Is Canada’s Forest Carbon Emissions Accounting Misleading

The forest carbon accounting of Canada is underestimated and misleading, according to a report from the Natural Resources Defense Council.

The Canadian federal government has been reporting direct emissions for almost all sectors of the economy.

But the forestry sector’s emission is reported differently using the concept of “combined net flux” which include emissions from natural processes and industrial activities.

The government accounting for the forestry sector’s emissions show that logging emissions are almost balanced by removals of forest regrowth.

But according to the report, such calculations are misleading and damaging.

The government doesn’t account for the carbon released by wildfires. But it factors in carbon captured by forest regrowth even if there’s no logging in the area and there’s no human activities at play.

Michael Polanyi of Nature Canada who co-sponsored the report commented:

“Canada is taking credit for carbon removal from vast forests that have never been logged as a way of masking emissions.”

He further said that the difference in calculation matters because the country can’t meet its climate goals if it doesn’t have a clear picture of the baseline.

Natural Resources Canada, the report’s sponsor, said its method follows the United Nations guidelines many countries use.

The report explains and shows Canada’s high-emissions logging sector, how it compares to other sectors, and what the government should do to fix the gaps in forest carbon credit accounting.

Logging Emissions in Canada

Carbon credits produced by forest carbon projects are among the most popular and pricey. That’s because they protect trees that store huge amounts of carbon.

But each year, loggers clearcut over 550,000 hectares of forest across Canada, mostly in primary forest areas.

The report states that the government does not report detailed emissions from the sector. And it doesn’t have a clear strategy on how to reduce the GHG emitted by logging (unlike it does for other high-emitting industries).

Doing so compromises Canada’s climate ambition – cut emissions to 45% below 2005 levels by 2030. And that depends on accurate carbon accounting of emissions from all major sectors, according to the report.

Thus, the authors used a different method of calculating the logging industry’s emissions using the government’s data.

They show in the chart below that the sector emitted 75 Mt CO2e. That is equal to over 10% of Canada’s total GHG emissions.

Annual Net Logging Emissions

The left column shows emissions and removals associated with logging (emissions are positive, and removals are negative). The right column depicts the net (sum of) emissions and removals.

The analysis takes into account three components to represent net emissions from logging. These are:

Total amount of forest carbon that is taken out of the forest upon logging
Net carbon released to the atmosphere – subtracted – as it’s stored in long-lived wood products
Forest carbon removals – subtracted – due to regrowth after logging

Logging is a large net source of Canada’s emissions

The figure is a conservative estimate but places the logging sector’s emissions on par with oil sands production and higher than the electricity sector’s emissions.

The chart depicts emissions from logging relative to the other two heavy-emitting sectors.

Net logging emissions in the country were higher than emissions from oil sands operations every year from 2005 to 2018.

The average net emissions of logging each year were 82 Mt CO2e from 2015 – 2020. While oil sands production has an average of 78 Mt CO2e over that period.

Remarkably, Canada has pledged to phase out coal and cut emissions from oil and gas by at least 75% from 2012 levels by 2030.

But under Prime Minister Trudeau’s climate-oriented government, emissions from oil and gas have expanded. And as seen in the table above, oil sands emissions are consistently increasing.

Hence, correct carbon accounting of emissions from all sectors, including forestry, is even more vital to help Canada achieve its climate commitments.

One of the authors noted that people generally accept that accurate reporting of emissions is critical, and their findings can help defend the argument that emissions from logging should be regulated like how it is in other industries.

The report provides 4 policy recommendations for Canada to consider in its forest carbon accounting.

Policy Recommendations for Forest Carbon Accounting

Transparent reporting of the logging industry’s net annual emissions as it does for other high-emitting sectors
Create a strategy to reduce the sector’s emissions that’s in line with Canada’s wider emissions reduction plans and commitments
Reduce emissions from logging by directly regulating the forestry industry
Address biases and other gaps in forest carbon accounting

Acknowledging and regulating logging emissions will lead to Canada’s new emissions reduction pathways. It will also help build in the proper incentives for mitigating climate impacts as the report concluded.

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Verification Delays Can Cost Carbon Project Developers $2.6B

Project developers could lose $2.6 billion by 2030 while the voluntary carbon market (VCM) may also lose 4.8 GT of carbon credits due to verification delays, according to a report by Thallo.

Climate tech start-up Thallo uses blockchain technology to democratize the carbon markets, making it easier for buyers and sellers of carbon credits to find each other.

The company published a report that combines carbon project developer insights and identifies challenges to scaling the VCM.

Its report called “Fast Forward, Challenges to Scaling the Voluntary Carbon Market” identifies key bottlenecks including:

verification delays,
limited access to early-stage financing, and
inefficiencies in the value chain caused by intermediaries.

The report also presents solutions for scaling the VCM. And that particularly includes improved financing through forward models.

Here are the key findings from Thallo’s report:

The biggest bottlenecks involve the registries and validation & verification bodies (VVBs), as well as the GHG crediting programs.

Verification delays can cost VCM project developers as much as $2.6 billion. This will also cost the planet 4.8 gigatonnes of un-deployed carbon credits by 2030 as shown in the chart below.

That corresponds to not offsetting 37 million U.S. citizens by the end of the decade.

