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Businesses lead the way with voluntary carbon offsets

The international carbon market, which includes both compliance and voluntary offsets is currently experiencing significant change as it evolves from the old ‘Kyoto Protocol’ to the new ‘Paris Agreement’.

Negotiations around Article 6[1] are ongoing and whilst some progress was made last December in Katowice at COP24, the draft text was scuttled at the last minute and subsequently removed from the (Paris) rule book. As such, governments have agreed to revisit Article 6 again this year at the UN’s mid-year intersessional in June with a view towards trying to reach final agreement at COP25 in December.

Once finalised the Paris Agreement (including Article 6) will essentially create one big new international voluntary carbon market as opposed to the old Kyoto Protocol which was a compliance based system. This is due to the nature of the pledges that have been made, known as INDCs (Intended Nationally Determined Contributions) which are non-binding at a government level.

Whilst the Paris Agreement is not the only game in town, on balance it is likely to increase international carbon prices post 2020 once the new rules around Article 6 (market-based mechanisms) are finalised, particularly the ones around the eligibility of specific unit types. Internationally several compliance markets are currently trading above AU$10/t (Source: Carbon Pulse) with some markets such as EUAs in Europe already north of AU$20/t. The exception to this rule is China’s new (pilot) emissions trading scheme that is currently sitting around AU$6-8/t.

Under the Paris Agreement, governments have agreed to (voluntarily) manage their own commitments going forward and to report back to the UN on their progress every five years whilst also scaling up their ambition as they go. Thus, attempting to prevent catastrophic global warming under a system where countries have agreed to monitor their emissions and collectively rachet them down going forward – assuming all goes to plan.

Whilst this voluntary top down approach is not perfect, it gives individual governments the opportunity to decide what levers to pull locally to meet their targets, the mechanics of which, the UN has been wrestling with for years.

In addition to Article 6 there are also several other interesting things happening globally which may or may not intersect with it (and the Paris Agreement) depending on the final text that is chosen. This includes how the old Clean Development Mechanism (CDM) and Joint Implementation (JI) mechanisms may or may not play a part under Article 6, the aviation industry’s intent to mitigate its emissions under CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) and the existing voluntary carbon market driven by motivations other than compliance.

Of particular interest in Australia is the existing voluntary carbon market which has been surprisingly buoyant of late. No longer are Australian businesses and numerous local governments prepared to sit around and wait for international negotiations to be finalised. Instead they have decided to step up and take a leadership role in the battle against climate change by committing to becoming carbon neutral.

This bottom up approach by leading organisations compliments the UN’s top down international method well, hopefully at some point allowing us to break through the political barriers that we are currently seeing.

In the short term, savvy carbon buyers are also taking advantage of historic low (voluntary) carbon prices internationally and banking offsets as part of their internal procurement strategies.

Last year Ecosystem Marketplace reported the average price internationally of all voluntary offsets transacted across all project types to be AU$3.35/t or US$2.4/t (Source: 2018 Outlook and First Quarter Trends), noting that it is still possible to procure carbon offsets at even lower prices if purchasing in volume. This is due in part to the current lack of certainty around Article 6 and which type of emission reductions may or may not be eligible under it post 2020.

This in turn allowing “early-movers” a cost-effective transition towards their public carbon neutrality commitments and the opportunity to get ahead of the curve.

 

[1] Article 6 of the Paris Agreement forms the legal framework to allow use of market-based climate change mitigation mechanisms to meet emission reduction targets.

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This article was written by Nathan Dale, Head of Origination at Bundle

Bundle (a Point Advisory brand) is a brokerage firm working across several sustainability and environmental markets. Bundle specialises in voluntary carbon offsets, low carbon finance and project advisory services, both in Australia and across South East Asia.

For further information please contact nathan@pointbundle.com

Introducing our online Emissions Reduction Pathways tool

We have been working a lot lately on ‘net zero’ emissions strategies and emissions reduction plans for government and corporate clients. Through this work, we have seen the value of giving stakeholders the ability to visualise emissions trajectories and to play around with different abatement opportunities to understand the different pathways to emissions reductions.

Based on this experience, we are pleased to release our new Online Emissions Reduction Pathways tool, which can be viewed here.

The tool allows users to explore different scenarios via an intuitive and attractive interface. It helps distill complex concepts and calculations into a clean and intuitive format. For practitioners, the tool is relatively easy to update via an underlying spreadsheet (provided a carbon inventory and associated emissions reductions opportunities have been calculated).

If you are interested in developing your own version of the tool or talking further about emissions reduction strategies, contact Charlie Knaggs or Christophe Brulliard.

Scope 3 emissions and Science-Based Targets

Companies responding to the CDP Climate Change questionnaire are rewarded for setting science-based targets. However, many companies committing to the Science-Based Target initiative (SBTi) are failing to meet the SBTi criteria, and the largest reason for failure is the inability to meet the Scope 3 requirements.

