Sustainability Newsletter – December 2023

COP28, the world’s largest convention on climate change, is underway in Dubai from November 30 to December 12, 2023. This year’s event takes stock of the global progress towards the Paris Agreement goals, but finds that the world is far off-track in limiting global warming to 1.5°C above pre-industrial levels.

Center-stage discussions have been focusing on how to accelerate climate action and manage its costs. Some key issues and latest developments relevant for businesses, include:

• Reducing emissions from heavy-emitting sectors: Some 50 oil and gas companies representing more than 40% of global oil production have backed the Oil and Gas Decarbonization Charter, pledging to deliver net zero operations by 2050 and work towards industry best practices in emissions reduction. According to the IEA, the industry’s own emissions need to decline by 60% by 2030 to align with a 1.5°C scenario. Separately, a new Industrial Transition Accelerator was also launched to catalyze decarbonization across heavy-emitting sectors and to unlock investments that could scale the implementation and delivery of projects needed to cut emissions.
• Accelerating renewable energy: More than 20 countries, including the US and Canada, have launched a declaration to triple nuclear energy by 2050, pledging to support the development and construction of nuclear reactors and mobilize investments, including to encourage financial lenders’ inclusion of nuclear energy in lending policies. Similarly, some 118 countries led by the EU, pledged to triple global renewable energy capacity by 2030 with targets to increase installed capacity to 11,000 gigawatts (GW) and double the rate of global energy efficiency improvements to 4%. The EU announced 2.3 billion euros to support the pledge over the next two years.
• Addressing methane pollution: 155 countries have signed-up to the Global Methane Pledge since it was introduced at last year’s COP27. This year, over USD $1 billion in new grant funding has been mobilized, which triples previous annual funding levels, and will catalyze billions more for urgent project investment. Additionally, Canada unveiled draft regulations to reduce methane emissions in the upstream oil and gas sector by at least 75% by 2030. The regulation would eliminate routine industry venting and flaring and establish new performance standards for leak detection and repair, and an audit system to validate company results.
• Implementing a global carbon market: Rules governing the standards for high quality credits in a UN-sponsored Article 6.4 global carbon market are yet to be decided. The Article 6.4 Supervisory Body recently agreed a framework on project methodologies and carbon removals after two years of talks. If agreed by COP Parties, the first methodologies may be released in 2024 which could enable project registrations The first credits could be issued towards the end of 2024. Additionally, the Energy Transition Accelerator (ETA) – a carbon credit and finance platform launched at COP27 by US Special Presidential Envoy for Climate John Kerry – has published a core framework on how it will work. The ETA could mobilize USD $72 to $207 billion in transition finance by 2035.

In recent months, the UN released several reports all urging for a ‘clear turning point’ at COP28 and for national delegates to not only agree stronger climate action, but to demonstrate how they will deliver on their goals.

Key reports informing these discussions include:

• Global stocktake report takes inventory on where the world stands on climate action every five years. The first-ever stocktake will conclude at COP28.
• Technical report on the global stocktake identifies the key areas needed to bridge the gaps in the implementation of the Paris Agreement. The report makes clear there has been some progress on climate action but much more needs to be done.
• Report on governments’ views on the global stocktake reveals that despite divergent views on how to limit global warming to 1.5°C, there is a broad consensus that the pace of climate action has been insufficient. The report is a blueprint on what the final outcome of the global stocktake could look like.
• Report on nationally determined contributions (NDCs) concludes that while emissions won’t rise after 2030, they lack the necessary rapid downward trend. To achieve emissions peaking before 2030, the report emphasizes deploying enhanced financial resources, technology transfer and market-based mechanisms.
• Report on long-term low-emission development strategies looks at countries’ plans to transition to net-zero emissions by or around mid-century. The report urges that if all long-term strategies are fully implemented on time, greenhouse gas emissions could be roughly 63% lower in 2050 than in 2019.

For COP28 to be a success, it is expected that leaders of countries, companies and cities will address these action gaps with new emissions reduction plans, climate finance commitments, renewable energy targets and more.

The World Resources Institute (WRI) published its State of Climate Action 2023 report ahead of the final phase of the global stocktake, translating global collective progress towards 2030 and 2050 targets into 42 key climate action indicators.