Carbon crediting programs argue that there are too few VVBs vs. the number of projects.

One solution to this problem as stated in the report is to scale up crediting programs by adding a workforce to match the demand. This is what Verra and Gold Standard are doing.

They create a specific team to improve the technical capacities of VVBs and national accreditation entities by:

dedicated training,
tightening review of projects by pushing back earlier on poor quality projects, and
working more collaboratively with accreditation entities.

By resolving and cutting project verification delays in VCM, the speed of carbon credit issuance can double.

Financing is a barrier.

There are three categories of carbon project developers – big & experienced, intermediate, and small & new.

Small to midsize project developers face the greatest financing challenges. Meanwhile, the big and experienced ones like South Pole find fundraising, not a real challenge.

Among the five different financing methods, the most common ways are forward purchase agreements and own funding. But each method has its challenges and benefits as to how developers see it.

90% of project developers agree that forward products will be key to scaling the VCM.

Intermediaries’ and investors’ profits account for ⅓ of VCM value in 2021.

With 500 million carbon credits traded in 2021, $650 million went to the pockets of investors and brokers – not project developers.

That accounts for one-third of the revenues the VCM generated in 2021.

In a best-case scenario, project developers sell directly to end buyers without the need for an intermediary. In this case, up to 60% of revenues goes back to the climate or local communities for long-lasting impact.

But under a worst-case scenario, brokers can take as much as 78% of the revenues of the carbon credit sales.

So, why do project developers still work with brokers? Some believe that they help connect with buyers and it’s convenient for price discovery.

On the other hand, a well-functioning carbon exchange offers good value to developers by:

Connecting buyers and sellers without taking large fees
Giving clear price signals, and
Providing transparency around the quality of credits

Forward Models to Scale VCM

Thallo’s report also explores forward models as one way that can help scale the VCM. In particular, it looks into forward financing used by registries like Verra and Gold Standard.

In VCM, forwards are more significant than futures to make project development go faster.

Since carbon projects are different, it’s hard to have standardized futures contracts. Futures contracts are traded on exchanges such as ICE and CBL. Most of them have vintages in the past.

On the contrary, a future contract is an arrangement that is made over-the-counter (OTC) and settles just once at the end of the contract.

Forward contracts can be closed earlier in the life cycle of a carbon project. This enables much-needed financial support to early-stage projects.

The volume of forward transactions rose by 65% from 2020 to 2021.

Web3 projects such as Ivy Protocol,, and Flowcarbon are developing standardized platforms for forward models.

For the small and midsize project developer, Thallo has the following proposal for a focused forward model:

The Fast Forward VCM report includes inputs from over 30 players in the VCM.

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BlackRock Creates New Unit Called “Transition Capital”

The world’s largest asset manager BlackRock has created a new unit called Transition Capital. Transition Capital’s goal is to boost investments to shift to a low-carbon economy.

BlackRock announced the new unit in an internal memo, saying that it will work with portfolio managers and the company’s capital markets team.

Transition Capital is part of BlackRock Alternatives. According to the memo, the key purpose of setting up the new unit is:

“to source and invest in proprietary transition-focused opportunities across asset classes and geographies.”

BlackRock’s Transition Capital Unit

BlackRock is one of the world’s leading providers of investment, advisory, and risk management solutions. It manages around $8 trillion in assets.

The new Transition Capital unit will work with the firm’s colleagues to develop new investment strategies and funds. It will also help deepen the company’s research in the field while working alongside BlackRock Sustainable and Transition Solutions.

Overseers of sustainable investing in BlackRock said that:

“We believe many hundreds of billions, even trillions of dollars per year, will be invested through the transition and we have spent the past several years becoming a global leader in transition investing to ensure our clients have the tools they need to navigate it.”

The memo also said that creating the new unit is part of the asset manager’s major goal. That’s to be the global leader in transitioning portfolios, businesses, industries, and countries to a low carbon economy.

Dickon Pinner, the former head of McKinsey’s sustainability growth platform, will run the Transition Capital unit. With experience as a reservoir engineer, Pinner helped clients benefit from the energy transition at McKinsey.

Pinner will report to BlackRock’s Vice Chairman Philipp Hildebrand and the global head of BlackRock Alternative Investors Edwin Conway. He will also sit on BlackRock Alternatives Executive Committee and senior sustainability committees.

Institutional Demand for Energy Transition

According to a report, 6 out of 10 asset owners in North America say that combating climate change is a strategic goal. And over half of the responders agree that financial institutions like BlackRock are responsible in helping cut carbon from high emitters.

The surveyed individuals include professionals and asset owners as well as adviser firms. They’re part of pension funds, insurers, banks, and sovereign wealth funds.

60% of them said that they consider energy transition finance as a major commercial opportunity. Others said it’s also part of their strategies.

BlackRock’s decision of setting up the Transition Capital comes ahead of the next UN Conference of Parties in Egypt next month (COP27).

It also comes timely for the company as regulators push businesses and investors to speed up their climate efforts.

Also recently, BlackRock has been positioning itself on climate change but received criticism from some politicians that it’s boycotting fossil fuels.

Yet, at the same time, the company is also scrutinized for not using its stance to gain greater effect by cutting back finance to heavy emitters.

With its new Transition Capital unit, BlackRock remains strong in advancing its role in the global energy transition.

