the CO2 injected and stored can significantly outweigh the emissions from combusting the oil that is subsequently produced.” In countries like India and China with low quality coal but very little natural gas, the combination may even be marginally economical without carbon taxes or other incentives.

In the longer term, however, the quantities of carbon dioxide captured will require storage in much larger amounts. According to an IPCC review, “Captured CO2 could be deliberately injected into the ocean at great depth, where most of it would remain isolated from the atmosphere for centuries.” The first real test of such storage was put into operation in Norway more than 20 years ago, but the environmental implications of doing so on a large scale require much more study. As the IPCC review states, “CO2 effects on marine organisms will have ecosystem consequences; however, no controlled ecosystem experiments have been performed in the deep ocean. . . . It is expected that ecosystem consequences will increase with increasing CO2 concentration, but no environmental thresholds have been identified. It is also presently unclear, how species and ecosystems would adapt to sustained, elevated CO2 levels.”

There are several flavors of carbon capture and storage. The three most advanced and demonstrated technologies for power plants are post-combustion CO2 capture, currently used at NRG Energy’s Petra Nova plant in Texas; oxy-combustion, demonstrated at some large pilot plants; and pre-combustion CO2 capture in combination with coal gasification. The third category has received the bulk of support to date, with mixed results as discussed below.

Despite it’s potential for reducing the largest source of carbon dioxide emissions, CCS of any stripe has to date received limited support from Washington or other national capitals. Only 17 projects are in operation worldwide (nine in the United States) with four more under construction. Most of these are linked to industrial facilities with separation of the CO2 part of their process. The current global CO2-capture capacity is only about one tenth of one percent of emissions. Rather than growing, the pipeline of new CCS projects has been shrinking, from 77 in 2010 to around 38 today, and as of a November 2016, IEA report no projects have progressed to construction since 2014.

T he lack of enthusiasm for CCS despite growing evidence of the need is due to several factors. The coal industry has generally preferred to question climate science and the need to do anything. In the absence of carbon taxes or other climate policies, commercial interest in emissions capture has been largely limited to enhanced oil and gas production, in which CO2 is injected into rock formations to force out the fossil fuel. While coal-burning utilities are arguably second only to coal-mining companies in the need for technologies that could allow continued use of coal in energy production, they have had limited incentive to finance the costs of research and demonstration.

A few utilities have shown interest in the potential for combining CO2 capture with coal gasification, the third category above. The Kemper Project in Mississippi, undertaken by one of the country’s largest utilities, the Southern Company, was planned as a commercial-scale demonstration of the technology based on a very small pilot project. Construction was initiated in 2010, and after expenditures of over $7 billion (including a $133 million federal tax credit) the CCS features were abandoned, leaving only the possibility of operating as a natural gas plant. The project was effectively canceled last June by order of the state Public Service Commission, with assignment of financial responsibility still to be resolved.

Some environmentalists were quick to argue that Kemper’s failure illustrates why CCS “is a waste of our tax dollars and a false solution to the climate crisis,” as one put it. However, others pointed to mismanagement unrelated to the technology. This included equipment never tested at commercial scale; inadequate time spent on engineering; a rush to completion to avoid loss of tax credits; and the failure to learn from another gasification facility operating in Indiana. “The Kemper Project failure is not due to any problem with the equipment required to capture CO2,” argue NRDC lawyer David Hawkins and scientist George Peridas. “All of the problems are due to the system components upstream of the capture stage. . . . . The conclusion is not that CCS is a flop.”

Indeed, the case for CCS rests on a combination of arguments from different vantage points. The “Emissions Gap Report” points to the availability of clean energy and land use strategies for emissions reductions but also recognizes the reality that coal use is not going away soon. A headline in the New York Times last July makes the point: “As Beijing Joins Climate Fight, Chinese Companies Build Coal Plants.” Even in relatively green Germany, political and economic realities dictated the opening of new coal mines, partly to compensate for the closing of nuclear power plants. Consequently, the UNEP report acknowledges the potential need for carbon capture technologies of any and all flavors despite their limited development to date.

As the Kemper Project illustrates, much of the current image of CCS is associated with capital-intensive systems with large land requirements and long time requirements for construction. There has also been recent media focus on what might be termed “moon shot” ideas for removing CO2 directly from the atmosphere. A company owned in part by Bill Gates and based in Canada, Carbon Engineering, is attempting to commercialize a process for this feat, described as falling “somewhere between toxic-waste cleanup and alchemy” by the New Yorker writer Elizabeth Kolbert.

Much more attention needs to be given to the existence of the many other promising approaches for CCS, some in development for more than a decade by relatively small companies and entrepreneurs. These innovators are working on ways to capture and store carbon with the potential for low costs, a small footprint, and often additional economic and environmental benefits.

