All posts by Adam Aston

RMI - Rocky Mountain Institute

COP28: What Worked, What Didn’t, and What Next?

The UN climate conference delivered more progress than many anticipated — on cutting methane, funding loss and damage, and tripling renewable energy — but it also neglected major priorities. RMI experts share their take.

Originally published on Dec. 21, 2023 at RMI.org: https://rmi.org/cop28-what-worked-what-didnt-and-what-next/

The 2023 UN climate summit, which wrapped on December 13, delivered progress across several critical global priorities and defied early prognostications that COP28 — hosted by Dubai, in the United Arab Emirates, one of the world’s largest fossil fuel exporters — would bog down in dissent.

On the conference’s first day came a surprise agreement to operationalize the Loss and Damage Fund, a long contentious issue between low-income, low-emissions countries, and wealthy heavy emitters. Soon thereafter came a spate of deals to rapidly lower the leakage of methane, a super-warming gas, from government, NGO, and corporate players.

And on the event’s final day came a historic, unanimous agreement on “transitioning [the world] away from fossil fuels in energy systems… in a just, orderly and equitable manner.” Complementing that milestone: a commitment to triple the world’s capacity of wind, solar, and other renewable energy by 2030, concurrent with a doubling of the pace of energy efficiency gains.

“COP28 has clarified to everyone that the direction of the transition is clear,” said RMI CEO Jon Creyts. “The energy transition is unstoppable.”

Even as the clean energy shift gathers pace, COP28’s final statement also offered a stark reminder of the urgency for faster action. The “global stocktake,” the UN’s inventory of the world’s progress on reducing greenhouse gas emissions, concluded that we are well off track to limit global warming to 1.5°C by 2100, as agreed to in Paris.

To limit warming to the Paris target, emissions would need to fall by 43 percent by 2030, and 60 percent by 2035, relative to 2019 levels. For now, emissions are on track to fall by just 5 percent come 2030, and only if every country’s commitment is met. Consequently, the world remains on a path to heat by up to 2.8°C by the turn of the century, almost twice the 1.5°C goal.

For RMI’s on-the-ground work, COP28’s complex climate diplomacy nets out as a cause for optimism. As never before, the agreement galvanized global governmental consensus in line with many of our long-standing goals, particularly around speeding the shift to cleaner, safer energy, reducing methane, and the just energy transition. At the same time, the agreement did not resolve pressing areas, such as financing, that will be essential to achieve its goals.

Below, RMI experts weigh in on the implications of the conference’s big advances, as well its less covered wins, along with a few misses.

Multiple methane wins

Over 80 times more potent near term than carbon dioxide (CO2) as a warming agent, methane offers huge potential to quickly cut global greenhouse gas emissions. And to keep 1.5. degrees within reach this decade, oil and gas methane leaks must go to near zero. What’s more, the technical solutions are here now, and the economics are highly favorable, with over half of the fixes yielding a profit or zero net cost. RMI Principal TJ Conway highlights COP28’s methane wins.

Oil and gas commitment. Heading into COP28, methane reductions ranked as a top prospect to deliver major progress on emissions reductions. One of the biggest wins in delivering on this promise came with the Oil and Gas Decarbonization Charter (OGDC). Signatories committed to reaching “near zero” methane leakage and flaring by 2030, an ambitious goal under a tight timeline. Beyond its scale, this multistakeholder effort was notable for the buy-in of global oil giants such as BP, ExxonMobil, and Shell, along with national oil companies (NOCs), many of which are otherwise insulated from pressures to set climate goals. NOCs represented a remarkable 60 percent of participants. The US EPA also released stricter regulations on methane emissions.

Building accountability. The bulk of the methane discussions at COP28 focused on the need to accelerate implementation — namely, how to establish accountability mechanisms and metrics to ensure that companies credibly and rapidly meet their OGDC commitments. In coordination with OGDC — and together with Bloomberg Philanthropies, EDF, the IEA, and UNEP via the International Methane Observatory — RMI unveiled a new initiative that will help advance transparency and enforce accountability around claims of methane emissions reductions.

Financing methane reductions delivered another front of progress. The World Bank’s announcement of a new $255 million trust fund through the revamped Global Flaring and Methane Reduction Partnership was welcomed, especially given that many NOCs need technical and financial support. As funding to reduce methane multiplies, financial institutions need more robust ways to track and validate carbon reductions in their lending portfolios;  stronger standards will unlock more funding for reductions. For a fuller explanation of RMI’s work to establish supporting standards for lenders, see “Carbon on balance sheets may go up before they can go down” below.

Curtailing waste methane. Progress on methane extended past the petroleum patch. The waste sector, including solid waste and wastewater, is the third largest contributor to methane emissions, responsible for almost 20 percent of the global total. And as part of COP28, RMI and Clean Air Task Force, with funding support from The Global Methane Hub and Google.org, unveiled the Methane Assessment Platform (WasteMAP), a new, open, online tool that aggregates and maps reported, modeled, and observed waste methane emissions data to help guide reductions.

Scaling green industry

Perfecting clean technologies — from lower-carbon recipes for steel to sustainable aviation fuels — isn’t enough. Industry must also change how it does business, such as developing better ways to finance, buy, and cultivate long-term demand for low-carbon solutions. RMI’s Charlotte Emerson discusses the major initiatives RMI took part in at COP28 to spur these sorts of market-based advances in strategic industries.

Hydrogen. Given its potential to help other heavy-emitting sectors — such as steel and shipping — decarbonize, green hydrogen is a top priority. The Green Hydrogen Catapult launched the report The Value of Green Hydrogen Trade for Europe, at the event Trading Green Hydrogen to Bolster Energy Security, which focused on the value of renewable hydrogen exports in promoting global energy security. The Green Hydrogen Catapult signed a joint declaration in partnership with UN High-Level Climate Champions on the Responsible Deployment of Renewables-Based Hydrogen, addressing the need for mutual recognition of a broad range of recommendations guiding the deployment of renewables-based hydrogen around the world.