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Musicians Pledge: Reduce & Offset Concert’s Carbon Footprint

Concerts produce waste and carbon emissions and are generally not good for the planet. Musicians have fought back by going carbon neutral or net zero to balance the scales.

Artists are lowering their carbon footprints and buying carbon credits to make up the unavoidable emissions for as much as $200 per ton.

From Coldplay to Pearl Jam and John Jackson and Billie Eilish, artists are working together with nonprofits to help lower their carbon footprint and make concert tours carbon-neutral.

Carbon Footprint of a Concert Tour

Millions of fans flock to concerts and festivals during summers when the weather is great to enjoy live music. But experts say that these shows can also harm the earth.

That’s because both artists and concertgoers travel, either by land or by air which emits a lot of CO2. Also, promoting albums and performing live around the world means musicians and their entourage fly a lot.

Then there are the emissions from tour buses, from moving sets, and from making concert merchandise. Not to mention the energy needed to power the venue, for things like sound and lighting.

A study of the five artists’ tour via an online carbon-tracking tool revealed that they released over 19 metric tons of CO2 during music festivals.

Meanwhile, recent estimates suggest that a live concert emits 405,000 tonnes of GHG emissions in the UK each year.

Here’s the breakdown of concert tours’ carbon footprint.

A report released in 2021 by the United Kingdom-based Tyndall Centre for Climate Change Research said music industry stakeholders can help significantly slash tour-related emissions by monitoring transportation and energy use.

One of the report’s authors noted that:

“It’s important for artists to consider sustainability options in show design, tour routes and transportation from the early stages of creating a tour — rather than bringing someone in to ‘green’ what you already planned.”

How Musicians are Making a Difference

Fighting climate change is happening across various sectors and it’s no different for top musicians, who are criticized for the carbon footprint of their world concert tours.

But a growing wave of musicians are stepping up and making climate pledges to achieve carbon neutral shows.

Some artists are opting for rail travel versus airplanes, stage designers are going for LED displays versus conventional lighting.

Moreover, promoters urge fans to carpool or take public transit to venues. Some music festivals have even tried bundling up entrance tickets with public transit fares.

More remarkably, singers and bands are now working with nonprofit organizations and venues where they perform to ensure their shows reduce the music industry’s footprint.

Musicians seek guidance from experts who can organize sustainability initiatives to make their events eco-friendly.

An example is REVERB, a non-profit organization that acts as greening techs for live concert shows.

The group ensures sustainability measures are in place during the event. For instance, they work with venues to secure reusable products used by concertgoers.

The organization works with tours to empower fans, too. At each show they handle, the group sets up “eco-villages” where fans interact with their volunteers to know how they can make a positive impact.

And that includes using the free water refill stations and reducing single-use plastic bottles. These measures lower both plastic waste and carbon emissions.

To date, the organization has eliminated over 4 million single-use bottles at concert tours. They were also able to reduce emissions amounting to 300,000 tons of CO2. That’s equivalent to avoiding the footprint of 3 million pounds of burned coal.

That achievement involves the high ranks of musicians and bands making climate pledges.

Reducing and Offsetting Footprint

Jack Johnson has been aiming for a carbon-neutral show through a reusable pint-cup program and water refilling stations in his concerts. He’s also into carbon offsetting where $2 from each concert ticket goes toward offset projects.

Another pop culture icon Billie Eilish is also taking the same climate action to cut her tour’s carbon footprint. Besides cutting plastic waste and emissions, her tour venues feature plant-based food options with a lower carbon footprint.

For bands, efforts are even grander.

Coldplay, for instance, leverages an app technology that logs fans’ mode of transportation to their concerts. Those who opt for carpooling, using an electric car or taking public transit get a discount on the band’s merchandise.

Then after shows, the band assesses the logged data from fans and plans to offset their footprint. For example, they plant a tree for each ticket bought by a fan.

Perhaps nothing can beat what Pearl Jam has been doing to tackle its carbon emissions.

The legendary grunge band began offsetting its world tours’ emissions in 2003, and since then, they made investments of over $1 million dollars in carbon credits to offset emissions from touring.

In fact, Pearl Jam committed to buy carbon credits for $200 per ton for its Gigaton tour. Globally, the price for carbon offset varies, ranging from $1-15 per ton.

Projects supported by carbon credits run the gamut from sustainable fuels to rainforest protection to renewable energy sources.

By doing all they can to reduce their tours’ carbon footprint, musicians hope to influence their fans even long after their concert ends. That is to continue investing their effort and money in carbon-reducing events.

Even the concert companies Live Nation and Big Concerts, both have sustainability goals. The whole music industry seems to be onboard a net zero path. In December 2021, three major record labels (Warner, Sony, and Universal) and several independents signed the Music Climate Pact. Their pact aims to reduce greenhouse gas emissions to net zero by 2050, and to achieve a 50 per cent reduction by 2030.

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Sovereign Carbon Credits – The New Rival in the Carbon Market

Despite issues faced by carbon credits in the market, Deutsche Bank managed to turn the tide through sovereign carbon credits from rainforest nations.

The main goal of sovereign carbon credits is to limit deforestation, making them into financial assets that empower rainforest nations to protect their forests and gain financial support in doing so.

