on for the Clim mati ate C for han In g ic e I g nd te u a s r t t r S y CLIMATE CHANGE BUSINESS JOURNAL® Volume VII, No. 10-12 Fourth Quarter 2014

Climate Change Service Climate Change Industry Drivers 2014 Providers Track Growth to While climate change continues to be discussed at the global, regional, national, Non-Regulatory Drivers state and local levels, distinct market drivers to propel growth in climate change industry segments remain few and far between. Nevertheless a number of corpo- he December 2014 Lima climate rate and government initiatives are keeping technology and services providers busy. change talks concluded with an outcome that was relatively Greenhouse Gas Reporting: Consultants help clients derive bottom line value Tsuccessful—as long as one didn’t expect from GHG and sustainability metrics; CPG and Retail focus on supply chains 4 a breakthrough agreement. Negotiators Climate Finance: The private sector favors mitigation projects, but consultants agreed on some key building blocks and see a trend towards funding more resilience and adaptation work. AECOM interim steps to prepare for the December Australia and independent consultant Michael Furniss refect on public and 2015 Paris meeting—most importantly, private sector fnancing for adaptation 9 that each country provide its Intended Nationally Determined Contribution Q&A With Climate Advisers: Andreas Dahl-Jørgensen, Managing Director (INDC) for greenhouse gas (GHG) of Climate Advisers, discusses the fast-moving development of corporate reductions by March 2015. commitments to source “zero-deforestation” commodities 14

At Paris in December 2015, nations Clean Power Plan will create demand for counsel, consulting and scenario planning: will agree on—or fail to agree on—post- CCBJ explores the opportunities with Analysis Group, Black & Veatch, Crowell and Mor- 2020 climate change mitigation and ing, ICF and Leidos Engineering 17 adaptation goals. Based on conversations ERM on carbon and climate risk management: CCBJ talks to ERM Principals with analysts and our own history of ob- Simon Aumonier and Gregg Demers 24 serving (from afar) climate negotiations, we’re confdent in predicting that COP 21 Mott MacDonald brands new Climate Resilience Division and sharpens its in Paris will yield nothing like a binding focus on adaptation work 25 agreement. KPMG South Africa sees the private sector knuckle down to GHG reporting and mitigation as carbon legislation approaches 28 Tere is little political support in the United States, Canada, Japan or Australia More cities take action on climate change 31 for a binding international agreement like Kyoto. Indeed, ratifcation of such a treaty by the U.S. Senate is a political impos- mutually agreed upon reporting method- Tis would be highly advantageous for sibility—and will likely remain so for at ologies, countries and NGOs will be able GHG mitigation, as investment would be least a decade if not much longer. to monitor how nations are performing drawn to the least-cost, highest-impact relative to their goals, and apply pres- Instead, Paris will almost certainly reduction measures. sure to meet targets that are missed and yield a commitment to continue the increase ambitions as targets are achieved. But while there’s a growing trend “pledge and review” process, in which toward creating national emissions trading countries commit to INDCs and then Whether an international carbon trad- schemes—more than 60 have been an- report their progress periodically. Trough ing scheme emerges is a major question. 2 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

CLIMATE CHANGE BUSINESS JOURNAL® nounced or are in various stages of devel- gas turbine power—and potentially even opment—key nations and regional blocs nuclear power. See the story on page 17. have signaled that they intend to keep Vol. 7, No. 10/11/12 R5, --/, 5)(5),*),.#)(-5.)5, *),.5 their markets domestic. None of China’s ISSN 1940--8781 and manage their GHGs has been grow- Fourth Quarter 2014 seven regional ETS pilots will allow for- ing from investors, NGOs, wholesale eign ofsets for compliance, while Europe customers and other stakeholders in re- Editor- in-Chief has signaled that it wants to end the use cent years; and a growing number of large Grant Ferrier of foreign ofsets for compliance. (Europe companies are measuring and reporting is still linked with New Zealand and had Senior Editor their GHG emissions, most of them to been expected to link with Australia until Jim Hight CDP, formerly the Carbon Disclosure that nation did an about-face on climate Project. Managing Editor policy in 2013). Lynette Thwaites Large consumer goods companies On the adaptation side, Lima provided and retailers in particular are becoming Contributing Editors an optimistic sound bite as pledges to the increasingly sophisticated in measuring, George Stubbs Green Climate Fund exceeded $10 bil- reporting and managing their GHGs— Brian Runkel lion. “Tis was an important milestone to and letting the public and stakeholders Charles Helget both demonstrate the confdence of donor Andrew Paterson know about their eforts. Te story on countries in the GCF and build trust with Walter Howes page 4 describes the key trends and issues developing countries that the funds would Tom Aarts in this growing market. fow,” wrote a team of World Resources Research Analysts Institute staf members just after Lima R5)'')#.35-/**&# ,-5(5'(/- Celeste Ferrier concluded. However, the United States’ facturers who source palm oil for their Jenny Christopher contribution of $3 billion will be difcult products are increasingly committing to to get through Congress. (For more on Subscriber Services zero-deforestation production standards, climate fnance, see story in this edition Moe Wittenborn which will have profound implications for on page 15). preserving and rebuilding carbon stocks Climate Change Business Journal® in tropical forest. A Q&A with a leading newsletter is published in quarterly Drivers in Absence of Coordinated expert in this topic on page 14 explains feature editions and special National or Global Policy supplements by Environmental why there’s reason for hope with this new Business International Inc., 4452 As CCBJ has been emphasizing for at corporate initiative. Park Blvd., Suite 306, San Diego, least fve years, however, there are robust R5 !#)(&5 Ŀ),.-5, 5&-)5!#(#(!5#(5 CA 92116. 619-295-7685 or email and growing forces—completely inde- [email protected] signifcance, including not just states and pendent of global negotiations—driving provinces like California and Quebec © 2014 Environmental Business investment in climate change mitigation International Inc. All Rights Reserved. but also cities. Between the C40 Cities and adaptation: This publication or any part may Climate Leadership initiative and the not be duplicated, reprinted or R5.#)(&5(5, !#)(&5*)&## -5)(.#(- recently announced Compact of Mayors, republished without the express ue to gain strength, with the key examples at least 228 cities had GHG reduction written permission of the publisher. in North America being California’s goals that equate to an annual reduc- How to subscribe climate policy and President Obama’s ex- tion of 454 million metric tons of carbon Annual subscriptions are $995 for ecutive branch actions. In this edition, we dioxide-equivalent (MtCO2-e) by 2020 individual or single-use subscriptions; look at the early activity by electric power and a cumulative total of 13 GtCO2-e by corporate electronic subscriptions market participants and their professional 2050. Climate action by cities is covered start at $1,250 (up to 5 users). To service consultants and advisors to plan on page 31. order or for more information call for the EPA’s Clean Power Plan. (619) 295-7685 x 15, email info@ It is likely that many more cities and climatechangebusiness.com, or go While it’s still early in this game, and states will set GHG reduction targets, to www.climatechangebusiness.com, where you can also sign up for the key court decisions are looming, the Clean especially as NGOs and activists become complimentary CCBJ Weekly News. Power Plan will likely strengthen market more frustrated with the lack of progress drivers for renewable power, energy ef- in senates and parliaments and on the ciency, energy storage and combined-cycle international stage. 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 3

20 Years Since COP 1; Still Not Much products necessary to create a low-carbon able diferences in segment growth rates. Policy Glue to Hold a Global Climate economy continues to grow apace. In low-carbon power, the decline in wind Change Industry Together energy installations dropped U.S. revenues When CCBJ frst started using the in spite of strong growth in solar, but 2015 will mark 20 years since the frst term climate change industry in 2007, global growth was sustained, albeit at a global climate meeting, the frst ‘Confer- the prospects for national and even global 6% rate that was 20 points lower than the ence of the Parties’ meeting or COP 1. policy were not as dim as they have been segment’s average growth the previous Te December 2014 meeting in Lima that past fve years. And while cohesive seven years. In carbon markets, the decline was COP 20 and also incorporated CMP policy around limiting or putting a price in EU carbon permit prices to below 5 10 or the tenth Meeting of the Parties to on carbon emissions would lead to a more euros/tonne and a decrease in volume the Kyoto Protocol. At COP 1 in Berlin, cohesive climate change industry, CCBJ contrasted with the nascent activity in negotiators committed to “protect the still believes it is valid to view the industry California and regions of China whose climate system for the beneft of present in its entirety as presented below, or at growth still has a long way to go to bal- and future generations of humankind, on least as a collection of loosely-connected ance the volumes in the more mature EU the basis of equity and in accordance with segments with some common drivers. system. For the consulting & engineering their common but diferentiated responsi- and project management community, spe- bilities and respective capabilities.” Te global climate change industry accounted for $1.45 trillion in revenues cialty services in adaptation and climate During the last 20 years, the scientifc in 2013, up 4% from 2012. Te United change consulting grew in 2013, presaging consensus on the anthropogenic causes States accounted for 21% of the market in more work in mitigation and adaptation R of climate change has become much 2013, or $300 billion, with some notice- in the future. stronger—and climate The 2013 Global Climate Change Industry ($bil) change denial and skep- USA USA 2013 Global Global 2013 % USA in ticism are slowly but 2012 2013 Growth 2012 2013 Growth 2013 steadily withering away Low-Carbon Power 48.7 39.6 -19% 337.6 356.6 6% 11% in the face of perceived Energy Efficiency & DR 55.8 57.3 2% 175.7 180.4 3% 32% climate change impacts. Energy Storage 3.8 4.7 17% 8.4 9.6 14% 49% While activists and Green Buildings 68.2 76.7 14% 211.7 235.3 11% 33% scientists justly argue that we’re not doing Transportation 101.4 115.4 16% 555.5 594.2 7% 19% enough fast enough, the Carbon Markets 1.8 2.1 37% 97.5 63.9 -34% 3% momentum of mitiga- Adaptation 0.6 0.7 14% 1.9 2.2 14% 33% tion activity continues Research/Consulting&Engineering 3.4 3.3 1% 9.6 10.0 3% 33% to build, and demand Climate Change Industry 284 300 15% 1,398 1,453 4% 21% for the services and Source: Climate Change Business Journal; Environmental Business International, Inc., San Diego, Calif. DR=demand response The U.S. Climate Change Industry 2005-2013 ($bil) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Low-Carbon Power 10.8 13.2 19.5 27.6 33.1 28.9 37.5 48.7 39.6 Energy Efficiency & Demand Response 37.8 41.8 45.0 49.2 49.1 51.9 54.8 55.8 57.3 Energy Storage 2.3 2.5 2.8 2.9 2.9 2.9 3.3 3.8 4.7 Green Buildings 24.6 33.8 45.3 55.4 56.7 53.4 59.8 68.2 76.7 Transportation 45.2 60.4 69.3 80.7 71.3 77.2 87.1 101.4 115.4 Carbon Markets 0.1 0.1 0.2 0.4 0.6 0.9 1.3 1.8 2.1 Adaptation 0.1 0.1 0.2 0.3 0.4 0.5 0.6 0.6 0.7 Services: Consulting & Engineering 2.2 2.2 2.6 2.8 3.2 3.1 3.3 3.4 3.3 Total U.S. Climate Change Industry 123.2 154.0 185.0 219.3 217.2 218.8 247.6 283.8 300.0 USA Growth 24.7% 25.0% 20.1% 18.5% -1.0% 0.7% 13.2% 14.6% 5.7% USA % of Global 34% 34% 32% 30% 28% 27% 26% 29% 30% SOURCE: Climate Change Business Journal; Environmental Business International, Inc., San Diego, Calif., based on totals for 48 subsegments. Low-Carbon Power includes wind, solar, bioenergy, geothermal and wave & tidal equipment and power sales, but not nuclear or hydroelectric; Energy storage includes utility-scale, vehicle traction batteries and fuel cells; Transportation includes hybrid, electric and alternative fuel vehicles, biofuels, planning, public transit and high-speed rail. For government services, i.e., transit and rail, only revenues for vendors are reported. 4 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

GHG Management is a reporting for a while are also seeking to for a carbon-constrained future. Te num- Growing Focus For Consumer derive more bottom-line value from their ber should be more, but it’s now a trend carbon and sustainability metrics. “What and more are adopting this approach as Goods Firms and Retailers we’ve seen is that the reporting activity in a tool to send the right signals internally Consultants are just getting started on some cases ends up driving development around energy and carbon.” the complex challenge of supply chain of new programs and aligning those to Tere continue to be new entrants, so emissions; CDP, ERM and Deloitte offer business values,” said Matheson. perspective. to speak, to the climate reporting market. “With our clients, we’ve seen increas- From 2013 to 2014 alone, CDP saw an s CCBJ readers know, policy and ing focus on trying to measure the value increase of more than 500 companies regulations are not the only driv- of what they’re doing across sustainability, disclosing through their platform, from ers for greenhouse gas (GHG) with GHGs and other relevant metrics, 4,500 to more than 5,000. using indicators to assign dollar values,” mitigation by major corporations. Pres- “Companies that are just starting to A said Matheson. sure from investors, NGOs, wholesale and report, whether they’re consumer facing retail customers and other stakeholders “Tere are inefciencies that lead to frms or not, are likely doing that because has been increasing in recent years. As a GHG emissions and some of these can a shareholder or major customer is re- result, a growing number of large com- be ironed out to yield cost savings and questing they do it. Some stock exchang- panies are measuring and reporting their greater productivity, whether that’s energy es, such as the U.K.’s and South Africa’s, GHG emissions, most of them to CDP, use or materials use,” said Simon Aumo- are requiring climate change reporting for formerly the Carbon Disclosure Project. nier, prinicipal partner with ERM in the listed companies,” said Matheson. United Kingdom. “We’ve done some work “Tis year over 5,000 companies glob- Tere’s also competition among frms recently in Europe to help companies ally have reported to CDP on climate for strong CDP scores, and some indica- identify ways of infuencing staf behavior change, including 70 percent of the S&P tion that frms that perform better on to cut energy costs and GHGs.” 500,” said Paul Simpson, CEO of CDP. climate change reporting are also per- Large consumer goods companies Simpson says he has seen this trend forming better fnancially (see chart). evolve over the 14 years of CDP’s and retailers in particular are becoming Interest in Carbon Labeling Wanes increasingly sophisticated in measuring, existence. “Big corporations who take reporting and managing their GHGs— climate change seriously increasingly view Consumer preference, however, is and letting the public and stakeholders disclosure as a part of their strategy,” said not a strong driver for corporate GHG know about their eforts. Simpson. “Tey want to reduce GHGs, reporting and management. “Te report- reduce climate risk and use this data as ing in CDP is not likely a major part of “A lot of consumer facing brands have a business opportunity. Companies learn a decision-making process for individual been evolving from reporting because they a lot from the information and data that consumers when choosing products in were requested to do so by a customer or they prepare and provide to CDP.” a store,” said Matheson. “Firms may be investor, to using the opportunity to pro- communicating it to consumers in bul- actively get the message out about what Internal Carbon Pricing let points that are a subset of what they they’ve been doing,” said Sarah Mathe- Some 29 large U.S.-based frms have report in other forums, but not in the son, a sustainability senior manager for internal prices on carbon ranging from $6 level of detail that the data are reported in Deloitte Consulting LLP. “In many cases to $60 per metric ton of CO2-equivalent forums such as CDP.” there’s much more transparency about emissions, according to a December 2013 where there are gaps in their programs Interest in carbon labeling has waned, CDP white paper. In some cases, these are and where they have aspirations to grow even in the United Kingdom where the publicly reported future cost projections— into new areas of focus. Forestry, water PAS 2050 carbon product lifecycle as- ExxonMobil assumes $60 per tonne cost and waste are now increasingly part of the sessment protocol was developed. Car- by 2030—and in many cases they are narrative.” (See Q&A with Andreas Dahl bon-labeling pilots “have been relatively internal pricing schemes that shift money Jørgensen for more on corporate zero-de- inefective,” said Aumonier. “TESCO at from manufacturing units to a fund for forestation commitments.) one point had a pilot with carbon labeling GHG reduction projects. Simpson told on over 1,000 products, but that’s not a Large companies of all types, includ- CCBJ that worldwide the number is very large proportion of the products on ing consumer-facing frms that have been about 150. “Tese are companies planning its shelves.” 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 5