Steel. RMI co-hosted an event with the World Economic Forum’s First Movers Coalition and corporations across the industrial supply chain to speed the decarbonization of heavy industry. A centerpiece of this push, RMI’s Sustainable Steel Buyers Platform, demonstrates how connecting ambitious buyers and suppliers through demand-side measures can accelerate the shift to low-emissions steel. RMI also signed the Steel Standards Principles, an effort to harmonize the methodology and standards to define lower emissions steel.

Shipping. The UN High-Level Climate Champions and RMI’s Green Hydrogen Catapult facilitated the Green Hydrogen and Green Shipping Call to Action, committing 30 shipping sector actors to firm targets to use nearly 11 million tons of renewables-based hydrogen fuel adoption this decade — nearly 10 percent of all fuel consumption. A related event, Clearing the Last Mile: Opportunities for Supplying Zero-Emission Fuels at Ports, unveiled initial findings on the cost and ability of key ports to supply the zero-emission shipping fuels of the future by 2030 from a forthcoming study undertaken by RMI and Global Maritime Forum under the flag of the Zero-Emission Shipping Mission.

Aviation. RMI, together with the Environmental Defense Fund and the Sustainable Aviation Buyers Alliance (SABA) launched the SAFc Registry, a not-for-profit sustainable aviation fuel certificate registry that will transparently and rigorously connect corporate aviation customers to clean fuel deployment, reducing emissions from air travel and air freight.

Aluminum. Financial institutions play an essential behind-the-scenes role in funding investment in greener options. Consider aluminum, which is playing a rising role in the energy transition as a lightweight, highly recyclable material in everything from wind turbine components to solar panel framing. To encourage a shift toward production of low-emissions aluminum, RMI unveiled the Sustainable Aluminum Finance Framework a tool for banks to benchmark their aluminum clients and collaboratively develop decarbonization pathways with industry.

Prioritizing, and funding, a just energy transition

The push to gather funding to compensate poor, low-emitting countries for harm they are experiencing from climate change has been contentious and opposed for 30 years at past COPs by heavy emitters, including the United States. COP28 delivered laudable progress in funding commitments. Above all, improved and expedited access to climate funds will be critical for the most vulnerable countries. For future COPs, the issue persists as one of the most urgent — and delicate — fronts. RMI Senior Principal Laetitia De Marez explains.

Loss and damage. The push to gather funding to compensate poor, low-emitting countries for harm they are experiencing from climate change has been contentious, opposed at past COPs by heavy emitters, including the United States. COP28 delivered laudable progress in funding commitments. Above all, improved and expedited access to climate funds will be critical for the most vulnerable countries. Many were surprised then, to see COP28’s first day deliver an agreement on the loss and damage fund, with funding and an agreement to house it at the World Bank. Pledges quickly stacked up: Over $700 million has been committed initially, including $17.5 million from Washington, a pledge which, while nominal, marks the end of US opposition. The tally remains far short of the $100 billion target requested by developing countries, but the establishment of a vehicle is a critical step to bring in ongoing funding and distribute it.

Reforming multilateral development banks. It’s a big step forward. But the financial gap remains considerable compared to the capital needed to fund a fast, yet just, transition. The reform of the multilateral development banks (MDBs, such as the World Bank, Asian Development Bank, and others) must continue and deepen. They need to transition their portfolios, terms, conditions, and policies away from future fossil deals and fully switch to Paris-aligned investment priorities.

Public-private financial collaboration. The climate funds and the MDBs have a critical role to play in mobilizing international and national private sectors by de-risking and aggregating projects in the regions. The imperative is growing to blend public and private sources of capital — a shift that is underway but must be streamlined and scaled (more on this in the next section on global financiers).

Capacity building: Skills, workforce, regulations. International capacity-building support and technology transfer mechanisms to enable the energy transition remain underfunded and undersized. Transitioning energy systems cannot be achieved without a skilled workforce, trained energy leaders, regulators, innovators, and developers.

Defining a better transition. It remains unclear what a just and equitable transition means for different countries: What are the developmental, resilience, economic, and social progress elements of the just transition? Research and consultations are urgently needed to define and tailor strategies to each country’s circumstances and realities.

For global financiers, impact trumps pledges

Progress on loss and damage funding at COP28 is an important step forward. Yet it also reminds us that the wider scale of transitioning the entire global economy in line with climate goals will require massive capital investment — estimated at roughly $200 trillion to $275 trillion by 2050.

To hit that goal, the private sector must play a bigger role. And while green finance has already gained significant momentum, increasing 100-fold in the past decade, uncertainty still exists around the implementation of “transition finance” to decarbonize high-emitting and/or hard-to-abate sectors. Adapting today’s financial market practices to better accommodate the needs of transition finance can help unlock the flow of climate capital. RMI Managing Director Brian O’Hanlon sees these priorities:

Bridging the public-private financing gap. To deliver full-scale deployment of commercially proven clean energy technologies in Africa and throughout emerging markets, lenders and projects need to move beyond grant-funded demonstration projects, and de-risk portfolios of investments to better meet international financing requirements. These steps can help mobilize international private capital at scale, while ensuring that local project developers do the real work on the ground. With a project pipeline of $464 million in the Pacific, the Climate Finance Access Network (CFAN) offers a practical and actionable solution to developing countries facing capacity constraints in accessing climate finance.

Carbon on balance sheets may go up before they can go down. A key challenge of transition finance includes the risk of financial institutions divesting from high-emitting sectors on paper, but without delivering real reductions. This can happen when financial institutions sell their emitting assets, and can thus show decarbonization progress on their balance sheets. Yet the underlying assets and their related emissions haven’t changed however, only their owner has.

There are ways to overcome these barriers. At COP28, RMI created consensus on how to do so. For investors who have pledged to decarbonize their portfolios, more reliable ways to classify and track underlying emissions reductions is growing as initiatives such as the methane rules and agreements (see above) get traction. Investors need rules of engagement to clarify when financing methane abatement in fossil fuel progress results in overall emissions reductions or simply prolongs the life of emitting assets in ways that are incompatible with preventing disastrous temperature rise.