Markus Müller, chief investment officer ESG for Deutsche Bank, said that:

“Nature has a value, and we need to express that. One way is through carbon credits, which link to nature that absorbs carbon. Therefore, the sovereign carbon credits are one tool to allow capital to flow to where it is needed to protect countries against the worsening climate and continue reducing emissions.”

What are Sovereign Carbon Credits?

The REDD+ mechanism established by United Nations Framework Convention on Climate Change (UNFCCC) produces sovereign credits. The aim is to incentivize developing nations to conserve their forests and reverse deforestation.

Forests are carbon sinks that sequester over 7 billion metric tons each year.

Sovereign credits from the REDD+ financing mechanism will push that figure up.

Countries have to meet strict requirements before they can be issued with sovereign credits.

Required data include data on a country’s forest reference level that are subject to rigorous process of technical review by the UNFCCC. A country must also have a national greenhouse gas inventory in place.

The proceeds from the sales of carbon credits will be used to further cut emissions and build infrastructure. As such, they are an asset class that are tradable on global carbon markets.

With sovereign carbon credits, rainforest nations can now keep their trees standing – vital to tackling climate change.

Sovereign Carbon Credits vs. Voluntary Carbon Credits

Scientists say that the planet has to cut annual carbon emissions by 2.5 Gigatons to limit global warming to 1.5°C. Otherwise damages due to climate change will cost trillions of dollars.

The year 2017 has seen the largest cost in economic damages of climate so far – $340 billion. While the world had lost $105 billion last year.

In 2021, voluntary carbon credits accounted for only 200 million tons of emissions reductions. That’s a small chunk of the total of 500 billion tons to be cut by 2050.

Currently, the voluntary carbon market gets a significant market share and spotlight.

Carbon credits traded in the VCM involve private deals that are outside the compliance carbon markets. In other words, they’re not regulated by the government.

Demand for credits in the VCM was estimated to grow exponentially as corporations strive to cut their footprint.

In fact, the BMO sees a potential growth to be 6.5x by 2030 and 17.4x by 2050, in comparison to 2020 VCM total traded volumes.

In 2021, the Ecosystem Marketplace reported that the real market value of the VCM is about $2 billion. The credits are generated both from nature-based and technological CO2 removal projects.

They count towards a person’s or an entity’s carbon reduction commitment.

On the other hand, sovereign carbon credits count towards a country’s Nationally Determined Contributions (NDCs). They’re derived from efforts that preserve forests and whose proceeds go back to the communities.

Some are wondering if sovereign and voluntary carbon credits can go hand-in-hand. Though there’s no clear cut answer, each type of carbon credit serves its own purpose.

Sovereign carbon credits are crucial to mitigating climate at the national and global levels. While voluntary carbon credits can help direct finance to critical carbon reduction projects.

The Gabon Sovereign Credits:

Gabon, second to Suriname as the most forested nation, will be issuing sovereign carbon credits worth 90 million tons.

The African nation is 88% rainforest that has avoided 1 billion tons of CO2 emission from 2010 to 2018.

As noted by Gabon’s environment minister, Lee White:

“If we cut the forest down, we lose the fight against climate change. We have created carbon credits through sustainable forestry.”

The credits will bring more value to the nation’s rainforests and make them worth up to $15 billion. But where will that huge money go?

Reinvesting back into the forests (10%)
Investing in health, education, and climate infrastructure (25%),
Investing in future generations (25%),
Debt service (25%), and
Rural development (15%)

Papua New Guinea will soon follow Gabon’s footsteps. 80% of its rainforest remains untouched.

Key Issues and Benefits

Just like the VCM, there are also some issues concerning the sovereign credit market.

One of them is ensuring that recipients of the credits – national governments – manage the money earned from the credit sales. How can they ensure that communities benefit from the proceeds?

Another issue is carbon leakage. It refers to the idea that countries save trees in one area but cut them down in other regions.

However, the concept of sovereign carbon credits follows a holistic approach in reducing emissions.

Following the REDD+ financial mechanism, Gabon must account for their forestry and make targets to prevent deforestation. Then the UNFCCC monitors the progress before validating and approving the credit issuance.

There are also advanced technologies such as satellites that make forest management public knowledge.

A REDD+ project developer remarked that:

“… developing nations are reducing emissions by hundreds of millions of tons. That is the pace and scale that the climate requires. Sovereign credits will spur this further.”

Firms in developed nations have voluntarily pledged to reach net zero emissions. But countries themselves also vowed to cut their CO2 footprint via the NDCs.

That means they will buy the credits, which are transferable among nations. Let’s say Gabon goes beyond its emissions targets, it can sell those assets to other countries that have problems meeting their goals.

One major benefit of sovereign carbon credits is that its value appreciates over time.

Companies don’t treat them as an expense. But they count toward their carbon accounting.

Also, they can allow countries to lower the cost of achieving their climate goals. That’s because emissions reductions happen at a national scale. The payments from carbon credits are then invested back to prevent threats to forests like illegal logging.

So before, rainforest nations have been shut from entering the carbon market. But Deutsche Bank’s decision has the potential to reverse that and Gabon’s upcoming credit issuance will be the first key to that change.

