Report on Costs of Reduction
October 29, 2009
Report by Pembina and DSF, funded by TD Bank has been released, saying that the costs of meeting GHG reduction targets will be quite high.
Ontario Emitters to Report by 2011 – Draft Regulations Released
October 29, 2009
The Ontario Ministry of the Environment has released a draft Greenhouse Gas (GHG) Emissions Reporting regulation and guidance document. The regulation would require all regulated sources emitting 25,000 tonnes or more of carbon dioxide equivalent (CO2e) or more per year, starting in 2011 (to report on 2010 data). The draft suggests that third party verification is required, but not until 2012 (for 2011 data); this is designed to give the reporting industry time to develop the verification capacity. In the EBR Posting, Ontario is transparent in its intention to align with and adapt to North American-wide requirements. Ontario is also an active member of the Western Climate Initiative, which released essential requirements for GHG reporting guidance in July. It should be noted that this is more robust than the reporting rule recently released from the U.S. Environmental Protection Agency, raising questions about compatibility to the U.S. system.
The proposal is open for public review and comment until November 6, 2009.
Our Common Energy Future – William Reilly gives the C. Warren Goldring Lecture
October 22, 2009
This morning, Laura and I decided to relive our academic years by attending the C. Warren Goldring breakfast lecture on Canada-US relations in downtown Toronto. The lecture topic was “Our Common Energy Future” with speaker William K. Reilly who is the chairman of the ClimateWorks Foundation and a former administrator of the US Environmental Protection Agency from 1989 to 1993. (You can read more about him here.)
Reilly opened with an anecdote that anyone involved in addressing climate change would do well to heed. As the administrator of the EPA, Reilly was testifying before the US Senate when a former Senator peered out over his glasses and told Reilly “I caution you not to try and get to zero risk. Life is about risk and you know how that ends.” This recollection quickly set a tone of practicality that would permeate the morning’s presentation.
Having moved into a private finance career with asset manager KKR after his years of public service, Reilly is particularly credible source calling for greater private sector action on climate change. Some of
the key points arising out of his speech include:
1. Private Equity Purchase of Texas Utilities
In 2007, Reilly assisted in smoothing out the acquisition of Texas Utilities (now split into Oncor Electric Delivery, Luminant and TXU Energy) by KKR, TPG Capital and Goldman Sachs. At the time this would be the largest private equity deal ever completed.
One of his first steps was to contact the National Resources Defense Council (NRDC) to get a sense of the coal generation industry. At the time, Texas Utilities had committed to building eight new coal-fired plants in Texas and three in other states. Reilly eventually also brought the Environmental Defense Fund into the consultation process and together with NRDC came up with a list of commitments that would result in their endorsement of the proposed transaction. These included that the utility would:
- become the largest buyer of wind power in the state,
- not build any more coal plants except for three already under construction and only build new ones if they use carbon capture and sequestration technology,
- cancel the planned construction of the eight cold-fired plants in Texas and the three in other states,
- spend $400 million on demand-side management initiatives, and
- promise to reduce rates by 15%.
Reilly considers this deal to be a clear signal that by partnering with NGOs, KKR would no longer be doing business-as-usual. This NGO support was also crucial in securing an exemption for the three plants under construction by Texas Utilities in the recent US Congress climate change bill Waxman-Markey.
2. Public Support for Climate Regulation
Reilly noted an extraordinary development that, in contrast to the development of the Clean Air Act, it is the public at large that is clamoring for climate regulation. Leadership for implementing the former initiative came primarily from industry after they had already developed suitable technological know-how. Unfortunately, addressing climate change will be more challenging than dealing with ozone depletion so having broad-based support should be one reason the private sector’s feels comfortable in being more proactive.
3. Private Sector Leadership
As Reilly pointed out, there have already been some notable movements in corporate America in taking ownership of the climate issue. Companies such as Apple, Nike and Exxon have withdrawn from the US Chamber of Commerce because of the group’s obstructive position on climate change. PG&E’s pullout on 22 September 2009 was one of the most recent and its CEO explained the decision in a company blog:
“We find it dismaying that the Chamber neglects the indisputable fact that a decisive majority of experts have said the data on global warming are compelling and point to a threat that cannot be ignored. In our opinion, an intellectually honest argument over the best policy response to the challenges of climate change is one thing; disingenuous attempts to diminish or distort the reality of these challenges are quite another.”