Climate impact from financial decisions. Shifting from past measures to future forecasts. Historically, investors and lenders have primarily looked at past emissions to assess progress toward climate goals — this method is essentially a look in the rear-view mirror. Now, regulators and climate experts are increasingly demanding forward-looking metrics that offer a more accurate assessment of future results by better modeling how financial decisions made today will affect the future trajectories of decarbonization and resilience of local economies. To support this shift, RMI leads the development of PACTA, a software application that predicts the climate impact of entire financial portfolios of investment and activities, often spanning multiple sectors and geographies.

Challenges ahead

As the world digests the implications of COP28’s agreements — and omissions — priorities for COP29, in Baku, Azerbaijan, are already becoming clear. Three are on our radar:

Renewables and the grid. The world has given itself just seven years to hit the ambitious goals of tripling renewable energy (3xRE) and doubling efficiency gains. This will require a steep ramp up in deployment in both developed and developing markets — including streamlined financing, quicker regulatory approvals, streamlining supply chains, and more rapid grid growth. Over the past decade, the average wait time to connect clean energy projects to the US grid has doubled to four years; in Europe and the United States delays to approve, build, and connect new clean energy projects can stack up to 10 years of more. Unlocking ways to upgrade and improve access to the grid are emerging as some of the toughest barriers to increasing renewables’ market share.

Carbon markets. In Dubai, negotiations around carbon markets (Article 6) collapsed and will need to be rebooted next year. Carbon markets remain a potentially powerful market solution to reduce emissions, yet voluntary markets faced multiple setbacks in 2023. RMI is working on multiple fronts to help mature these markets.

Finance. The New Collective Quantified Goal will take over from the rich world’s long-unfilled commitment to relay $100 billion per year to developing regions. This funding is growing in importance as renewables growth shifts into the Global South. Much of the world’s renewables growth (above) will be centered in the developing world, where most of the world’s economic growth, urbanization, and construction will unfold in coming decades. Many need help both building new clean energy systems, as well as aid in unwinding legacy fossil-fuel-based energy infrastructure. Projects in poorer countries remain more expensive and harder to finance and build, compared to richer regions, given higher risk premiums. Closing this gulf will help unleash faster renewables growth.

RMI - Rocky Mountain Institute

It’s the IRA’s First Birthday. Here Are Five Areas Where Progress Is Piling Up.

The Inflation Reduction Act promised an unprecedented wave of clean energy investment. One year in, here’s where we’re seeing progress.

Originally published on August 16, 2023 at RMI.org: https://rmi.org/its-the-iras-first-birthday-here-are-five-areas-where-progress-is-piling-up/

By  Hannah Perkins,  Adam Aston,  Vindhya Tripathi

“Unprecedented.”  “A landmark.” “The Super Bowl of clean energy.”

Those are just a few of the superlatives that hit the headlines when the Inflation Reduction Act (IRA) was signed into law on August 16, 2022.

The act’s passage came as a surprise both politically — emphasizing lower energy costs helped the bill clear years of oppositional brinksmanship — and for its unprecedented scale. Toward the goal of shifting the US grid to 80 percent clean electricity and cutting climate pollution by 40 percent by 2030, the act mobilized an estimated $370 billion in federal incentives.

A year in, the early fanfare has resolved into unprecedented progress. Twelve months after passage, the IRA’s impact — in industrial investment, new jobs, and other economic activity — already exceeds early estimates. To date, we have seen:

  • $278 billion announced in new private clean energy investments.
  • Projects announced accounting for 170,000 new jobs.
  • The availability of $70 billion was announced in grants, rebates, and other non-loan funding.

And while politics could yet alter its trajectory, the impact to date has been weighted towards traditionally Republican-leaning regions, a bias which may ensure its longevity in years to come. Given the rapid uptake, Goldman Sachs earlier this year upped their estimate of public IRA investment over the next decade to more than $1 trillion, with private sector spending potentially a multiple of that.

By design, incentives are drawing this investment widely across the United States, with a focus on disadvantaged, low-income, and energy communities. RMI estimates that, if they take full advantage of the IRA and adopt clean energy at the pace and scale needed to meet national climate targets, by 2030, each state could see:

  • Cumulative investment of from $1 billion (for smaller states) up to $130 billion (for the largest beneficiaries).
  • Per capita new investment of $1,500 to $12,000.
  • The creation of 2,000 to 100,000 new jobs.
  • Lower healthcare costs and impacts by avoiding 4,000 to 300,000 negative health outcomes avoided.

On the ground, IRA incentives have already translated into a rush of announcements and projects spanning regions and industries, including both legacy and cleantech sectors. On the advent of the IRA’s first birthday, here’s a rundown highlighting the breadth of this progress.

Manufacturing boom

Nourished by the IRA, manufacturing announcements have mushroomed across the country. While heavy on electric vehicles (EVs) and batteries, the greenfield factories and upgrades also include wind and solar sites, along with semiconductors, electronics, and others. The new capacity promises to boost US energy security and independence by reshoring key supply chains and strengthening US competitiveness as global leader in clean energy technologies. To date, 272 new clean energy projects have been announced, including:

  • 91 new battery manufacturing sites.
  • 65 new or expanded EV manufacturing facilities.
  • 84 wind and solar manufacturing announcements.
Electrifying transportation

Globally, sales of internal combustion vehicles peaked in 2017, and are now in long-term decline, according to Bloomberg NEF. As older cars and trucks are retired, the world’s combustion vehicle fleet will start to shrink after 2025. In the United States, the IRA is supercharging this shift, with incentives that span from electric school buses to battery factories and new charging infrastructure:

