Quick Tips for Cities – Energy Efficiency and Climate Adaptation

Part two of Quick Tips Series:

There is growing conversation among the public and private sector about what steps need to be taken to improve community resilience in the face of climate change. A very holistic approach must be taken including improving food security, investing in green infrastructure, giving a voice to vulnerable communities,  implementing resilience standards, and reducing risks to public health to name a few.

I would suggest that cities include in this list energy efficiency. Energy efficiency is typically seen as a climate mitigation measure and not as an adaptation measure. It lowers greenhouse gases, improves air quality and lowers water consumption through a variety of energy saving measures. By being more energy efficient we have shown significant reductions in our energy intensity and have saved a tremendous amount of money in the process. There is still significant opportunities for reducing energy consumption. According to recent EPRI report the state of Texas could save an additional 87.3 million MWh in the next 20 years. At the average retail electricity price for Texas, that would reduce costs by about $7 billion. This is great. We need to continue these energy efficiency efforts to mitigate climate change, but we also need to expand its scope and look at it reducing climate risk, particularly to vulnerable communities.

One of the more significant issues we are facing with climate change is the increase of our global temperature. We have seen new record breaking yearly temperature averages every year for the last several years. This has a significant impact on our communities. Through energy efficiency we can reduce these impacts. For example, the weatherization of homes, which can include insulation, weather stripping, caulking, high efficiency lighting, etc, is typically done to reduce a home owners or renter’s housing costs. However, weatherization , and improved building energy codes, also allows households to stay home when the power goes out. The better insulated and sealed homes stay cooler or warmer, depending on the season, when the power goes out. This puts less pressure on our emergency management agencies and reduces risk to our communities. Further, energy efficiency measures such as white or green roofs, not only lower energy costs by keeping buildings cooler, they also lessen the heat island effect in urban areas, thereby reducing ambient temperature and reducing the impacts of extreme heat. Finally, combined heat and power, aka cogeneration, has typically been touted as improving the efficiency of building operations and lowering operating costs of a facility. However, we have witnessed in recent years the significant benefit of CHP in keeping the power on during and after natural disasters, such as Superstorm Sandy.

There are some great resources to learn more about the benefits of energy efficiency to improve community resilience. You can check them out here:

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Quick Tips for Cities – Climate Adaptation and Insurance Companies

Insurance companies are becoming more and more sophisticated in their ability to assess risk related to climate change  aKatrinaNewOrleansFlooded_edit2nd in turn develop the appropriate products, strategies and instruments toitigate climate risk.  They have been and are increasing their use of catastrophe models, improved long-term weather forecasts and scenario analysis to better understand their risk and their long-term ability to insure certain assets. They have also begun to focus more on loss prevention and promoting risk reducing behavior.

Insurance companies have also been moving toward providing greater support to the public sector in reducing loss and improving risk mitigation. A significant step occurred in 2012 with the UNEP Financing Initiatives Principals for Sustainable Insurance (PSI). This framework was put in place to deal with environmental, social and economic risks and opportunities. Further action was taken in 2015 at the UN World Conference on Disaster Risk Reduction  in Sendai, Japan. Here we see insurance companies sign a global framework, titled the Sendai Framework for Disaster Risk Reduction, to help public governments prepare for disaster risk and improve community resilience. There are five key components of this program and they include.

  • Strong public-private partnerships drive disaster risk reduction and resilience at the local and national levels.
  • Resilience in the built environment is driven by the public sector setting adequate minimum standards, and the private sector voluntarily working towards optimal resilience.
  • All financial investment and accounting decisions, public and private, are risk-sensitive.
  • A resilience-sensitive public and resilience-sensitive businesses drive each other towards resilient societies.
  • The identification, disclosure and proactive management of risks carried by companies and public sector entities is standard practice.

If cities have not already, they may want to start the conversation with their insurance providers to see how they can leverage and deploy their climate risk knowledge as they plan to build out new infrastructure and renovate old infrastructure. It is in both the City’s and the insurer’s interest that more focus be placed on risk mitigation and prevention, rather than focusing solely on loss recovery.

Better designed infrastructure, that is developed for impending climate shifts will significantly reduce loss and limit the time and resources required for community, economic and environmental recovery.

Once a City has been able to quantify and better understand the hazard, property inventory, vulnerability and potential loss, it should begin to also look into what can be done to pay for the infrastructure to mitigate this loss. I discussed ways to pay for this infrastructure in an earlier post.