For many global businesses such as BT, Optus and Pfizer, supply chain emissions contribute a significant proportion of their total carbon footprint. In an ideal world, everyone would commit to their fair share of the effort required to keep the world under a 2 degree increase in average temperatures and hence scope 3 emissions would not need to be considered. We are however far from this ideal situation. Therefore, all Science-Based Targets need to include these Scope 3 emissions sources and companies need to work with their upstream and downstream partners to reduce their Scope 3 emission inventory. However, assessing supply chain carbon emissions is typically not an easy task, and the more diversified the supply chain is, the more difficult it becomes. Therefore understanding where greenhouse gas emission ‘hotspots’ are in a company’s supply chain is often the first step in developing a pathway to setting and achieving a Scope 3 SBT.

One way of identifying and quantifying these supply chain emissions is to apply an Economic Input-Output Life Cycle Assessment (EIO-LCA) method to supply chain expenditure. This estimates the materials and energy resources required for, and the greenhouse gas emissions resulting from, activities in the economy, and can be applied to a company’s supply chain, for a first estimate relying on industry averages. The image below shows a high-level overview of Optus’ SBT setting process, which used EEIO methods to identify supply chain emissions, and was integral to their Sustainable Supply Chain Management (SSCM) strategy.

Point Advisory have the capability to assist your business in:

  • Completing a Scope 3 screening exercise in line with the SBTi requirements
  • Identifying primary and secondary data sources for calculating your Scope 3 emissions
  • Developing a Scope 3 supply chain inventory using the latest EEIO models.

Please contact Ben Sichlau or Caoilinn Murphy for further information.

 

Upcoming Melbourne event: Journey to a net zero world…

Upcoming event: Journey to a net zero world…

Can you imagine a net zero emissions world? What does it look like? And how do we get there by 2050?

To achieve the Paris Climate Agreement commitments and have a chance of keeping global temperature rise below 2°C, we basically need to achieve ‘net zero’ emissions globally by 2050. So it’s not surprising that we’re seeing a huge increase in interest in the net zero concept – from defining emissions reduction pathways through to setting science-based targets and organisational carbon neutral commitments.

But what does net zero really mean? What are our state and local governments doing to reduce their fair share of emissions? How is the Australian private sector taking on the challenge to stay ahead of the game and remain competitive? And what steps can individual organisations take to start the journey to net zero?

Come and join us for a drink, a snack and a lively discussion about these questions. Expect interesting insights from both the public and private sector and some good examples on how the net zero concept can be translated into action.

Who will be there? The following panellists will share with you their insights on their work towards net zero emissions:

What will we talk about? We will create a forum for both government and private sector attendees to discuss the transition to a net zero economy. Our panellists will discuss:

  • Victoria’s legislated net zero target and the Climate Change Act 2017
  • how they are taking on the challenge and putting measures in place to contribute their fair share to reach net zero
  • the main barriers and challenges faced
  • key lessons learnt as they act on their commitments.

We’re expecting an interactive discussion, and will allow plenty of time for networking and continuing the conversation over a glass of wine.

Event details: The event will be held at Point Advisory’s offices in Melbourne’s CBD from 5pm to 7.30pm on Thursday 19 April. Drinks and nibbles provided.

Please click here to visit our Eventbrite site to RSVP.

Towards zero emissions by 2050

Towards zero emissions by 2050

At the twenty-first session of the Conference of the Parties (‘COP21’) to the United Nations Framework Convention on Climate Change (‘UNFCCC’) held in Paris, the world agreed to a global goal to hold average temperature increase to well below 2°C and pursue efforts to keep warming below 1.5°C above pre-industrial levels. To achieve the “well below 2°C goal”, the concentration of greenhouse gases (‘GHG’) in the atmosphere need to be kept under control, which means that the world has to operate within a given remaining ‘budget’ of carbon emissions. Currently we have a carbon budget of 850 billion tons of CO2 to have a likely chance (estimated as a 2/3 probability) of staying below 2°C. If we want to stay well below 2°C, we need to do better than that, and do it quickly. In this context, the Paris Agreement highlights the need for Parties to reach net zero emissions by 2050.

Australia ratified the Paris Agreement on 10 November 2016. Our Nationally Determined Contribution (‘NDC’), dated August 2015, sets an economy-wide target to reduce GHG emissions by 26 to 28 per cent below 2005 levels by 2030. This target has been rated as “insufficient, and with a level of ambition that, if followed by all other countries, would lead to global warming of over 2°C and up to 3°C” by the latest Climate Action Tracker assessment.

However, Australian state and local governments are taking further climate action to contribute their fair share to the world’s path to net zero emissions by 2050. Queensland has been the latest state government to announce their climate agenda with its Queensland Climate Transition Strategy, that includes a commitment for 50% renewable energy by 2030, net zero emissions by 2050, and an interim emissions reductions target of at least 30% below 2005 levels by 2030. This positions Queensland alongside South Australia, Australian Capital Territory, Victoria, New South Wales, and Tasmania in setting targets or aspirational goals of net zero emissions by 2050.

