Greenhouse Gas Emissions: Can the Private Sector Do Better?

11. November 2020

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Out of 32,839.9 million tons of worldwide CO2 emissions from fuel combustion in 2017, merely 1,931.4 million tons (roughly 6%) came from the residential sector. By contrast, the industry and energy sectors together made up 21,413.7 million tons (roughly 65%) [i]. As consumers, we have limited control over the fuels powering our electricity grids or industrial processes. Indeed, the majority of greenhouse gas-intensive choices in the private sector are made in the context of complex, globalized supply chains, with little consumer transparency.

The onus therefore lies with governments and the private sector to increase supply chain transparency and create a system of climate accountability. In this regard, regulation plays a crucial role. To ensure alignment with the Paris Agreement, a multilevel approach consisting of ambitious target setting and integrated governance strategies is required. Two particular strategies are crucial: mandatory extra-financial disclosure and minimum energy performance standards.

The problem with voluntary target setting

At the September 2019 Climate Action Summit in New York, 87 of the 103 companies present agreed to pursue carbon emissions goals of net zero by 2050 [iii]. As of 2019, 285 companies had set science-based targets[1] through the Science Based Targets initiative, amounting to around 265 million metric tonnes of scope 1 and 2 emissions avoided annually compared to each company’s reported base year [iv]. Perhaps the most impressive example of increasing private-sector ambition is the UN Global Compact, which counts over 800 entities that adhere to climate initiatives.

The impact of these voluntary measures, however, is limited by a lack of consistent reporting on progress. The Carbon Disclosure Project (CDP) invites businesses to report their carbon emissions and offers benchmarking services to help them improve. While the World Resources Institute has begun tracking progress through the CAIT Business Emissions and Targets Tracker tool,[2] the results so far are disappointing. The tool reveals that only ten companies have reported progress toward their Science Based Targets to CDP. Voluntary reporting on progress toward CO2 reduction targets leaves much room for improvement.

The commercial case for emissions reduction targets

Irrespective of these shortcomings, voluntary target-setting has gained traction, and businesses are increasingly incentivized to publish and achieve emissions reduction targets, for many reasons. First, achieving targets could build back consumer trust. According to the most recent Edelman Trust Barometer, only 56% of people reported trusted in business in 2019 [vi]. Achieving (third-party) verified sustainability targets arguably emphasizes transparent handlings. Second, reducing emissions can be cost-effective. A WWF/CDP report highlighted that emissions reductions in the private sector may amount to savings of USD $190bn a year by 2020 in the United States alone [viii]. Third, the exploding field of impact investment itself indicates the increasing market pressure for businesses at all stages of growth to incorporate measurable environmental impact into their core business models. Even BlackRock’s CEO, Larry Fink, stated recently that the leading asset management firm would “vote against” board directors of companies that are lagging behind on sustainability-related disclosures [ix].

Making good on promises

Regaining consumer trust and leveraging company reputation through transparent target setting is crucial to remaining economically competitive in the future (and can tap into unrealized savings today). Private sector actors can reach their targets with the help of adopting supporting policies. In particular, two key government policies will be important in driving private sector emissions to net zero: mandatory extra-financial disclosure and minimum environmental standards.

Extra-financial disclosure from third-party organizations can improve transparency. The independent Corporate Social Responsibility (CSR) rating firm, EcoVadis, provides scorecards on private sector sustainability, and this allows for sectoral benchmarking. Extra-financial disclosure initiatives such as the Carbon Disclosure Project (CPD) use third-party verification to valorize a company’s sustainability reporting.

Third-party carbon footprint verification should be mandatory. Efforts should also be taken to adopt homogenized standards based on a unified framework to enable benchmarking. The upcoming EU Green Taxonomy for Investments, for instance, will enable investors to easily identify activities that contribute to a sustainable economy [x]. While the taxonomy also proposes limits to greenhouse gas emissions, Swedish lawmakers have recently argued that these limits have been set too high to realistically achieve EU climate goals [xi].

In a similar vein, the Task Force on Climate-related Financial Disclosure was set up in 2015 to emphasize the importance of transparency in climate risk reporting [xii]. The idea is to include indicators containing climate-related information such as “GHG Holding” and “GHG exposure” in a company’s investment portfolio [xiii]. These indicators (as well as others focusing on non-physical risk [xiv]) should be submitted to relevant governmental task forces, who can reward over-achievers and penalize non-compliance.

Minimum Energy Performance Standards (MEPS) based on international norms (such as ISO 50001) valorize the efforts of businesses and ensure regulatory compliance. Producers can also participate in certification programs based on international standards to assure product quality. Initiatives like United for Efficiency, for example, advocate for mandatory standards and supporting policies for MEPS, such as those for household appliances.

At present, many country-wide certification schemes are voluntary. These must be made mandatory. Governments must include the private sector in the decision-making process to limit opposition from interest groups in the political arena, which has prevented legislation in the past [xv]. By partnering with industry, without compromising the main goal of greenhouse gas reduction, public institutions can make technologically-informed decisions that acknowledge industry input and expertise. This can, in turn, encourage active innovation and participation from the private sector in developing solutions to climate change.

A blended approach is key

No single policy device is sufficient to address the looming threat of climate change, and many other policy mechanisms may be explored to complement the approaches outlined above, such as emissions trading schemes and carbon pricing. Governments should pursue blended policy approaches that utilize all available tools.