  • For consumers, the IRA offers rebates on new and used electric vehicles, peaking at $7,500. Juiced by this incentive, US sales of new EV passenger cars are expected to surge by 50 percent in 2023 to over 1.5 million, the White House estimates. The incentives will help heavier vehicle classes electrify more quickly too. By 2032, RMI estimates that the share of EV sales using IRA credits will be close to 100 percent for Class 1–3 commercial fleets, and 84 percent for medium- and heavy-duty trucks.
  • To supply incentive-amped demand, global automakers such as GM and Ford and their battery partners are leveraging the act’s $45-per-kilowatt battery production tax credit to turbocharge construction of new plants across a “battery belt,” stretching from Michigan to Georgia (see map, in above section). Increased output of US-made batteries is, in turn, helping carmakers boost output of popular EVs, such as Ford’s F-150 Lighting electric pickup (image, top of page).
  • IRA also provides funding for the federal government to lead by example. The US Postal Service(USPS) received $3 billion for clean vehicles. And starting in 2026 the post office will buy only EVs.
  • RMI analysis shows IRA credits will help electric passenger cars and light-duty trucks achieve total cost of ownership (TCO) parity with ICE vehicles between 2023 and 2025. Without the IRA credits, EVs would have reached TCO parity with ICE vehicles between 2024 and 2027.
Total Cost of Ownership parity for EVs and ICE passenger cars chart
Greening buildings

Buildings account for around a third of US emissions, making it one of our largest, most complex sectors to decarbonize given the age, diversity, and costs to retrofit America’s stock of millions of buildings. The IRA is tackling this challenge on multiple fronts:

  • Guidance on funding for the Home Energy Rebate programs is being rolled out and has generous carve-outs for low-income households. States are currently designing programs based on this guidance to help consumers save money and live more comfortably. The first state programs could be rolled out as early as the end of this year.
  • Appliance efficiency standard programs like CEE and ENERGY STAR, which some IRA incentive programs rely upon, continue to align with decarbonization efforts that ensure the most efficient HVAC systems and appliances are installed in homes across the country.
  • New HUD programs prioritize healthy, efficient, electrified retrofits for affordable housing HVAC and appliances; more than $800 million is available and funding from these programs can’t go towards in-unit fossil fuel appliances.
  • The General Services Administration (GSA) — which oversees the federal government’s vast portfolio of buildings and properties — is using $1 billion of IRA funding to shift federal facilities towards electrification, with near-term plans to electrify over 100 buildings, including one of their largest, the Ronald Reagan Building in DC.
Decarbonizing electricity

Clean electricity is essential to decarbonize the wider US economy, whether to charge EVs and power greening buildings (see above), or to decarbonize industry (below). The shift is advancing steadily. In the first five months of 2023, wind and solar produced more power than coal, a first for the US. The IRA is continuing this shift:

  • Commercial solar is on pace to grow by 12 percent in 2023, and over the next seven years, we expect twice as much wind, solar, and battery deployment as there would have been absent the IRA.
  • The IRA-linked credits reinforce renewable powers’ long-standing price edge over gas- and coal-fired generation, an advantage which endures despite some demand-led inflation in the price for new solar and wind.
  • With IRA funding, USDA is making the largest investment in rural electrification since the New Deal — nearly $11 billion for rural electric co-ops. In particular, the Empowering Rural America (New ERA) program gives rural electric cooperatives an unprecedented opportunity to modernize aging grid infrastructure to maintain reliability, lowering costs for members and reduce emissions.
  • Michigan’s largest investor-owned utility, DTE, filed the first resource plan in the country that attempts to demonstrate the IRA’s intended changes to the economics of clean energy, projecting $500 million in savings for customers over 20 years. The proposal includes building 15 gigawatts (GW) of new solar and wind, improving DTE’s exploration of battery pilots, and moving up the retirement of the Monroe Power Plant – the fourth largest coal plant in the US.
  • Energy Infrastructure Reinvestment announced funding for solar and storage in Puerto Rico, replacing a retired coal power plant.
Transforming industry

Steel, cement, petrochemicals, and other hard-to-abate heavy industries pose a special challenge to decarbonize. For now, many rely on raw materials and/or high temperatures that only fossil fuels can affordably deliver at scale. The IRA aims to scale up affordable alternatives — such as hydrogen which, if implemented cleanly, offers a clean alternative — along with greener raw materials and recycling options:

  • Incentives for industry and hydrogen have had a big impact on economic analyses. Many projects have been announced, focused on advancing US global competitiveness. Policies are meant to drive applications and interest in first-of-a-kind projects and hubs demonstrating industrial decarbonization opportunities.
  • From the IRA and Bipartisan Infrastructure Law, the Office of Clean Energy Demonstrations (OCED) has been allocated $6.3 billion for Industrial Demo Grants. OCED funds will de-risk technologies that are not yet demonstrated on a commercial scale.
  • A range of tax credits is being clarified that will spark investment. For hydrogen, guidance on the Hydrogen Production Tax Credit (45V) is forthcoming. And the  Advanced Manufacturing Production Credit (45X) will unlock a major buildout of the lithium-ion battery supply chain, stationary storage manufacturing, and solar and wind supply chains.
  • Likewise, guidance has been released and the first round of applications reviewed for the Advanced Energy Project Credit (48C), which offers $4 billion for projects that expand clean energy manufacturing and recycling, expand critical minerals refining, processing, and recycling, and reduce emissions at industrial facilities. The U.S. Energy Department’s roster of funding opportunities, among other things, prioritizes heat pump manufacturing, signaling a clear shift towards supporting beneficial electrification.
Finance

The act has also unlocked financing via the reform of tax credits and innovative financing that prioritizes climate-friendly investment in historically disadvantaged communities:

