In a new 148 page detailed science-based report the European Environment Agency has declared unequivocally that it will meet its 2020 greenhouse gas emission targets, possibly with some time to spare. Most interestingly, the report identifies that all parts of the European plan are needed to meet the goal and that, as experts have suggested for some years, there is no silver bullet that has led to this successful outcome. This achievement is likely to put Europe in the lead of future global policy formulation as the only major trading block to have achieved its climate change objectives. Some of the key highlights of the report that may be relevant to Canadian business include:

• although the recession had a significant impact in reducing emissions, these fell more in sectors covered by the European Emissions Trading System than in other sectors.
• carbon sink activities, such as reforestation, are contributing about 1.5% of total emissions to emissions reduction [note that, perhaps confusingly for readers without strong involvement in the field, both carbon sink activities and flexibility measures are reported as an increase in the carbon emissions budget rather than as a decrease in emissions]
• flexibility measures, such as emissions reduction projects in developing countries, are contributing a further approximately 1.9% of reduction of total emissions to emissions reduction
• almost all individual European countries that signed on to the Kyoto Protocol are also on target to meet their commitments
• Europe is on track to achieving 20 % of total energy consumption being renewable energy in 2020
• only 4 EU countries (Bulgaria, Denmark, France and Germany) will meet the 20% energy efficiency target by 2020, meaning that many energy efficiency opportunities are likely to remain untapped for further work

This report, and an Executive Summary, is available at http://www.eea.europa.eu/publications/trends-and-projections-2013

Stranded assets are those investments which lose their value as a result of unanticipated or premature write-offs, downward revaluations or which are converted to liabilities. Stranded assets are of concern to investors because they mean that the value of the investment is lost prematurely. However, environmental advocates often seek to trigger stranded assets as a way of reducing environmental risks. One example is the current effort to encourage universities and other large investors to withdraw their investments from fossil fuel companies. If these initiatives were fully successful, which not even the environmental advocates who are promoting divestment believe is likely, then the companies’ stock prices would collapse and the value of the asset would be lost – a typical ‘stranded asset’ situation.

Currently, campaigners are encouraging universities and large investors to eliminate fossil fuels from their investment portfolios. The Stranded Assets Programme at the University of Oxford’s Smith School has undertaken research on the risks that arise from this type of campaign. Its latest publication, Stranded Assets and the Fossil Fuel Divestment Campaign: What Does Divestment Mean for the Valuation of Fossil Fuel Assets?, states that the aims of the fossil fuel divestment campaign are threefold: (i) ‘force the hand’ of the fossil fuel companies and pressure government—e.g. via legislation—to leave the fossil fuels (oil, gas, coal) ‘down there’ ; (ii) pressure fossil fuel companies to undergo ‘transformative change’ that can cause a drastic reduction in carbon emissions—e.g. by switching to less carbon-intensive forms of energy supply; (iii) pressure governments to enact legislation such as a ban on further drilling or a carbon tax. Inspiration for the fossil fuel divestment idea leans heavily on the perceived success of the 1980s South Africa divestment campaign to put pressure on the South African government to end apartheid.

The researchers have found that:

• Direct impacts on equity or debt are likely to be limited. The maximum possible capital that might be divested from the fossil fuel companies represents a relatively small pool of funds. Even if the maximum possible capital was divested from fossil fuel companies, their shares prices are unlikely to suffer precipitous declines over any length of time.
• Any divested holdings are likely to find their way quickly to neutral investors. Larger fossil fuel funded sovereign wealth funds such as Norway or Abu Dhabi may even welcome the opportunity to increase their holding of fossil fuel companies—businesses they understand very well—particularly if the stocks entail a short-term discount.
• Direct effects on coal valuations are likely to be more substantial. Coal companies represent a small fraction of market capitalisation of fossil fuel companies and coal stocks are also less liquid. Divestment announcements are thus more likely to impact coal stock prices since alternative investors cannot be as easily found as in the oil and gas sector.
• Negative screens or passive funds that exclude fossil fuel companies will quickly emerge. Some banks, particularly multilateral institutions such as the World Bank, may stop lending to fossil fuel companies, particularly coal.
• Since a divestment campaign has little hope of directly impacting the future cash flows of fossil fuel companies, neutral debt or equity investors have little cause to shun to fossil fuel companies.
• Divestment announcements are more likely to impact coal stock prices.
• Divestment campaigns will probably be at their most effective in triggering a process of stigmatization of fossil fuel companies. We find that even if the direct impacts of divestment outflows are limited in the short term, the campaigns will cause neutral equity and/or debt investors to lower their expectations of fossil fuel companies’ net cash flows in the long term. The process by which uncertainty surrounding the future of fossil fuel industry will increase is through stigmatization. In particular, the fossil fuel divestment campaign will increase legislative uncertainty and potentially also lead to multiples’ compression causing more permanent damage to the companies’ enterprise values.
• Stigmatization, while likely to cost fossil fuel companies billions, is unlikely to threaten their survival. Coal companies will probably be the hardest hit segment of the market.