Jumping the Gun on Climate Asset Risk Disclosure?

sinking oil rigOne of the primary focus areas of this site is to push for greater transparency in the market around climate risk to the private sector (here and here). I mentioned in a previous post that the oil and gas sector alone could potentially see $2.2 trillion of stranded fossil fuel assets, with the United States potentially seeing the greatest loss. It is vital for the sustainability of the private sector and our global economy that shareholders and stakeholders are aware of what potential risk that may be faced by companies. The practice of disclosure will benefit both the company and its shareholders. It will force companies to take a hard look at their operations and risk management strategies and assess what actions may need to be taken to mitigate this risk. It will help current and future shareholders to better understand the risk they face when investing in a company.

For the last 15 years, the Climate Disclosure Project (CDP) has been working to get companies, as well as the public sector, to voluntarily disclose their greenhouse gas emissions and carbon related activities. The belief is that disclosure of this information by both the private and public sector will result in more effective management of carbon, as well as better management of climate risk. In their most recent report,  CDP was able to have over 1,000 companies disclose their climate data, out of a pool of 1,839. Not a bad number for a voluntary disclosure program. Of those reporting, the highest percentage of reporting came from the IT and healthcare industry, while, not surprisingly, the lowest percentage came from the energy and utility sector, 40% and 38%, respectively.

However, although we are seeing a lesser percentage of the energy sector participating in the 2016 CDP report, we may be seeing a growing number in the next few years. In the last couple of years we have seen a growing trend in the number of carbon asset risk resolutions that are being presented to company boards. According to the CERES Shareholder Resolution Database, 75 resolutions were brought before shareholders. The majority of these resolutions for carbon asset risk disclosure are power companies and oil and gas companies. There were also a smattering of banks, a real estate company and some mining companies. The mining companies appear to have the most success in getting these resolutions passed. They went three for three in the resolutions proposed and passed. These mining companies include Rio Tinto, Anglo American and Glencore Plc.  Although we saw over 40 oil and gas companies with resolutions proposed, only 10% of them passed. This includes ExxonMobil and Occidental Petroleum, on their second try in two years, as well as Suncor in 2016, BP in 2015 and Royal Dutch Shell in 2015. Chevron and Anadarko withdrew their resolutions in 2017. However in 2016, they were pretty close with more than 40% of shareholders voting for carbon risk disclosure.

In any case, what we are looking for are small wins and I think we saw some this year. Further, it is likely that we will continue to see more disclosure resolution activity as the SEC further defines its materiality requirement in its Guidance Regarding Disclosure Related to Climate Change. Under this guidance, the SEC only requires disclosure of climate risk if there appears to be a material risk to the company. There is still some interpretation as to what is “material” related climate risk to a company. That is why we see the ongoing push back by much of the energy sector on disclosing these risks. They argue there is still significant climate, consumer and regulatory related uncertainty that makes this risk difficult to quantify at this time. It is anticipated that this argument may lose some of its strength as we continue to refine our global climate models and the downscaling of these models.

A group that is out front that is trying to better define climate risk and promote the disclosure of this risk is the Task Force on Climate-related Financial Disclosures.  They are actively developing resources, guides and scenario tools to help companies better determine their risks and report on them. At the end of 2016 they came out with their recommendations for how companies should prepare and provide climate risk-related financial disclosures. The focus is on helping the business community, lenders/investors and regulators through the development of a framework that makes providing, understanding and using this data a bit easier.

There is some argument that at this time the Task Force has gone a bit too far. The IHS Markit organization has just come out with its own report that pushes back on the TCFD recommendations arguing that although it is a good framework that is useful for assessing climate risks, it is difficult to tie these climate risk indicators to actual financial impacts. They argue there is still too much uncertainty on the scale and timing of these climate risk factors and financial decisions by investors could be skewed by these indicators.

My take on this, is that it is good to have a healthy dialogue between these groups. There is still some uncertainty on the scale and timing of climate events, regulations and changes in customer preferences. It is possible that investors may take this climate risk disclosure information and potentially jump the gun and divest when it would be fine for them to stay invested for the near to mid-term. So, we need to continue to refine our frameworks, models and scenario tools to ensure we have the best information available. However, we don’t need to wait until it is perfect with 100% certainty. sinking oil rig

Jumping the Gun on Carbon Asset Risk Disclosure?

sinking oil rigOne of the primary focus areas of this site is to push for greater transparency in the market around climate risk to the private sector (here and here). I mentioned in a previous post that the oil and gas sector alone could potentially see $2.2 trillion of stranded fossil fuel assets, with the United States potentially seeing the greatest loss. It is vital for the sustainability of the private sector and our global economy that shareholders and stakeholders are aware of what potential risk that may be faced by companies. The practice of disclosure will benefit both the company and its shareholders. It will force companies to take a hard look at their operations and risk management strategies and assess what actions may need to be taken to mitigate this risk. It will help current and future shareholders to better understand the risk they face when investing in a company.