“Unless you’re reaching out across are “minimal when considered over the proportion of GHGs they allocated to an entire product category or an entire product’s lifecycle.” Wal-Mart—and they used diferent ap- store, people aren’t going to appreciate or proaches to estimate the allocation. By way of illustration, Tesco and respond to such labels,” said Aumonier. IKEA—which incorporated estimates of “Calculating scope 3 emissions from “We now have a new Product Envi- supply chain emissions—reported that purchased goods is complex and especially ronmental Footprint initiative at the EU scope 3 emissions accounted for 89% and complex for the world’s largest retailer,” level, which is currently in its pilot phase,” 97%, respectively, of their total corpora- which had $473 billion in 2013 revenues, said Aumonier. “Tat may lead to greater tions emissions. Other companies’ scope states Wal-Mart’s report. emphasis on product carbon footprint 3 emissions accounted for between 1% Te frm estimated that total scope 3 disclosures and labeling. Te aim is to and 9% of reported emissions, and one emissions “could be as much as ten times create a single market standard for green frm, Costco, reported no scope 3 emis- that of our own Scope 1 and Scope 2 products so that consumers can compare sions. (See chart, Carbon Disclosures and emissions.” Tose emissions totaled 19 the environmental merits of products.” Targets) MtCO2e in 2013, according to the CDP Retailers Challenged By Supply “Scope 3 is critically important, and report. And as Wal-Mart’s report notes, Chain GHGs the supply chain is the biggest contribu- supply chain reporting has a long, long tor to scope 3 emissions by a mile,” said way to go, as does the whole industry. While consumers haven’t yet become Simpson. “Most large companies can get “No company knows exactly what the a driving force for managing and reduc- some handle on their transportation and emissions are in their supply chain,” said ing the GHG associated with consumer logistics emissions by working out miles CDP’s Simpson. “Tey’re working to un- products, the large retailers and brand traveled and the average fuel efciency derstand where the hot spots are and what manufacturers—wholesale customers for of their truck feet, or they can get that they can do about those.” a vast number of supplier companies—are information from their logistics compa- focusing more and more attention on nies, such as UPS. Supply chain is a much Wal-Mart and other large retailers their supply chains, the source of most of bigger challenge.” and consumer goods frms are sponsoring the GHG emissions associated with their multiple eforts to improve methodologies products and revenues. Wal-Mart Supply Chain Just Getting for supply chain GHG accounting. Two Started on Measuring GHGs But it is much more difcult to accu- of the leading eforts include Te Sustain- rately measure supply chain emissions— Wal-Mart Stores, the world’s larg- ability Consortium (TSC) and CDP’s classifed as scope 3, along with capital est retailer which as of November 2014 supply chain program. goods, transport, waste and other emis- operated 11,156 stores under 71 diferent TSC engages more than 90 frms sions associated with the goods and ser- banners in 27 countries and purchased as well as academic, government and vices a company purchases—than direct products from about 100,000 suppliers, NGO researchers to develop “transparent GHGs from onsite combustion (scope acknowledged in its CDP report for 2013 methodologies, tools and strategies for a 1) and indirect emissions from purchased that is it just getting started measuring the new generation of products and supply electricity, heat or steam (scope 2). GHG emissions associated with its supply networks that address environmental, so- chain. Analyst frm Verdantix reported in a cial and economic imperatives,” according June 2014 report on the performance of Four hundred of Wal-Mart’s largest to its website. 14 of the largest global retailers that only suppliers of goods who participated in For members only, the TSC has de- Tesco and IKEA were doing a good job CDP’s 2013 supply chain survey allocated veloped Category Sustainability Profles fully capturing scope 3 emissions, includ- 31 million MtCO2e to Wal-Mart. Tese for 93 product categories ranging from ing those from supply chains. suppliers accounted for roughly 15% of aerosol air fresheners to yogurt, from U.S. sales and 8% of global sales. Others were reporting only easier- bananas to video game consoles. Te to-quantify scope 3 emissions, especially Suppliers used diferent methodolo- CSPs summarize “the best available, cred- business travel, and thus vastly under- gies for estimating emissions, and many ible and actionable knowledge about the stating their true carbon footprints. For of their calculations weren’t verifed by a sustainability aspects” of the categories. a retailer, Verdantix noted, the GHG third party, according to Wal-Mart’s CDP It also ofers key performance indica- emissions from electricity associated with report. Suppliers also reported between tors that companies can use to assess and the time a product is held in inventory 1% and 25% levels of uncertainty in the 6 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 track the sustain- Carbon Disclosures and Targets for 14 Retail Firms ability performance

of suppliers; and a

one-page “Sus-

tainability Snap- LVMH Carrefour Costco Aeon H&M John Lewis Partnership Metro Group IKEA CVS Caremark TJX Companies Tesco The HomeThe Depot Walmart shot” summary of Whole Foods “issues, hotspots Scope 1 and improvement Scope 2 opportunities” for Scope 3 product categories. Scope 3 Emissions For its 2013 Employee commuting supply chain Business travel questionnaire, Electricity and gas not in CDP worked with iscope 1 and 2 64 of the largest Product use consumer-facing Bought goods & services companies to Capital goods survey their sup- Downstream transport pliers—of which Upstream transport Disclosure 2,868 responded. Raw materials CDP’s sup- Goods transport ply chain report Agricultural emissions based on the survey Waste disposal doesn’t reveal much End of life treatment about the level of Water treatment & supply rigor with which Leased assets/Outscg. suppliers measured Source: Verdantix Carbon Strategy Benchmark: Retail Sector and reported their emissions, nor what supply chains, and which sections of those scopes 1 and 2 and at a minimum busi- methods they used to allocate emissions, supply chains are most likely to provide a ness travel for scope 3. Te other scope nor how many submitted results that had return on investments in terms of reduc- 3 categories—capital goods, purchased been verifed by a reliable third party. ing emissions and generating monetary goods and services, upstream transporta- It did show that the percentage of savings,” according to the report. tion, et cetera—are more challenging to capture and calculate across companies companies disclosing scope 1 and scope Still, this is top-down stuf, which with so many diferent data sources and 2 emissions declined from 2011 to 2012 companies can only use to a certain extent. data types.” before increasing slightly in 2013 to 65% Tose who are serious about reporting for scope 1 and 64% for scope 2. their supply chain emissions accurately CDP ofers a fee-based platform for Suppliers, of course, also have suppli- must do “bottom-up assessment of the surveying suppliers to capture the scope ers and are responsible for other types of emissions throughout the lifecycle of key 3 emissions from suppliers that is used by scope 3 emissions. Of the 2,868 respon- products and services,” notes CDP. And Wal-Mart, PepsiCo, Unilever, SC Johnson dents, 42% said they reported scope 3 this is no easy task. and others, according to CDP website. “Other companies choose to ask their own emissions in 2013, although most likely “For most companies, the majority of sustainability questions such as Procter & didn’t report their supply chain emis- scope 3 GHG calculations are not being Gamble, which is doing its own surveys sions, following the pattern that Verdantix done inside any piece of software, but using an Excel based form that they send revealed for the large retailers. rather are being done very manually, and out to their suppliers to populate their in some cases with outside consultant Analysis of the 2013 CDP supply Supply Chain Environmental Sustainabil- help,” said Matheson. “A lot of great tech- chain data showed, for the frst time, ity Scorecard. Tose types of requests are nical platforms are coming out around “where emissions are generated within becoming pretty common.” 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 7

Te GHG and sustainability re- can be delivered cost-efectively. Tey “are more than twice as likely to see a quests—many of them coming through avoid allocating resources on calculating fnancial return from their emissions re- with diferent questions and formats— academically precise fgures that provide ductions investments, and almost twice as represent an increasing reporting burden no greater beneft.” likely to reduce emissions than those who for supplier frms. don’t engage with their value chain.” “You can use macro economic tech- As discussed in CCBJ’s Q2 2014 edi- niques like environmental output analysis In this regard, Wal-Mart’s experience tion on energy efciency and green build- to give very broad fgures that could be is relevant. In 2010, Wal-Mart com- ing, overlapping reporting requirements helpful in identifying which parts of mitted to eliminate 20 million tCO2e make sustainability reporting difcult for a complex supply chain in a complex cumulatively from its global supply chain large corporate property owners—and business are responsible for the greatest by the end of 2015. Te frm estimated it even makes consulting in this space a proportion of emissions upstream,” said had eliminated more than 7.575 million challenging business. Aumonier. “We use those techniques, rec- tonnes by the end of 2013 and was on ognizing that they have their limitations.” track to cut a cumulative 18 million by For supply chain emissions, the chal- the end of 2014, then exceed its goal the lenge is multiplied many times. Matheson “Te next stage is to start to map out following year. told CCBJ that suppliers are eager for the supply chains themselves, but in a their large customers to align their report- relatively straightforward manner, using Tese reductions were accomplished ing standards and formats to reduce the generic suppliers and generic data,” said by projects designed to cut energy usage, reporting burden. Aumonier. “Ultimately to pursue the ISO avoid methane emissions from food waste, standard or GHG protocol you’d need increasing recycling and other measures. “While larger reporting groups such more precise data for the actual supply For example, an initiative in Brazil to -5, (5 &5-.. 5/-.#(#&#.35 chains involved. Tat’s more onerous but improve the sustainability of products  ("',%65( ,!35.,65 5(55 also more exciting and rewarding.” and packaging inspired leading beverage have worked hard to align and link their supplier Ambev to increase the recycled questions, many companies like Kohls or “Our clients will make judgments as content of its Guaraná Antarctica PET Procter & Gamble have their own surveys to what is their objective in starting to bottles to 100%, reducing emissions by to suppliers which often go beyond GHG look at these issues,” said Aumonier. “If more than 500 tons of CO2e annually, information only or company specifc you want to look at a specifc product, you according to Wal-Mart’s website. programs around sustainability,” she said. need to look at a specifc supply chain.” Te retailer also has three “system Of course, a complex challenge can After Reporting, Mitigation innovation” initiatives in which it focuses translate into a signifcant business op- on “big-ton GHG opportunities. “Tese portunity for consultants—although more Te CDP 2013 supply chain report include: consistent reporting formats and stan- showed scant progress in GHG reduc- dards would help frms to scale a climate tion projects. “Seven of the ten sectors R5 Fertilizer optimization, in which disclosure consulting practice. report investment [in GHG reduction Wal-Mart is “asking stakeholders and projects] falling from 2012 or 2011 levels, suppliers to develop, support and adopt  ]-5
/')(# ,50 ,, 5.".55&).5 or from both,” states the report. “Tey also tools, programs and information that can be done with generic data. “Te more increasingly focus on investments with help producers optimize nitrogen use, precise numbers you want for your foot- shorter payback periods, which tend to yield and proftability; print and the more complex your supply, deliver only incremental benefts.” chain the more complex it is to measure.” R5 Increasing the supply of recycled CDP sees a lot of potential for collabo- plastics for the vast volume of plastic “What really drives up costs is having ration between major wholesale customers packaging that Wal-Mart and other to apply a very rigid methodology and and their suppliers, reporting 427 GHG retailers rely on; and then having to have that methodology cutting initiatives at suppliers that were verifed,” said Aumônier. “Ultimately, if prompted by their customers. And the R5 Driving energy efciency in suppliers’ people are not especially responding to potential for more action is huge: respon- factories by integrating “energy-ef- precise fgures, then there may be just as dents identifed “2,186 customer-supplier fciency technologies and practices into much utility in ballpark numbers. Tese collaborative opportunities that have not standard business procedures. “ can give you a sufcient understanding yet been implemented,” states CDP, add- How one judges Wal-Mart’s GHG of a footprint to allow you to act, and ing that customer-supplier collaborations reduction projects and its transparency 8 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 with regard to its overall carbon footprint “Tere are 15 categories within scope ings,” said Matheson. “Maybe there are probably depends on how one feels about 3 that may or may not apply to every contracts that could be streamlined and Wal-Mart. Te retail chain is the focus of company,” said Deloitte’s Matheson. “Te materials that could be substituted to a great deal of criticism from unions and majority of companies who have started shift purchases to a supplier with a lower NGOs who contend its negative impacts with scope 3 are most likely doing the environmental footprint.” on workers and communities outweigh more obvious ones frst, especially busi- “Tis is true of all carbon accounting. the benefts it brings in jobs and low- ness travel.” Suddenly you’re looking at everything prices. “One of the more challenging ones using a common metric—greenhouse As might be expected, some of the to calculate accurately for a retailer is gases—and you start to see hotspots, op- frm’s critics have dismiss Wal-Mart’s capital goods,” said Matheson. “Tat portunities that you didn’t see before.” ambitions and claims around GHG miti- would include everything involved in the Tese linkages between GHG man- gation. In November 2013, the Institute manufacturing of their feet vehicles and agement and bottom-line value were ),5 & 5 &#( 5*/&#-" 5&7 ,.]-5 construction of their stores, distribution borne out to some extent by recent CDP Assault on the Climate: Te Truth Behind centers and ofces.” analyses that show higher return on equity One of the Biggest Climate Polluters and for frms with high CDP performance Slickest Greenwashers in America. “Suddenly you’re looking at scores. While CDP is careful not to imply While CCBJ didn’t analyze the report everything using a common causation, Simpson says this data shows, in depth, one key analytical faw jumped metric—greenhouse gases— “at a very high level, taking action on cli- )/.95 5)(. ( 5.".5&7 ,.]-5 mate change can deliver superior fnancial GHG intensity was three times as high and you start to see hotspots, returns.” as Costco’s, without noting that neither opportunities that you didn’t “Tis dispels the myth that taking frm’s GHG reported intensity included see before.” action on climate change might damage supply chain emissions. A more objective proftability,” said Simpson. “We think research outft would also have mentioned doing a good job managing your climate Costco’s poor scope 3 showing on the Quantifying emissions in this category change impacts and exposures is a proxy Verdantix scorecard and the fact that requires calculating the embodied energy for good management.” WalMart is starting to analyze its sup- and carbon in vehicles and buildings—not pliers’ emissions and investing in supplier how much fuel or electricity they con- “Companies that are well run and en- GHG mitigation projects. sume. “Tere’s work being done to develop ergy efcient save money on energy costs,” emission factors for capital goods but said Simpson. “Companies with strong But the attack underscores the issues right now there’s not a lot of diferentia- research and development investment are on the line for Wal-Mart and other major tion between diferent types of trucks for innovating new low-carbon products and retailers and consumer goods frms. With example, so the emission factors don’t take services.” supply chain emissions representing 90% into account a greener manufacturing or more of their GHGs, these frms must process, if applicable.” “HP’s Moonshot server system for disclose their scope 3 reporting method- example uses 89 percent less energy than ologies and the boundaries they use to “When we talk with our clients about comparable servers.” calculate and allocate supplier emissions. what scope 3 categories to look at, we suggest they focus on those where they “As yet fnancial markets are not Other Scope 3 GHGs Can Also Unlock can infuence change and derive value in pricing in action on climate change, and Value the future,” said Matheson. “For example, that’s frustrating for corporations who are a consumer goods manufacturer could acting. Tis data does show a real op- While supply chain emissions are the take inventory of the upstream impacts of portunity for investors to place premiums biggest scope 3 source for retailers and the metals, plastics and other materials it on companies that will be winners in the consumer goods manufacturers, other R uses. A food manufacturer can look at the transition to a low carbon economy.” scope 3 categories represent large op- corn, sugar and fertilizer that goes into a portunities for better measurement and box of cornfakes.” reporting—not to mention mitigation of GHGs and bottom-line cost savings. “Often they’ll fnd surprises that can lead to cost savings as well as GHG sav- 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 9

Climate Finance Ramps Up ated by Congress. Coverage by Politico. measured accurately and not simply clas- Slowly com and other news media indicated that sifed as climate fnance because a donor such an appropriation is doubtful. Politico country labeled a certain pot of money as Fast-start fnance exceeds commitments, +/). -5& #(!5 (. 5(5)/- 5 */- “climate fnance.” As the Cancun agree- but deadlines loom to fulfll Cancun licans stating their opposition. Although ment states, the $100 billion should be pledges; AECOM Australia sees increase environmental NGOs point out that the “new and additional,” money, not existing in adaptation work. Bush Administration made a $2 billion ofcial development assistance (ODA) commitment to a World Bank climate with a new brand. inancing low-carbon development fund, U.S. Congressional politics have and climate-resilient communities A great deal of FSF money may not trended far more conservative since 2010. and infrastructure in developing have been new and additional. A Novem- Fcountries will be one of the major chal- Increasing pledges to the GCF will be  ,5hfgi5, *),.5)(5535 650 ,- lenges of the 21st Century. Given the fact vitally important to securing an agreement seas Development Institute and the Insti- that developed countries are most respon- at the December 2015 Paris UNFCCC tute for Global Environmental Strategies, sible for historic greenhouse gas (GHG) climate meeting. However, with European reported that “Contributing countries emissions—while much of the necessary economies still growing at less than 1%, have taken diferent approaches to defn- GHG mitigation must be accomplished and the OECD warning in November ing what qualifes as FSF … For the most in poorer developing countries—global 2014 about “serious risks of persistent part, they have not used strict thresholds climate negotiators have agreed that very -.!(.#)(_5#(5/,)* 65/--#5(5 *(65 for assessing what is additional.” large amounts of climate fnance, at favor- the prospects for bulking up the GCF are “[Many countries] reported as FSF able or even concessionary terms, must be certainly not excellent in the short term. projects, programmes and funds that channeled from developed to developing Te GCF will also face issues that they were already supporting before the countries. have come up in the short history of Fast FSF period,” according to the report. Of At the 2010 Cancun global climate Start Finance. As the frst phase of large- the top fve donor countries—Germany, meeting, developed countries promised scale climate fnance, the FSF experience Japan, the UK, USA and Norway—only to ramp up climate-related fnance to can be highly relevant to future climate Germany mobilized a new source of developing countries to reach $100 billion fnance initiatives—not to mention those fnance (carbon revenues). annually by 2020, starting with $30 billion consultants and professional service Te FSF experience also makes clear in “fast start fnance” from 2010 through frms who seek to win contracts to help that the GCF may not become the 2012. According to data from World developing countries mitigate and adapt dominant or even the most important  -)/, -5 (-.#./. 5(5)." ,5-)/, -65 to climate change. climate funding vehicle. While the UN, developed countries exceeded that com- developing countries and NGOs want it mitment by the end of 2012, pledging $35 Show Us The (New) Money to become the central fnancing vehicle, billion. FSF pledges and disbursements have ." 5 5, *),.5/."),-5*)#(.5)/.5.".5 Now the focus is on the Green Cli- tapered of since 2012, although projects “this approach would be a major departure mate Fund, established by the UNFCCC funded are still underway. Te actual from the current practices of countries to receive and disburse the $100 billion in amounts, sources and destinations of f- such as Japan and the USA, which have annual contributions pledged at Cancun. nancial fows are difcult to track because relied heavily on bilateral channels, and Administered by the World Bank, the of the complexity of the architecture of have also counted diverse forms of fnance GCF reported having received total con- funders, recipients and go-betweens. as FSF.” tributions of only $37 million at the end Money from donor countries is chan- of Q1 2014. Adaptation Funding Grows From neled through a variety of multilateral Small Percentage But at the G20 meeting in November entities as well as committed bilaterally 2014, a dozen developed countries made through agreements between countries. Te Cancun agreement also specifed or increased pledges totaling $10 billion. Tere’s also private climate fnance, most that climate funding would be balanced of which is project fnance equity or debt between adaptation and mitigation Te United States and Japan led the for renewable energy projects. (See chart.) projects, and the GCF has agreed to this pledge round, committing $3 billion and balance as well. Trough 2012, however, Developing countries and climate $1.5 billion. Te funding from the United mitigation projects received 71% of the NGOs are eager for these funds to be States, however, will have to be appropri- $35 billion in FSF climate funding, ac- 10 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 Top 10 Recipients of Fast Start Finance and Ofcial Development Assistance