The findings reveal insufficient progress has been made globally, with 41 of 42 assessed indicators deemed ‘off track’ for 2030. Setbacks include an increase in public financing for fossil fuels and a rise in global deforestation. However, there is one bright spot with the growth in electric vehicle passenger car sales – up from 1.6% in 2018 to 10% in 2022. In total three-quarters of the indicators show change is heading in the right direction, but that the pace of change is insufficient.

To meet 2030 targets, the report advocates for urgent acceleration over this decade across all sectors, including increasing the annual growth rate for solar and wind power generation to 24%, a sevenfold acceleration in coal phase-out, a sixfold expansion of rapid transit, reducing deforestation four times faster, an eightfold acceleration towards healthier diets, significant scaling of carbon removal to between 30-690 MtCO2 per year, as well as increasing climate finance by nearly $500 billion per year.

The potential for transformative change is still possible across the world’s highest-emitting sectors with appropriate leadership, smart policies, incentives, innovation and strong institutions.

Breakthrough Energy released its State of the Transition 2023 report, which examines the evolving climate innovation landscape and the developing technologies that are helping to decarbonize the highest emitting sectors.

According to the report, there are ‘five grand challenges’ which align to five activities in the global economy that are responsible for 100% of all global greenhouse gas emissions: electricity (29%), manufacturing (29%), agriculture (20%), transportation (15%) and buildings (7%). The report discusses the latest technologies, policies and challenges in decarbonizing each of these sectors.

In particular, the report calls out the importance of hydrogen, carbon removal and electric grids to transition these sectors. Hydrogen plays a key role in decarbonization, yet the issue is less about supply and more about developing market demand quickly enough. Carbon removal is necessary to cut historic emissions, but necessitates a hybrid model that straddles nature-based and engineered removal to offer a more cost-effective solution. For electric grids, there has been significant progress in producing clean electricity but challenges remain in the transmission infrastructure – for instance the US may only achieve 20% of its billion-tons reduction goal without a more improved grid.

The report provides a scorecard on what is needed to accelerate the clean transition in these highest-emitting sectors and the role that investors, technologists and policy makers can play in this evolving space.

The Net Zero Tracker released a new analysis showing half of the world’s largest 2,000 companies (representing $27 trillion) have set a net zero target. The milestone was reached as the 1000th largest company recently set a net zero target, increasing the total number of companies with net zero targets to 1,003 in October 2023 – up 40% from 702 in June 2022.

However, many of the world’s largest publicly-listed companies have not yet set any form of emissions reduction target. The analysis underscores the urgency for enhanced integrity in corporate mitigation goals. In the last Net Zero Tracker report in June 2023, only 37% of corporate net zero targets fully cover Scope 3 emissions, and only 13% specify quality conditions under which any offsets would be used.

Net zero commitments can offer a valuable framework to steer companies, their value chains and investors, through an efficient transition. However, this is contingent on the commitments being established on a foundation of strength and transparency.

The Science Based Targets initiative (SBTi) initiated a pilot phase on science-based target-setting for buildings. The draft guidance and tools will help companies along the buildings value chain to establish 1.5°C-aligned emissions reduction targets for both in-use operational and embodied emissions in buildings. The pilot phase encourages participants to utilize their datasets to identify any necessary amendments and ensure that resources are applicable across regions and businesses. Interested parties should consult the SBTi’s terms of reference and submit their application by December 10, 2023.

Guidance is now also available for companies looking to establish targets limiting the use of freshwater resources. The World Resources Institute (WRI) published 5 takeaways for companies setting science-based freshwater targets,complementing the recent release of the Science Based Target Network (SBTN)’s Freshwater Hub. The methodology, developed by WRI, SBTN and other partners, contains key guidance in: 1) The need for companies to assess impacts on nature, 2) Evaluate impacts across value chains, 3) Set location-specific targets, 4) Focus on nutrient impacts on water quality, and 5) Set more prescriptive targets focused on quantity and quality thresholds based on the best available hydrological science. Further work is underway to expand the methodology.

Companies should get started on their science-based target-setting journeys, leveraging available resources and monitoring for new developments.