One example is Jupiter Oxygen, a company with more than a decade of experience with carbon capture and a process with multiple environmental benefits. The firm uses oxy-combustion (injecting oxygen in the combustion process to achieve high flame temperatures) in a process that allows very effective removal of CO2 and nitrogen as well as improving energy efficiency and incineration of most conventional pollutants. The company had technical support from the DOE National Energy Technology Laboratory a decade ago, has substantial operating experience, and is currently pursuing partnerships in China and India based on CCUS — enhanced coalbed methane and industrial applications of CO2.

Blue Planet, a company based on pioneering materials science by Stanford doctor and scientist Bret Costanza, uses water-based methods to capture CO2 from flue gas and makes cementitious building materials. The company has attracted impressive support, with an advisory board that includes former FDA Commissioner Donald Kennedy, former National Renewable Energy Lab Director Denis Hayes, and actor Leonardo di Caprio.

The Carbon X-Prize, a competition with a $20 million award for “breakthrough technologies that convert the most carbon dioxide emissions from natural gas and power plant facilities into products with the highest net value,” announced 27 semi-finalists in 2016. One of the most intriguing was originally conceived in a high school chemistry lab by a teenager. The young inventor is now working with a Yale professor and has secured funding to build a pilot plant that will use waste gas from a power plant or chemical factory and capture one metric ton of carbon emissions per day.

Given the magnitude of the effort required and the complexity of the technical challenges, continued support for these and other innovative smaller companies with CCS concepts should be a priority. As a recent “Economist Briefing” observed, “Progress will be needed on many fronts. All the more reason to test lots of technologies. For the time being even researchers with a horse in the race are unwilling to bet on a winner.”

Yet even as current research shows that climate change may be increasingly dangerous and unavoidable, support for CCS remains slow to develop. Perhaps the greatest source of resistance is the belief that alternative approaches are better — and achievable. The proposition that renewable energy can be the solution to climate change has been aggressively advocated and is credible as a mathematical proposition. The rapid rate of advancement in solar, wind, and battery and other energy storage technologies has indeed been, and continues to be, impressive. A recent end of year review by Bloomberg New Energy Finance cites plummeting emissions auction prices, the entry of significant new markets, and record corporate renewable power purchase agreements. On the other hand, the same source points to negative policy developments in several markets including the United States and South Africa — e.g., the recent decision by President Trump to increase tariffs on solar imports — as well as the risk of rising interest rates for renewable technologies with high capital costs.

Assuming the political support could be found for an all-out clean energy strategy and implemented in every large energy-consuming country, there are significant technical issues to be resolved before this could be done consistent with the existing electricity grid. Power from wind and solar energy are variable and not dispatchable consistent with the management and operation of centralized power grids. Reliance on natural gas plants as a backup is not consistent with the aggressive decarbonization required to stay below 2°C. Unless some other alternatives emerge, as clean energy advocate Dave Roberts has noted, CCS will be essential; without it “other dispatchable resources [would] have to dramatically scale up to compensate — we’d need a lot of new transmission, a lot of new storage, a lot of demand management, and a lot of new hydro, biogas, geothermal, and whatever else we can think of.” Thus, while it is theoretically possible the Paris goals can be met based almost entirely on clean energy, the majority of analyses advocate a combination including clean energy and CCS.

Many environmentalists advocate for carbon sequestration through natural means, primarily by planting trees. The CO2 uptake of existing forests is substantial — in the United States offsetting fossil fuel emissions by about 15 percent. Studies suggest about a third of current carbon emissions could be captured this way, potentially even more if conflicts with food production could be managed, with further reductions through environmentally beneficial measures to increase CO2 absorption and retention in soils. Using trees as fuel for power plants could even generate “negative emissions” if combined with CCS technologies — an approach the last IPCC report stated will be “critical in the context of the timing of emissions reductions,” and also dependent on effective technologies for CCS.

Unfortunately, the trend in forestry has been toward more deforestation and forest degradation, collectively estimated to account for 8 to 15 percent of the rise in global CO2 concentrations. While desirable for many environmental and social reasons, reversing this trend has so far proven to be a major challenge. And climate change may make this still more difficult, as reflected in the recent California wildfires, forest dieback due to pests in Colorado, and expectations of more severe drought in some currently forested regions. A recent article in Nature notes that efforts to raise biomass stocks have only been verifiable in temperate forests, where their potential is limited, whereas large uncertainties hinder verification in the tropical forest, where the largest potential is located. California is working on a Forest Carbon Plan, expected to be finalized this year, which could serve as a model.