Adaptation FSF Mitigation FSF Total FSF Total ODA

Amounts Amounts Amounts Amounts Top 10 Top 10 Top 10 Top 10 (Million US$) (Million US$) (Million US$) (Million US$) (2011 figures) 1. Bangladesh 272 India 5,308 India 5,676 Afghanistan 5,160 Democratic 2. Vietnam 266 Indonesia 1,950 Indonesia 2,878 Republic of 4,423 Congo 3. Philippines 235 Brazil 1,098 Brazil 1,622 Vietnam 4,091 4. Niger 224 Kenya 891 Mexico 1,176 India 3,634 5. Ethiopia 178 South Africa 836 Vietnam 1,140 Pakistan 2,307 6. Pakistan 160 Mexico 758 Kenya 1,046 Kenya 2,105

7. Cambodia 156 Thailand 644 South Africa 843 Haiti 1,879

8. Mozambique 126 Egypt 538 Thailand 677 Ethiopia 1,740 9. Nepal 124 Morocco 527 Philippines 608 Bangladesh 1,636 10. Kenya 112 Vietnam 523 Morocco 592 Indonesia 1,607

Source OECD Aggregate Aid Statistics and FSF data set. Highlights indicate countries that are top-10 recipients of both ODA and FSF

),#(!5.)5." 5 5, *),.:5*..#)(5 development eforts,” said Guillaume Like his counterparts at Mott Mac- projects received only 18%, while 9% went ,/ (.7#",65(5--)#. 5#, .),5 Donald (see profle in this edition), Pru- to projects with multiple objectives. for AECOM Australia. “Tere’s greater  (.7#",5-#5.".5" ]-5&, 35- #(!5 private sector participation in mitigation an increase in adaptation funding. “Now Te report authors and consultants projects than adaptation, with industry it’s a question of facilitating that growth interviewed by CCBJ say this is mostly players and domestic capacity already notably with a better awareness of the loss due to the ability of project sponsors to established; it is also easier to measure and and damages that are associated with cur- leverage private investment and debt for report on mitigation compare to adapta- rent disasters and how these are likely to mitigation projects, most of which are tion.” increase in the future,” he said. energy-related. Tese projects also tend to be much larger ticket items, especially ,/ (.7#",5(5)." ,5)(-/&- Michael Furniss, an independent renewable energy project, public transport tants in this feld told CCBJ they see an consultant working on climate change infrastructure and efcient thermal power increasing trend toward funding resilience education and vulnerability assessment projects. and adaptation work, however. “In the in developing countries, reports a shift in early 2000s when AECOM frst began funding from mitigation to adaptation in Te average spending for mitigation working in the climate change arena in the forestry sector. “Tat’s partly because projects in the FSF period was $13 mil- earnest, investment in adaptation was a lot of the forestry mitigation has been lion, while the average adaptation-focused almost seen as a failure of mitigation,” said set up already. Tere are a lot of potential project cost $4 million, according to the ,/ (.7#",85^#( 5." (65&  ,-5, 5 ‰5*,)$ .-5(5-#&0#,)(5*,)$ .-5  5, *),.85 seeing that we need to invest in both. We that are prepared and ready to go. Te AECOM Sees Demand for Adaptation want to do as much as we can to avoid monitoring methods have been codifed, Work Increase impacts with mitigation, but you have to the trainings have been done. Te work acknowledge that there will be unavoid- isn’t done by any means, but there’s a little “Mitigation projects are generally tied able impacts and we need to prepare for bit more space now for adaptation work.” to broader energy, growth and economic them.” 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 11

Furniss says this refects the priorities In September 2014, the World Bank would share technology and funding to of people in developing countries such Group announced a $100 million Pilot lower the GHGs associated with cement as the government, academic and NGO Auction Facility for Methane and Climate production in developing countries—and representatives he has worked with in Change Mitigation to stimulate invest- Nationally Appropriate Mitigation Ac- Tailand and Ecuador. “Te developed ment in projects that capture methane at tions (NAMAs). countries tend to come in to develop- landflls, livestock operations and waste- Developing countries are proposing ing countries very interested in reducing water treatment facilities. “Te develop- draft NAMA plants to the World Bank’s emissions. Tat’s important and everybody ment banks are focusing on demonstrat- ,.( ,-"#*5 ),5 ,% .5 #( --85Ļ #,5 needs to do whatever they can in that ing that low-carbon investments are not proposed eforts cover a wide range of area. But people in developing countries always the more expensive investment,” activities, from improving commercial and point out that their emissions are small -#5
 ]-5,/ (.7#",8 industrial energy efciency to developing compared to ours. Tey’re very interested new urban bus rapid transit systems and in adaptation.” Last year, The World Bank low-carbon greenfeld communities. In forestry, Furniss commented, there announced it would only fund Te NAMA process has a long way to are strong linkages between mitigation coal-fred power plants in “rare go before NAMAs can provide CDM- and adaptation. “Forests that are protected style quantifable GHG reductions that for carbon sequestration also become circumstances” for “countries will be approved for compliance by the anchor for species conservation, for with no feasible alternatives Europe and other developed country watershed protection and other ecosys- to coal” to meet basic energy governments. “I see the climate fnance tem services that are at risk from climate needs. discussion moving in the wrong direction. change,” he said. “Protected areas lessen It is treated as a political necessity to get a those risks.” (More on adaptation below.) climate deal rather than a way to increase Andreas Dahl-Jørgensen, a manag- Low-Carbon Development Still The global ambition,” said Dahl-Jørgensen. ing director with Climate Advisers, told Exception “Tere’s a faith that we can succeed CCBJ that while this kind of funding is without the price signals. People hope important it “is not creating the systemic Of course, it would be disastrous to the costs [of low-carbon technologies] go price signals that would allow the private give up on mitigation in developing coun- down fast, and that that will make public investment fows that already exist to be tries, which are building new power plants policy less important.” and developing other fossil energy re- directed from the brown economy to the sources at a fast pace to accomodate their green economy.” “We need more attention on promot- people’s needs for basic services and their ing an incentive structure for the private As covered extensively in CCBJ’s 2013 growing middle classes’ demand for com- sector,” said Dahl-Jørgensen. “It doesn’t edition on global carbon markets, the forts and conveniences that Westerners necessarily have to be fungible ofsets but UNFCCC and climate policy advocates take for granted. “For developing coun- it does have to be funding that targets, the globally are searching for private climate tries, the priority is getting people out of externality which is carbon.” fnance structures that can replace the poverty, providing access to safe water and Clean Development Mechanism, which Te critical backdrop, of course, is the ( ,!36_5-#5,/ (.7#",85^Ļ 35( 5 still exists but has become largely irrel- UN climate dialogue, in which all coun- to make quick progress, so they tend to evant since Europe changed its rules to tries need to outline their GHG reduc- take a carbon-intensive approach.” accept credits only from least-developed tion targets by Q2 2015. As discussed in Te World Bank and other develop- countries. CDM credits have also been the page one overview, the outcome of ment banks have in the last couple of trading at less than $1 for for about two Paris is likely to be a continuation of the years sought to provide more capital for years due to oversupply caused by the “pledge and review” framework, where low-carbon projects and less to high-car- recession. countries make unilateral commitments bon ones. Last year, the bank announced and report annually on their progress. De- Beyond CDM: The Search For New it would only fund coal-fred power plants veloped countries will commit to absolute Market Mechanisms in “rare circumstances” for “countries with reductions, while developing countries no feasible alternatives to coal” to meet Te two main instruments being will commit to either absolute or relative basic energy needs. discussed are sectoral crediting—in which targets, where they reduce the carbon the global cement industry, for example, intensity of their economies—as China 12 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 and many others already have done—and their current domestic pledges. Focusing assistance and capacity building project continuing to ramp up their monitoring, on tons instead of dollars will increase involving public sector managers in un- , *),.#(!5(50 ,#ŀ.#)(5B C5*,).)- ambition, and create incentives for the dertaking economic analyses of adaptation cols and procedures. private sector to align their investments. I *,)$ .-6_5-#5,/ (.7#",85 5-#5 am hopeful we can achieve such a second he expected the project would be useful in Bilateral and multilateral ofsetting bite of the apple in Paris. Tere will be securing additional adaptation funding. schemes are already emerging, led by fve years to fgure out the details of the “It will allow them to put numbers Japan with Joint Crediting Mechanism mechanisms before the 2020 commitment in front of the prospective donors, with ( JCM) that recognize credits for invest- period begins.” ments by Japanese emitters in emissions evidence of the net benefts of investing reduction projects in developing coun- Average Adaptation Project: $4 in adaptation,” he said. Tis is part of the tries. In contrast to the CDM, there is no Million long-term perspective needed by develop- central administrator and each project is ing country governments and the private administered by a joint committee made Shifting the lens back to adaptation, - .),65,/ (.7#",5-#85^)/], 5().5 up of Japanese ofcials and those from as mentioned above, participants and going to transform these countries in two the host country. California is pursu- observers in this market see an increasing years or four years. You have to build the ing negotiations with Acre, Brazil, and shift in climate fnance from mitigation capability, change the policy and regulato- Chiapas, Mexico, on possible forest ofset to adaptation, which is also referred to as ry framework and strengthen the enforce- accreditation. resilience. Te largest projects funded in ment of the regulatory framework.” the FSF period were food control and Te ideal solution sought in Copenha- water and wastewater infrastructure. One In 2014, AECOM was awarded a gen in 2009—an internationally accepted of the largest was $66 million for food research and development project by crediting mechanism, with the value of risk management on three river basins in the Asian Development Bank to bring ofset credits supported by ambitious the Philippines provided by the Japan In- climate change adaptation and disaster mitigation targets in developed countries– ternational Cooperation Agency ( JICA). risk management expertise to land use will most certainly not manifest next year. (Te FSF report authors took note that planning and urban redevelopment in Dahl-Jørgensen does not think that is this also may be an example of traditional
-#(5#.# -65-#5,/ (.5#",85^ ], 5 feasible, nor desirable. But he does think ODA project branded as a climate.) looking at incentives, how do you get that closing the mitigation gap between home and building owners and develop- what the national pledges will deliver and The largest projects funded ers to do certain things. You can reform what science requires will take renewed policy, you can develop tools, but none of focus on international cooperation. in the FSF period were that has meaning if you can’t get people food control and water and to take ownership and climate-proof their “A large amount of cost-efective dwelling.” mitigation will need to take place in de- wastewater infrastructure. veloping countries beyond what they can In three pilot cities in Vietnam, Nepal reasonably be expected to fnance on their and the Philippines, AECOM and its Most were much smaller, with aver- own, despite their increasing capacity to collaborators are evaluating both posi- age price tag being $4 million; and many take action,” said Dahl-Jørgensen. “Ten tive incentives—such as grants, loans and smaller projects of less than $1 million billion to the Green Climate Fund may be certifcation —and negative incentives “focused on training, capacity-building, symbolically and politically important, but such as fnes or higher development fees personnel exchanges, study tours, and it will not deliver those reductions.” for builders who don’t take into account conferences and workshops,” according to climate change and disaster management. “Countries should come together the report. Te project also includes approaches through international mitigation partner- AECOM Takes On Adaptation to improve consideration of climatic and ships. Developing countries can put for- Projects in Asia ward additional ambition they can achieve non-climatic disaster in land use planning with external support beyond their AECOM recently completed an (through prohibitions in hazard prone pledges for own action,” Dahl-Jørgensen approximately $200,000 project assess- area and promoting development in safer continued. “In return, developed countries ing the costs and benefts of adaptation areas), building codes, urban renewal pro- should pledge additional mitigation they on the Pacifc island nations of Vanuatu grams (avoiding rebuilding ‘as is’ in areas will secure outside their borders on top of and Solomon Islands. “It was a technical already afected). “Tere’s a special focus 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 13 on public schools, public buildings and Tese included USAID’s Feed the kinds of impacts. Te way we respond will critical infrastructure making sure they are Future and Famine and Early Warn- fow from that assessment built with consideration of natural hazards ing Systems Network as examples. Te “What you fnd with these kinds of and long term climate change.” Education Sector Support Programme assessments is that there are a lot of dif- in Nigeria (ESSPIN) program funded by For large infrastructure projects, AE- ferences across the landscape and it’s very the UK’s Department for International COM educates host-country government useful to draw these diferences out,” said Development (DFID) is another, accord- managers and investors in a risk-based ap- Furniss. “Not everything is equally vulner- ing to Mott MacDonald executives. proach. “When a government is procuring able, and not all vulnerabilities are equally or delivering design and engineering ser- remediable or reversible.” vices for an infrastructure project, whether “Overall we are seeing a A hydrologist and geomorphologist, a power station, a drainage network or a greater convergence between Furniss emphasizes a point highlighted by school building, it’s important that public climate change adaptation, David Viner of Mott MacDonald (profle, managers and decision makers have a p.25) adaptation work is not always methodology that they can use to screen disaster risk management helped, and can be hindered by involve- for climate change risk and disaster risk, and building resilience” said ment of some climate scientists. “Te analyse the risks and select risk treatment Prudent-Richard. problem is lack of appreciation for what options in a transparent and cost efcient adaptation involves. It is not climatology; manner. While there is an imperative to classify but people call for climate scientists to He said the products developed for the climate funding as new and additional vs. do this work, which they are not qualifed project are aimed at building the capacity existing, there is strong logic behind the for,” said Furniss. “Adaptation doesn’t have in public sector agencies that are strapped approach of simply ramping up exist- to do with weather, climate and meteo- for expertise and funds to perform such ing development aid to address potential rology. It has to do with a sense of the analyses. “Te key is that the investment climate impacts. “Te kinds of problems landscape, the society and the infrastruc- you put into climate change adaptation and impacts that climate change brings ture. You need engineers, hydrolologists, or disaster risk management needs to be for the most part are the same things foresters and public health people.” proportional to the sort of project and the we’ve always been dealigned with: foods, As this article explains, the massive job services you’re going to deliver, in rela- droughts, insect infestations, shortages of of fnancing low-carbon development and tion to the design life, level of investment, water, forest fres,” said Furniss. climate resiliency in developing nations is criticality of the service, et cetera,” he said. “[Similarly] adaptation measures just getting started. Te future demands “Overall we are seeing a greater aren’t mysteries or new things, although will be enormous—as will the opportu- convergence between climate change we might do them in diferent areas and nities for frms with the right expertise, adaptation, disaster risk management and use diferent versions of them based on products and capacity to operate and /#&#(!5, -#&# ( 6_5-#5,/ (.7#",85 vulnerability assessments.” deliver solutions in developing countries. “Trough the work AECOM is doing Furniss has been involved in USAID-
),#(!5.)5." 5 5, *),.655 with the World Bank, ADB and UNIS- funded vulnerability assessments in Ecua- 2008 estimate by the UN Development 5#(5.".5-* 51 5- 5!, .5)**),./(#- dor, Colombia and Peru. Collaborators on Programme put adaptation fnance needs ties for mainstreaming these approaches the vulnerability assessments for Andean for developing countries at $86 billion an- and unifying the eforts in responding to countries included U.S. Forest Service nually by 2015. Te UNFCCC estimated climatic and non-climatic risks now and employees and university faculty. $28 billion–$67 billion per year by 2030. in the future.” A 2010 World Bank study estimated it Vulnerability assessments should Goal: > $100 Billion Annually $70 billion–100 billion per year from underpin all resilience and adaptation 2010 to 2050. “For mitigation, estimates Agriculture, water and sanitation were planning, according to Furniss. “You can’t of annual needs range from US$63 billion the largest areas receiving adaptation- really build resilience if you don’t know to US$565 billion by 2020, and from related FSF funding, and many projects vulnerability,” he said. “We need to do US$264 billion to US$565 billion by were actually long-standing development vulnerability assessments to fgure out 2030.” R projects “modifed to integrate climate which places are vulnerable to which )( ,(-6_5),#(!5.)5." 5 5, *),.85 14 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