  • For the first time, the IRA widens access to investment and production tax credits (ITCs and PTCs) for non-taxable entities, such as states, local governments, coops, and non-profits that in the past had little or no way to use the credits to finance new renewables. Historically, constrained demand for tax credits has limited the scale of ITC and PTC financing. For instance, RMI analysis of 2019 financial disclosures found that US investor-owned utilities had aggregate tax liabilities sufficient to build less than 4 GW of new solar and storage per year, barely enough capacity to replace one or two coal plants. Later this year, Treasury will release final guidance for organizations to tap into these direct pay and transferability options.
  • The Notices of Funding Opportunity (NOFOR) for the Greenhouse Gas Reduction Fund’s three grant competitions are now live, with deadlines in September and October. These grants will be disbursed in 2024, capitalizing a national network of clean energy financiers who will be focused on mobilizing private capital at scale to fund emissions-reducing projects, especially in low-income and historically disadvantaged communities.
Looking ahead

The IRA is not only the most ambitious climate bill in US history. It is one of the most ambitious and complex efforts at economic and industrial reinvestment ever. By these standards, the progress the act has already made is enormous, but years of work — and meaningful obstacles — remain to fully deploy the IRA at the pace and scale needed to reach climate targets.

Chief among these obstacles is permitting. As project timelines stretch into the years — whether to connect renewables projects onto the grid, or site new critical mining and industrial facilities — streamlining the thicket of overlapping regulatory and administrative approvals is emerging as a make-or-break challenge for the US energy transition.

Despite challenges in implementation, the hundreds of announced projects and hundreds of billions of dollars in investment show the energy transition is out of the starting gate and gaining speed.

The challenge is increasingly shifting to subnational players — such as states and cities as well as businesses and non-profits — to mobilize the funding the IRA has unlocked. Ultimately, the IRA’s full potential will be limited only by our own ambition to realize a clean energy future.

CPP Investments, Research reports, White papers

Investing in the potential of carbon credits | CPP Investments

A white paper on behalf of Thinking Ahead, the thought leadership platform of CPP Investments, one of Canada’s largest pension funds.

Challenge: Debut CPP Investments’ commitment to develop nascent carbon credit markets via a partnership with Climate International. The project aims to foster high-quality forestry carbon credit markets in Peru and beyond.

Solution: A white paper establishing the need for carbon credits markets as a vital tool to help companies in hard-to-abate sectors reach net-zero, complemented by an introduction to a groundbreaking investment in Peru’s rainforests. Facilitated by Climate International, the project acts as a template to inspire similar community-focused investments elsewhere. Following some false starts with another writer, I was able to successfully execute this high-profile project, a centerpiece of the debut of CPP Investment’s thought leadership site.  

My roles: Research, SME interviews, data (research, composition and visualization), content (outline, write and edit), along with design direction.

View the full report at CPP Investments or download here:

 

CPP-Investing-in-the-Potential-of-Carbon-Credits_EN-FinalDownload

GreenBiz

Why equity divestment doesn’t drive decarbonization — and can even backfire | GreenBiz

Adapted from GreenBiz’s GreenFin Weekly, a free newsletter. Subscribe here.

Research shows that divestment doesn’t achieve the goal of decarbonization. Yet in September, Harvard became the latest on a growing list of prestigious universities to fully divest fossil fuel assets from its bigger-than-all-others $53 billion endowment.

Pressured by students and alums, U.S. universities pioneered fossil fuel divestment starting back around 2011. Since then, such commitments have spread widely, with religious endowments, major philanthropies, big insurance companies, municipalities and a growing cohort of sovereign wealth and pension funds all vowing to yank their funds from coal, oil and gas.

Divestment-Aston

Over the past year, the divestment tally has more than doubled to nearly $40 trillion. “With this growth, divestment has proven successful at its core goal of helping to delegitimize fossil fuel companies as political players,” writes the advocacy nonprofit Stand.earth, which has been tracking divestment trends since 2014, in its most recent update.

Note the emphasis on reducing political power — a worthy goal in its own right. Yet for ESG investors and their fund managers who imagine financial pressure will push Big Oil to decarbonize, it’s worth revisiting why the strategy is ineffective at best and counterproductive at worst.

For fund managers facing multiplying mandates to decarbonize their holdings — including political pressure and legal action as well as regulatory shifts and customer preference — divestment offers a quick way to lower their portfolio’s carbon intensity. But such actions merely shift the carbon from one balance sheet to another, and can undermine deeper decarbonization efforts.

“Beyond the allure of scoring political points, there’s a dearth of levers available to fund managers facing pressure to align with ESG goals.“

“For one investor to sell a share, another must buy it. Period. An unhappy shopper can complain to management or take his business elsewhere, but an unhappy shareholder simply replaces herself with someone who cares less,” write Michael O’Leary and Warren Valdmanis in “Accountable: The Rise of Citizen Capitalism.” O’Leary is managing director of Engine No. 1, an investment firm. 

A long line of research backs this critique, most recently an October paper by Jonathan B. Berk of Stanford and Jules H. van Binsbergen of the University of Pennsylvania. The authors examine ESG priorities broadly — including energy — to test the premise that “for divestitures to have impact they must change the cost of capital of affected firms.” Their findings: The impact is de minimis, “too small to meaningfully affect real investment decisions.”

Domino effect

Equity divestment can also backfire. By thinning out the ranks of shareholders who might pressure boards, divestment concentrates ownership among those “who are at best agnostic about climate impacts,” said Edward Sun, a portfolio manager of Engine No. 1. That means less likelihood of pro-climate shareholder activism.

Equity sell-offs can also trigger an unwanted domino effect. As a company’s share price falls, it becomes a more attractive acquisition target for private equity or state-owned national oil companies, or NOCs — such as those in Mexico, Saudi Arabia and Venezuela — which already control 55 percent of global oil and gas and 90 percent of reserves. Shifting from public to private ownership reduces disclosure and insulates a company from external pressure.

In the energy space, this kind of devolution is happening already. As the New York Timesrecently reported, secretive investment companies are pumping billions into legacy fossil fuel projects, “buying up offshore platforms, building new pipelines and extending lifelines to coal power plants.” The new owners are decidedly not funding transition investment. In the United Kingdom, two-thirds of North Sea oil production has shifted into private hands.