Given the magnitude of the climate challenge, there is an increasing consensus that all options for mitigating emissions need to be deployed as soon as possible. For some, the situation is so bad that it is now necessary to consider options much more worrisome from an environmental perspective — climate intervention (also called geoengineering). This includes measures such as injection of sulfates in the atmosphere to reflect sunlight and cool the earth’s surface. An initial review by a committee of the National Academy of Sciences concluded in 2016 that such measures merit further research given they could be implemented at a relatively low cost despite “an array of environmental, social, legal, economic, ethical, and political risks.”

Given the seriousness of climate risks and the absence of any single fully effective solution, increasing support for CCS thus seems fully justified and increasingly urgent. In the United States, CCS may also have one additional benefit going for it: a surprising measure of bipartisan political support. Proposals for CCS have attracted backing from both coal state Republicans and liberal Democrats. The Western Governors Association, under the leadership of Wyoming’s Republican governor, Matt Mead, and Montana’s Democratic governor, Steve Bullock, convened a working group composed of 14 states to advocate policies that encourage CCS technologies. A broader coalition with similar interests, the National Enhanced Oil Recovery Initiative, includes fossil fuel companies, labor unions, and national environmental organizations.

Reflecting this diverse political support, last July a bipartisan group of 25 senators introduced the Future Act (for Furthering carbon capture, Utilization, Technology, Underground storage, and Reduced Emissions) to extend and expand a federal tax credit, known as Section 45Q, which incentivizes capturing carbon dioxide from power and industrial sources for enhanced oil recovery and other uses. Another bill with bipartisan support, the Carbon Capture Improvement Act, would authorize states to use tax-exempt private activity bonds to help finance carbon capture equipment. Allowance for such bonds was retained in the recent changes in tax law, a change originally contemplated in the version first passed by the House.

The two bills would be a substantial step toward encouraging increased interest and investment in CCS projects, although limited in key respects. First, insofar as the captured carbon is to be used primarily for enhanced oil recovery or enhanced methane production, fossil fuels are still being burned. Another concern is that the bill would provide limited support for innovative ideas from high-risk companies. Such early stage research support should be a federal responsibility and would seem to be consistent with administration support for coal. At a recent IEA summit, DOE Secretary Rick Perry stated, “While we come from different corners of the world, we can all agree that innovation, research, and development for [carbon capture and underground storage] technologies can help us achieve our common economic and environmental goals.” However, the administration has so far given little indication of formal support for CCS and even proposed significant cuts to the fossil fuel program.

Expanded tax credits for CCS for enhanced oil recovery in the United States also do not promote carbon capture where it is most needed, in China, India, and other rapidly growing developing nations with coal-dependent energy systems. China alone currently produces about four times as much coal as does the United States, and because of their populations and coal reserves the IEA projects that China and India will account for the lion’s share of global growth in coal consumption in coming decades. Whereas in the United States most CCS would be retrofits to existing coal plants, in China and India there will be opportunities for integrating systems with new plants and industrial facilities — particularly if combined with desperately needed control strategies for conventional pollutants like smog precursors, acid rain, and particulates.

There is an established international initiative with the relevant focus, the Carbon Sequestration Leadership Forum, founded in 2003, which now includes ministerial-level participation from 25 countries. There was also some hope for support with the establishment of Mission Innovation, a global initiative announced during the Paris COP21 climate negotiations to encourage clean energy innovation. Seven of the initial 20 sponsors included reference to CCS when the initiative was announced, but U.S. support is now uncertain. A more ambitious, coordinated, and well financed international effort to include all the world’s largest coal producers and consumers is needed. There are multiple institutions and international initiatives for clean energy, including the International Renewable Energy Agency, the Clean Energy Ministerial, and the Climate Technology Centers organized under the UN climate convention. Given the importance of financing, there also needs to be more of a role for the World Bank and other international financial institutions in a position to provide risk capital as well as technical assistance.

Bipartisan political support may be growing in the United States, but it still faces numerous challenges. In recent congressional testimony, a spokesman for the governor of Wyoming focused on the time required to do environmental reviews and permitting of pipelines as equal if not greater obstacles. Broader leadership for long-term CCS development in the United States also remains an issue, as the future of the DOE fossil energy program is in question and the states with the most progressive climate policies have not made it a priority.

Carbon capture and sequestration remains a necessary if less than ideal solution to the challenge of climate change. As time passes and other solutions appear to be inadequate, a growing body of analysis points to CCS as among the only remaining sources of hope for avoiding catastrophic climate change. As the IEA concluded in its 2016 report, “CCS is the potential ‘sleeping giant’ that needs to be awakened to respond to the increased ambition of the Paris Agreement.” TEF

LEAD FEATURE ❧ Achieving an energy economy based entirely on renewables quickly enough to meet the Paris goal of 2ºC is a high-risk strategy. Removing carbon dioxide from waste streams and burying it is necessary — as may be extraction of the gas from the atmosphere.