Zero-Deforestation Palm Oil sions if implementeted, but also be an ad- of consumer companies. Wilmar’s market Movement Gains Traction ditional political force for policy change in share is about 45%, while its largest developing countries as well as mobilizing customer, Unilever, has a market share of limate Advisers describes itself  '(5 ),585
.5ŀ,-.65.")/!"65#.5 about 3%. was hard to merge the UNFCCC process as “mission-driven policy and Wilmar’s announcement was a seismic with voluntary corporate commitments. politics shop working to deliver a event for the industry, and the aftershocks While aligned on goals, they have very &)17,)(5 )()'38_5 /#(!5 ), -- are still reverberating through the supply C diferent backgrounds and perspectives. tation in developing countries is one of its chain, as my colleagues and I wrote in a In the last year or so we’ve seen these two main initiatives, and Managing Director recent report by the Climate and Land worlds aligning. Andreas Dahl-Jørgensen discussed the Use Alliance. Te turnaround by the com- fast-moving development of corporate Te Consumer Goods Forum came out pany can be traced to the recognition in commitments to source “zero-deforesta- with a statement in June 2014 calling for early 2013 by founder and chairman Kuok tion” commodities. a global climate agreement that includes Khong Hong that NGOs were going to Before joining Climate Advisers in 85Ļ#-51-55 ), #!(5)( *.5.)5 intensify their attacks on the company, 2013, Dahl-Jørgensen held posts in the them before, but now they’re seeing in and that its largest customers in its most carbon fnance unit of the World Bank 5(5)**),./(#.35.)5#'*& ' (.5." 5 lucrative markets, Europe and the U.S., and as a climate negotiator and policy governance changes they’ll need to allow were going to eliminate unsustainable adviser for the Norwegian government on them to remove deforestation and human palm oil from their supply chains by 2020, 5B, / 5 '#--#)(-5 ,)'5 ),- rights abuses in their supply chains, and to in line with the Consumer Goods Forum’s estation and forest degradation), leading prove it. pledge. their bilateral partnership with Indonesia. Wilmar was also deeply afected by “The Global Forest Watch public criticism at its Singapore head- CCBJ: What’s the recent background quarters over Indonesia’s forest fres and to what you and your colleagues call the can now give real-time alerts the harmful haze. Kuok sensed a need “cascade of commitments” by major cor- of deforestation or fres, to update Wilmar’s image and to renew porations to sourcing zero-deforestation identifying which company’s its implicit license to operate in its own commodities? concession, time, date and country and region—or face government Dahl-Jørgensen: Back in 2010 at the exact location.” fnes, civil lawsuits, public shame and Cancun COP meeting, we made quite a potentially a declining market share. After #.5) 5*,)!, --5)(55-55' "(#-'5 the announcement, more consumer com- in the UN. But a year later in Durban, Ten at the UN Climate Summit this panies have been realizing that if Wilmar when countries essentially decided that September, NGOs and indigenous groups goes deforestation free, they can prove 2020 was the new 2012, the prospects for and corporations joined governments in their products are deforestation free. (35%#(5) 5 '(5 ),55, #.-5 announcing the New York Declaration on Also in New York, there was a joint from developed countries was put on hold. Forests. statement from Golden-Agri Resources, Countries are still working on developing CCBJ: Aside from familiar corporate the largest palm oil plantation operator 5/-#(!5 -.5-.,.5ŀ(( 5(5
7 brands like Unilever and Procter & in Indonesia, Wilmar, Cargill and the based support. Gamble, which big players in the com- Indonesian Chamber of Commerce call- In the meantime a parallel process modities business are signing on to this ing upon the Indonesian government to began that didn’t get much attention at approach? codify all elements of their commitments frst: A pledge by the Consumers Forum, into Indonesian law, and to enforce that Dahl Jørgensen: In December 2013, a collection of 400 of the largest consumer law. Tat represents a very signifcant shift Wilmar International announced a goods companies such as Wal-Mart and in the political economy of deforestation. groundbreaking “No Deforestation, No Unilever, to eliminate deforestation from Peat , No Exploitation” commitment. their supply chain for palm oil, soy, beef, CCBJ: How about verifcation of these [With $44 billion in 2013 revenue] Wil- pulp and paper by 2020. pledges? mar is the largest palm oil trading frm, Tis was a fantastic development. Not buying from hundreds of palm oil produc- Dahl-Jørgensen: Currently there are a only would it dramatically reduce emis- tion companies and selling to hundreds lot of diferent company policies on how fast and how deep their commitments will 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 15

Cascade of Corporate Commitments Another set of actors will be required already years of additional deforestation to Zero-Deforestation Palm Oil to verify that they’re fulflling their com- ‘in the system,’ so to speak. mitments. Now some of the key players But if you want to know where a super Top Tier* on the ground in Indonesia are Green- tanker like the Indonesian economy is peace and the Tropical Forest Trust, Nestlé First to announce headed, you need to know if the steering which have entered into partnerships with in 2011 wheel has been turned to a new direction. #&',65)& (5
!,#5 -)/, -5(5
-#5 Tere are lots of indications that it has, Wilmar Dec. 6, 2013 Pulp and Paper. Tere is also a revolution even before Jokowi’s election. Here’s what going on in remote sensing. Te Global Hershey’s Dec. 19, 2013 we see below the surface: Forest Watch can now give real-time Kellogg’s Feb. 14, 2014 alerts of deforestation or fres, identifying 1. Disruptive transparency that Golden Feb. 28, 2014 which company’s concession, time, date “exposes the mess.” Te extent of the Agri-Resources and exact location. Tis allows anyone concessions that had been given out was anywhere to monitor company perfor- Mars March 12, 2014 previously not known. For the frst time, mance, and can help local law enforce- all the data from diferent ministries General Mills March 24, 2014 ment react to illegal deforestation. are being collected and disclosed on the Safeway March 25, 2014 One Map. CCBJ: Indonesia’s greenhouse gas Johnson & Johnson May 1, 2014 (GHG) emissions are the third largest 2. Fundamental land-use reforms. Te “moratorium” on new concessions in pri- Pepsico May 26, 2014 in the world after China and the United States, with about two-thirds coming mary forests and peat, enacted in 2011 Mondelez June 4, 2014 from the destruction of rainforests and and extended at least until 2015, is a Cargill July 29, 2014 peatlands. And the country still has an good starting point. A review of existing enormous amount of high-carbon land concessions, many of which were issued ConAgra Foods August 1, 2014 at risk. You’re enthusiastic about newly illegally, is under way. Land swaps are elected President Joko “Jokowi” Wiwodi. being considered to protect forest areas Can you share your reasons for opti- under legal concessions. Second Tier mism? 3. Ending impunity. Te president’s Unilever Dec. 11, 2013 Dahl-Jørgensen: I am cautiously opti- special enforcement units are reviewing L’Oreal Jan. 30, 2014 mistic. In 2009, Indonesia pledged to cut existing concessions. About $9 mil- Delhaize Feb. 17, 2014 emissions by up to 41% relative to busi- lion in fnes have been issued and some ness as usual by 2020. Of the 1.2 billion executives jailed. Cérélia Feb. 21, 2014 tons CO2 to be cut annually—more than 4. Indigenous rights. Following an Orkla March 20, 2014 Germany’s total emissions—about 90% unprecedented commitment to respect P&G April 9, 2014 is planned to come from reduced forest indigenous rights made in 2011, a land- and peat destruction. In 2010, Norway mark 2013 court ruling gave indigenous Danone May 23, 2014 pledged to pay up to $1 billion if Indone- peoples formal rights to their custom- PZ Cussons August 18, 2014 sia reduces its emissions. ary lands, and these claims are being * Top tier commitments contain more immediate, mea- Since then, studies confrmed that the included on the One Map. surable and stringent environmental and social standards than second tier. Source: Disrupting the Global Commod- loss of natural forests has actually dra- Lastly, there’s the sea change in the ity business, Climate Advisers, et al, for the Climate and matically increased. Without dramatic private sector that we discussed. Land Use Alliance and immediate reforms, deforestation rates are unlikely to plunge any time soon. Outgoing President Yudhoyono de- be implemented. It will take time to meet Te worst-case scenario is illustrated by serves credit for setting the vision, putting all the pledges and set up verifcation. the new “One Map” that overlays all the some of his best reformers on the job and For Wilmar, which buys from 80% of the issued concessions, across palm oil to for taking political risks by giving them producers, to verify that they’re actually mining to pulp and paper etc. It shows space to initiate reforms. Yet, he didn’t go deforestation free will take time. Tey’re enormous potential deforestation from far enough. Tere are three big reasons transparent about their progress and concessions already issued. And new con- to be excited about a Jokowi presidency. they’re not there yet. cessions are still being issued.So there are First, while environmental issues didn’t 16 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 feature strongly during the campaign, the governance challenges. Addressing those things he did say were good, even if lack- will take time. Te revolution in transpar- nvironmental Industry ing specifcs. ency that we see now will help, though. ESummit XIII; March ‘15 He stated that Indonesia has “pursued Now the moment there is a fre, you EBI Inc. presents the 13th annual Environmental Industry Summit economic growth too aggressively and not can receive an email alert through Global March 11-13, 2015 in San Diego paid attention to the environment.” He ), -.5."5.".5),&5 -)/, -5 wants to “eradicate illegal logging” and Institute has developed. On the public Sessions & Events include: “enforce environmental laws,” including concession data, you can see on which t
Industry Overview by deploying drones, restore 2 million concession there’s a fre the moment it t
Political & Economic Review hectares of degraded forests annually and happens. Tis creates opportunities for t
CEO Panel Response protect the remaining 20 million hectares. local groups and indigenous people to say t
EBJ & CCBJ 2014 Awards ‘this is a breach of the moratorium right Second, Jokowi agreed to implement here on the website.’ t
Awards Winners’ Panel the reforms requested by the indigenous t
Focus on Key Client Sectors peoples’ organization AMAN, which CCBJ: Back to the larger issue of REDD t
Global Resource Development campaigned for him—the frst presiden- credits across tropical countries, there’s t
M&A and Ownership Transition tial candidate ever to receive the group’s a concern that CCBJ has covered in the support. past that because of the volume of po- t
Trivia Contest IV tential GHG reductions, REDD credits Tird is his stance on good governance Visit www.ebionline.org for and social justice. To reduce emissions in will depress the price of GHG allowances agenda updates. Indonesia, what matters is not what the and allow emitters in developed countries to comply with national targets without See video testimonials and other president thinks about climate change but information by following the making enough efort to abate their own what he or she does to tackle governance Environmental Industry Summit issues. Jokowi’s entire platform rests on emissions. What do you think? Video link on ebionline.org tackling corruption and red tape and Dahl-Jørgensen: I actually share that increasing transparency. concern. Sufcient ambition/demand is Jokowi surely won’t turn the Indone- critical if one is to include additional sup- sian supertanker over night. His coalition *&385#!".5()15." , ]-5&, 35(5)0 ,-/*- EBI Report 4000: does not hold a majority in parliament, ply in the EU market, for example. But I The Climate Change Industry and the opposition seems eager to protect think there are ways of getting around the the status quo forces. President Jokowi issue. Countries could propose a separate EBI presents the 2014 update of may need to learn to play the political pledge for international mitigation, on top EBI Report 4000: Te Climate game of favors to get things done. But of their domestic pledges. Europe’s goal of Change Industry. “at least 40%” reductions 2030 is entirely it’s hard to see how one could have asked  5 *),.5jfff5#-5." 5 ŀ(#.#0 5 for a president more aligned with the domestic, which is a diferent framework than before 2012, when ofsets and inter- assessment and essential reference anti-deforestation agenda than Jokowi. on the climate change industry. Te recently announced merger of the national emissions trading could be used ministries of forestry and environment is for compliance. Ļ 5g6hff‰7*! 5, *),.5#-50#&& 5 hopefully an indication that he wants the Now if the EU were to say we can do in its entirety for $3,995 or indi- clean up the way Indonesia manages its 40% at home, but to be in line with the vidual sections can be purchased natural resources. two degree target, let’s also do a say a bil- for $495 or $995* (CCBJ corporate lion tons abroad, you could actually have electronic subscribers receive a 50% CCBJ: You mention transparency. Indo- a dual commitment that would create de- discount on corporate rights to the nesia, like many developing countries, '(5 ),5, #.-65#(&/#(!5 ,)'565 report and all of its data fles.) is notoriously corrupt. What makes from developing countries without dimin- you think he’ll succeed in changing this ishing Europe’s domestic ambition. It will Call 619-295-7685 x13 for tables of endemic problem? contents, list of exhibits take political will for sure, but seems more Dahl Jørgensen: Te Indonesian govern- realistic than Europe strengthening its R ment recognizes that there are signifcant domestic goal by a similar amount. 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 17

With Lawsuits Pending, energy and climate industries tracked by R5Increase end-use energy efciency mea- Power Markets Digest Clean CCBJ, the CPP represents a potential sures to reduce electricity usage. long-term economic stimulus plan that Let’s look at the energy efciency (EE) Power Plan would dwarf the impact of the 2009 (5 '(5, -*)(- 5BC5/-#( -- -95 New market opportunities for effciency  )0 ,35
.8 Currently, utility incentives, cost savings and renewables; proposed CPP creates Legal challenges came quickly after the (A ),5 '(5, -*)(- 5BCA demand for counsel and scenario planning. June 2, 2014 publication. By August, coal wholesale electricity revenues provide the mining company Murray Energy Corp.  5 ),5#(0 -.' (.-85 xcoriated as a “dagger in the and 12 coal-reliant states had sued the heart” of the middle class by top Unless states choose the portfolio EPA, and these were likely just the frst  (. 5 */&#(5 #."5 - method of complying—in which an entity broadsides in a multi-year legal battle, Connell, the Environmental Protection such as the state or an integrated utility E with opponents hammering away at its Agency’s proposed Clean Power Plan would meet the standard using a portfo- weak spots (more below). (CPP) is an unprecedented attempt by lio of renewable and nuclear generation, the agency to leverage its Clean Air Act 0 (51#.")/.5&#.#!.#)(5(55 */- energy efciency and fossil generator authority to put the U.S. electric power lican-led Congress, the fnal shape of emission reductions—the CPP will create sector on a path to 30% greenhouse gas the plan is still highly uncertain. But it a carbon price. Tis will happen either (GHG) reductions by 2030. is already infuencing planning assump- through a tradable rate based system or tions for utilities, independent power mass-based cap and trade system (more “I don’t think we’ve ever seen a plan di- producers and other electricity market below). rected toward the power sector that is this participants—although consultants difer comprehensive and that could lead to such Fossil generators or utilities would pay on how useful CPP scenario models will fundamental changes,” said Steve Fine, that carbon price to entities such as an be until state implementation plans are a vice president of ICF International 5),55*,)$ .5 0 &)* ,5),5")-.5),5.)5 proposed. (ICFI), a management and policy consult- low- or no-emission generators. Energy ing frm with long experience working Te CPP also probably heralds new - ,0# 5)'*(# -5B-C655(55 with the electric power industry. opportunities for energy service com- technology and service providers would be panies (ESCOs), energy efciency and able to factor in long-term carbon prices A handy summary of the CPP’s demand response technology and service to sweeten their ofers to large energy potential reach was provided in October providers and renewable energy develop- users. 2014 by one of EPA’s staunchest op- ers because renewable energy and energy ponents on climate policy, the Competi- With the portfolio approach, there efciency are included among the four tive Enterprise Institute. “Some states would be no carbon price, but new building blocks which EPA says states without renewable energy mandates will policies and incentives for efciency and can build their individual Best System have to adopt them; some with renewable renewables. ) 5'#--#)(5 /.#)(-5BC85Ļ)- 5 energy quota or tax incentives will have to building blocks are: increase them,” wrote CEI’s Marlo Lewis. Analysis Group Encourages Energy “In many states, grid operators will have R5Increase the efciency (i.e., lower the Efciency at Water Utilities to replace traditional ‘economic dispatch’ heat rate) of existing coal-fred power Susan Tierney, a senior advisor with with ‘low-carbon dispatch,’ giving priority plants; economic, fnancial and strategy consult- to generating units with the lowest emis- ing outft Analysis Group, told CCBJ that sions profle rather than those with the R5Dispatch combined-cycle gas power she and her colleagues are encouraging lowest cost. In many states, policymakers units more often and for longer periods states to target energy efciency at water will have to adopt new or more aggressive of time to displace higher-emitting coal utilities as a CPP compliance strategy. electricity demand-reduction programs.” plants; “States could avoid generating electric- While Lewis casts these goals as R5Develop more low- and no-carbon ity on the margin, lowering their carbon abuses of President Obama’s executive power resources, including wind, solar emissions, and at the same time reduc- power, anyone who thinks climate change and preserve what EPA defnes as “at- ing costs associated with water supplies, is a serious threat should rejoice. And risk” nuclear power; which are becoming increasingly precious for businesses in many segments of the in many communities,” Tierney said. 18 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