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ACX Inks Deal for First-Ever LED Carbon Credits Auction

AirCarbon Exchange (ACX) inks a deal with C-Quest Capital (CQC) for the first-ever auction of carbon credits worth 300,000 generated from LED light bulb projects.

Singapore-based ACX is the world’s first carbon negative digital exchange platform for airlines to trade carbon credits. It’s using the distributed ledger technology of a traditional commodities trading system while leveraging blockchain to create securitized carbon credits.

Washington-based CQC is one of the top project developers that seeks to transform the lives of families in poor communities.

CQC creates high impact carbon credits under 3 platforms:

Cleaner cooking,
Sustainable energy, and
Efficient lighting.

The deal will leave a significant mark on the role of auctions in the carbon market.

ACX was named Environmental Finance’s Best Carbon Exchange for 2022, while CQC won the Best Project Developer for Energy Efficiency.

The partnership between the two firms will create the first-ever LED bulb carbon credits.

What are LED Carbon Credits?

As the name says, LED carbon credits are from projects that use LED light bulbs instead of incandescent lamps. The corresponding carbon offsets are based on the reduced energy use of the LED bulb over its lifetime.

Replacing incandescent or gas-discharge-based lamps with solid-state lighting (LED) is the most successful approach to curbing CO2 emissions from public and private lighting, according to the International Society of Optical Engineering.

Lighting accounts for a significant share of total electric power consumption worldwide.

How LED can offset carbon emissions?

According to the U.S. Department of Energy, use of LEDs in the U.S. by 2027 can save about 348 terawatt hours of electricity. That’s in comparison with the consumption of electricity without using LED bulbs.

Also, saving even 1 kilowatt hour of electricity prevents about a pound of CO2 from entering the atmosphere.

That is equal to a reduction of 320 billion pounds or 160 million tons of CO2 emissions in the U.S.

The ACX and CQC LED Project

The LED carbon credits for auction by ACX will be from the Efficient Lighting projects of CQC in India.

There are 14.5 million inefficient incandescent bulbs replaced by efficient and long-lasting LEDs in about 3 million households.

The project recipients are in the most rural and poorest areas in India. It benefits the local residents with cheaper lighting, energy efficiency, and higher quality lighting.

The more efficient LED bulbs also make studying and working at home much easier.

CQC certifies the project and verifies the carbon credits under Verra’s methodology AMS-II.C. or the Efficient Lighting Technologies.

The project also offers co-benefits and qualifies for 7 of the United Nations Sustainable Development Goals.

CQC performs robust audits and checks to ensure best practice and quality. The firm provides a 3-year warranty compared to the standard 1-year available in the market.

Each household is also given a unique ID to avoid the issue of double counting using cloud data management to track the use of LED lighting.

Doing all these are vital for project evaluation, verification, and improvement.

This LED project offers two-fold benefits:

Local people in rural areas will enjoy big savings from reduced electricity bills and access to efficient and quality lighting
The whole nation benefits from the significant reduction in energy consumption due to massive switchover to LED

Shifting to energy-efficient lighting will decrease the energy load on a grid system that largely relies on coal.

In turn, this also lowers India’s carbon emissions while reducing its dependence on coal as it invests in cleaner energy sources and seeks to have 500 GW of renewables by 2030.

The newest auction for LED carbon credits from CQC Indian project is part of the goal of ACX to bring more awareness about carbon projects. It comes after the Exchange’s successful auction of micro-mobility credits from a bike sharing scheme in Rio de Janeiro, Brazil.

The LED carbon credits auction will be this coming November 1 and 2, 2022.

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China’s Net Zero Pathway Needs $17 Trillion in Investments

China needs US$17 trillion in investments to meet its net zero targets and transition to a low-carbon economy, according to a World Bank Group report.

The effects of climate change are threatening China’s densely populated and economically critical low-lying coastal cities. The country is experiencing coastal erosion, saltwater intrusion, storm surges, and coastal flooding.

Without abating those impacts, the World Bank report said that China may experience GDP losses of 0.5% – 2.3% as early as 2030.

The report entitled “Country Climate and Development Report” (CCDR) for China details the essential changes across sectors needed by the country to achieve its national commitments and reach net zero emissions by 2060.

It emphasizes the urgency of the matter for three reasons:

China’s massive greenhouse gas emissions
Heavy exposure of China’s population and economic infrastructure to climate risks
China’s crucial role in global efforts to fight climate change

Why China Has to Transition to a Low Carbon Economy

China is responsible for a third of the world’s GHG and 27% of global CO2.

Achieving its global climate goals will not be possible without China transitioning to a low carbon economy. This calls for a tremendous shift in the nation’s resources and technologies that boost energy efficiency and productivity.

But the country’s advanced technological capabilities may unlock new opportunities for development in China’s journey to net zero.

According to the report, China needs as much as US$17 trillion in investments in the power and transport sectors alone for green infrastructure and technology.

Ruth Horowitz, IFC’s Regional Vice President for Asia and the Pacific noted that:

“Given the immense price tag, public investments won’t be sufficient to meet these needs… so China needs policy and regulatory reforms to spur the private sector and fully tap the potential for investment and innovation.”

Private sector participation is indeed vital to China’s net zero goal. And the CCDR underlines the importance of both the public and private sectors working together to tackle it.