For the last 15 years, the Climate Disclosure Project (CDP) has been working to get companies, as well as the public sector, to voluntarily disclose their greenhouse gas emissions and carbon related activities. The belief is that disclosure of this information by both the private and public sector will result in more effective management of carbon, as well as better management of climate risk. In their most recent report,  CDP was able to have over 1,000 companies disclose their climate data, out of a pool of 1,839. Not a bad number for a voluntary disclosure program. Of those reporting, the highest percentage of reporting came from the IT and healthcare industry, while, not surprisingly, the lowest percentage came from the energy and utility sector, 40% and 38%, respectively.

However, although we are seeing a lesser percentage of the energy sector participating in the 2016 CDP report, we may be seeing a growing number in the next few years. In the last couple of years we have seen a growing trend in the number of carbon asset risk resolutions that are being presented to company boards. According to the CERES Shareholder Resolution Database, 75 resolutions were brought before shareholders. The majority of these resolutions for carbon asset risk disclosure are power companies and oil and gas companies. There were also a smattering of banks, a real estate company and some mining companies. The mining companies appear to have the most success in getting these resolutions passed. They went three for three in the resolutions proposed and passed. These mining companies include Rio Tinto, Anglo American and Glencore Plc.  Although we saw over 40 oil and gas companies with resolutions proposed, only 10% of them passed. This includes ExxonMobil and Occidental Petroleum, on their second try in two years, as well as Suncor in 2016, BP in 2015 and Royal Dutch Shell in 2015. Chevron and Anadarko withdrew their resolutions in 2017. However in 2016, they were pretty close with more than 40% of shareholders voting for carbon risk disclosure.

In any case, what we are looking for are small wins and I think we saw some this year. Further, it is likely that we will continue to see more disclosure resolution activity as the SEC further defines its materiality requirement in its Guidance Regarding Disclosure Related to Climate Change. Under this guidance, the SEC only requires disclosure of climate risk if there appears to be a material risk to the company. There is still some interpretation as to what is “material” related climate risk to a company. That is why we see the ongoing push back by much of the energy sector on disclosing these risks. They argue there is still significant climate, consumer and regulatory related uncertainty that makes this risk difficult to quantify at this time. It is anticipated that this argument may lose some of its strength as we continue to refine our global climate models and the downscaling of these models.

A group that is out front that is trying to better define climate risk and promote the disclosure of this risk is the Task Force on Climate-related Financial Disclosures.  They are actively developing resources, guides and scenario tools to help companies better determine their risks and report on them. At the end of 2016 they came out with their recommendations for how companies should prepare and provide climate risk-related financial disclosures. The focus is on helping the business community, lenders/investors and regulators through the development of a framework that makes providing, understanding and using this data a bit easier.

There is some argument that at this time the Task Force has gone a bit too far. The IHS Markit organization has just come out with its own report that pushes back on the TCFD recommendations arguing that although it is a good framework that is useful for assessing climate risks, it is difficult to tie these climate risk indicators to actual financial impacts. They argue there is still too much uncertainty on the scale and timing of these climate risk factors and financial decisions by investors could be skewed by these indicators.

My take on this, is that it is good to have a healthy dialogue between these groups. There is still some uncertainty on the scale and timing of climate events, regulations and changes in customer preferences. It is possible that investors may take this climate risk disclosure information and potentially jump the gun and divest when it would be fine for them to stay invested for the near to mid-term. So, we need to continue to refine our frameworks, models and scenario tools to ensure we have the best information available. However, we don’t need to wait until it is perfect with 100% certainty. sinking oil rig

Policy Snapshot: Understanding the Withdrawal from the Paris Climate Agreement

Earlier this week I posted about to what extent the withdrawal from the Paris Agreement matters. I wrote a separate blog post over at HARC, a sustainability focused research institute in The Woodland, TX.

 

Here is an excerpt…

 

On Thursday, June 1st, President Trump and his Administration withdrew the United States from the Paris Climate Agreement. The Agreement was signed December 2015 by 195 countries during COP 21 in Paris (the 21st meeting of the Conference of the Parties). The Agreement went into effect October 2016 with the ratification by the European Union. Currently, 147 countries have ratified the agreement.

The Trump Administration’s justification for the withdrawal was based on the argument that the Intended Nationally Determined Contributions (INDCs), i.e. carbon reduction goals, placed the United States at an economic disadvantage on the global stage. According to the Administration, the INDCs would require the federal government to adopt carbon-reducing policies and regulations that would limit economic growth. Further, the Administration argued that economic rivals, including China and India, would have an advantage over the United States because their specific pledges were significantly less onerous.

Finish the article at this link

The United States’ Withdrawal from the Paris Agreement – Does it matter?