State Key commitments
Victoria
  • Net zero greenhouse gas emissions by 2050
  • Requires the government to set five-yearly interim targets for the period 2020 to 2050
  • Reduce Victoria’s emissions by 15-20 per cent below 2005 levels by 2020
  • Reduce emissions from government operations by 30 per cent below 2015 levels by 2020
  • Renewable energy generation targets of 25 per cent by 2020 and 40 per cent by 2025
Australian Capital Territory
  • Net zero carbon emissions by 2050
  • Interim emissions reduction targets
  • Renewable energy target of 100% by 2020
South Australia
  • Net zero emissions by 2050
  • Adelaide to be world’s first carbon neutral city
  • Achieve $10 billion in low carbon investment by 2025
  • Improve energy efficiency of government buildings by 30 per cent by 2020
Queensland
  • Net zero emissions by 2050
  • 50% renewable energy by 2030
  • Interim emissions reductions target of at least 30% below 2005 levels by 2030
New South Wales
  • Aspirational objective of achieving net-zero emissions by 2050
Tasmania
  • Aspirational long-term target to achieve zero net emissions by 2050

At Point Advisory, we have recently completed work for the ACT government to develop their net zero emissions trajectories at the broad sectoral level (stationary energy, waste and land use). We are also working with the Queensland government on their next demand management and energy efficiency strategy.

Local Governments are also making progress in Australia. Some examples of councils´ emissions reduction commitments are as follows:

Additionally, Melbourne and Sydney are part of C40 Cities, a network of 91 cities across the world committed to addressing climate change by reducing emissions and climate risks, while increasing the health, wellbeing and economic opportunities of their citizens. Together C40 member cities combined community emissions represent 2.4 Gt of CO2-e. During COP23, 25 cities, including Melbourne, pledged to develop climate action plans before the end of 2020 to deliver on their share of emissions reductions required to reach net zero emissions by 2050. New York City and Paris have already delivered on this commitment. Melbourne is on track to develop its climate action plan and has also been recognised as a lead of the C40 Low Carbon Districts network, with Fishermans Bend and Arden Macauley as examples of low-carbon, sustainable, and energy efficient neighbourhoods. Point Advisory is currently finishing developing a net zero carbon strategy for the Fishermans Bend Taskforce, which will inform the next stage of work to refine the climate action plan for the district.

Businesses are also stepping up and leading the way to accelerate the transition to a low carbon economy. COP23 witnessed commitments of unprecedented magnitude, such as Microsoft’s pledge to reduce its operational carbon emissions by 75 per cent by 2030, against a 2013 baseline – this has been estimated to avoid 10 million metric tons of carbon per year, which is equivalent to zeroing out the emissions of the City of Rome. Danone also saw its science-based target to become carbon neutral by 2050 getting approved by the Science-Based Targets Initiative (SBTi) during the conference, and so did the Singtel Group, becoming the first company in Asia (excluding Japan) to have its carbon reduction targets approved by the SBTi.

Over 630 companies around the world have made more than 1,000 climate-related commitments through the We Mean Business Coalition’s Take Action campaign. This includes commitments such as adopting science-based emissions reduction targets or joining the Low Carbon Technology Partnerships Initiative to achieve emissions reductions that lead to a net zero emissions economy by 2050.

Whilst setting targets does not directly reduce emissions, businesses’ pledges are sending a clear signal to the market that society is ready to embrace net zero and that regulatory uncertainty needs to be reduced to ensure investment stability and smooth economic growth.

Australian businesses are also playing a role. Point Advisory assisted Westpac to develop emissions reduction targets in line with SBTi criteria. Infigen Energy, Origin Energy, Teachers Mutual Bank, Australian Ethical Investment and Investa have also committed to setting science-based targets. Other Australian companies, such as AGL Energy, Energy Australia, Wesfarmers annd Telstra have shown their support to a 2050 carbon emissions reduction target for Australia that is consistent with the Paris Agreement to aim at net zero carbon emissions by 2050.

As climate action plans and emissions reductions targets get approved and communicated, the focus will shift to whether governments and businesses are in fact delivering on those commitments. To this effect, at COP23, countries agreed on the design of the Talanoa Dialogue, a framework to take stock of the collective progress towards net zero emissions of the Parties to the agreement. This will not only provide insight on the actual tons of emissions that have been removed from the atmosphere so far, but also set the scene for governments to up their NDCs under the Paris Agreement kicking off in 2020. The Australian federal government will then have another chance to truly embrace the challenge of decarbonising Australia’s economy, take on a leading role and unlock the significant economic opportunities the Paris Agreement could offer for Australia.