The World Bank also outlines several benefits that will enable the most populous nation to turn the climate debacle into an opportunity. These include:

Increasing returns on the production and development of low-carbon technologies (e.g. wind and electricity storage);
A high domestic savings rate and a leadership position in green finance; and
The ability to create high-skilled jobs in high-productivity industries.

Modeling conducted for the report shows that China’s transition would be challenging. It will need decoupling economic growth and emissions at a faster pace and at a lower income level than in advanced economies.

It will also entail major structural changes in China’s economy. Energy, industrial and transport systems, cities, and land use patterns have to undergo dramatic transformations.

However, long-run economic costs are still manageable.

To this end, the CCDR lays out comprehensive policy recommendations that will help China to transition successfully. The sectors covered include the energy, industry, building, agriculture, transport and other sectors.

Below is how China’s pathway to net zero or carbon neutrality looks like for those sectors as per the report’s simulation.

What World Bank Recommends

1: Accelerate the power sector transition with market reforms and investments in renewables

Under this policy package are a set of climate actions. The most critical action is implementing the scale up of solar and wind power generation capacity to 1,700 GW by 2030.

This requires China to add up to 120 GW of solar and wind capacity every year by 2030. That’s 1.5x the annual average during 2016–20 and 20% more than the capacity in 2021.

This recommendation also calls for enhancing the integration of renewables by investing in energy storage.

2: Decarbonize key energy demand sectors — industry and transport

This involves advancing electrification beyond public transport to include private and commercial vehicles. It also calls for scaling up charging infrastructure through private investments.

Currently, electric vehicles in China take up less than 2% of the total fleet and are concentrated in the largest urban areas. So electrification of all types of vehicles are critical for decarbonizing the transport sector.

CCDR also recommends promoting technology development for alternative low-carbon fuels for harder-to-abate sectors. Potential alternatives are green hydrogen and ammonia though they’re not yet commercially viable.

To decarbonize the industry sector, China must place greater attention to circular economy opportunities. They would reduce emissions intensity and help overcome material supply bottlenecks.

3: Enhance climate resilience and low-carbon development in rural landscapes and urban areas

Cities in China play an important role in realizing net zero and development goals. Creating conditions for denser, well-connected, and people-oriented cities is good for the climate.

Also, urban nature-based solutions (NbS) can enhance climate resilience while making cities more livable. Examples of NbS are harnessing wind cooling to deal with urban heat traps and creating integrated green urban spaces to preserve biodiversity.

Estimates suggest the potential to remove at least 768 Mt of CO2e each year by 2030 through NbS in China.

4: Harness markets to drive cost-effective economy-wide abatement and innovation

This policy recommendation suggests expanding the role of carbon pricing.

Simulations show that a higher carbon price rising to US$50–75 per ton of carbon by 2030 can help reduce China’s emissions by about 15% – 20%.

To get there, China must strengthen its Emissions Trading System design with pre-announced annual emissions cap reductions. This will allow investors to factor future carbon price increases into their investment decisions today.

Expanding the current ETS in the power sector to other high-carbon sectors such as steel, iron, and cement, and gradually transitioning to absolute emissions caps are also important.

5: Manage transition risks to ensure a just transition

Managing risks involves enhancing labor market flexibility and social safety nets. This can also ensure a seamless labor market adjustment in China.

Some actions that can help lower the costs of adjustments are:

Reducing barriers to labor mobility,
Reforming the hukou (household registration) system, and
Ensuring the portability of social benefits

6: Foster global climate action

With China being the largest source of infrastructure financing in low-income economies, adopting climate-friendly investment practices would amplify global impact.

This entails encouraging Chinese lenders (ex. China Development Bank and China Exim) to adopt clean financing principles – “the Equator principles”. They must also phase out financing of coal and other carbon-intensive infrastructure.

Together, these measures form the critical steps that China should take in charting its pathway to net zero emissions by 2060.

But given the uncertainties involved, the policies and their impacts need monitoring and adaptation over time.

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A Brief History of Climate Change

This November, government officials, business people, and activists alike will come together in Egypt for the 27th United Nations Climate Change Conference, also known as COP27 – short for Conference of the Parties 27.

The “Parties” referred to in that name are the signatories of the United Nations Framework Convention of Climate Change, which was first established in 1992 at the Earth Summit in Rio de Janeiro.

With all United Nations member states counted amongst its number, UNFCCC membership includes nearly every nation on Earth, including observers like Palestine and the Vatican.

The only entities that aren’t parties to the UNFCCC are unrecognized states like Kosovo, and most notably, Taiwan.

30 years have passed since the UNFCCC was first established. In the time since, what’s been accomplished, and what hasn’t? What will be discussed at COP27, and where will the world go from there?

To answer all these questions and more, let’s step back in time for a summary of how we ended up where we are, outlining a brief history of climate change.

Early Warnings Were Largely Ignored

One of the earliest scientists to foresee the potential impact of man-made climate change was Swedish scientist and Nobel laureate Svante Arrhenius.

A noted chemist of the late 19th and early 20th century, Arrhenius was the first to realize and calculate the impact of atmospheric CO2 on global temperatures – what we now know as the greenhouse effect.