She pointed to frms like United Water, age and location of the plant, as well as the tive capacity and electric energy markets,” which are already timing their pumping extent to which it has been upgraded for wrote Black & Veatch’s Denny Yeung. operations for more favorable electricity performance or air quality in recent years. “A natural gas power plant that makes pricing. CCBJ readers may remember our Andy Byers, associate vice president a long-term pipeline capacity commit- past coverage of ENBALA, which is net- and lead regulatory advisor in Black & ment will be paying daily pipeline demand working water utility pump loads together Veatch’s energy business, told CCBJ he charges for 10 to 15 years, even on days (5#-*."#(!5, &7.#' 55 -.5 ()/!"5 and his colleagues question whether a when it is not dispatched,” Yeung elabo- to provide frequency regulation. A carbon 6% average heat rate improvement can rated in an email to CCBJ. “Tis new in- price—or new incentives driven by CPP feasibly be achieved across the coal feet in cremental pipeline capacity will more than )'*&#( A1)/&5 ("( 5." 5 5)(5 each state. “Tere are economic consider- likely be more expensive than the existing these types of projects. ations that, either separately or in com- pipeline capacity, so when these costs are Ļ 50 .5 ),55(565")1 0 ,65 bination with the other proposed EPA incorporated into the capital costs and is that EPA will require robust monitor- building blocks, would likely preclude marginal costs, these units will be at a cost ing and measurement systems to vali- many coal plants from undertaking the disadvantage to other units trying to bid date claimed reductions associated with necessary upgrades to achieve a 6 percent into the same market.” these approaches. Tis will be true for average across the state,” Byers said. ICF also fagged the need for gas all greenhouse gas (GHG) reduction “It’s always a case by case situation,” pipeline infrastructure in its white paper strategies used to comply, but quantifying he said. “Tere are some projects we’re on the CPP: “Generators will also need EE reductions to meet state and utility re- working on now where we’re getting to know whether they have access to quirements is already a complex art; with better than a 6 percent improvement, but adequate gas pipeline infrastructure, and federal rules, it will probably get more those are plants that hadn’t done upgrades. the delivered cost of the fuel, should they difcult—and provide new opportunities A lot of plants whose owners have done need to rely on gas-fred generation to a for frms in the evaluation, management upgrades, including APC upgrades, won’t greater degree than in past years.” & verifcation (EM&V) niche. achieve anything close to that 6 percent.” Coal Heat Rate Target: 6% State Requirements Vary As discussed in prior editions of Dramatically EPA estimates that 43% of the CO2 CCBJ, generators and their engineering In a philosophy that harkens back to reductions associated with the CPP will consultants need to tread carefully when the communist motto, “From each ac- be accomplished by building blocks 1 and improving heat rate lest they cause the cording to his ability, to each according to 2. With reference to number 1, improv- /*!, 5.)5.,#!! ,5 15)/, 5 0# 15 his need,” the better positioned a state is ing the heat rate at existing coal-fred /( ,5." 5
85^
(55)/&5 Ŀ - to make reductions, the more reductions electrical generating units (EGUs), EPA tively tell a utility that if it proceeds with EPA expects it to make. estimates that with O&M improvements the improvement, the company may also or capital upgrades, the average plant can have to upgrade or install new air quality Te CPP sets state-by-state reduction increase its efciency by 6%. control technology,” according to text on targets based on each state’s existing gen- Black & Veatch’s website. “Owners should eration mix and environmental policies, Steam turbine upgrades top the list at least do a study to determine the risks such as cap and trade in California and of capital upgrade options, followed by and opportunities … a high level review, the Northeast and renewable portfolio cooling tower rebuilds, according to a screen the viabilities and then evaluate.” standards in nearly 30 states. Te targets story on the CPP published by Black & are spelled out in emission rates—pounds Veatch. “Other equipment upgrades that Black & Veatch and other consultants of CO2/MWH—that each state must can improve the heat efciency rate [in- also point out that constraints on gas achieve by 2030, with benchmark require- clude] intelligent soot blowing, condenser pipeline capacity will make it difcult for ments for interim periods. retubing, condenser ball cleaning systems, many existing gas-fred EGUs to achieve and modifcations to air heater systems to the higher levels of dispatch envisioned “Te EPA projects that 15 states improve heat transfer and reduce leakage, in block 2. “With the exception of the (mostly states that are heavily coal depen- among others.” Southeast, power generators … have been dent) are projected to reduce emissions hesitant to make long-term commitments by less than 15%, while 15 other states )."5." 5 5)(5-/"5#(0 -.' (.-A to pipeline capacity since that would make (mostly hydro-rich states or states with and the technical limit to how much heat their units less competitive in their respec- substantial gas and coal capacity) will rates can be improved—are linked to the 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 19 Summary of EPA’s Proposed Best System of Emissions Reductions

% of BSER EPA Basis EPA Estimated BSER CO2 Building Block for BSER Determination Average Cost Reductions EPA reviewed the opportunity for coal-fired plants to improve their heat rates through best practices and equipment upgrades, 1. Increase efficiency of identified a possible range of 4–12%, and chose 6% as a $6–12/ton 12% fossil fuel power plants reasonable estimate. BSER assumes all coal plants increase their efficiency by 6%. EPA determined for re-dispatching gas for coal that the average availability of gas CCs exceeds 85% and that a substantial number of CC units have operated above 70% for extended periods of 2. Switch to lower- time, modeled re- dispatch of gas CCs at 65–75%, and determined $30/ton 31% emitting power plants 70% to be technically feasible. BSER assumes all gas CCs operate up to 70% capacity factor and displace higher-emitting generation (e.g. , coal and gas steam units). EPA identified 5 nuclear units currently under construction and Under estimated that 5.8% of all existing nuclear capacity is “at-risk” Construction: based on EIA analysis. BSER assumes the new units and retaining 7% $0/ton “At-Risk”: 5.8% of at-risk nuclear capacity will reduce CO2 emissions by $12–17/ton operating at 90% capacity factor. 3. Build more low/zero carbon generation EPA developed targets for existing and new renewable penetration in 6 regions based on its review of current RPS mandates, and calculated regional growth factors to achieve the target in $10–40/ton 33% 2030. BSER assumes that 2012 renewable generation grows in each state by its regional factor through 2030 (up to a mximum renewable target) to estimate future renewable generation. EPA estimated EE deployment in the 12 leading states achieves annual incremental electricity savings of at least 1.5% each year. 4. Use electricity more BSER assumes that all states increase their current annual savings $16–24/ton 18% efficiently rate by 0.2% starting in 2017 until reaching a maximum rate of 1.5%, which continues through 2030.

Sources and Notes: EPA, Carbon Pollution Emissions Guidelines for Existing Stationary Sources: Electric Generating Units, 40 CFR Part 60, EPA-HQ-OAR-2013-0602, RIN 2060-AR33, June 2, 2014 (“Proposed Rule”). Details of Block 1 on pp. 155–171, Block 2 on pp. 171–194, Block 3 on pp. 195–218, and Block 4 on pp. 219–236. EPA estimated average cost is calculated per metric ton of CO2 emissions reduction. reduce emissions by more than 35%,” “Te discrepancy results from Minnesota’s Te rule also would allow a state to wrote Te Brattle Group in its June 2014 larger renewables target and much larger comply using a mass-based emissions Policy Brief. proportion of installed gas [combined cap, like the cap and trade laws govern- cycle] capacity that the EPA assumes ing electric power in the Northeast and One of the biggest disparities lies can increase output to displace coal-fred all large GHG emitters in California. Te between what will be required from generation.” state cap must be equivalent to what the Minnesota and from Missouri. “Te two state would achieve using the rate stan- states have similar 2012 fossil emissions States are urged to cooperate across bor- dard, incorporating assumptions about rates of approximately 2,010 lbs/MWh … ders, and EPA estimates that total compli- projected growth of electricity demand but Minnesota faces a substantially lower ance costs will be $1.5 billion less per year and generation. 2030 CO2 emissions standard of 870 lbs/ by 2030—with a carbon price of $13 per MWh compared to 1,540 lbs/MWh for ton vs. $15—in a scenario with high levels Missouri,” wrote the policy brief ’s authors. of cooperation. 20 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

“Te mass cap National Annual Compliance Costs and CO2 Abatement in 2010 approach will avoid the need Scenario Compliance Costs CO2 Avoided Average Cost for EM&V and (2011$B) (MM tons) (2011$/ton) crediting because Non-Cooperation $8.8 594 $15 efciency eforts and non-emitting Regional Cooperation $7.3 575 $13 generation sourc- Sources and Notes:Refects cost and CO2 differences between Base Case and Option 1. Compliance costs und from EPA’s Regulatory Impact Analysis es will lower ab- (RIA), Table ES-4. Avoided CO2 from IPM for fossil units > 25 MW, EPA RIA reports slightly different numbers. solute emissions, reducing pressure would have established a new federal cap due to the huge interest (by mid-Septem- on the cap and contributing to compli- and trade law, the EPA can only use Clean ber, the agency had received 1.5 million ance,” noted ICF in its Clean Power Plan
#,5
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(5." 5]-55 comments). White Paper. “However, submitting a plan is a new and controversial approach to with a mass cap will require that a state In late October, EPA released a Notice doing that to mitigate CO2. perform careful analysis to determine the of Data Availability (NODA) indicat- cap to the satisfaction of EPA.” “Everyone agrees that EPA has Clean ing that it had taken to heart concerns Air Act authority over building block one, expressed by many that the pace at which “Should the mass cap include new creating emission standards for fossil-fred the agency expects utilities to shift their sources and not correctly account for power plants. Beyond that, people have all generation mix from coal to existing gas future demand growth, it may make kinds of opinions on what kind of legal units was too extreme. compliance difcult and more costly. A authority EPA has on the other building rate standard, on the other hand, implic- Te agency said it wanted further blocks,” Fine said. itly allows for growth in absolute emis- comment on possible adjustments to the sions over time,” noted ICF’s author team “On block two, redispatching to gas, proposed rules. “First, a phase-in schedule for the paper. “A high-growth state such they went beyond the fence but stayed could be developed for increasing genera- as Louisiana may choose to sacrifce the within the fossil generation realm. With tion from existing natural gas facilities regulatory benefts of a mass cap in favor block three, nuclear and renewables, they under building block 2,” wrote Utility- of a rate standard that will grant fexibility went beyond the fossil fuel realm to deal Dive.com. “Te schedule would be based for growth in emissions. “ Steve Fine of with emission-free generation sources. on the extent to which infrastructure im- ICF also points out that the cap could be Some say they over-reached, others say provements would be needed to use more limited to existing units, with new units these are integrated parts of the power existing gas generation and how long they subject to a rate-standard under 111(b). generation system and therefore reason- would take to build. able to include,” Fine continued. As mentioned above, states can also CPP Creates Demand for Counsel choose to comply by, in the words of a “With block four, energy efciency, and Consultancy Policy Brief from Te Brattle Group, people point out that regulated parties “assigning a utility or state agency the would have to rely on consumer behav- Second, the EPA announced it was responsibility of meeting the standard ior to achieve compliance,” said Fine. open to comment on modifying build- through a resource portfolio approach.” “In restructured states, owners of power ing block 2, which mandates how quickly generation have little control over what’s states must switch from high-emission Legal Challenges in Play going to happen with energy efciency, generation, like coal, to lower-emission options, like natural gas.” In discussing the legal challenges so the argument by some is that this is against the CPP, ICF’s Fine says the really beyond the pale of what EPA can Te fnal rule, now slated to be pub- core of the legal debate will be “how far do. Others, again see energy efciency as lished in 2015, will likely include tweaks outside the fence can the agency go to part of the integrated electric picture and and changes that can’t be foreseen, as well regulate greenhouse gases from the power therefore fair game.” as major modifcations that result from sector.” Te plan was still in the comment stage any successful court challenges. But utili- ties and other electricity market partici- While legislation such as the Waxman at CCBJ’s deadline—a period extended by pants are already engaging in analysis and Markey bill passed by the House in 2009 EPA from mid-October to December 1 planning around the CPP, in many cases with the help of professional service frms. 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 21

Crowell & Moring Identifes Three analysis, including running scenarios in a be of limited use from a resource plan- Phases of CPP Consulting particular portion of the country based on ning perspective if conducted prior to the what their generation is and how, state by drafting of state plans. “With the actual “Integrated resource planning frms, state, certain programs may play out for state plans not frmed up, what are you law frms and other consultants are get- them. Tis gives them a reference base to going to model?” asked Fred Wellington, ting engagements related to the Clean talk to their state regulators and to come managing director of energy consulting Power Plan,” said Cameron Prell, an at- up with comments on the rule itself.” for Leidos Engineering. torney with Crowell & Moring’s Energy Group, who spoke with CCBJ in Novem- Byers says these analyses build on While scenario modeling and analy- ber 2014. “Utilities, independent power previous modeling that goes back to ses are “fundamental parts of resource producers and even public sector agencies Waxman Markey and various state cap planning, the range of scenarios that are are reaching out for counsel.” and trade initiatives that were sidelined plausible [with the CPP] would create after the 2010 elections. “A lot of utilities a situation where the modeling would Prell sees the consulting work unfold- either wanted to follow that particular be based on many assumptions built on ing in three phases. “Te frst stage is scenario [in Waxman Markey] closely or other assumptions,” Wellington said. “Te dissecting the plan and fguring out what come up with diferent scenarios for the degree to which a utility can actually act comments need to be submitted on the future price of carbon,” Byers said. “A lot with confdence on the results of such proposal. Te second phase is thinking of utilities have since continued to use a modeling would be slight.” through strategically what is possible at proxy price for carbon going forward, and the state level and regional level. What Wellington added that well ahead many of the state utility commissions re- would a state or regional plan look like of the CPP’s release, the rapid pace of quire them to do so as one of their future and how would that impact our business?” change in the electric power industry had resource planning scenarios.” already started driving growth in demand “Te third phase will be a range of ICF Serves Range of CPP Clients for resource planning advisory and con- activities based on what plans states sulting services. “It’s difcult to separate decide to pursue. Initially the work there ICF’s Fine says his frm is doing these regulations from the broader trend will be around how to make the legislative CPP-related work for a variety of clients in the industry of utilities transforming or regulatory changes, what moving parts including trade associations, the Natu- their power supply and the way they work need to be addressed and which ones are ,&5 -)/, -5 (- 5)/(#&5(5." 5 with their customers on energy efciency, most important.” Bipartisan Policy Center. “We’re also distributed generation and demand re- In November 2014, Prell told CCBJ working with individual utilities, some sponse,” he said. private equity companies that have inter- that while most of the engagements by his “Tere’s a general trend away from ests in the electric power market as well frm and others were related to analysis the traditional way the industry has been as independent power producers (IPPs),” of the plan and preparation of comments, structured, with large fossil fuel plants said Fine. he reported there was already counseling far from load transmitting power to load being sought on phase two, shaping state “Companies and states need to un- pockets where utilities manage the distri- plans. derstand the implications of choosing a bution, to one where customers, especially B&V Models CPP Scenarios rate-based system or mass-based caps, large commercial and industrial ones, have the implications of going it alone as a more choices in how they produce and Byers of Black & Veatch estimated in state versus joining regional confgura- manage their power,” Wellington added. November 2014 that the company had tions, and the pros and cons of various (Tis topic is covered in depth in CCBJ’s between fve and 10 full-time equivalent confgurations, the impacts power prices Q3 2014 edition.) employees “just working on modeling at wholesale and retail levels, the value ^ -)/, 5*&((#(!5#-5'/"5'), 5 scenarios [based on the CPP] for diferent implications for a portfolio of generation complicated than it was 10 years ago,” electric utilities or power generators.” assets,” Fine said. Wellington said. Because of this complex- “We’ve been helping them identify Leidos: Rapid Change in Electric ity, “Tere has certainly been an uptick in certain things within the building blocks Power Industry Underpins Demand ." 5(/' ,5) 5-5)/.5." , 5 ),5)(-/&.- that they have more or less control over ing services related to these fundamental and how they might plan for diferent In the view of at least one consultant, changes in the industry over the last two scenarios,” said Byers. “We also do market however, modeling exercises, while helpful to three years.” in informing the design of the CPP, may 22 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

While the CPP may strengthen the thus displace some fossil generation on energy efciency program you may be re- drivers for utility market transformation, the margin, not just in Massachusetts but ducing overall emissions from power plants “the details are up to the states, and it’s across the whole ISO New England foot- in another state. Tere are some issues of too early to tell,” Wellington said. *,#(.6_5-#5 #--85^Ļ.5&)1 ,-5." 5 5 equity that aren’t easily resolved unless you price relative to a situation in which Mas- go on a more regional basis.” Driving Business for Consultants -"/- ..-5"55& --5!!, --#0 565-)5#(5 (. ,-.. 5.,#(!5) 5-5#-5-)' - that sense, Massachusetts ratepayers may Everyone agrees that the CPP will thing that EPA has signaled it wishes to be subsidizing the rest of New England.” drive increasing business opportunities consider, although it will need to adjust for consultants and vendors who can help “No politician in Massachusetts has language in the rule since it currently utilities and other regulated parties, as been interested in bringing that up, but in requires renewable generation be located well as state utility commissions and other reality a regional system will always result within the state that will claim credit for policymakers, develop and implement the in cross subsidies,” said Weiss. “Tere have the associated CO2 reductions, according most cost-efective compliance strategies. long been spillover efects from one state to Fine. onto others, even though most energy “Some of the historical expertise in “I live in Maryland, a PJM state with regulation is and will remain at the state the climate market space and renewable (55/.51#.")/.5"/! 5, ( 1& 5 level.” energy credit space is going to be pivotal resources,” he said. “So a lot of the renew- in terms of providing accurate and useful Black & Veatch’s Byers’ agreed that this able compliance comes from the local counsel to entities that are either go- will be a challenging issue for CPP imple- /.#&#.355/3#(!5-5 ,)'5." 5 ing to be creating or are considering the mentation. “How do you give credit for PJM system and even outside PJM from creation of regional or state market-based renewable energy in the state that has the states like Iowa. Tis is a perfectly legal mechanisms,” said Prell. “A lot of this will 65(51" , 5." 5)(-/' ,-5, 5*3#(!5 (5& !#.#'. 5135.)5)55)'*&#( 5 run through professional service frms for it, while the next state over where the but there will need to be a reconciliation that have particular expertise with state wind turbines are located gets credit for and alignment [in the fnal plan] between commissions, with local environmen- the energy generation.” how the state rate is established and how tal ofcials, governor’s ofces and state a state like Maryland is able to use out-of- “Te same difculty applies with energy legislatures.” -.. 5-5.)5)/(.5.)1,5)'*&#( 8_ efciency,” continued Byers. “If you have an CPP and Renewable Energy Credits