World’s Largest Carbon Market Is Scheduled for 2020 Launch in China

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Author

Robert N. Stavins - Harvard Kennedy School

Harvard Kennedy School

Current Issue

March-April 2018

Issue

China is developing a nationwide carbon-trading scheme which, when launched, will be the world’s largest — twice the size of the EU’s Emissions Trading System and nearly nine times the size of California’s. The new system will help China meet its emissions and renewable energy targets that are part of its Nationally Determined Contribution pledge under the Paris Agreement.

The December announcement from Beijing was greeted in the United States with excited praise from climate activists and skepticism from conservatives. The most reasonable assessment lies between those two extremes.

China’s system will begin with the electric power sector only, but eventually will also include building materials, iron and steel manufacturing, non-ferrous metal processing, petroleum refining, chemicals, pulp and paper, and aviation. Importantly, the system will not be a cap-and-trade system per se (unlike the CO2 trading systems in Europe and California), because there will not be an administratively set mass-based cap of some quantity of emissions. Rather, the trading system will be rate-based, meaning that it will be in terms of emissions per unit of electricity output.

This is also called a tradable performance standard. The government sets a performance benchmark of emissions rate per unit of output, sources receive permits (or allowances) based on their electricity output and their benchmark, and sources are allowed to trade. By regulating the rate rather than the mass of emissions, the standard may help mitigate political concern about constraining economic growth, but it does so by rewarding higher levels of emissions through subsidies. Hence, this approach is inefficient compared with a mass-based cap-and-trade system.

The problems are exacerbated with China’s system because the performance standards are set not only by sector, but by sub-categories of electricity production within the sector. As some categories are, in effect, subsidized by other categories, the cost-effectiveness of the overall system declines. There is a lack of incentive for the carbon market to move energy consumption from coal to natural gas, for example, because of the multi-benchmark approach.

Finally, it appears that allowances will be allocated without charge, at least in the early stages of the program. This has been typical of emissions trading systems in other parts of the world, and may lessen political resistance, but it also will sacrifice potential efficiency gains associated with auctioning allowances and recycling revenues by cutting distortionary taxes.

Despite these limitations, the announcement marks a significant step along the long road of climate change policy developments. The new system will eventually be very important, because of its magnitude and because of the importance of China in global CO2 emissions and climate change policy.

More broadly, the announcement and the eventual launch of the system will have significant effects on other governments around the world — regional, national, and subnational. Some will be encouraged to launch or maintain their own carbon trading systems, and to increase the ambition of their systems.

A frequently stated fear of adopting climate policies, including carbon pricing, is the competitiveness effects of those policies, due to emission, economic, and employment leakage. Since the greatest fear in this realm is that domestic factories will relocate to China, that concern will be greatly reduced — or at least it should be — when and if China has put in place a serious climate policy, whether through carbon markets or otherwise.

So, the best assessment of this new policy lies somewhere between the extremes. The December announcement by Beijing was neither as exciting as some of the applause from climate activists might suggest, nor was the announcement as meaningless as conservatives have claimed.

Rather, cautious optimism seems to be in order. China is serious about climate change, and is thinking long-term. The country appears to be methodically working to develop a meaningful carbon-trading scheme. What is important now is developing a robust system that can be effective, expanded in scope, and gradually made more stringent.

Development of the system has begun, with the real launch of trading likely to take place in 2020, which is a key year for Chinese climate policy for other reasons, as well. In that year, China will release its next Five-Year Plan, and it will submit its updated Nationally Determined Contribution to the United Nations under the Paris Agreement.

World’s largest carbon market is scheduled for 2020 launch in China.

States Step Up Regional Climate Change Gas Mitigation Markets

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Author

Linda K. Breggin - Environmental Law Institute

Environmental Law Institute

Current Issue

March-April 2018

Issue

Despite an abdication of responsibility at the federal level, many states have ramped up efforts to mitigate climate change, including through collaborative initiatives such as the Regional Greenhouse Gas Initiative. RGGI, a bipartisan coalition of nine northeastern and mid-Atlantic states that participate in a voluntary cap and trade regulatory system for power sector CO2 emissions, recently lowered its regional cap by an additional 30 percent between 2020 and 2030. The new cap will be implemented through regulations, based on a RGGI model rule, in each of the participating states — Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

Climate change mitigation leadership is nothing new for RGGI, which estimates that since its start in 2005 the participating states have reduced power sector CO2 emissions by 45 percent. RGGI emphasizes that the nine-state region’s per capita gross domestic product grew during that period.

The regulatory scheme provides for the participating states to set an emissions budget and issue allowances consistent with the cap. Allowances, the majority of which are bought at quarterly auctions, allow regulated power plants to emit one short ton of CO2. To comply with the cap, power plants also can buy allowances from other emitters and participate in offset projects.