The report makes recommendations to investors, fossil fuel companies, and campaigners on how to manage these risks.

The full report is available at http://www.smithschool.ox.ac.uk/research/stranded-assets/SAP-divestment-report-final.pdf

At its meeting in Montreal last week the International Civil Aviation Organization took a big step towards a global strategy to reduce greenhouse gas emissions. We must not get too excited, however, because the vote was primarily only for a program to develop a plan for implementation in 2020. Nevertheless, if ICAO follows through, and there will be more votes on the plan between now and 2020, then aviation could be the first industry sector to adopt a global initiative designed to reduce GHG emissions. Imagine how much of a model this could be if other industry sectors: mining and metals, oil and gas, shipping, and more, followed through with similar initiatives.

Known by ICAO as a market based measure (MBM) it is anticipated that the ICAO approach will not be cap and trade, like the temporarily suspended  European Union program for airlines, but may be in the form of a levy on GHG emissions, possibly with an accompanying offset program funded by the ICAO. While they supported the vote for this program at ICAO, Europe is understood to be considering its options for its own cap and trade program and may decide to reinstate it when the suspension ends next year.

The ICAO initiative is likely to add to already increasing air fares and air cargo costs. Air cargo represents less than 10% of world trade by volume but more than 30% of world trade by value. Either way, air freight is a part of many of the products on the market today.

The ICAO is a specialized agency of the United Nations established to sets standard and regulations for aviation safety, security, efficiency and regularity, as well as for aviation environmental protection.

The ICAO announcement of the adoption of the GHG program is available at http://www.icao.int/Newsroom/Pages/mbm-agreement-solid-global-plan-endoresements.aspx  [note that the typo is part of the url, or you may go through the ICAO main page at http://www.icao.int/

Research undertaken by university-based psychology researchers through a survey of a sample of the American population has studied the linkage between conspiracy theory and the rejection of science. The paper, published in the peer-reviewed journal PLOS ONE, presents a number of interesting findings, including the following excerpted from the report:

• American Conservatives, but not Liberals, trust in science has been declining since the 1970’s. Climate science has become particularly polarized, with Conservatives being more likely than Liberals to reject the notion that greenhouse gas emissions are warming the globe. Polarization is particularly pronounced with respect to climate change: People who embrace a laissez-faire vision of the free market are less likely to accept that anthropogenic greenhouse gas emissions are warming the planet than people with an egalitarian-communitarian outlook.
• Conversely, opposition to genetically-modified (GM) foods and vaccinations is often ascribed to the political Left although reliable data are lacking.
• Conspiracist ideation is associated with the rejection of all scientific propositions tested. The involvement of conspiracist ideation in the rejection of science has implications for science communicators.
• Free-market worldviews are an important predictor of the rejection of scientific findings that have potential regulatory implications, such as climate science, but not necessarily of other scientific issues.
• The role of worldview may be attenuated by underscoring the breadth of consensus among scientists: When people are informed of the pervasive consensus about the fundamentals of climate change, they become more likely to endorse the basic premise of global warming, and they attribute a larger share of the observed warming trend to human CO2 emissions.
• Opposition to vaccinations involves a balance between two opposing forces, namely a negative association with free-market endorsement and a compensatory positive association with conservatism. The different polarity of those associations is consonant with the notion that libertarians object to the government intrusion arising from mandatory vaccination programs, whereas people low on conservatism—who, by implication, are liberal or progressive—may oppose immunization because they distrust pharmaceutical companies. The latter link, however, was far from overwhelming.
• Opposition to GM foods was not associated with the worldview constructs. This result is striking in light of reports in the media that have linked opposition to GM foods with the political Left based on statements by political figures. The results provide no evidence that this link holds in the American population at large. This finding is consonant with the fact that among liberals trust in science has remained high and stable since the 1970s.
• People who endorse one conspiracy are known to be likely to also endorse multiple others; thus, the belief that AIDS was created by the government has often been found to be accompanied by the conviction that the FBI killed Martin Luther King or that MI6 killed Princess Diana. Endorsement of conspiracy theories is also associated with people’s own willingness to engage in a conspiracy themselves when deemed necessary. It is not surprising, therefore, that conspiracist ideation has been found to be associated with stable personality variables. We [the researchers] nonetheless prefer to view conspiracist ideation as a cognitive style rather than a potential personality trait because if conspiracist ideation is considered at a cognitive level, its analysis can reveal why it is antithetical to scientific reasoning in several ways.