ASCOR (Assessing Sovereign Climate-related Opportunities and Risks) is an investor-driven initiative aiming to create a publicly accessible tool to assess countries on their climate change efforts. ASCOR has published an updated methodology that refines their framework by incorporating feedback from a public consultation earlier this year and reflecting new indicators and metrics to evaluate how countries are managing their low-carbon transition.

The framework assesses countries’ progress according to three pillars: 1) Emission Pathways, which includes emissions trends, 2030 targets and net zero targets, 2) Climate policies, which includes climate legislation, carbon pricing, fossil fuels, sectoral transitions, adaptation and just transition, and 3) Climate finance, which includes international climate finance, transparency of climate costing and spending, and renewable energy opportunities.

The tool is designed to help investors in their sovereign bond investment decision-making, encouraging a more explicit consideration of climate change factors. The project seeks to encourage engagement between issuers and investors, and facilitate financing for climate change mitigation and adaptation.

Carbonplace, the world’s only bank-led global carbon credit transaction network, unveiled strategic partnerships with key carbon market entities. The collaborations aim to provide buyers and sellers with enhanced access to high-quality carbon credits and detailed data insights to address current challenges around transparency, security, and efficiency in the global voluntary carbon market.

Notably, the partnerships with BeZero Carbon and Verra will support Carbonplace’s commitment to clear and comprehensive credit quality data to ensure credits adhere to the highest benchmarks. Price transparency and project information will be enhanced through collaborations with Viridios AI, AlliedOffsets, Treefera, and Rubicon Carbon to help Carbonplace users with price and project comparability for their carbon credit portfolios. The partnership with Oka introduces a first-of-its-kind carbon insurance, helping to de-risk investments from unforeseeable post-issuance risks.

Carbonplace, likened to the SWIFT of carbon markets, has positioned itself as a critical infrastructure, connecting banks, clients, and market participants in a quickly evolving carbon market. The partnerships follow significant investments by nine founding banks, including CIBC.

The EU has advanced several key policies that further support its commitment to climate neutrality by 2050. Here is a quick snapshot:

• The Carbon Removal Certification Framework (CRC-F) proposes a voluntary EU-wide certification framework for Carbon Dioxide Removal (CDR) certificates. The framework would apply quality criteria by an independent certification body before an EU-recognized carbon removal certificate is issued. The framework covers different types of carbon removals, including 1) Carbon farming, which enhances carbon capture in, or reduces carbon release from, a biogenic carbon pool; 2) Permanent carbon storage, such as direct air capture with carbon storage (DACCS) or bioenergy with carbon capture and storage (BECCS); and 3) Long-lasting carbon storage in products or materials (such as wood products). The framework is designed to encourage deployment of, and investment in, carbon removal technologies and initiatives and to reduce the risk of greenwashing. The proposal was adopted by the European Parliament and will now enter into negotiations with the Council and Commission before it can be ratified into law.
• In parallel, the Net Zero Industry Act (NZIA) which is part of the European Green Deal, aims to bolster the EU’s manufacturing capacity for clean technologies through green incentives to industry. Supported technologies include solar PV, onshore and offshore wind, battery and storage technologies, heat pumps and much more. Notably, an amended proposal now expands this list to include nuclear, sustainable aviation fuels, carbon capture and storage, and CDR. CO2 storage targets are also incorporated into the policy’s scope, with at least 50 million tons by 2030, and higher future goals by 2035, 2040 and 2050. The Act also classifies projects as either net-zero technology manufacturing or net-zero strategic projects to support proposed accelerated permitting timelines. The proposal was adopted by the European Parliament and will move to negotiations with Council on the final shape of the law.
• The European Green Bonds standard creates uniform requirements for issuers of bonds that wish to use the ‘green bond’ designation aligning with the EU taxonomy for sustainable activities. This standardization aims to enhance consistency and comparability in the green bond market, fostering confidence among investors and preventing greenwashing. The regulation includes a registration system and supervisory framework for external reviewers of European green bonds. The proposal was approved by Council and will come into force next year.

These policies underline that the transition to climate neutrality can bring significant opportunities for economic growth, markets and jobs, and technological development.

The UK Transition Plan Taskforce (TPT) has issued additional tools for preparers and users of the TPT Disclosure Framework, which was originally released in October to help UK companies set credible climate transition plans as part of annual reporting.