The auction proceeds are used by states for energy and consumer programs. For example, RGGI estimates that the 2015 proceeds that were invested in energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct assistance for consumer bills yielded $2.3 billion in energy bill savings and avoided 9 million megawatt-hours of electricity use, 28 trillion BTUs of fossil fuel use, and 5.3 million short tons of CO2 emissions.

On the West Coast, the California legislature last year extended the state’s cap-and-trade program to 2030. The program, which is linked with systems in Canadian provinces, sets an ambitious goal of reducing greenhouse gas emissions to 40 percent below 1990 levels by 2030. In addition, the Oregon legislature is considering a trading program that would be linked with the California and Canadian systems.

Although trading systems are welcome during this period of federal inaction, only 20 states currently are pursuing climate mitigation policies that set quantified reduction targets, according to the Rocky Mountain Institute. And, those 20 states represent only 36 percent of U.S. carbon emissions. Similarly, the Congressional Research Service estimates that the RGGI states account for only 7 percent of national CO2 emissions from energy consumption.

Consequently, broadening current programs such as RGGI to include more stringent caps, additional states and regions, and other energy sectors, may be critical to the country’s success in reducing greenhouse gas emissions. Conservation Law Foundation President Bradley Campbell, who helped start RGGI in 2005 when he was New Jersey Department of Environmental Protection commissioner, is optimistic. He notes that RGGI “creates an infrastructure to demonstrate that we can decarbonize our energy system and save money for consumers — all with positive impacts on the economy.”

Furthermore, CLF and other non-governmental organizations support extending the model to other sectors. Campbell views transportation as the “most urgent sector for attention” and predicts that it will take two or three years to develop a sound model and conduct the necessary implementation work. He contends that “a powerful force” moving the process forward will be not only the need to reduce greenhouse emissions but to revamp the current transportation infrastructure finance system. Campbell explains that the current system, which relies on the gas tax, “Will fail as vehicles become more fuel efficient and electrification takes root.”

Membership in RGGI also is expanding. Virginia is poised to join and would be the first southern state to participate. In addition, New Jersey’s newly elected governor pledged during his campaign to rejoin RGGI. And, as a candidate, Pennsylvania’s governor stated his intent to join RGGI but reportedly has faced resistance from his legislature.

Nevertheless, Campbell recognizes that “first and foremost” the challenge is to “come up with a pathway” that can bring in states that are coal dependent or otherwise not interested in emissions reductions. He contends that economics may be the ultimate driver, noting that states that have been “hardliners against emissions reductions are now finding that their job base in fossil fuels is being dwarfed by their job base in renewables and energy innovation.”

Regardless of the motivation, it is critical at this juncture for states to step up efforts to address climate change, including expansion of existing trading systems.

It is critical for states to address climate change, including expansion of existing trading systems.

States step up regional climate change gas mitigation markets.

As Regulators Retreat, Is Corporate Sustainability Up to the Challenge?

Read more about As Regulators Retreat, Is Corporate Sustainability Up to the Challenge?

Author

David P. Clark

Current Issue

March-April 2018

Issue

Under the Trump administration, the era of robust federal environmental programs may be over. EPA is pursuing an aggressively deregulatory agenda that may have spurred more than 700 agency officials to leave. Regulatory retreat is also the watchword at the Energy Department and throughout the executive branch.

With federal shrinkage, voluntary progress toward high environmental standards becomes more important than ever. For years, corporations and other entities have touted their sustainability pledges. But will they live up to their commitments in the absence of a federal prod? What difference will voluntary actions make?

Because humanity needs an all-hands-on-deck response to combat climate change, biodiversity loss, and other urgent environmental challenges, says John Dernbach, a Widener University environmental law professor and sustainability authority, if the federal hand isn’t visible, then state, local, and private forces become more important.

Reasons to be hopeful are numerous. In 2017, with leadership from the America’s Pledge movement, 2,300 governors, mayors, businesses, investors, and other organizations from across the United States responded to Trump’s withdrawing from the Paris climate agreement by signing a “we are still in” statement supporting the accord. At the same time, the Center for Climate and Energy Solutions (C2ES) worked with 25 global companies to take out full-page newspaper ads urging the administration not to withdraw. Sustainable Brands, which describes itself as a community of forward-thinking business professionals, claims a membership of 348,000 sustainability business leaders who are active on climate, recycling, and other issues.