The complete article, The Role of Conspiracist Ideation and Worldviews in Predicting Rejection of Science, by Stephan Lewandowsky, Gilles E. Gignac, and Klaus Oberauer, is fascinating reading for those involved in communications and dialogue about environmental issues. The article contains much more information from the research and is available at  http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0075637#pone.0075637-Ding1

In a draft report prepared for submission to the United Nations Framework Convention on Climate Change the US government has identified a series of “additional measures” that it expects will enable it to achieve something close to its target of a 17% reduction in greenhouse gas emissions by 2020. The report is currently up for public consultation with comments due by October 24, 2013.

The additional measures, yet to be presented with program details, include:

• tax credits that currently have sunset dates, such as the production and investment tax credits, to be extended indefinitely;
• federal energy appliance and equipment energy efficiency standards and building codes to be updated periodically;
• power sector clean energy deployment to achieve 58% clean energy generation by 2020 – assuming clean energy generation includes electricity from renewables and nuclear with half credit for electricity from efficient natural gas generation.

An alternative scenario to the above will include additional energy savings primarily in areas not targeted by regulations and incentives in Scenario 1, including:

• reductions in vehicle miles travelled;
• improvements to existing residential and commercial building shells;
• accelerated deployment of new industrial combined heat and power (CHP) capacity;
• reductions in industrial energy demand in several subsectors;
• 62% clean generation by 2020.

Further initiatives under either scenario will include:

• abatement of methane emissions relative to business as usual (BAU) in the range of 25 to 90 MtCO2e;
• HFC emission reductions by the year 2020 relative to BAU in the range of 100 to 135 MtCO2eq.

The report is available at http://www.state.gov/e/oes/climate/ccreport2014/ by clicking on U.S. Biennial Report  near the bottom of the page. The full report presented through chapter by chapter links on the same web page, describes measures that the US is already taking to reduce GHG emissions and their expected results. All of the above additional measures are likely, in GallonDaily’s opinion, to provide significant new business opportunities for environmental service companies for at least the next six years.

Researchers with the Markets and Enterprise Program of the World Resources Institute, a respected Washington, DC, based ngo, have reported that water risks may already be affecting corporate bottom lines and that some major investors are clamouring for comparable data about water risks that may affect their investments. For example, Calvert Investments found that Hanes Brands, a manufacturer of clothing, lost $5.2 billion as a result of cotton supply shortages triggered by the 2011 US drought. Moody’s Investor Service has released warnings about risk to credit ratings in the mining industry, as companies spend more on infrastructure in response to growing water risks. Deutsche Bank Securities estimates that the recent US drought, which affected nearly two-thirds of the country’s lower 48 states, will reduce GDP growth by approximately one percentage point.

WRI states that, at the World Economic Forum in Davos this year, experts named water risk as one of the top four risks facing business in the twenty-first century. Similarly, 53% of companies surveyed by the Carbon Disclosure Project reported that water risks are already taking a toll, owing to property damage, higher prices, poor water quality, business interruptions, and supply-chain disruptions.  According to WRI, more and more investors are clamoring for sustainability reports and disclosure initiatives to identify corporate water risks, but the process of actually evaluating water supply risks, particularly on a comparable basis, is challenging. For WRI, as well as for many international agencies, water risks include floods, drought, and pollution.