Just how CPP compliance strate- Power Prices Move Depending on the Approach that States Adopt gies based on renewable power will be integrated with renewable energy credit he form of regulation that states choose to comply with the Clean Power Plan BC5',% .-5#-55"#!"&35)'*& 25#--/ 65 Twill afect electricity prices and generator revenues. Potential scenarios include: according to Jürgen Weiss, head of Te R5 .#(!5." 5-.(,5.",)/!"55.,& 5 '#--#)(5,. 5&#'#.65-5
5') & 5 Brattle Group’s climate change practice. the program, could result in credits to generation sources that emit below their state Weiss points out that in the Northeast, standard. Tose credits may generate revenue, potentially lowering wholesale power -.. 5, ( 1& 5*),. )&#)5-.(,-5BC5 prices through the transfer of payments from high emitting coal generators to low , 5().5#(. !,. 51#."5." 5 !#)(&5 emitting sources such as gas generation, so long as such gas generators continue to be , (")/- 5-5 (#.#.#0 5B C5*5 the marginal units setting prices. and trade regime for power plants. “Te R55( ,55*),. )&#)5**,)"65(5 (.#.35-/"5-5." 5-.. 5),5/.#&#.351)/&5' .5." 5 -.. 55-3-. '-5, . 5#( (.#0 -5.)5 standard using a portfolio of renewable generation, energy efciency and generator build more or less renewable generation in emission reductions at the source. Wholesale electricity prices could be little afected; given states, and that clearly impacts the instead costs would be primarily felt through retail rates. generation mix and the carbon emissions in the greater region.” R5
5'--7- 5*5(5., 5*&(51)/&555*)-#.#0 5#-*."5)-.5.)5&&5 '#.- ting units, and all else being equal, result in higher wholesale and retail power prices. “Te fact that Massachusetts may have 5'), 5!!, --#0 55."(5-35 15 R5 ( ,.),-5#(5-.. -5.".5)*.5.)5$)#(5'/&.#7-.. 5!,)/*-5'35 ( ŀ.5 ,)'5&)1 ,7 Hampshire or New York means that Mas- cost compliance options in the partner states, or from generating emission reduction Source: ICF sachusetts may build more renewables and credits for sale in those states. 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 23

Cooperation Scenarios Explored calculations, at least as a form of contin- The Brattle Group on Major gency planning,” said Weiss. “Te plan .#)(#(!5(5&#!(#(!5")15-.. -5 Questions Facing States for should make them spend a little bit more account for CO2 reductions achieved CPP Compliance time thinking through at least an alterna- with cross-border renewable energy and tive plan or planning exercise that involves energy efciency points to the larger chal- 5R5 . ,'#(#(!51" ." ,5.)5)*.5." 55 some of the fossil generation becoming lenges—and opportunities—of inter-state EPA’s proposed rates to be met by 2030 less attractive economically.” cooperation for compliance with the CPP. and beyond, or to choose the less stringent Prell opined that some states were alternative rates that must be met sooner As mentioned above, EPA estimates running such analyses to determine the by 2025; that the average national carbon price costs of compliance, with an eye toward with high levels of cooperation will be R5 ##(!51" ." ,5.)5)(0 ,.5 ,)'55 litigation as a possible alternative strategy. more than 10% lower than a scenario in rate-based to a mass-based goal, which “Tey’re asking how they can establish which most states go it alone. In many may be more compatible with the existing their long-term planning objectives on states—Texas, Colorado, Utah, Wyoming, carbon emissions trading programs in a least-cost basis, which may result in a Tennessee—the “go-it-alone” carbon price &# ),(#5(5." 5 !#)(&5, (")/- 5 determination whether they’re willing would be over $40. In West Virginia it -5 (#.#.#0 5B C5-.. -:5 to comply with a fnal rule or it may be would top out at $101, in EPA’s estimates. they decide they need to pursue litigation. R5"))-#(!51"#"5h5, /.#)(5 Brattle’s analysts point out that such Tat’s the kind of calculus that’s going on. measures to pursue to meet the target, large diferences could create counter-pro- It’s more around cost than politics.” including options beyond the four build- ductive behavior, like shifting “production ing blocks proposed, e.g., coal with carbon “Te most sophisticated utilities are from coal units in one state with more capture and storage (CCS); looking at it in that manner rather than aggressive emission reduction standard to one of left-right dichotomies on policy,” R5& .#(!5.)5' .5." - 5.,! .-5#(7 less efcient plants in another state with a said Prell. “For other players within the state or through multi-state arrangements, less aggressive standard.” states, who are not necessarily running and if multi-state, which states to group Tey also wrote that there will have regulated utilities, this has more of a politi- with and how to make equitable, efcient, to be complex negotiations around how cal favor, with turf and jurisdiction issues.” and enforceable rules for governing the regulated parties—and electricity consum- multi-state system; Not taking the risks and opportunities ers—share the benefts of regional coop- in the CPP seriously from the resource R5 . ,'#(#(!51" ." ,5(5")15.)5 eration. Finally, they point out that states planning perspective could leave some state compensate zero-carbon supply resources, ^ /&&351#."#(5-5'35ŀ(5#.5 -# ,5.)5 utilities in a tough spot, averred Prell. He including existing hydro and most exist- adopt cooperative market mechanisms pointed to the spread of distributed gen- ing nuclear units that are not explicitly than states not utilizing this wholesale eration, energy storage, demand response included in EPA’s rate-setting mechanism; structure.” and efciency and the unprecedented chal- R5  (.# 3#(!5." 5 (.#.35, -*)(-#& 5 ),5 Some states, like California, whose lenge those technologies are creating for complying with the state or regional emis- projected carbon prices is $12-13 due to the traditional utility business models. sions standards, for example, by imposing its existing cap and trade system, might “We’re in the midst of a transforma- rate standards on electrical generating have to choose to shoulder a higher tion of the utility business model because units (EGUs) or on load-serving entities carbon price in order to join a regional of the penetration of things like solar (LSEs), or by assigning a utility or state compliance system. “Tere’s an obvious distributed generation and the potential agency the responsibility of meeting the impetus for the states with the highest for large-scale clean energy and energy standard through a resource portfolio ap- prices to join in, but not much impetus for storage,” Prell said. proach; and the lower cost states,” said Fine. R5 . ,'#(#(!5")15.)5 +/#.&35&- “Tose reticent or unconverted states With a dozen states suing the EPA locate allowances or rates among respon- that decide not to pursue any viable state over the CPP, a big question looming sible EGUs or LSEs, for example, by auc- plan may be compromising the abil- over the discussion is: what interim stance tioning allowances, allocating allowances, ity of utilities within those states to use are those states power market partici- or setting unit-specifc rates that may or this process to address competitiveness pants and utility regulators taking? “My may not consider historical emissions concerns and issues around the evolution gut feeling is they are at least doing the rates and fuel type. R of the utility business model.” R 24 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014

ERM Plans for Continued tunities they have to infuence their emis- information solutions division to recom- Growth in Climate Strategy sions directly and across their value chain.” mend and implement software solutions and even manage global data sets, those Four years ago, the company formal- and Reporting projects can be much larger.” ized a strategy to focus on key client Demand is strong for managing software sectors and seek ways to apply its skills Ļ#-5#-55-* 51" , 5 5"-5- (5 solutions and data. globally, said Aumômier. “Tat has led to particularly fast growth, according to fairly signifcant growth in that period, Demers. “Companies looking to identify anaging greenhouse gases and we’re certainly planning for continua- and select third party software to man- (GHGs) is becoming an ever tion of that.” age things related to their climate change larger concern for a growing program often rely on us for independent number of consumer-facing corporations, M advice and consulting,” said Demers. “Te and in the process this is creating new Project engagements amounts of data involved are absolutely and growing markets for professional often follow clients’ annual huge, and we have a team that navigates service frms that can assist with measur- reporting cycles. the client through the whole process of ing and reporting GHGs and assuring the selecting the vendors, importing the data reported data. and managing it for useful outputs.” Aumônier and Demers estimated that Consulting and professional service over 100 full-time equivalent employees  ]-5*)-#.#)(5#(5." 5&#'. 5-.,. !35 frms active in this space include Bureau are engaged in climate strategy and re- and reporting space is underscored by its Veritas, DNV GL, Deloitte, Environ, *),.#(!5 ),5 85Ļ 5. '5"-5, -)/, -5 high profle in global climate dialogues  65,(-.5;5)/(!65  5(5'(35 spread across the globe with expertise in and sustainable business forums. For ex- others. ERM, with $940 million in fs- strategic energy management, climate '*& 65 55 )"(5
& 2( ,5-*)% 5 cal year 2014 revenues and about 5,000 change adaptation services, carbon reduc- on a panel hosted by the government of employees in more than 40 countries, is tion strategies, product carbon lifecycle Indonesia at the September 2014 New & ,&355& #(!5*&3 ,85 5,.( ,-5 assessments and GHG management York Climate Summit. Simon Aumônier and Gregg Demers software selection and implementation. told CCBJ in Q4 2014 that carbon and Demers highlights the frm’s role as a climate risk management for large corpo- Project engagements often follow co-chair of the World Business Council rations is an area where the frm is seeing clients’ annual reporting cycles, according for Sustainable Development’s Action an increasing number of requests from to Demers. “Tese metrics are tied to their 2020 program. “We’ve been contribut- clients for support. investor reporting as well as their annual ing quite a bit of resources to help create assessments of progress toward goals, additional momentum, and the busi- A business driver that didn’t exist especially their annual sustainability and ness leadership you saw at the New York eight or 10 years ago, voluntary corporate CDP reports.” Climate Summit really grew out of earlier climate strategy and reporting came on work by WBCSD and other consortiums.”  ]-5,,51" (5#.-5&# (.-5 !(5.)5 Sometimes projects are awarded based experience more pressure from investors )(55)'* .#.#0 55*,) --65(5#(5
/'Ċ(# ,5-#5.".5 5 ')(- and other stakeholders. Demers remem- )." ,5- -5ŀ,'-5)(..5 5 . ,5 strates greater technical depth than many  ,-5! ..#(!55&&5.5 ]-5)-.)(5)Ń 5 hearing about its reputation in this space. frms in the space, especially assurance in 2008 from a supermarket corporation “Typically, once we start working with frms. “We sell to that strength, our un- that wanted to develop carbon reduction a client, the engagements are continued derstanding of processes and operations, goals and strategies. without additional competition.” allied with our appreciation of strategy and the beneft of working with people at ^
.5." 5-' 5.#' 65 51-5 0 &)*-
5.3*#&5*,)$ .5 ,(-5 55 5#(5 various levels in the business,” he said. “A ing a climate change practice globally,” the low six fgures, although the amount lot of our employees have industrial ex- said Demers. “I was able to connect up varies greatly depending on the complex- perience and bring to an assignment that 1#."5 5-.Ŀ5 5"51),% 51#."5#(5." 5 ity of the engagement. “Sometimes we expertise and understanding of exactly past who had expertise in this area, and work with clients around a single site or what a particular business is doing on the since then we’ve been able to work with a single product, and the fee would be ground.” many other clients to understand the smaller,” said Aumônier. “In other cases, challenges in this space and what oppor- when we work with our colleagues in our 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 25

(5. ,'-5) 5!&)&5!,)1."65 5"-5 Mott MacDonald Brands “Both agencies have whole programs its eyes on major emerging economies Climate Resiliency Division of activities, from basic education of the such as Brazil, South Africa and China. population right through to high-level As discussed on page 28, corporate leaders Calls for more practitioner input into engagement with ministry-level ofcials,” in Africa’s second largest economy are IPCC and other climate panels said Allison. “Te generic term for this indeed taking GHG reporting seriously. trend is ‘mainstreaming climate change.’” Growth in China will be driven largely by ver the last 18 to 24 months, As noted in the feature on climate re- regulation. Mott MacDonald, the U.K.- based global management, silience in developing countries, Allison engineering and development con- pointed out that Australia’s AusAID ERM has the advantage of long O has de-emphasized climate change since sultancy, has sharpened its focus on cli- relationships with multinational mate change resilience and adaptation Tony Abbott’s Liberal-National coalition frms seeking to apply a global work, according to a team of senior victory over pro-climate policy Labor in September 2013. standard to their climate executives interviewed by CCBJ. strategy and reporting. After frming up the initiative As documented in CCBJ’s Q1 2014 internally, Mott MacDonald began in adaptation edition, private asset owners Spring 2014 to brand this specialty based in the United Kingdom, United Cost competitiveness and non-tarif -5#.-5&#'. 5 -#&# ( 5#0#-#)(85 States and other developed countries are trade barriers may make it difcult for Ian Allison, global head of climate increasingly investing in climate impact  5(5)." ,5ŀ,'-5- 5#(5." 5(#. 5 resilience, told CCBJ that while an analyses and resilience design and engi- States, United Kingdom and other de- accurate estimate of full-time equiva- neering for long-lived assets. veloped countries to pick up much work lent employees working in climate “In the U.K. and U.S., what we’re see- in some of these markets. In China, for resilience couldn’t be ofered because ing is that the majority of opportunities example, the emerging market for certify- projects draw on technical units across for food protection and resilience tend ing and verifying carbon ofset projects the frm, “our projections show the to push away from the public sector and in the pilot cap-and-trade schemes has business producing fees in the multi- into the private sector,” Allison explained. been largely limited to domestic frms (see millions.” “Power sector infrastructure, for example, CCBJ’s 2013 edition on global carbon is suprisingly susceptible to both river markets). A sign of the growing market “is the signifcant change in political and coastal fooding. Tere’s certainly a /.5 5"-5." 50(.! 5) 5&)(!5 rhetoric over the last 18 to 24 months,” substantial market out there as power relationships with multinational frms Allison said. “It has become more systems become more and more complex seeking to apply a global standard to their politically acceptable to talk about and more and more interrelated.” climate strategy and reporting. Combined adapting to the changes in the climate Viner highlighted the concept of “ac- with continued growth in developed that are already in place.” tive system resilience,” which looks far be- )/(.,# -65 ]-5&#'. 5-.,. !35(5, - yond a single asset at how an organization porting business will likely grow for some David Viner, principal advisor on or public agency can respond to extreme time. Additionally, work for existing cli- climate resilience, added that until the weather and other disasters. “We saw in ents will probably become more extensive last few years, government agencies in New York after Hurricane Sandy how as more frms seek to come to grips with the United Kingdom tended to “push an individual asset could withstand the their elusive supply chain emissions. adaptation to the background because it seemed defeatist, as if we were giving impacts but couldn’t function because the “As recently as a few years ago, some up on mitigation.” Not so anymore. people who worked there couldn’t get to of our clients were just not interested in Te UK’s Department for Interna- work,” he said. “So we look upstream and doing this at all,” said Aumônier. “Now tional Development (DFID), like the downstream to make sure clients build more and more of them are. Te likeli- United States’ Agency for Interna- their resilience back to their operations hood is that over the coming few years, tional Development (USAID), are and even to their suppliers’ operations.” there will be signifcant growth of interest “building in climate resilience,” into a in the feld, and the work we do will also Developing Countries Still Need R wide range of development work, said Money be more wide ranging and in-depth.” Allison. In developing countries, however, 26 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 the market for climate impact assess- In a recent report on climate fnance “Tere’s a lot of money now being ments and climate resilience design by the Overseas Development Institute, committed into these areas, including the and engineering is almost exclusively a ),&5 -)/, -5 (-.#./. 5(5." 5 (-.#- many climate fund instruments,” Allison donor-funded activity. “Tat market is tute for Global Environmental Strategies, said. (See chart on page 10). “In order for predominated by the aid agencies invest- greenhouse gas mitigation projects were a broad selection of clients to access these ing in understanding the broader impacts estimated to have received 71% of the funds, we’re seeing rebranding of what of climate change as they might directly approximately $35 billion in fast start might have been a simple infrastructure impact on the indigenous populations or climate funding disbursed from 2010- project into something with a very strong the mainstays of the economies such as 2012. Adaptation projects received only climate change adaptation theme to it.” food and agriculture,” Allison reported. 18% (9% went to projects with multiple “At the same time as the big funding objectives). agencies are increasingly devoting money “From our point of view, Te emphasis on mitigation over in this direction, they’re also increasingly we see adaptation funding adaptation “is part of the legacy situation, concerned to do quite thorough monitor- gaining ground and coming to in which governments didn’t prioritize ing and evaluation to ensure that money adaptation funding because of the signal it is being appropriately spent and achiev- the fore in the next two, three might send,” noted Allison. “But from our ing some reasonable beneft,” reported to four years.” point of view, we see the adaptation fund- Allison. ing gaining ground and coming to the “We see growing interest in and fund- fore in the next two, three to four years.” In some large vulnerable cities in mid- ing for studies of how climate change will dle-income developing countries, Allison’s Climate Work: from Add-On to afect small island states which are very colleague Hero Heering, project director, Principle Scope vulnerable to changes in temperatures and fnds that “in some cases, there is growing sea levels,” Allison said. “We did a study a private sector interest in protecting” assets Another trend that Allison and his couple years ago for Mauritius that looked from climate impacts. “But that does not team see growing is the issuing of cli- at the long-term sustainability of the necessarily equate to investment by the mate-specifc project tenders instead of islands, with climate change considered private sector. For funding, the developing larger projects that incorporate a climate as one of the key factors in that sustain- countries are looking at the major interna- element. “If you go back two to four years, ability.” tional fnance institutions to address this we were seeing climate resilience studies In the transition economies of Eu- issue with additional money.” as part of a wider scope of work,” said Al- lison. “Increasingly now we see substantive rope—those countries that began to On the other side of the coin, interna- submissions where adaptation to climate shift from a centrally planned economy tional development funders like the Asian change and climate resilience are the to a market economy after the fall of the Development Bank and International principle scope. Adaptation is becoming Soviet Union—agriculture is a primary Finance now routinely require climate risk a stronger focus for the big aid funding driver for climate change adaptation and assessments for infrastructure projects agencies.” resilience planning. “Several Central and in developing countries. “International Eastern European countries are very fnance agencies as well as private fnan- Heering reported that vulnerable vulnerable to the impacts of changing pre- cial institutions are requiring technical Bangladesh in particular is the focus cipitation and snowmelt on agriculture,” due diligence to understand climate risks of increasing climate-specifc projects. Allison said. “A study we performed for related to projects and make sure they’re “We’re preparing a delta plan for Ban- the Asian Development Bank on Tajik- climate resilient,” said Viner. “We’ve un- gladesh that deals with water resources stan, where agriculture is a mainstay of the dertaken these types of assessments across for the entire country to 2100 that will economy, looked at the impacts on water numerous types of infrastructure projects.” cover everything related to climate change resources of future reductions in snowmelt impacts,” Heering. in spring.” Channeling more climate-related aid from developed countries to developing In fact, aid-seeking developing country Large-Scale Opportunities countries—as committed at the 2009 Co- governments are even “re-labeling projects penhagen global climate meeting—is an that would normally be funded under Te Overseas Development Institute essential building block for a post-2020 government activities as climate-resilient report mentioned above also noted that global agreement. infrastructure projects or climate adapta- a large proportion of climate fnance is tion projects,” Heering said. ofered in the form of export subsidies or 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 27 Climate Finance in Developing Countries