Regarding corporate sustainability, Dernbach offers a historical perspective on business leadership today compared with 1997, the five-year anniversary of the Rio Earth Summit. In 1997 only a handful of corporate and municipal leaders could be found, and such standards as forestry certification, LEED for green buildings, the Global Reporting Initiative, and many others did not exist. But now they abound, Dernbach notes, and many large companies won’t locate in places where they cannot source materials and energy sustainably. Some business interests are still fighting back, but battles are occurring on a front that today is vastly expanded compared with 1997.

“The momentum is really there” for companies to go beyond compliance, says Janet Peace, the senior vice president for policy and business strategy at C2ES. For both economic performance and reputation reasons, large businesses now see sustainability as essential. But the bigger concern is that without a policy framework post-2020, there is a lot of uncertainty, and “companies don’t like uncertainty,” Peace adds.

Committed cities and major corporate energy users — such as Amazon, Walmart, and Google — can make significant progress in reducing greenhouse gas emissions, but it is difficult to completely fill the gap without strong federal leadership, Dernbach says. In his view, Trump’s climate policies aren’t fact-based and will ultimately have limited impact, whereas companies think internationally and are driven by facts pertaining to cost reduction, consumer demand, resource availability, and other issues that are driving them toward sustainability without regulatory drivers.

Corporate performance data will be critical. In 2016, the Securities and Exchange Commission issued a “concept release” seeking public comment on corporate disclosure requirements. In response, labor and citizens groups urged the SEC to require greater corporate disclosure on environmental, social, and governance issues. But in 2017 the Business Roundtable told the White House that a top regulatory concern was to have tighter SEC rules limiting the power of activist shareholders with small stakes in public companies from pursuing social agendas through shareholder proposals.

Concerns about shareholder activism have existed for decades, Peace notes. But, despite efforts to limit that activity, participation in the Carbon Disclosure Project has risen annually, with more than 6,000 companies now on board. Additionally, 237 companies with a combined $6.3 trillion market capitalization publicly committed to supporting the Task Force on Climate-related Financial Disclosures, which last June published recommendations on governance, strategy, risk management, and metrics and targets. The task force information will be useful to disclosers, advisers, and third parties, Peace says, adding that some 200 sustainability disclosure frameworks exist. Standards, such as ISO 14001 for environmental management systems, are helping companies achieve leadership roles, Peace adds.

Many corporate, state, and local hands are on deck, but with global middle class consumers doubling by 2030, will the coming storms be overwhelming?

As regulators retreat, is corporate sustainability up to the challenge?

The Drivers of Corporate Climate Mitigation

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Author

Michael P. Vandenbergh - Vanderbilt University

Vanderbilt University

Current Issue

January-February 2018

Issue

Parent Article

Not as Simple as It Sounds

The private sector can generate a billion tons per year in greenhouse gas emissions reductions over the next decade, with corporations contributing half. This is not overly optimistic. If we start with the assumption that firms seek to maximize profit, then motivations to reduce carbon emissions arise from at least seven sources, supplemented by the moral norms of corporate managers.

The first is the cost savings that exist because of the gap between the energy efficiency steps that businesses could take with a positive return on investment and the steps they actually take. Economists and engineers differ about the size of the gap, but credible reports suggest that inefficiencies alone could account for half a billion tons of reductions. Inefficiencies exist because of market failures (split incentives, insufficient information, outdated pricing customs, etc.) and behavioral failures (steep discount rates, ingrained habits, contrary social norms, etc). Private-sector initiatives that target these market and behavioral failures have had great success.

The second source of motivation is reputation. Most of the book value of many of the largest firms in the world, including major high-tech firms, is corporate or brand reputation. Companies will do back flips to build and protect their reputation, and many recognize that most of their retail and corporate customers support climate mitigation. In fact, the public believes that corporations have the greatest responsibility to address climate change among society’s various actors. The political system can marginalize these concerns via gerrymandering, lobbying, and other strategies, but market pressure remains.

The third arises from supply chain pressure. A study of the 10 largest firms in each of eight sectors demonstrated that more than half impose environmental requirements on their suppliers. These include pressure to reduce carbon emissions. A company like Walmart, which has more than 10,000 suppliers in China alone, can have an enormous impact on global carbon emissions, and it just announced with several major NGOs that it would achieve a billion tons of emissions reductions from its supply chain by 2030.

The fourth and fifth arise from investors and lenders. Divestiture and socially responsible investment initiatives have received a great deal of attention and have applied pressure for emissions reductions. In addition, investors with more than $100 trillion in funds participate in the CDP (formerly the Carbon Disclosure Project). Similarly, lenders have acted individually and in groups to increase the pressure on fossil fuel investments and companies with large carbon footprints.

The sixth arises from the importance of employee morale and recruiting. Most of the population, including a disproportionate share of potential new employees in the highest skill areas, are concerned about climate change. Companies that cannot recruit and retain these employees are at a competitive disadvantage.