Newspaper articles from the turn of the century. Source: The Selma Morning Times, 1902; Rodney and Otamatea Times, 1912

The picture to the above left was taken from an article in a newspaper from 1902 and highlights Arrhenius’s original conclusion based on his calculations. The picture to the above right comes from a later article in 1912, first published in an issue of Popular Mechanics.

As you can probably guess, nothing really resulted from these early warnings. The blame for that, however, wasn’t entirely due to willful ignorance or profit-driven motivations.

Simply put, +100 years ago, there was far less CO2 being emitted into the atmosphere than there is today:

With the amount of greenhouse gases (GHGs) emissions on an annual basis worldwide at the turn of the 20th century, scientists calculated that it would be several hundred years before these emissions would start to affect the global climate significantly.

What they couldn’t predict, however, was just how quickly the pace of carbon emissions would accelerate.

A century later, CO2 emissions would already be over 13 times what they were when Arrhenius first made his calculations. And accordingly, the several hundred years’ worth of leeway mankind was thought to have would be dramatically reduced.

The Beginnings of Climate Awareness

It would take another half century for scientists to once again bring CO2 emissions to the table.

This time, they would be able to point to a steady rise in atmospheric CO2 levels. They’ll also bring other newfound knowledge, such as the fact that the ocean was less capable of absorbing CO2 than previously thought.

During a special event held on the 100-year anniversary of the American oil industry in 1959, scientist Edward Teller, father of the hydrogen bomb, had some prescient words to share with the several hundred oil tycoons, government representatives, and other scientists in attendance:

“At present the carbon dioxide in the atmosphere has risen by 2 percent over normal. By 1970, it will be perhaps 4 percent, by 1980, 8 percent, by 1990, 16 percent, if we keep on with our exponential rise in the use of purely conventional fuels.

By that time, there will be a serious additional impediment for the radiation leaving the earth. Our planet will get a little warmer. It is hard to say whether it will be two degrees Fahrenheit or only one or five.

But when the temperature does rise by a few degrees over the whole globe, there is a possibility that the icecaps will start melting and the level of the oceans will begin to rise. Well, I don’t know whether they will cover the Empire State Building or not, but anyone can calculate it by looking at the map and noting that the icecaps over Greenland and over Antarctica are perhaps five thousand feet thick.”

There was a little bit of fearmongering in Teller’s statement.

Today, we know that if all the icecaps were to melt, the resulting sea level rise would be around 60-70 meters – a far cry from being able to cover the Empire State Building, which sits at 443 meters.

However, just about all of Manhattan and Brooklyn would sit underwater:

A remarkably accurate rendition of what New York would look like if all the icecaps melted. Source: A.I. Artificial Intelligence, 2001

Last year, the world lost 1.2 trillion tons of ice, and the pace at which it’s melting is only accelerating.

The COP26 in Glasgow last year marked the most important event in the history of tackling climate change. It forces organizations and individuals to take emissions reduction to heart.

But let’s leave all that aside for the moment and return to our history lesson on climate change.

Throughout the 60s, many more scientists would come forth with new calculations and warnings about the impacts of CO2 emissions on global temperatures.

In 1969, NATO would become the first entity to attempt to deal with climate change internationally. And while their efforts wouldn’t be very successful, it would mark the start of government regulation aimed at reducing emissions in countries such as Germany.

In the 70s, some anomalously colder weather in conjunction with worries that manmade particulate emissions (smog etc.) were causing a cooling effect resulted in confusion over whether humans were causing the world to heat or cool.

The general scientific consensus was that the evidence was inconclusive and more data was necessary.

But the mainstream media latched onto those few minority scientists who expected imminent global cooling following a series of particularly cold winters in Asia and North America.

This sensationalist reporting would damage the public perception of climate science as it became clear by the 80s that carbon emissions would rapidly outpace particulate emissions. Add to this that the minor global cooling trend of years prior had been reversed.

The First Big Environmental Win – The Montreal Protocol

As a scientific consensus over global warming began to form through the 80s, one of the largest and most coordinated first efforts taken to protect the environment was the regulation and banning of chlorofluorocarbons (CFCs).

Previously commonly used as refrigerants and propellants, CFCs were discovered to play a serious role in the depletion of the ozone layer.

The ozone layer is, as its name suggests, a layer of ozone particles surrounding the earth in the upper reaches of its atmosphere. It plays an important role in preventing harmful ultraviolet radiation – the same kind that causes sunburns and skin cancer – from reaching the earth’s surface.

While only tangentially related to climate change, the depletion of the ozone layer may pose considerable danger. It causes increased cancer risks and other harmful effects to plants and animals alike.

The largest visible indicator of ozone depletion was the ozone “hole”, an area of significantly depleted ozone detected above the South Pole. At its lowest point, ozone levels in the Antarctic were up to 70% lower than they were before 1980.

The largest hole detected over the South Pole as of 2006. Source: NASA

The Montreal Protocol was established in 1987 and entered into force in 1989. It has since managed to reverse that trend, a huge achievement recorded on the environmental front. 

The Protocol has allowed the ozone layer above the South Pole to begin recovering by agreeing to phase out and later ban ozone-harming substances like CFCs and HCFCs.

NASA has since estimated that the ozone hole will be able to return to pre-1980 levels by around 2075. This makes the Montreal Protocol as the first major international success in the history of mitigating climate change.