Approved Disbursed Fund Pledged Deposited Income Approved Disbursed Overhead Overhead

Adaptation Fund (AF) $226.30 $206.22 $385.55 $225.55 $92.29 $29.44 $28.76

Amazon Fund $1,033.47 $786.65 $- $411.74 $97.67 $- $-

Australia’s International Forest $189.57 $67.06 $- $125.54 $31.70 $33.50 $15.90 Carbon Initiative

Clean Technology Fund (CTF) $5,242.00 $4,599.00 $- $3,548.79 $426.50 $22.06 $22.00

Congo Basin Forest Fund (CBFF) $186.02 $164.65 $- $95.38 $53.01 $- $-

Forest Carbon Partnership Facility - $388.40 $280.62 $- $0.74 $0.37 $4.04 $4.03 Carbon Fund (FCPF-CF)

Forest Carbon Partnership Facility - $355.13 $257.93 $- $113.45 $39.33 $9.87 $9.70 Readiness Fund (FCPF-RF)

Forest Investment Program (FIP) $599.00 $530.00 $- $279.24 $5.13 $- $-

GEF Trust Fund (GEF 4) $753.74 $753.74 $329.18 $955.56 $933.11 $98.32 $95.77

GEF Trust Fund (GEF 5) $1,350.00 $776.74 $- $721.36 $278.62 $72.51 $28.90

Germany’s International Climate $1,081.84 $1,081.84 $- $986.47 $- $- $- Initiative

Global Climate Change Alliance $385.36 $385.36 $- $383.15 $142.84 $8.22 $8.22 (GCCA)

Global Energy Efficiency and Renew- $169.50 $163.50 $- $76.57 $- $- $- able Energy Fund (GEEREF)

Green Climate Fund (GCF) $54.89 $36.69 $- $- $- $54.81 $7.32

Indonesia Climate Change Trust $21.01 $11.21 $- $9.51 $5.03 $2.94 $2.73 Fund (ICCTF)

Japan’s Fast Start Finance $15,000.00 $12,500.00 $- $10,826.00 $- $- $-

Least Developed Countries Fund $907.03 $831.56 $- $641.50 $133.18 $48.63 $13.23 (LDCF)

MDG Achievement Fund $89.50 $89.50 $- $89.52 $89.52 $- $-

Norway’s International Climate and $1,607.82 $1,607.82 $- $304.68 $283.77 $- $- Forest Initiative

Pilot Program for Climate Resilience $1,160.00 $973.00 $- $771.78 $40.84 $- $- (PPCR)

Scaling Up Renewable Energy Pro- $521.00 $506.00 $- $135.56 $3.59 $- $- gram (SREP)

Special Climate Change Fund $344.34 $299.11 $- $227.53 $216.35 $17.51 $11.11 (SCCF)

UK’s International Climate Fund $6,002.00 $1,318.20 $- $1,056.45 $- $- $-

UN-REDD $248.84 $215.22 $2.26 $193.46 $181.55 $- $-

Total $37,916.76 $28,441.62 $716.99 $22,179.53 $3,054.40 $401.85 $247.67

Source: Climatefundsupdate.org, accessed Nov. 6, 2014 28 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 credit enhancements designed to support of education in Nigeria,” said Viner. “As “Coming to work for Mott MacDon- a developed country’s exporting industries. a result of DFID’s increasing awareness ald, I learned there’s a lot of experience on Japan is the largest practitioner of this ap- of the issues around climate change, the the ground here,” Viner told CCBJ. “My proach, according to the report. agency has mainstreamed climate into colleagues in this frm have 10, 15, 20 that program.” years experience with how climate change Allison and his colleagues report that will afect their specifc sectors, such as they have not purused these types of When CCBJ spoke with the Mott water resources and other infrastructure.” contracts. “Given the scale of the op- MacDonald team in early Q4, 2014, they portunities out there, our focus is very were just getting started on the climate Viner says the knowledge level at the much on the aid-funded work in devel- elements of ESSPIN. “We’re initially frm—and presumably at other similarly oping countries and the asset systems in going to work with the key government large frms—is comparable to the profes- developed countries,” said Allison. “As far stakeholders, implementing knowledge sors and PhDs who serve on the Inter- as I’m aware, we have not chased anything exchange and knowledge management governmental Panel on Climate Change related to these export subsidies.” systems so they can take up this quite (IPCC) working groups and author complex science,” Viner said. “Ultimately teams. Yet IPCC for the most part doesn’t Heering pointed out that such “tied- the project will include teacher train- include many of these on-the-ground aid” projects generally require contractors ing schemes, improving the resilience practitioners. to “pre-fnance or co-fnance quite large of school buildings, also mitigation of amounts. So for a consultancy or engi- In an October 2014 article for Nature greenhouse gases through such things as neering frm like ours, whose product is Climate Change, Viner and Candice How- solar-powered water pumps.” technical advice, it is quite difcult to get arth of the Global Sustainability Institute your return from those kinds of projects,” .5
(!&#5/-%#(5(#0 ,-#.365, *),. 5 he said. “Practitioners can bring their that the latest Working Group II report language and terminology on impacts, adaptation and vulnerability Nigeria Education Project Adds to the table. This surely will included no “practitioner experience, evi- Climate Change dence and case studies that demonstrate make the reports more Another trend is for large multi-year how adaptation is being carried out on the development projects to add climate relevant and provide a more ground.” change elements to extend the impacts robust evidence base.” “Tey provide an observational, top- of the original scope and to ensure that down account rather than a practitio- projects are executed with an eye on ner-led evidence base,” wrote Viner and the changing climate. A key example is Including Practitioners Would Make Climate Panels More Efective Howarth. So what, one might ask? Can’t DFID’s Education Sector Support Pro- engineers and infrastructure planners read gramme in Nigeria (ESSPIN), for which As discussed in previous editions of scientifc reports? Mott MacDonald is programme designer. CCBJ, infrastructure managers, asset own- Viner told CCBJ that while the ers and their consultants face a particularly In 2013, ESSPIN’s mission to assess engineers and planners at his frm and difcult challenge in designing facilities educational shortcomings and support others—what he calls the “practitioner for climate resilience given the range of un- government, teachers and communities in community”—have no trouble under- certainty in future climate forecasts. Viner, creating efective learning environments, standing what the scientists are saying, who prior to joining Mott MacDonald in was extended to include climate impacts. “what’s coming out of Working Group II 2012 was a senior research scientist and “Te skills and knowledge provided is not in a language or form that can be climate program director at University of through basic education bring benefts acted upon.” for environmental protection and people’s East Anglia, lead in climate adaptation at ability to cope with the impacts of climate Natural England and director of a large “My co-author and I are suggesting change,” wrote DFID in a report on the global programme on climate change and that IPCC and other climate assessments business case for providing a cost exten- sustainability for the international rela- &#% 5.")- 5)( 535." 5 ]-5)3&5)# .35 sion for ESSPIN. tions NGO British Council, says part of and the United States’ National Academy the problem lies in the lack of engagement of Sciences need to include practitioners “ESSPIN is a £140 million educa- by climate scientists with engineers and within their writing teams so they can tion program designed predominantly other practitioners who implement climate avoid some of the abstract language that to improve the structure and governance change solutions. the academic adaptation community uses.” 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 29

Changing the composition of scientifc South African Corporations on page 9. For South Africa and other panels would have to start with national Rank Highly for Disclosure developing countries—where economic governments. “Te IPCC authors are development is still the main social and nominated by their countries, so govern- KPMG shares perspective on emissions political priority—the fact that 80 of ment ofcials responsible for nominating reporting, with mitigation just beginning the JSE 100 are reporting to CDP, with authors need to be made aware that a and a carbon-tax vote ahead. three-quarters of them setting GHG practitioner from the consulting environ- reduction goals, speaks to the political country of 53 million with the ment can bring something useful to the support for climate change mitigation and second highest GDP in Sub-Sa- table,” said Viner. adaptation in corporate boardrooms. haran Africa, South Africa is a “We need to include the practitioner Aleading player in the global drive to miti- A key cheerleader is the National perspective in the IPPC Working Group gate greenhouse gas emissions. President Business Initiative, a consortium of busi- 5 *),.5.)5/#&5#(5." 5 0# ( 5 ,)'5 Jacob Zuma was one of the frst signato- nesses interested in greater sustainability the large knowledge base that practi- ries to the Copenhagen Climate Accord, and climate resilience. “NBI acknowledges tioners hold,” said Viner. “Furthermore in which major developing countries the challenges of growing our businesses practitioners can bring their language pledged for the frst time to begin reduc- to have a positive impact on inequality, and terminology to the table. Tis surely ing the growth of their emissions. poverty and job creation, while simultane- will make the reports more relevant and ously reducing our emissions,” said NBI After years of debate, a carbon tax is on provide a more robust evidence base.” Joanne Yawitch in the 2014 CDP report. track for a vote in the legislature next year, Noting that IPCC authors do not with implementation expected in 2016. receive compensation from the United Well ahead of the public policy Well ahead of the public policy curve, Nations, Viner contends that many frms curve, 80 of the country’s 100 80 of the country’s 100 largest corpora- would still be happy to fund a senior exec- tions have been reporting their GHG largest corporations have been utive’s participation for the exposure and emissions to the CDP. In 2014, they business development benefts. “When reporting their GHG emissions. achieved an average disclosure score of 87 you’re an IPCC author, that’s good for you out of 100, according to CDP’s November professionally and for your employer,” said 2014 report on the South African busi- “[Te] companies who are achiev- Viner, noting that the time he put into ness response to climate change. ing absolute reductions are setting the externally reviewing an IPCC report in example for the rest of us. We need to ac- 2013 was funded by Mott MacDonald. Most of the JSE 100 aren’t reporting celerate our business eforts, set more am- their scope 3 emissions from suppliers, Viner would also like to see more cli- bitious targets, work with government to capital goods, upstream transportation mate scientists participating in the forums ensure an appropriate enabling environ- and distribution or and the rest of the 15 where climate change practioners share ment, and work with each other to drive scope 3 categories outlined in the World their knowledge, namely professional innovation and reduce our emissions.” Resources Institute’s GHG Protocol. conferences on afected sectors such as And despite progress, only 51% (up from Support for the carbon tax among the hydropower and water resources. 41% in 2013) are achieving net emission JSE 100 is difcult to gauge, but at least Viner mentioned in particular the Hy- reductions. one indication shows that opposition is dro 2014 hydropower conference held at less intense than might have been ex- “And although 76 per cent of compa- Cernobbio, Lake Como and the October pected. In a May 2013 summary of com- nies have set emission reduction targets, 2014 forum on Climate Change: Build- ments on its initial carbon tax proposal these do not match either the scale of the #(!5." 5
! 5) 5 -#&# ( 5),!(#4 535 the National Treasury reported that very challenge, or the global emission reduc- the UK’s Charter Institution of Water and few business respondents were opposed tion targets promised by South Africa,” Environmental Managers. (CIWEM’s to carbon pricing in any form. All of the wrote the country’s minister of environ- conference is co-sponsored by Mott 30 business associations—and all but two mental afairs, B E E Molewa. Macdonald, infrastructure and business of 40 companies—responding either sup- ported the proposed tax, would support it services group Mouchel, sustainability Of course, these challenges are com- R with tweaks or would support some sort )(-/&.(35#,)7

8C5 mon across much of the developed world, of carbon pricing. as discussed in the feature story on GHG management for consumer facing frms 30 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 Examples of JSE100 Carbon Reduction Targets Reported Through CDP 2014

Company Target Year Scope and description Anglo American 19% from 2011 2015 Scope 1 and 2: “Our overall targets for greenhouse gas (GHG) emission reduction is 19%, against the projected business-as-usual (BAU) level in 2015.” British American 80% from 2000 2050 Scope 1 and 2: “Reduce our emissions by 46% by 2017; by 50% by 2030; Tobacco and 80% by 2050 against our 2000 baseline of 1.52 tonnes per million cigarettes equivalent.” Exxaro Resources 5% year-on-year 2013 Scope 2: For key Business Units: “Annual emission target based on reduction electricity usage target which is set as a range of intensities dependent on tonnage achievement. Improvements measured as change in electricity used at achieved tonnage against target electricity usage at that same tonnage.”

FirstRand 34% reduction from 2020 Scope 1+2+3: “Due to FirstRand exceeding their carbon emissions 2008 levels reduction target and saving 24% against the Baseline Year of 2007/2008 FY, a decision was made, after reviewing operations and projected emissions reductions projects, to increase the absolute emissions reduction target to 34% by 2020, in line with the South African government commitment at COP15 in Copenhagen.”

Harmony Gold 2% reduction from 2018 Scope 1 and 2: “Since the target reached completion in this reporting Mining Co 2014 (2005 base year) year, Harmony has since reviewed its strategy and has published a new emission intensity reduction target. This target, encompassing the South African and PNG operations, involves a 2% Scope 1 and Scope 2 emission- intensity reduction between 2014 and 2018, with 2005 as a base year. This is a realistic target, which is set against the backdrop of a 15% emission intensity reduction achievement between 2005 and 2013.”

Nedbank 7% reduction per 2020 Scope 1+2+3: “The new target is a 7% reduction based on end-of-2013 employee based on levels. This implies a target of 7.08 tCO2e per FTE by the end of 2020.” 2013 Old Mutual 20% from 2010 2020 Scope 1 and 2: “The data concerning investment property portfolio including base year emissions relates purely to current properties, to ensure any reduction figure is accurate and not related purely to removal of properties. The portfolio includes the property asset management business and properties invested in and managed to create value and client returns.”

RCL Foods 20% and 30% from 2020 Scope 1 and 2: “RCL Foods targets GHG emissions in line with Government’s 2010 target of a 34% reduction by 2020. kWhs consumed from the grid is targeted to reduce by 30% by 2020. Fuel used in vehicles is targeted to reduce by 20% by 2020.” Sappi 23% from 2000 2015 Scope 1 and 2: “The South African target follows an SA industry initiative to achieve a 15% reduction in specific purchased fossil fuels by 2015.”

Tongaat Hulett 20% from 2013 2020 Scope 1: “Tongaat Hulett has updated its baseline from 2011 to 2013 considering improved reporting. The business is committed to reducing its greenhouse gas emissions by 5% per annum for the next 5 years and is targeting at least a 20% reduction by 2020 from a 2013 baseline.