WRI is one of the members of a Global Compact team working to reconcile the differences between various terms and reporting methodologies. The results will be published in 2014 as new Corporate Water Disclosure Guidelines under the UN Global Compact. For those interested in getting a head start on compliance, a public exposure draft is available at http://ceowatermandate.org/

WRI commentaries on corporate water risks are available at http://insights.wri.org/topic/water-risk

A family-owned dry cleaner claims to offer “the highest level of custom dry cleaning and shirt laundry. We have earned our reputation for excellence, through our dedication to providing the finest service.” However, the claim apparently did not extend to environmental performance. Environment Canada reports that in July 2012 the Company was found to be improperly storing and containing tetrachloroethylene (also known as perchloroethylene or PERC) waste water and residue.

In a negotiated resolution agreement the Company was fined $60,000, to be paid to the Environmental Damages Fund, and must publish an article regarding the results of their case in a textile industry magazine.

The high fine was the result of new penalties under the Canadian Environmental Protection Act which were adopted in June 2012. Environment Canada states that this is one of the first cases in which the new higher minimum fines were imposed. 

The risk of getting caught under federal environmental regulations may be declining. Environment Canada reports 28 successful prosecutions in 2009, 40 in 2010, 39 in 2011, 26 in 2012, and 7 so far this year . However,  there does appear to be a trend of increased penalties for those cases that are successfully prosecuted.

Details of the dry cleaner case, of other successful Environment Canada prosecutions, may be found at http://www.ec.gc.ca/alef-ewe/default.asp?lang=En&n=8F711F37-1 

A Quebec company that makes cast aluminum residential and commercial exterior light fixtures has been fined $5,000 and ordered to pay $15,000 to the Environmental Damages Fund after pleading guilty to using trichloroethylene (TCE) in quantities exceeding the permitted amount. The company must also publish an article in the business magazine Les Affaires and train company officials on the criminal consequences of failing to comply with the Canadian Environmental Protection Act.

The company uses TCE for degreasing of metal parts used in manufacturing light fixtures. Use of TCE is regulated under CEPA and it is listed in Schedule 1 of the Solvent Degreasing Regulations. In addition to the fine the company must publish an article in the business magazine Les Affaires and train company officials on the criminal consequences of failing to comply with CEPA. Reports indicate that the Company has about 140 employees.

It is likely that many smaller companies are out of compliance with environmental laws and regulations, sometimes because of ignorance of the law and failing to recognize which substances are regulated and when permits are required. GallonDaily recommends that it is wise for all small and medium sized manufacturing and processing industries to commission periodic environmental audits so that out of environmental compliance situations can be identified and corrected before they are found by environmental enforcement officers. If a company has reason to believe that non-compliance situations do exist, involvement of their lawyer, or an environmental lawyer, in such an audit may provide further protection from enforcement using the environmental audit as evidence during and after correction of any problems identified.

The Environment Canada announcement of the court decision can be found at http://www.newswire.ca/en/story/1232931/snoc-2010-inc-fined-20-000-for-violating-the-canadian-environmental-protection-act-1999

According to a research team from the Energy Futures Lab and Grantham Institute for Climate Change at Imperial College London, the answer is a very clear yes. Not only that but it will cost only 1% of global GDP and it can be done with technologies which either currently exist at commercial scale, or which have been demonstrated at sub-commercial scale but which are still awaiting full-scale deployment.

A large part of the transformation, the report states, comes from deploying new technologies which save energy, avoid increasingly expensive fossil fuels, and in many cases are projected to fall in cost over time.

Interestingly, the report states that the globally-averaged CO2 intensity of electricity generation can be reduced from a projected level of around 500 g/kWh in 2050 to less than 100 g/kWh. Then much of the emissions reduction will flow from conversion of energy-using systems to electricity, accompanied by a switch to zero-carbon or near-zero-carbon generation technologies, including carbon capture and storage (CCS), nuclear and renewables.

There needs to be a shift towards electrification of industrial manufacturing processes, building heating systems, and vehicle propulsion systems. A range of technologies will be required to achieve this, including increased penetrations of electric arc furnaces in steelmaking, heat pumps in buildings, and battery electric and hybrid vehicles in road transport.

Energy efficiency will need to improve in order to achieve relatively low-cost CO2 reductions which will help keep the overall energy system transition cost manageable. As such, the authors envisage a 19% improvement in industrial energy efficiency, and a 33% improvement in both the transport and buildings sectors.