It was also notable for just how quickly it was implemented – it only took 14 years from when the ozone hole was first discovered in 1973 to the agreement being passed in 1987.

Part 2 with an overview of all of the COPs will be released shortly…

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Brookfield Invests Billions in Carbon Capture and Decarbonization

Brookfield Asset Management is betting its money into the carbon capture sector with plans to invest over $2 billion, while charging the energy transition with nuclear power.

Brookfield expects a lot of new investment opportunities to come from 3 main global trends that they dubbed the “Three D’s” – Digitalization, Decarbonization, and Deglobalization.

The asset manager’s investment in 3 project developers in 2022 alone reached a total of $1.3 billion, believing that many firms will commit to slashing their emissions.

Here are the key highlights of the Toronto-based infrastructure investor’s series of investments under its “decarbonization” trend.

Betting Big on Carbon Capture

This summer saw Brookfield and its $15 billion Global Transition Fund invest billions into carbon capture ventures.

Brookfield’s renewable power and transition group manages $67 billion and runs over 6,000 power plants.

Carbon Transformation by LanzaTech:

The investor recently committed $500 million to LanzaTech, a Chicago-based carbon capture and transformation company. Its plants convert CO2 from industrial emissions into products people use everyday such as perfume, clothes, and fuels.

Brookfield’s investment will be for scaling up LanzaTech’s carbon capture and transformation technology. If milestones are met, the investor said that it’s even ready to pour in another $500 million, making it a billion-dollar investment.

Entropy’s Carbon Capture System:

Earlier this year, the asset manager also invested $300 million in Entropy Inc. It’s a developer of systems that capture CO2 emissions and store it underground.

Alberta-based Entropy is a subsidiary of Canadian oil-and-gas producer Advantage Energy Ltd.

Entropy’s system uses a proprietary solvent to “scrub” the gas from emissions before release into the air. Heat separates the gas from the solvent so that CO2 can be stored underground.

California Resources Corporation and CCS:

After Entropy, Brookfield also pledged $500 million in a joint venture with California Resources Corporation (CRC). The investment will build carbon capture and storage projects in Elk Hills Field.

Brookfield’s initial commitment will de-risk CRC’s projects and promote the decarbonization of California.

The initial investments of Brookfield in carbon capture ventures can rise to more than $2 billion as planned projects materialize.

As per Natalie Adomait, a managing partner in Brookfield Renewable,

“We see an immense opportunity both from a financial perspective but also to buy us time in the carbon budget…[for] the cost of other decarbonization technologies to come down… Carbon-capture technology has become proven and well understood so that it can be deployed in a very material way today.”

Adomait further added that the declining costs of carbon capture projects make them economically viable to reduce emissions.

She cited direct air capture (DAC) as one example of carbon-reducing technologies still in development.

More Investments from Private Firms

Private investment firms are also betting on carbon capture infrastructure operators as well as startup companies.

For instance, TPG Inc. invested $300 million in Summit Carbon Solutions LLC. The fund will help build a project serving ethanol producers and other industrial firms in the Midwest.

Likewise, Partners Group Holding AG co-led a $603 million funding in Climeworks, a DAC company that filters CO2 from the air.

Meanwhile, research estimates that carbon tech startups received a total of $5.6 billion in investments in the first half of 2022.

Add to this the Inflation Reduction Act that raises carbon capture incentives to $85 per metric ton from $50. With this law, many carbon capture projects are now economically viable at $85.

Yet, few companies have outperformed Brookfield’s bet on the sector so far.

There are plenty of energy transition funds like Brookfield’s Global Transition Fund seeking to invest in well-defined infrastructure investments. But the industry is not there yet.

This calls for partner investors who understand the risks in developing projects. This is where the most recent venture of Brookfield with Cameco comes in.

Charging Energy Transition Through Nuclear Power

With Cameco’s expertise in the nuclear industry and Brookfield Renewable’s expertise in clean energy, their partnership brings nuclear power at the heart of the energy transition.

It also creates a powerful platform for strategic growth across the nuclear sector.

Mark Carney, Brookfield Vice Chair and Head of Transition Investing, said:

“Every credible net-zero pathway relies on significant growth in nuclear power. It is an essential, reliable zero-carbon technology that directly displaces fossil fuels and supports the growth of renewables by providing critical baseload to our grids.”

He also noted that the partnership of Brookfield and Cameco will help drive forward the growth of nuclear power needed for clean energy transition.

Cameco and Brookfield, together with its institutional partners, form a strategic collaboration to acquire Westinghouse, one of the world’s largest nuclear services firms.

Acquiring Westinghouse brings several benefits to the investors and consortium partners. These include the following market trends:

Critical transition technology. Nuclear power is the one of the only zero-emission, baseload sources of electricity currently available at scale.

An estimated 400 GW of additional nuclear capacity will be needed by 2050.

Accelerating growth plans. Nuclear power is experiencing a resurgence around the world. 20+ countries are pursuing new projects or plant extensions.

More than 60 GW of new-build reactors are expected between 2020-2040.

Energy security. Energy supply chains are under stress due to geopolitical uncertainties. As countries look to boost energy security, demand for a stable supply of nuclear power will grow.

So, besides record financial performance, 2022 has been an active year for Brookfield’s quest to help decarbonize the economy.

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