To be sure, private ownership isn’t necessarily a step backward for decarbonization efforts. There is an emerging line of reasoning that private equity could offer a better model to help key sectors transition. Yet private equity’s track record is biased towards cost-cutting, disinvestment and loading up on debt. In the energy space, such austerity could be a death knell for the sorts of costly, long-range transition plans the sector faces.

Dearth of levers

But if equity divestment is not the answer, then what should an ESG-minded investor do instead? In 2019, Bill Gates famously told the Financial Times, “Divestment, to date, probably has reduced about zero tons of emissions. It’s not like you’ve capital-starved [the companies] making steel and gasoline.”

Options are, for now, limited. Beyond the allure of scoring political points, there’s a dearth of levers available to fund managers facing pressure to align with ESG goals. For many, the option is binary: buy or sell. And as ESG compliance pressures rise, absent more effective levers, more managers are likely to default to the sell option.

More nuanced tools, including active shareholder engagement and using debt and loans as a tool to influence companies, are emerging but remain complex for investors to deploy and manage:

Active engagement. For ESG investors to catalyze a transition to net zero, they’ll have to push for real strategy change, rather than just offload heavy emitters from their balance sheets. “We’re looking at how [investors] can use engagement, stewardship and advocacy — along with lending and investing levers in ways that change the cost of and access to capital,” said Whitney Mann, a senior associate at RMI’s Center for Climate-Aligned Finance.

In “Breaking the Code,” its 2020 assessment of decarbonization strategies for the financial sector, RMI recommends that “financial institutions must go beyond divestment alone to develop a more sophisticated approach to actively influencing the real economy that relies on all available levers of influence.”

Engagement is no easy feat though, and remains the exception. Witness the titanic victory Engine No. 1 eked out over ExxonMobil in its bid to seat three climate-focused board directors. If more investment managers were to lean in, similar bids could multiply.

Debt markets. If equity divestment doesn’t work, tougher debt standards could. Lenders, ratings agencies and bond buyers have greater leverage to set tough terms for borrowers, complete with measurable carbon reduction targets. A growing roster of top banks are publicizing goals to decarbonize lending practices.

To be sure, as author and activist Bill McKibben points out, banks’ credibility for carbon commitments is dubious at best. Even so, a carbon premium is emerging for fossil fuel borrowers. Oil projects are seeing an unprecedented increase in cost of capital. At Bloomberg Green, Tim Quinson observed that the threshold of projected return to financially justify a new oil project has risen to around 20 percent for long-cycle developments. For renewables, the rate has fallen to between 3 percent and 5 percent.

Pressure from ESG investors is the best explanation for the widening differential. “Oil companies are finding it increasingly difficult to raise financing amid rising ESG and sustainability concerns,” Will Hares, an analyst at Bloomberg Intelligence, told Quinson, “while banks are under pressure from their own investors to reduce or eliminate fossil-fuel financing.”

Published before Harvard’s big announcement, “Accountable: The Rise of Citizen Capitalism” includes a behind-the-scenes account of the tactics critics used to push university leaders to divest. In every case, the players emphasize the political promise of such a move: the hyper-tweetable spectacle of the world’s largest university endowment dissing Big Oil.

As tactics go, the question is whether the political gain of drawing more attention to decarbonizing our financial system outweighs the risk of driving big emitters into private ownership. But with the pressure to take climate action reaching a fever pitch, “the divestment discourse will be with us indefinitely,” said Thomas O’Neill, cofounder of Universal Owner, a U.K.-based think tank and investment advisory service. “The salient question now: What type of divestment is it, towards what affirmative end?”

Keep in mind that “even if public capital pumps everything it has into green investments, it won’t be enough to fund the climate transition,” said RMI’s Mann. Beyond green investment, “the world needs private investment managers to help transition existing-high emitting stock.”

Neither investors nor activists can afford to squander limited time — or capital — on sub-optimal tactics.

See the original at GreenBiz.com, https://www.greenbiz.com/article/why-divestment-doesnt-work-and-just-wont-die

CPP Investments, Research reports, Thought leadership, White papers

Investing to enable an economy-wide evolution to a low-carbon future | CPP Investments

A white paper on behalf of Thinking Ahead, the thought leadership platform of CPP Investments, a Canadian pension fund.

Challenge: Establish the case to identify, fund and support the decarbonization of essential businesses that have high emissions, but lack an affordable, near-term solution to do so.

Solution: A white paper making the case for why the successful decarbonization of strategic sectors — such as agriculture, cement, steel and others — is not only essential to meet wider net-zero ambitions, but also to sustain economic growth, stability and a responsible transition.

My roles: Research, SME interview and review, data composition, chart design/recommendation, writing and editing, design/visual editing.

View the full report at CPP Investments or download here:

CPP-grey-to-freen-financing-a-greener-future-final-2021-12Download
CPP Investments, Research reports, Thought leadership, White papers

Financing the energy transition – Green bonds in climate finance | CPP Investments

A white paper on behalf of Thinking Ahead, the thought leadership platform of CPP Investments, a Canadian pension fund.

Challenge: Introduce experts to the fast evolving market trends around green bonds and related climate-focused financing mechanisms.

Solution: Contextualize and explain market growth, challenges and the outlook for green bonds as both a tool to raise climate-focused funds and as a investment opportunity.

My roles: Research, SME interview and review, data composition, chart design/recommendation, writing and editing, design/visual editing.

View the full report at CPP Investments or download here:

CPP-Green-Bonds-financing-a-greener-future-final-2021-12-15Download

EIU - Economist Impact, Research reports, White papers

Rethinking plastics in a circular economy | EIU – Economist Impact

A research report / white paper in collaboration with Economist Impact, formerly The Economist Intelligence Unit (EIU).

Challenge: Research and document emerging advanced recycling methods (chemical recycling, biological recycling, thermochemical recycling, etc). Document and critique existing policy regimes, and emerging policy options that might accelerate the growth of plastic recycling.