The new tools include a high-level sectoral summary outlining decarbonization levers, metrics and targets for 40 sub-sectors. The summary guidance, which aligns with existing disclosure standards, will be updated in February 2024 to incorporate the feedback from a public consultation that closed on November 24, 2023.

Additionally, the TPT has published seven sector deep dives covering guidance for asset managers, asset owners, banks, food and beverage, electric utilities and power generators, metals and mining, and oil and gas. This guidance is also subject to further feedback from a public consultation, which will run until December 20, 2023.

TPT Disclosure Framework represents another step towards building a common language and approach for corporate transition planning, which will help to equip investors with the information they need to finance the transition at speed and scale.

The U.S. Department of Energy (DOE) announced it has allocated up to US $3.5 billion from the Bipartisan Infrastructure Law to enhance the domestic production of advanced batteries and materials. The initiative seeks to fortify US competitiveness in the rapidly expanding battery market while supporting clean energy transitions and addressing national security concerns by reducing reliance on foreign entities.

The funding will establish or upgrade facilities for critical battery-grade minerals, precursor materials, components, and cell and pack manufacturing. The initiative aligns with the administration’s goal of achieving a net-zero emissions economy by 2050 and for electric vehicles (EVs) to make up half of all light-duty vehicle sales by 2030.

The funding opportunity is in its second phase and will prioritize next-gen technologies and diverse battery chemistries in addition to lithium-based technologies, as well as projects that will increase separation of battery-grade minerals, expand production facilities for cathode and anode materials and expand battery components.

The DOE encourages projects that benefit underserved communities and high-quality workforce development. Concept papers are due by January 9, 2024, with full applications due by March 19, 2024.

The Government of Canada released its 2023 Fall Economic Statement (FES) providing updates and new measures to advance the country’s economic plan, including a timeline to implement federal clean energy investment tax credits (ITCs) and updates on a regime for carbon contracts for difference (CCfDs), previously discussed in Budget 2023.

The clean energy ITCs will be implemented as follows, subject to the results of consultations:

• Carbon Capture Utilization and Storage (CCUS) – available from Jan. 1, 2022
• Clean Technology – available from March 28, 2023
• Clean Hydrogen – available from March 28, 2023
• Clean Technology Manufacturing – available from Jan. 1, 2024
• Clean Electricity– available from the day of Budget 2024 for projects that did not begin construction before March 28, 2023
• Expanding the eligibility for the Clean Technology and Clean Electricity ITCs will support the use of waste biomass to generate heat and electricity – available from the day of the 2023 FES
• The expansion of the Clean Electricity ITC would be available from the day of Budget 2024 for projects that did not begin construction before March 28, 2023
• Budget 2023 announced that labour requirements to pay prevailing union wages and provide apprenticeship training opportunities will need to be met in order to receive the maximum credit rate of the Clean Technology, Clean Hydrogen, Clean Electricity, and CCUS ITCs. The effective date for the labour requirements will be November 28, 2023.

It was also announced that the Canada Growth Fund will be the principal federal entity issuing carbon contracts for difference. The Canada Growth Fund will allocate up to C$7 billion of its current C$15 billion in capital to issue all forms of contracts for difference and offtake agreements.

Carbon Removal Canada, an independent policy initiative that launched in November, published a new report Ready for Removal: A decisive decade for Canadian leadership in carbon dioxide removal. The report defines the CDR need in Canada and outlines the case for building a domestic carbon removal industry.

Canada’s favorable conditions, such as abundant land, extensive coastlines, and significant geologic storage potential, coupled with its clean energy resources and innovative culture, position it strategically for a robust carbon dioxide removal (CDR) sector. Furthermore, establishing an industry capable of annually removing hundreds of millions of tonnes of CO2 by mid-century would not only support Canada in meeting its national climate goals by offsetting challenging emissions, but would also contribute to Canada’s competitiveness in the global clean economy.

The report suggests that a sizable CDR industry could generate substantial economic benefits, including over 300,000 jobs, a $143 billion increase in GDP, and support for key sectors. This will require bold policy decisions and concerted efforts from the broader CDR community to shape the industry’s trajectory and capitalize on the economic opportunities presented by CDR.

State of U.S. bipartisan infrastructure law awards, by sector and funding type.

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