In contrast, Reilly highlighted the positive work being done by a group of NGOs (Environmental Defense Fund, Pew Center on Global Climate Change) and companies (Alcoa, DuPont) under the rubric of the Climate Action Partnership. He cited this joint partnership between NGOs and the private sector as a means of easing the public anxiety and distrust of corporate America that has built up in the midst of the current economic downturn.
4. Evolution of Business Strategy
Reilly explained the evolution of the private sector’s response to environmental concerns as follows: in the 1980s the best corporate performers were mostly cleaning up and complying with government regulation followed by a period in the 1990s when waste and energy reduction was the focus of their activities to today when many firms have created “market-facing products” that reduce consumers’ impact on the environment.
It has now reached a point where Reilly believes that the long anticipated intersection of environmental aspirations and economic goals is taking place. For instance, Walmart requires that their products from fisheries and hardwood sources be certified by their respective industry stewardship councils. Moreover, the company also requires that its suppliers comply with these standards. He also cites BP and Shell for their support of cap-and-trade legislation in the US.
5. China
Having spoken with Chinese ministers, Reilly is confident that China is more open than ever to making significant moves with respect to their energy generation sources. However, they are concerned about the lack of movement in the US and want reassurance that the developed world will be taking the lead. Beyond just providing subsidies to solar manufacturers, Reilly believes China is ready to enter into a monitoring-and-improvement regime of its emissions. He does not envision them accepting a hard cap at this point.
6. Copenhagen Negotiations
The likeliest scenario coming out of Copenhagen according to Reilly is that there will be significant progress made on nuclear support and off-shore drilling, but there will not be a comprehensive agreement as was achieved under Kyoto. Instead, the global community is looking at the development of an agreement on the architecture of climate regulation. Another round of negotiations will be required before a full agreement is completed. Individual commitments, such as the Chinese agreeing to maintain current emission levels, monitor future emissions and commit to some improvement will be the order of the day.
7. Regulation of GHGs by the EPA
Despite a recent US Supreme Court decision giving the EPA the authority to regulate tailpipe emissions of greenhouse gases, Reilly suspects the agency is reluctant to tackle the issue. He pointed out that regulating carbon is a massive intervention in the economy that the Clean Air Act was not designed to address. Nevertheless, he has encouraged his former colleagues to appear willing to tackle the issue because more than a few US legislators feel that any legislative response is better than an EPA approach.
Conclusion
Reilly’s confidence in the ability of the private sector to take a significant role in pushing for climate regulation in North America was a breath of fresh air, but he ultimately sees national US legislation as the keystone upon which an effective response will be built. He does not believe the EPA is equipped to adequately address the challenges nor does he see the regional approaches such as RGGI or WCI as having the scope or staying power to make the necessary broad-based behavioural changes. Nevertheless, his tone was hopeful and his new career in private equity suggests there may be a basis for that optimism.
Globe and Mail Article Features Zizzo’s Solo Practice
October 20, 2009
Thanks to the writers and editors of the Globe and Mail for including this story today in the Small Business Section. As one editor put it “It was smart, useful and showed just how much women have to offer. Not exactly everyday fare for the business section”.
Climate Risk Disclosure Lacking in Ontario
October 14, 2009
A Coalition of Investors, Environmental Groups and Climate Change Lawyers Call on Ontario Securities Commission to Improve Climate Risk Disclosure.
I am proud to be a part of the study and submission recently made to the Ontario Securities Commission (OSC) asking for stronger guidance and new rules to enhance climate risk disclosure in public disclosure documents.
Along with Ceres, Climate Action Network Canada and an investor group, the Climate Change Lawyers Network told the OSC about our review of some 2008 reporting documents that found climate risk disclosure in OSC filings were weak or nonexistent among the 35 companies surveyed.
The submission sets out recommendations for how the OSC can better guide companies to move in the direction of meaningful climate risk disclosure. In many cases climate risks are very material to investors and they should be adequately dealt with in a company’s public documents. The submission also encouraged the use of the Global Framework for Climate Risk Disclosure and encouraged the OSC to improve corporate governance disclosure of how companies are addressing climate risk at the board and management levels.