Solution: Contextualize and explain a financial framework to help guide investors and business leaders in this this process.

My roles: SME wrangling and interviews, data composition, chart design/recommendation, writing, copy editing, design/visual editing.

Check out the report at Economist Impact or view and download here:

Economist-Impact-EIU-Rethinking-Plastic-in-a-Circular-Economy-2021-11Download
CPP Investments, Research reports, Thought leadership, White papers

The future of climate change transition reporting | CPP Investments

A white paper on behalf of Thinking Ahead, a thought leadership platform at CPP Investments, a Canadian pension fund.

Challenge: Make the case for more sophisticated tools to assess and compare companies’ ability to transition to net-zero .

Solution: Contextualize and explain an evolving financial framework to help guide investors and business leaders through the evaluation process.

My roles: Research, SME interview and review, data composition, chart design/recommendation, writing and editing, design/visual editing.

View the full report at CPP Investments or download here:

CPP – The Future of Climate Change Transition Reporting 2021-11Download

GreenBiz

Could a ‘carbon coin’ solve the climate crisis? | GreenBiz

Dealing with climate change can seem impossibly costly. By all accounts, the toll will be many trillions of dollars annually for many years to come.

So far, efforts have been patchy and painful. Washington is momentarily engaged in a high-wire act to fund a multitrillion-dollar, climate-focused package that could make or break Uncle Sam’s decarbonization effort.

Even more modest sums are tough. To date, rich-world pledges to subsidize poor countries’ climate costs  — to the tune of just $100 billion per year — remain unmet after a decade. Far tougher challenges and much higher costs lay ahead, so the prospects look grim.

What if there was a way we could fund the climate transition by creating a new global currency, off the books of national and corporate accounts?

The currency could be used to reward each ton of carbon abated, whether via cleaner energy, cleaner business or direct carbon removal and sequestration. Such a regime could not only turbocharge public and private climate investment. It could also pay to protect ecosystems, which today struggle to find funding. This regime would also be politically transformative. Corporate boards and policy makers could shift from fighting over funding to planning action.

What if there was a way to fund the climate transition by creating a new global currency, off the books of national and corporate accounts?

From today’s system based mostly on sticks — taxes and rules — a reward would incentivize decarbonization (carrots). Just like people, global economic systems change faster with a mix of carrots and sticks.

If any of this is sounding familiar, a similar system plays a central role in Kim Stanley Robinson’s latest work of climate fiction, The Ministry for the Future, a novel tipped as a top read by Barack Obama and Ezra Klein, among others.

In the story, as the climate crisis worsens, the world’s top central banks go from cautious recalcitrance to urgent collaboration to create a global “carbon coin” to fund decarbonization. Robinson name checks the inspiration for this financial solution as “the Chen paper.”

Carbon rewards

Turns out, Delton Chen is a real person, who co-authored the real academic paper that inspired Robinson and that informs an increasingly ambitious vision to overhaul the world’s economy: the Global Carbon Reward.

Chen’s academic roots start in Australia with a Ph.D. in engineering. Around 2013, he shifted his focus to explore the barriers to addressing climate change. Clear as the science seemed, economics emerged as the key problem. Something was not working.

At a high level, he describes the global economy as an incomplete system, missing a key price — for risk — that could help resolve the climate problem. Activists like Greta Thunberg, says Chen, argue that we already have all the facts and solutions to solve the climate crisis: “I’m saying that’s not true. We don’t have all the answers because the funda­mental economics of carbon pricing appear to be incomplete.”

To fill this gap, Chen proposes a new digital global currency, created by central banks to fund a wave of global monetary policy that he calls Carbon Quantitative Easing, or CQE. That new currency is used to pay out Global Carbon Rewards, a flow of incentive payments to permanently fund the mitigation of greenhouse gases.

Chen’s theory is complex, and much of it exceeds my financial fluency — for deeper details, see links at the end of this note. That said, its high-level features are accessible and link to real world developments.

They include:

Carbon currency. One wouldn’t use Chen’s carbon coin day to day to buy groceries or gas. Rather, each virtual coin is “struck” based on the value of one metric ton of CO2 equivalent mitigated for a century. Central banks will manage the rate of conversion — into dollars, Euros, renminbi, etc. — to appreciate annually.

Because its value rises, the coin creates a reliable price signal to help companies finance costly transition plans — such as the shift from oil to green hydrogen — that are hard to finance today absent a known future value of carbon removal.

Governance and knowledge base. This system would require the transformation of existing institutions and the development of new ones too. Longer term decisions about setting the target value of the coin would be set by an authority, guided by a cost abatement curve for the planet. As the value of the coin goes up, year after year, markets would have a rising incentive to tackle increasingly gnarly decarbonization challenges.

To manage the award of coins, this system would include a registry of registries, tracking worldwide claims on carbon abatement to avoid double counting and related abuses. Such a library of methods and successes promises other benefits, too: a global, open-source repository of best practices to accelerate mitigation.

Social benefits. Today’s carbon frameworks fail profoundly to price in harder-to-quantify damage to people, culture, and ecosystems — from the extinction of a species to the desertification of rain forest. As part of the coin’s governance system, stakeholders — from indigenous peoples to environmentalists — would have input into the valuation of reward allotments.

Precursors

As Chen’s plans gain attention, real-world financial trends that are moving in a similar direction:

Central banking. Chen’s CQE stems in part from the emergence of quantitative easing (QE) around 2008. In response to the mortgage-backed securities crisis, the Federal Reserve deployed a then new approach, which — at the risk of oversimplification — let central banks issue new debt with one hand while buying it back with the other, thereby creating new assets, and keeping credit flowing into an economy at risk of freezing up.

Skeptics howled the tactic would unleash a tsunami of inflation. They were wrong. And since then, QE has become a favorite of the world’s central banks. To date, they have funneled over $25 trillion in QE funds into the global economy, including some $9 trillion in response to COVID-19 economic disruptions, per an Atlantic Council tracker.