The seventh is the anticipation of government regulation. Although the federal government may not regulate carbon emissions for another four to eight years, utilities and other corporations often make strategic decisions and capital investments with a longer time horizon. Despite recent pullbacks by the Trump administration, government regulation of carbon emissions is still a substantial risk over the long haul, and many companies have incentives to reduce emissions in the interim to be well positioned when that happens.

Finally, even though self-interest can explain most of the opportunity for corporate emissions reductions, limited empirical evidence and everyday experience suggest that the values or norms of corporate managers and directors matter too. No smart manager is going to announce that he or she is sacrificing corporate profits to achieve personal norms, but the shift toward sustainability by many of the largest companies in the world has often begun with a transformational moment by top managers that arose when the importance of doing the right thing became clear, and the other seven motivations made the ability to do the right thing affordable, if not profitable. It may never be possible to establish the extent to which managers satisfice on profits to address climate problems, but this motivation should not be underestimated.

These reasons support the notion that corporations have self-interested and other motivations to reduce carbon emissions in the near term, but it is also important not to lose sight of a fundamental question: As compared to what other viable approach? No one solution will provide a silver bullet, and if we compare any one strategy to a perfect but unattainable government alternative we will miss the chance to buy time until the evidence of climate change becomes so undeniable that even our flawed political system will be forced to respond.

Michael P. Vandenbergh is David Daniels Allen Distinguished Professor of Law at Vanderbilt University.

Benefits and Difficulties of Policy Linkage Under the Paris Agreement

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Author

Robert N. Stavins - Harvard Kennedy School

Harvard Kennedy School

Current Issue

January-February 2018

Issue

The Paris Agreement achieved broad participation by countries — accounting for 97 percent of global greenhouse gas emissions. That stands in stark contrast with the 14 percent associated with the Kyoto Protocol. That is an important accomplishment, but a critical question is how to create incentives for countries to increase their ambition over time.

The ability to link different climate policies such that emission reductions undertaken in one jurisdiction can be counted toward the mitigation commitments of another jurisdiction may help parties to the agreement increase ambition over time. In new research, Michael Mehling of MIT, Gilbert Metcalf of Tufts University, and I explore options and challenges for facilitating such linkages in light of the heterogeneity that is likely to characterize regional, national, and subnational efforts to address climate change under the agreement.

Linkage is important, in part, because it can reduce the costs of achieving a given emissions-reduction objective. Lower costs, in turn, may make it politically feasible to embrace more ambitious objectives. In a world where the marginal cost of abatement — that is, the cost to reduce an additional ton of emissions — varies widely, linkage improves overall cost-effectiveness by allowing jurisdictions with relatively higher abatement costs to instead finance reductions from jurisdictions with relatively lower costs.

In effect, linkage drives participating jurisdictions toward a common cost of carbon, equalizing the marginal cost of abatement and producing a more cost-effective set of abatement activities. These benefits are potentially significant: The World Bank has estimated that international linkage could reduce the cost of achieving the emissions reductions specified in the initial set of Nationally Determined Contributions submitted under the Paris Agreement — 32 percent by 2030 and 54 percent by 2050.

Article 6 provides a foundation for linkage by recognizing that parties to the agreement may “choose to pursue voluntary cooperation in the implementation of their” NDCs through “the use of internationally transferred mitigation outcomes,” or ITMOs.

Linkage is relatively straightforward when the policies involved are similar. However, linkage is possible even when this is not the case: for example, when one jurisdiction is using a cap-and-trade system to reduce emissions while another jurisdiction is relying on carbon taxes.

There are several potential sources of heterogeneity. One is the type of policy instrument used (for example, taxes versus cap-and-trade versus a performance or technology standard). Another is the level of government jurisdiction involved (for example, regional, national, or subnational). There is also the jurisdiction’s status under the agreement (that is, whether or not it is a party, or within a party). The nature of the policy target is also important (for example, absolute mass-based emissions versus emissions intensity versus change relative to business-as-usual). Finally, there are the operational details of the country’s NDC (including type of mitigation target, choice of target and reference years, and sectors and GHGs covered).

Most forms of heterogeneity do not present insurmountable obstacles to linkage, but robust accounting methods will be needed to prevent double-counting of reductions, to ensure that the timing (vintage) of claimed reductions and of respective ITMO transfers are correctly accounted for, and to ensure that participating countries make appropriate adjustments for emissions or reductions covered by their NDCs when using ITMOs.

Broader questions that bear on the opportunities for linkage under Article 6 include the nature of NDC targets and whether these are to be treated as strict numerical targets that need to be precisely achieved; the nature and scope of ITMOs, which have yet to be defined, let alone fully described, under the agreement; and finally, whether transfers to or from non-parties (or subnational jurisdictions within nonparties) are possible, and if so, how they should be accounted for. Parties have differing views, however, on whether the guidance on Article 6 should extend to such issues.