The world will need to shift from its current overwhelming reliance on fossil fuels (especially in transportation), although these will still be a significant part of the non-transportation 2050 energy mix. This decreasing reliance is important if we are concerned about uncertainty around future fossil fuel prices, or indeed about rising fossil fuel prices.

The report concludes that

• Without concerted action and a continuation of historic trends in energy usage,  global fossil fuel consumption will increase by 50% compared to current levels.
• Achieving a much lower level of CO2 emissions in 2050 (around 15 Gt per year, which is broadly consistent with a 2˚C global warming limit) will cost of the order 1% per year of  global GDP by 2050 in a low fossil fuel price case, and much less than this if fossil fuel prices are higher.
• Such a transition will require a broad range of low-carbon technologies deployed across all sectors of the economy, underpinned by the decarbonisation of the power sector, within which the precise mix of technologies does not affect the overall cost significantly. In each low-carbon scenario the unit electricity costs increase by about 40% (in the high fossil fuel price case) to about 70% (in the low fossil fuel price case)  compared to the low mitigation scenario, but even in the low carbon scenarios, electricity cost increases would not keep pace with increases in per capita GDP to 2050.
• As well as electricity decarbonisation, achieving energy efficiency across the whole economy is critical, with the reported low-carbon scenario showing an approximate 30% reduction in end-use energy demand in 2050, compared to the low mitigation scenario.
• In the low-carbon scenario, fossil fuel demand would reduce by almost 40% in 2050, compared to the low mitigation scenario.
• Every one of the ten [global] regions studied makes a significant contribution to the overall achievement of the low-carbon transition. [The authors] believe this transition to still be achievable and affordable.

GallonDaily remains unconvinced by some elements of the Imperial College low carbon scenario but is is encouraging to see at least one team of experts reporting that a 50% reduction in emissions by 2050 is still possible.

The full report is available by following a link from http://www3.imperial.ac.uk/climatechange/publications/collaborative/halving-global-co2-by-2050

The World Energy Council is an organization which represents the entire energy spectrum, with more than 3000 member organisations located in over 90 countries and drawn from governments, private and state corporations, academia, NGOs and energy-related stakeholders. Its reports attract more than passing attention.

Its 2013 World Energy Trilemma report may attract more than passing attention in Ottawa. The report includes the WECs Energy Sustainability Index, an index that ranks countries in terms of their ability to provide a secure, affordable, and environmentally-sustainable energy system. The top five countries in this composite index are Switzerland, Denmark, Sweden, Austria, and the United Kingdom. In sixth place: Canada. In 15th place: the United States. Canada scored very high on energy security and energy equity but fell behind on environmental sustainability, where we were 60th out of 129 countries. The United States was in 86th place on that same sub-index.

More important than an index of countries may be the report’s main conclusions. GallonDaily summarizes these as:

• To make sustainable energy systems a reality, energy executives must be more proactive in sharing their knowledge, insights, and experiences with policymakers and regulators.
• The private sector [should] play a lead role in the technology development and innovation that will reduce the cost of energy and enable countries to lower their carbon emissions.
• Today, 17% of the global population is without access to electricity and 41% lacks access to clean cooking facilities, especially in Sub-Saharan Africa, Eastern Asia, Southern Asia, and South-Eastern Asia. First, the energy industry and also other investors should engage in dialogue with public stakeholders to identify and lower the barriers impeding investment. Second, the energy industry needs to be more proactive in assisting developing countries with adopting proven technologies, in part by working with them to explore ways to reduce the cost of technology transfer.
• Creating a master plan to achieve diversified, and therefore sustainable, energy systems worldwide may take years to get right, especially given recent dramatic shifts in energy supply and the lack of a global agreement on the target profile of a future energy system. All public and private stakeholders should start down the path now. Too much is at stake for them to hold back. The investment required will take decades to fully transform energy systems and infrastructure. A start needs to be made immediately if sustainable energy systems are to be developed at an affordable cost. It is time to cut through the present uncertainty and to translate the consensus identified into actions on the ground.

Subtitled Time to get real – the case for sustainable energy investment, this 109 page report should be required reading for all involved in the energy business around the world. It can be found by following the link at http://www.worldenergy.org/publications/2013/world-energy-trilemma-2013

By the way, in case it is not yet obvious, the WEC defines trilemma as the triple challenge of finding solutions that support secure, affordable, and environmentally-sensitive energy.