The_Arc_de_Triomphe_Is_Illuminated_in_Green_to_Celebrate_Paris_Agreement's_Entry_into_ForceAt first glance one can argue that the US withdrawal from the Paris Climate Agreement hurts the United State’s standing in the climate mitigation arena and puts the entire agreement at risk. The US has abdicated its leadership position on climate and is turning its back on the global effort to mitigate climate change. That sounds pretty bad and there are plenty of experts arguing that by stepping away, the United States has created a leadership vacuum that may or may not be filled (some see China stepping into the role) and that a domino effect will occur where other countries will withdraw or at least step back on their climate goals. On the contrary, what we have seen so far is that signatories to the agreement are increasing their commitment to the Paris Agreement.

Will this defiance to the Republican Party’s actions to withdraw from the Paris Agreement continue? At this point, it is hard to say. However, there is no reason to believe that countries will not continue to pursue their goals.  There is no reason for them not to. The economics to continue the transition are already here. The NERA Economic Consulting report, (funded by the US Chamber of Commerce, Koch Brothers and ExxonMobil) was the report largely sited by the Trump Administration and Republican Party as the justification for why the US should lead the accord. It argues that it is too costly to make the renewable energy transition and would have negative economic consequences. However, the reality on the ground completely counters this report and any of the other arguments that climate mitigation efforts would have negative consequences on economic growth.

Here are some examples from countries, India and China, that the Republican’s see as a key threat to the US. The belief by the Republicans is that these countries get a free ride with the Paris Agreement continuing business as usual while the United States suffers economic losses through overly stringent climate regulations. However, for India and China, the status quo of a carbon based economy is quickly becoming a thing of the past.

For example, India has already stopped the development of 13.7 gigawatts of coal-fired power plants in May 2017, and feels that with the current cost of renewables, the 8.6 gigawatts of recently built coal-fired plants will be not able to compete with renewable resources. That is 22 GW of power that is not coming online or will not remain online because of renewables. India has also committed to only selling electric cars by 2030. Of course, this may not be too great of benefit of there is still significant coal powered electricity. However, if it meets its goal of 60% renewable energy by 2027, then it is a very good thing. 

In China, they have already put in place policies that will over-achieve their carbon reduction goals.  If you want to argue that these policies are not that stringent, then look at their transition of their coal fired power plants. China is currently shuttering their old-coal fired power plants and all new plants must meet very stringent efficiency standards that far out-perform US plants. China is also rolling out the largest renewable energy investment on the planet. Their commitment to renewable energy makes up 36% of the total renewable energy investment made in 2016. Their goal is to lead in clean energy technology manufacturing while the Republican Party decides to sideline the United States. They are also looking to add 13 million new renewable energy jobs by 2020 and shed about 1.3 million coal related jobs

For the United States, at least for the short-term, any progress will have to depend upon the policies of state and local governments, as well as the private sector.  Although we have lost the strength of the United States government leading climate mitigation activities and supporting the deployment and export of US clean energy technology and services, there is room to be optimistic. Many city mayors, state governors and the private sector have agreed that it is too important to not work on decarbonizing our economy. Further, many of them find economically, it makes absolutely no sense to not decarbonize our economy. Decarbonizing our economy has proved to be a very large job creator and economic engine for many companies and communities. According to a Meister Consulting Group and EDF report, in 2016 there were 4.4 million working in the clean energy and sustainability sector. Renewable energy jobs are growing at a rate of 20% per year in the last few years. A great reference to further understand the economic benefit of a decarbonized economy would the Rocky Mountain Institute’s  (RMI) Reinventing Fire. Research by RMI suggests that a $5 trillion benefit awaits the United States economy if we take the appropriate steps.

So, does it matter? We will see. Other countries have upped their commitment to carbon reduction goals. Our main rivals, at least according to the Republican Party, are doubling down on decarbonization while the Trump Administration and the Republican Party takes another step away from the global stage. Fortunately, we are a country that has the capacity and capability to do work in absence of federal leadership. The desire and drive to decarbonize is still here in the United States, it has just been made a lot more difficult to accomplish.

 

Regardless of the GOP’s withdrawal from the Paris Agreement…TX decarbonizes

Regardless of what the GOP is trying to do at the federal level to bring back coal and roll back the Paris Agreement, one of the reddest states in the country will continue to decarbonize. (a short list of things that are happening)

Wind continues to be the fastest growing generation resource…

Currently Wind Generation is 20% of portfolio mix

ERCOT Wind Production Expected to be 28.5 GW by 2019

Solar growing exponentially…

787 MW of Solar Capacity Installed as of April 2017

780 MW to be installed in 2017

1.2 GW to be installed in 2018

Texas Oil and Gas Companies Getting More Serious on Climate, well at least their shareholders are…

Occidental – 67% voted in favor of climate disclosure

ExxonMobil – 62% voted in favor of climate disclosure