Clear guidance for accounting of emissions transfers under Article 6 can contribute to greater predictability for parties engaged in voluntary cooperation, thereby facilitating expanded use of linkage. But too much guidance, particularly if it includes restrictive requirements, might impede linkage and dampen incentives for cooperation. So, parties should exercise caution when developing guidance that goes beyond key accounting issues. Concerns about ambition and environmental integrity need not be neglected, but the combination of common accounting rules and an absence of restrictive conditions can accelerate linkage and allow for broader and deeper policy cooperation.

Benefits and difficulties of policy linkage under the Paris Agreement.

Reports: Cities Need to Plan Now for Flooding From Sea-Level Rise

Read more about Reports: Cities Need to Plan Now for Flooding From Sea-Level Rise

Author

Linda K. Breggin - Environmental Law Institute

Environmental Law Institute

Current Issue

January-February 2018

Issue

In the aftermath of perhaps the worst flood in U.S. history, there has been ample debate about whether climate change caused or intensified Hurricane Harvey, which inundated Houston last summer. What appears certain, however, is that flooding of American cities will be increasingly commonplace, due to gradual sea-level rise caused by climate change.

A month before Hurricane Harvey hit Texas, the Union of Concerned Scientists published “When Rising Seas Hit Home,” which examines the timeline for and number of communities that are likely to be “chronically inundated” due to sealevel rise. Chronic inundation occurs when 10 percent or more of a community’s land (excluding wetlands and land protected by federal levees) is flooded at least 26 times per year. In these towns, gradual sea-level rise takes a serious toll that eventually “makes normal routines impossible,” according to the report. For example, homes may be flooded, commutes to work hindered, and properties devalued.

The report examines three scenarios — low, intermediate and high sea-level rise. The scenarios are dependent in part on the degree of global emission reductions, but the report nevertheless recognizes that “for many hundreds of communities increased flooding is inevitable and adaptation is now essential.”

Under the “moderate” sea-level rise scenario, UCS predicts that by 2035, about 170 communities will experience chronic inundation — double the number today. Most of these are in Louisiana and Maryland, where land subsidence is increasing the rate of rise. Within 45 years, more than 270 coastal communities could be chronically inundated, including many that to date rarely, if ever, are subject to flooding. By the close of the century, close to 490 communities — and 40 percent of all East and Gulf Coast oceanfront communities — are predicted to be chronically inundated.

The numbers are even more jarring under the “high” scenario. The report estimates that by the close of the century the number of chronically inundated communities could jump to 670 and the percent of East and Gulf oceanfront communities to 60 percent. In addition, a growing number of West Coast communities and more than 50 heavily populated areas, such as Oakland, Miami, and four of New York’s five boroughs, could face chronic inundation.

Another recent study by Buchanan and others published in Environmental Research Letters similarly found that flood frequency will “amplify” as a result of sea-level rise and is anticipated to be “one of the most economically damaging impacts of climate change for many coastal locations.” The researchers predict by 2050 “a median 40-fold increase . . . in the expected annual number of local 100-year floods at tide-gauge locations” along the American coast. The study notes that some locations will have a higher frequency of “historically precedented” floods, while others may have increases in lower frequency, “historically unprecedented” types of floods.

Both studies emphasize the critical importance of planning for increased flooding. Buchanan explains that coastal communities can plan for resiliency if they understand how flood levels will change. The UCS report authors put the options for coastal cities and towns in stark terms: defend, accommodate, or retreat.

Specifically, UCS asserts that coastal communities “from Maine to Washington State will be forced to make difficult choices about whether and how much to invest in flooded areas versus when to retreat from them.” For example, efforts to “defend” include measures to reduce erosion and storm surge, such as building gray and green infrastructure projects (e.g., sea walls and wetlands), whereas “accommodation” entails managing flood waters through measures such as elevated infrastructure and using large-scale pumps. In particular, cities should plan now for infrastructure projects that can take years to plan and construct, let alone finance.

Sea-level rise also will have notable effects on non-coastal communities, as populations retreat from the coasts and relocate. A recent study by Hauer, et al., in Nature Climate Change estimates that 13.1 million Americans eventually will relocate due to sea-level rise and that Atlanta, Houston, and Phoenix are top destinations. These and other cities, particularly those already challenged by population growth, will need to plan for the migration. And it is ironic, of course, that Houston, which last year experienced the worst flood in American history, is one of those primary destinations.

Simply put, now is the time for coastal and interior cities to prepare for the inevitable floods of water and affected populations that will result from rising sea levels.

Reports: cities need to plan now for flooding from sea-level rise.