Source: Selected on basis of providing examples of good practice from among the targets reported, CDP South Africa Climate Change Report 2014 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 31

KPMG Achieves Leading Role in National prestige and politics are also should be on scope 3,” said Vermaak. South African Carbon Initiative on the line. “Tere’s a driver in that our She reports that scope 3 reporting is president made a voluntary commitment KPMG South Africa’s senior man- “improving,” but only about half of the at the Copenhagen climate negotiations ager for climate change and sustainability consumer companies in the JSE 100 are to reduce emissions against a business-as- services Marijke Vermaak told CCBJ that reporting those outside-the-wall emis- usual baseline.” many large businesses support the need sions. “And those should be taken with a for carbon pricing “A lot of stakehold- pinch of salt because there’s no set meth- ers question why South Africa, with our “We’re seen as one of the odology yet to report on scope 3. Some current economic challenges, would create top nations for integrated corporations are just reporting their feet an additional burden on companies by reporting.” emissions.” increasing their costs. But the counter- argument is that if it’s done in the right “It’s also a fact that many of their sup- pliers aren’t very forthcoming with this way, in the longer term it should actually “More importantly, though, is the pol- information,” Vermaak said. As discussed stimulate growth, create jobs and incentiv- icy imperative toward a greener economy in the story about carbon reporting and ize the economy to move toward a green and a low-carbon economy,” said Ver- management by consumer-facing frms economy.” maak. “South Africa is particularly carbon in this edition, suppliers face signifcant intensive largely because of the fact that Seeing the carbon legislation coming time and logistical burdens in reporting, most of our electricity comes from coal. down the line has been a major factor in especially when major retail customers We also have a lot of heavy industries like motivating large South African compa- request information in diferent formats. mining, which have quite high emissions nies to get serious about measuring and Consultants in this space are ofering profles. Transitioning to a lower carbon, reporting their emissions to the CDP. solutions, but compared to scope 1 and greener economy is referenced in all our scope 2 emissions, accurate and consistent “Te voluntary reporting helps com- major macro-economic policy docu- reporting of scope 3 emissions has a long panies get their house in order, making ments.” way to go internationally. sure their governance process, systems and Supporting a Low-Carbon Transition procedures are in place for a future when KPMG employs between 25 and 30 there will be some requirement for assur- KPMG has been the lead sponsor for professionals on its climate change and ance and verifcation,” said Vermaak. CDP in South Africa for seven years, sustainability team in South Africa, ac- cording to Vermaak. “We also do draw on “Preparing their reports for the CDP coordinating with the sustainable business various other parts of the company when also allows companies to understand their association National Business Initiative we need to. We work very closely with the emissions profles, the risks and oppor- (NBI). “In that time, CDP reporting has integrated reporting team and with our tunities arising from climate change and evolved from an initiative about disclosure tax team around tax issues. Sustainability related legislation,” said Vermaak. “CDP and transparency to one with a focus more is also an area that overlaps with manage- is about a lot more than reporting your around performance,” Vermaak observed. ment consulting.” carbon emissions.” “Most South African companies are getting very high scores on the disclosure Beyond CDP reporting and assurance, Vermaak also describes the corporate side, and the response rate is really high. KPMG’s climate and sustainability team governance ethic in South Africa as But we’re not seeing major improvements has “done a lot of consulting work helping advanced. “We’re seen as one of the top in performance yet. So now the focus is companies understand this evolving regu- nations for integrated reporting,” she told moving toward performance rather than latory landscape, helping facilitate their CCBJ. “Our leading companies are tak- disclosure.” engagement with governments and their ing corporate governance and reporting understanding of the impact of proposed around sustainability very seriously.” As in the United States and most other developed countries, the scope 3 emissions regulations and legislation,” Vermaak said. “South Africa is also quite competitive, from suppliers, capital goods investment, “We assist them in understanding what and the CDP has created some nice com- upstream transportation and distribution their potential liabilities would be and petition in the area of carbon and sustain- and other categories. “Especially in the develop strategies to mitigate those.” ability reporting,” Vermaak said. “Compa- retail space, scope 3 is where your largest Of course, the frm provides assurance nies are taking it seriously and trying to #'*.5#-85 .#& ,-5! ( ,&&35"0 550 ,35 of CDP and other sustainability reports. get the top spots for recognition.” small direct carbon footprint, so the focus “Assurance is really about confdence. If 32 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 it’s information that is material to the way More Cities Take Action on While the Compact didn’t announce you run your business or something your Climate Change how many mayors had signed on, earlier stakeholders are interested in, you want research by C40 and Arup, the design, plan- to be comfortable that the numbers you’re New business opportunities abound in ning and engineering consultancy that has reporting are correct and that you’re repre- helping cities mitigate and adapt. been C40’s strategic adviser and research senting the risks correctly.” partner since 2009, tallied at least 228 cities ll eyes will be on Paris next year with GHG reduction goals in 2013. Collec- “From the external perspective, assur- as nations prepare their na- tively representing about 480 million people, ance gives you comfort that the numbers tional targets for greenhouse gas the cities’ combined goals are expected to you’re reporting publicly are correct,” said (GHG) reduction in the months leading equate to an annual reduction of 454 million Vermaak. “Obviously with the move to A up to the pivotal December 2015 Confer- metric tons of carbon dioxide.-equivalent greater regulation, assurance of this infor- ence of the Parties on Climate Change. (MtCO2-e) by 2020 and a cumulative total mation may no longer be optional. Once However; companies that are in the busi- of 13 GtCO2-e by 2050. you’re paying taxes on it, it will need to be ness of reducing GHG emissions should assured just as fnancial information is.” also be looking at other cities, namely the hundreds of municipalities that have Cities’ top opportunities for Opportunities in a Cost-Conscious made commitments to reducing their own cutting GHGs lie in passenger Market GHGs and making their communities and freight transport, more resilient to extreme weather events. As described in CCBJ’s prior coverage energy effciency and waste of carbon and sustainability measurement Originally known as the C20 when and reporting, the range of professional management. founded in 2005, the group of large cities service frms playing in the space extends committed to climate action grew to the from the traditional environmental con- C40 within a year and today stands at Tat amounts to barely 1% of total sulting frms such as ERM and Environ 71, according to the C40 Cities Climate GHG emissions worldwide. Despite the through to software specialists and up to Leadership website. Te C40 includes lack of a multilateral, national deal on KPMG and its competitors in the Big Member Megacities with a population climate change, cities are taking action Four audit, tax and advisory frms. of 3 million, or 10 million in their metro voluntarily, mostly to deliver savings As South Africa enters the age of areas—or are expected to reach those equivalent to huge percentage reductions mandatory carbon pricing, a whole new benchmarks by 2025, Innovator Cities versus their baselines. such as Amsterdam that are “interna- industry will emerge to assist regulated With climate activism gaining mo- tionally recognized for barrier-breaking frms. Vermaak reports that energy ef- mentum it is likely that more cities will climate work,” and Observer cities like fciency tax incentives already in place are set GHG reduction targets. It is expected Singapore whose applications for full stimulating the growth of businesses in that citizens frustrated with the lack of membership are pending. that sector. progress in senates and parliaments will “We’re starting to see accredited bodies A parallel efort, the Compact of continue to put more pressure on mayors emerging to verify efciency improve- Mayors was announced at the September and other elected city ofcials to take ac- ments,” said Vermaak. “Energy service 2014 UN Climate Summit in New York, tion on climate change. which aims to mitigate city-based GHG companies are involved in getting the Cities are beginning to band together emissions and increase cities’ resilience to fnancing and implementing solutions.” in mutual support through inspiration and climate change. Te Compact signatories shared learning. “When one city raises the In terms of meeting efciency goals, work alongside C40, ICLEI Local Gov- bar, whether through a groundbreaking Vermaak points out that the key driver is ernments for Sustainability, United Cities recycling initiative or a successful build- the immediate constraints on electricity and Local Governments and UN-Habitat, ings-retroft program, the solution pro- supply more than future carbon pricing. and have committed to use “robust, rigor- vides a blueprint from which other cities “We have been in and will be for a while ous and consistent reporting standards,” can learn,” wrote mayors Anne Hidalgo, in the situation of having a constrained -/"5-5." 5,)((5&#'. 5 !#-.,35),5 ,#-65/,)5 -65#)5 5 ( #,)65(5 electricity supply. Tis has created impera- CDP Cities in order to report on their Park Won-soon, Seoul, on the Hufngton tives for companies to do some hard work city’s GHG reduction progress. improving their energy efciency.” R Post just before the September 2014 New York summit. 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 33

“For example, Santiago de Chile’s new est class of GHG reduction measures, to upgrade 100 schools. As of September public-transport system was inspired by according to C40 and SEI. SEI estimates 2014 contracts were pending for 200 more Bogota’s Transmilenio, which itself was that new policies to require highly ef- schools. infuenced by Curitiba’s rapid-transit bus fcient heating systems in new residential While the model is generally success- -3-. '85 #% 1#- 65).. ,']-5ł))7*, - buildings could deliver 15% of the total ful, there have been many cases in which vention measures have been implemented urban GHG reductions by 2050. Energy confict has ensued over what savings are by other delta cities around the world, efciency policies in total can be expected attributable to the ESCO’s measures and from Ho Chi Minh City and Jakarta to to yield 61% of the urban-led GHG cuts. New Orleans.” what should be credited to changes in op- Payback Period is a Problem erations or stafng patterns. “Tat’s where Four Sectors Targeted the C40 network can come into play,” said As discussed in prior CCBJ editions on Kirk. “Other cities around the world that With often little control over power energy efciency (most recently Q2 2014), have successful experiences with ESCOs generation, industry or agriculture, the fnancing is a perpetual challenge for im- can help others learn how they did it and cities’ top opportunities for cutting GHGs plementing energy efciency retrofts and how they can replicate that success.” lie in passenger and freight transport, requiring the deepest energy-conservation energy efciency and waste management. measures in new buildings. For the retroft Of course, municipal buildings repre- As outlined by C40 and the Stockholm market, commercial and industrial entities sent only a small proportion of the built Environment Institute, the primary miti- look to limit their capital investments to environment, and for a variety of reasons, gation strategies in these sectors include: energy upgrades with simple payback of private frms are less receptive to the two to three years. ESCO value proposition. Financing en- Urban Passenger Transport:Land-use ergy efciency upgrades are being refned planning for compact urban communi- For municipally owned buildings, by frms like Metrus, Schneider Electric, ties, expanding public transit, deploying the performance contracting business Siemens and others who are bringing measures to improve vehicle efciency model—in which payment is based on de- third-party fnancing to private-sector (including electrifcation) and transport livered energy savings—ofered by energy energy upgrade business. demand and fow management, such as service companies (ESCOs) will play a variable speed zones and better signal major role in city ambitions. “I defnitely A key initiative in this regard in the timing. think ESCOs will be a big part of the United States is the Investor Confdence solution,” said Paula Kirk, an Arup associ- Project (ICP) spearheaded by the Envi- Urban Road Freight Transport: Imple- ate director who is the company’s lead on ronmental Defense Fund and sustainable menting better urban freight logistics the C40 work. “Local authorities that are real estate experts, building mechanical management, and instituting measures not energy suppliers, generally don’t have systems companies and Connecticut’s to increase urban road freight vehicle ef- the skills and expertise to deliver energy Clean Energy Finance and Investment fciency. projects, and they’re very much reliant on Authority. the [energy efciency] industry and utility Urban Building Energy Use: Tighten- ICP is creating a standard set of energy companies.” ing building energy codes and standards, efciency project protocols and collecting implementing or expanding retroft “ESCO’s ability to fnance the project data on outcomes so that building owners programs or efciency requirements for is certainly one important element, but will be able to look to industry standards lighting and appliances, providing incen- helping them with the expertise to design for confdence that an upgrade performed tives for district energy and/or solar PV in and deliver the project is critical as well.” according to the protocols will provide the residential and commercial buildings. promised savings. On the C40 website, several case Urban Waste Management: Increasing studies highlight the role of ESCOs in To succeed in its mission to achieve waste recycling, and landfll management fnancing and implementing energy ef- massive cuts in building energy waste, the for methane capture. fciency retrofts on public buildings. In C40 will likely have to get more active Te reduction of energy wasted in Paris, the ESCO NOV’ECOLES Paris with this movement. So far, according to buildings – or the generation of power (a special purpose vehicle backed by EDF an August 2014 statement from the Cities on-site with low-carbon or no-carbon Optimal Solutions, Caisse des Dépôts et Climate Financing Leadership Alliance— technologies such as combined heat and Consignations and France Infrastructure), which incorporates C40, CDP, ICLEI as power or solar PV – is by far the larg- signed in 2011, is a performance contract well as development banks and NGOs— 34 Climate Change Business Journal Strategic Information for the Climate Change Industry 4th Quarter 2014 the focus is exclusively on Urban Abatement by Sector in the Urban Action Scenario, 2030 and 2050 public infrastructure. Abatement, Share of total Reducing Car- GtCO2e Abatement, % Dependency Sector Action 2030 2050 2030 2050 After energy efciency, the most powerful tool in the cities’ toolbox is in passenger Buildings, Residential New building heating efficiency 0.6 1.2 16% 15% transport. Better urban plan- Heating retrofits 0.4 0.5 12% 7% ning to reduce the car-de- pendency of neighborhoods Appliances and lighting 0.4 0.9 12% 11% is a long-term goal but “mode Fuel switching / solar PV 0.1 0.2 3% 3% shift and transit efciency,” Buildings, commercial New building heating efficiency 0.3 0.5 7% 7% are the most robust near-term measures for cutting GHGs Heating retrofits 0.2 0.2 6% 3% by 2050. Appliances and lighting 0.3 0.7 8% 8% A favored strategy in many Fuel switching / solar PV 0.1 0.2 3% 3% cities—and one backed up by Subtotal, buildings 2.4 4.5 a C40 network—is bus rapid transit. Tis transit mode Transport, passenger Urban planning–reduced travel 0.2 0.5 5% 6% uses dedicated lanes, signal demand prioritization, tram-style bus Mode shift and transit efficiency 0.4 1.0 11% 12% stops and other measures to improve bus mobility and Car efficiency and electrification 0.2 0.9 7% 11% increase ridership without Transport, freight Logistics improvements 0.1 0.2 2% 3% the large costs and long time Vehicle efficiency 0.1 0.3 3% 4% frames required to build light or heavy rail transit systems. Subtotal, transport 1.0 2.9

Ļ 5jf5/-5*#5 Waste Recycling 0.2 0.3 4% 4% ,(-#.5BC5 .1),%5#-5 Landfill methane capture 0.0 0.3 0% 4% currently working with 13 #.# -5.)5#(.,)/ 55),5 Subtotal, waste 0.2 0.6 .)5#'*,)0 5 2#-.#(!55 Total 3.7 8.0 systems, according to the C40 website. A September 2014 Source Advancing climate ambition: cities as partners in global climate action; A report to the UN Secretary-General from the UN Secretary interview on C40’s website General’s Special Envoy for Cities and Climate Change, in partnership with the C40 Cities Climate Leadership Group highlighted the strategies of two leading cities: Buenos Aires—which won the Citizen’s Choice daily ridership to 1.2 million passengers. minimize “dwell” time and an increasing Award at the 2014 C40 & Siemens City GHG reductions associated with the ex- number of fuel-efcient and alternative- Climate Leadership Awards for its Plan pansion will come to 49,000 tonnes CO2 fuel options. for Sustainable Mobility, of which the -e annually, according to city spokesper- 5#-55% 35)'*)( (.A(5 )"(- sons. A Typology for Cities: Arup Conducts ( -/,!65"-5-.,. 5.)5#'*& ' (.555 Research for Third Major Report on network. Firms such as Alstom, BAE Systems, Climate Action New Flyer and Siemens are champions in Buenos Aires aims to bring four more ." 5#(.,)/.#)(5) 55(5, 5',% .- Current research being conducted by 5),,#),-5)(&#( 5#(5hfgj65#(, -#(!5 #(!57)(ŀ!/, 50 "#& -51#."5 ./, -5 Arup for C40 in preparation for its third such as low foors and multiple doors to 4th Quarter 2014 Strategic Information for the Climate Change Industry Climate Change Business Journal 35 major report on Climate Action in Mega- ments, and water sources,” Kirk said. One Focus on Adaptation Increases; Arup cities, or CAM 3.0 is designed to quantify thing the typology research should reveal Expands Role in Data Analysis the potential GHG reductions in as many is “which other cities could be aiming for Kirk reports that climate resilience and as 3,000 cities,to evaluate factors that can those ambitious targets as well.” adaptation is climbing on the C40 agenda. afect how aggressively individual cities A key factor that enables a city to set “Adaptation has really come to the fore in are capable of cutting GHGs and to pro- and achieve robust GHG reduction goals the last couple years,” she said. “It wasn’t vide some guidance on the best strategies. is the reach of the mayor’s power. Mayors a huge area when we did our frst report A key part of this research is the who share power with elected councils are in 2011 because the C40 was primarily development of a series of typologies for more likely to have success with programs focused on mitigation.” diferent classes of cities, then modeling that provide new opportunities—such as “In volume two of our work, we the potential for climate action based on bicycle rental programs—and are more reported that 98% of cities reported that the track records of cities with similar likely to face barriers on tougher issues climate change is a risk to their cities,” typologies, according to Kirk. such as congestion charging for dense Kirk explained. “And some of the most downtowns (a policy that can have many While the results aren’t expected until frequently reported actions were around benefts beside GHG reductions). Q3 2015, Kirk told CCBJ in October adaptation, particularly assessing food 2014 that the results thus far were “very risks and planning for climate change.” interesting in terms of understanding A lot of our clients are in cities, According to Kirk, Arup’s work with what the diferent factors are in how cities and we see that cities can the C40 “is very much aligned with can set and meet more ambitious targets.” take action much quicker than Arup’s ethos of shaping a better world. When interviewed, Kirk reported that she Arup believes that cities are very much and her team had developed 14 typolo- nations. The most innovative at the heart of achieving that. A lot of gies, each with a range of variables, and thinking and best practice our clients are in cities, and we see that might develop several more if needed to solutions often come out of cities can take action much quicker than refect the diversity of the world’s cities. cities.” nations. Te most innovative thinking and In terms of practical impact, Kirk says best practice solutions often come out of she and her colleagues and their clients at cities.” “In order to implement something C40 expect that the typology models will like congestion charging, a mayor needs Whilst Arup was engaged to collect help city leaders craft appropriate, politi- to be able to control city roads and street data for the frst report, the data collection cally winnable solutions. “Te solutions furniture,” Kirk said. “In London, the is now operated through the online CDP from one city will be more likely to be mayor worked with local authorities to use portal. Arup’s role in analyzing the data replicable in another city with the same cameras to enforce and control the con- has grown with each report as analysis typology mix and less likely to be ap- gestion charge because they have control delves deeper into correlation between propriate for cities with sharply diferent over the street furniture that the devices Mayoral powers and actions taken, as well typologies,” Kirk said. would have to be attached to.” Achieving as trends and replicability of various solu- R Scandanivian and Northern European collaboration with local councils delayed tions,” according to Kirk. cities currently rank as having the highest the project some months, Kirk estimates. commitments to reducing GHGs against “But it would have scuppered the project a business-as-usual scenario, accord- entirely if the local authorities had been ing to Kirk. She notes the commitments against the idea.” of some top cities in the region such as “Copenhagen and New York tried to Oslo—aiming for 100% reductions by implement congestion charging and for 2050—and Copenhagen, which has tar- diferent reasons, failed to achieve that,” geted 100% by 2030. said Kirk. “At Arup we try to break down “Scandinavian cities tend to have the governance and technical issues in more typologies in common such as; the order to identify the characteristics of character of the city, population, rate of the cities that make diferent solutions population growth, GDP, political struc- feasible.” ture, climate , cooling or heating require- ® Email City______Address______Company______Phone ______Name______[ ] Check enclosed Mail or fax to Climate Change Business Journal, 4452 Park Blvd. #306, San Diego CA 92116, Fax (619) 295-5743 Individual rate is $995; Multiple-Use or Electronic Subscription and Site License: Starts at $1,250 Vol. 7, No. 10-12 CLIMATE CHANGE BUSINESS JOURNAL Q4 2014

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