At a few trillion dollars per year, the river of money already created through QE is in the ballpark of the anticipated price tag for climate adjustment. And as central banks adopt the technique, they are beginning to harmonize efforts.

Chartered to maintain financial stability, sometimes measured by unemployment and inflation, central bankers are beginning to regard climate in the same frame, Chen contends. From implicitly defending housing lenders in 2008, it’s not a far leap to imagine bankers recognizing climate collapse as a fundamental systemic risk.

There are early signs of such a shift. The Network of Central Banks and Supervisors for Greening the Financial System (NGFS), launched in 2017, is a group of 80-plus central banks and supervisors, including the Federal Reserve. Besides advancing finance sector practices around climate risk management, NGFS members are working “to mobilize mainstream finance to support the transition toward a sustainable economy.”

Verification. The elements necessary to validate a global carbon currency are also coming together. Such a regime would require a platform of trusted technologies to assess and track carbon remotely in order to allocate payments.

Verification technologies are multiplying quickly. Startups such as NCX today use satellite imaging and AI processing to better monetize forestry carbon credits. A new generation of satellites able to remotely assess methane emissions is already outing previously unidentified mega-sources of GHGs. And these same systems can likewise pinpoint the growth of CO2-sequestering greenery.

Precedents for a coordinated global currency action exist.

Meanwhile, the technical and regulatory infrastructure of carbon offset tracking — however imperfect — is improving. In North America alone, a half dozen or more have emerged, including the Alberta Emission Offset System Registry and the California Air Resources Board.

Precedents for a coordinated global currency action exist, points out Frank Van Gansbeke, professor of the practice at Middlebury College, where he focuses on finance and capital markets. Though he developed his work independently from Chen’s, the two now regularly review and discuss developments.

Where Chen approaches the financial problem as a science-based outsider, Van Gansbeke comes to it as an former investment banker, focused more on working with existing financial institutions. He considers the planet’s finite carbon reserve the ultimate monetary policy target, from which all other debt instruments should be priced.

Van Gansbeke points to Special Drawing Rights as a possible precursor. Created in 1969 by the International Monetary Fund, as a kind of meta-currency, the IMF uses SDRs today to support national economies suffering balance of trade or other economic crises.

Used together with other reserves on the IMF balance sheet, SDRs could be used as collateral to create a climate coin. Designed as an anchor currency, the IMF unit would be a “stablecoin”: a blockchain-supported currency backed by a share of real assets in land and forestry, new climate technology ventures and the top 150 ESG compliant companies.

With a modified remit, says Van Gansbeke, the IMF has the operational capacity and expertise to take such a step. For their third-party verified GHG reductions, emerging market countries would receive a settlement in IMF climate coins.

The proceeds could then be used either as collateral, as means to repay debt or as a tool to undertake debt restructurings or foreign exchange intervention. The IMF climate coin would not only impart strong pricing signals across all market segments, but also facilitate capital allocation in a carbon adjusted manner.

For more Van Ganspeke’s plan, check out his detailed post at Forbes.com,

What next?

Could a carbon currency make the leap from science fiction to reality? When Chen’s seminal paper was published a few years ago, it might’ve been easy to wave it away as deeply researched wishful thinking.

But in the years since, much has changed: climate urgency is rising and the financial zeitgeist is shifting, as economists and financiers ponder the once-imponderable, such as minting a trillion-dollar coin.

Rewriting the rules of the global economy to manage a risky transition isn’t all that rare, either. In the 20th century, it happened twice: once, with the 44-nation agreement at Bretton Woods to reboot the world’s economies after World War II; and again, in the 1970s, with a shift away from the gold standard. Today, the rise of digital currencies and growing risks of climate change are so disruptive that another transformative moment seems likely.

Both Chen and Van Gansbeke are moving forward with implementation plans:

  • At the upcoming COP26 in Glasgow, Van Gansbeke and a team of finance experts will announce the Rethinking Bretton Woods initiative, in which a climate coin will be a track.
  • For his part, Chen is focusing on testing. His nonprofit is seeking sponsorship and grants to create a proof-of-concept demonstration in California. The demo will include a few other countries and will last a few years to showcase a variety of technological innovations. Central banks are not essential to this trial, says Chen, because their monetary role will be simulated.

In the realm of carbon currency, reality is beginning to overtake the hypothetical, as Kim Stanley Robinson put it in an interview with Bill McKibben:

It's one of several things that’s happened since my novel came out that made me realize that in some ways, I was behind the curve in Ministry for the Future.... I found it very encouraging because we need these things. And there’s a general tendency over social media to doom and despair. We cannot get into doom. We have to actually look at all of the good work that's already being done.

For more on Chen’s work, start with the news page at his GCR site. To hear him explain the program in de-tail, check out episode 57 of the Carbotnic podcast before diving deeper into Chen’s writings. 

Originally published at GreenBiz.com https://www.greenbiz.com/article/could-carbon-coin-solve-climate-crisis

Research reports, SED - Smart Energy Decisions

State of vehicle fleet electrification | SED

Working with the content director at Smart Energy Decisions, led the data graphic design and drafted the copy for this piece of original, survey-based market research looking at trends in vehicle fleet electrification, on behalf of NRG.

View the full report here, at Smart Energy Decisions: https://www.smartenergydecisions.com/research/2021/10/18/research-the-state-of-vehicle-fleet-electrification 

Smart Energy Decisions presents The State of Vehicle Fleet Electrification, a first-of-its-kind study to explore key dynamics driving the transition to electrified commercial fleets. Sponsored by NRG Energy, exclusive survey results reveal drivers and barriers experienced as organizations advance toward fleet electrification. Among areas explored in the study are operating models, intentions to electrify, the decision-making process, where growth is expected, benefits already achieved, and how best to plan the journey.

Or download directly, here.

SED-NRG-State-of-Fleet-Vehicle-Electrification-Final-as-publshed-2021-10Download