With integrated approaches and increased transparency, we can make great leaps toward emissions reduction in the private sector. The IPCC special report on the impacts of global warming of 1.5°C above pre-industrial levels calls for multilevel governance. This includes private actors as well as civil society, necessitating that actors across all sectors collaborate to pursue greater transparency and cooperation to meet climate goals [xvi]. It is time to come together and answer this call.

 

References

Photo by Alexander Popov on Unsplash

[i] IEA Statistics Report July 2020, “CO2 Emissions from Fuel Combustion: Overview,” International Energy Agency, accessed October 22, 2020, https://www.iea.org/reports/co2-emissions-from-fuel-combustion-overview.

[ii] Hawkins, Troy R., Bhawna Singh, Guillaume Majeau‐Bettez, and Anders Hammer Strømman. 2012. “Comparative Environmental Life Cycle Assessment of Conventional and Electric Vehicles.” Journal of Industrial Ecology 17 (1): 53–64. https://doi.org/10.1111/j.1530-9290.2012.00532.x.

[iii] “Private Sector Emissions Reduction Pledge ‘Unprecedented’ – UN-SPBF.” September 2019. Accessed October 23, 2020. https://un-spbf.org/stories/private-sector-emissions-reduction-unprecedented/. [iv] 2019. Review of Raising the Bar: Exploring the Science Based Targets Initiative’s Progress in Driving Ambitious Climate Action. Science Based Targets Initiative. https://sciencebasedtargets.org/wp-content/uploads/2019/12/SBTi-Progress-Report-2019-FINAL-v1.2.pdf.

[v] Boring, Anne, Claudine Desrieux, and Romain Espinosa. 2018. “Aspiring Top Civil Servants’ Distrust in the Private Sector.” Revue d’économie Politique 128 (6): 1047. https://doi.org/10.3917/redp.286.1047.

[vi] n.d. Review of Edelman Trust Barometer Global Report 2019. Accessed October 23, 2020. https://www.edelman.com/sites/g/files/aatuss191/files/2019-02/2019_Edelman_Trust_Barometer_Global_Report.pdf. [vii] Moran, Michael. 2008. “GOVERNING THE ENVIRONMENT: THE TRANSFORMATION OF ENVIRONMENTAL REGULATION – by Marc Allen Eisner.” Public Administration 86 (2): 600–602. https://doi.org/10.1111/j.1467-9299.2008.00734_6.x.

[viii] “The 3% Solution | Projects | WWF.” n.d. World Wildlife Fund. Accessed October 23, 2020. https://www.worldwildlife.org/projects/the-3-solution. [ix] “Larry Fink’s Letter to CEOs.” n.d. BlackRock. Accessed October 23, 2020. https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter?cid=ppc:CEOLetter:PMS:US:NA&.

[x] Geiger, Charlotte, “Taxonomy for Green Investments: EU Shows Leadership on Sustainable Finance | Finance Watch.” 2019. December 18, 2019. https://www.finance-watch.org/press-release/taxonomy-for-green-investments-eu-shows-leadership-on-sustainable-finance/.

[xi] Teimouri, Arman, Joar Forssell, and Karin Karlsbro. 2020. “Emission Thresholds in EU Green Finance Taxonomy Are Too High. Here’s Why.” Www.Euractiv.Com. May 6, 2020. https://www.euractiv.com/section/energy-environment/opinion/emission-thresholds-in-eu-green-finance-taxonomy-are-too-high-heres-why/.

[xii] 2019. Review of 2019 Status Report. Taskforce on Climate-related Financial Disclosure TCFD. https://www.fsb-tcfd.org/publications/tcfd-2019-status-report/.

[xiii] Monasterolo, Irene, Stefano Battiston, Anthony C. Janetos, and Zoey Zheng. 2017. “Vulnerable yet Relevant: The Two Dimensions of Climate-Related Financial Disclosure.” Climatic Change 145 (3–4): 495–507. https://doi.org/10.1007/s10584-017-2095-9.

[xiv] Stern, Nicolas and Dimitri Zenghelis. 2016. “The importance of looking forward to manage risks: submission to the Task Force on Climate-Related Financial Disclosures,” ESRC Centre for Climate Change Economics and Policy; Grantham Research Institute on Climate Change and the Environment. http://eprints.lse.ac.uk/67133/1/Zenghelis-and-Stern-policy-paper-June-2016.pdf.

[xv] McCarthy, James E. “EPA Standards for Greenhouse Gas Emissions from Power Plants: Many Questions, Some Answers,Congressional Research Service, Nov 15, 2013, https://fas.org/sgp/crs/misc/R43127.pdf.

[xvi] IPCC D.7.2, “Summary for Policymakers” Special Report: Global Warming of 1.5 ºC, (section D.7.), 2018, https://www.ipcc.ch/sr15/chapter/spm/.

[1] Targets to achieve necessary emissions reductions under the Paris Agreement, in line with the latest climate science.

[2] The CAIT tool can be accessed here.

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Tamsyn Lonsdale-Smith

Tamsyn Lonsdale-Smith recently completed a contract as European Regional Contributor for the Renewable Energy Network for the 21st Century "Cities" Report. During her Masters in Environmental Policy, she had an internship at a public-private-partnership initiative called United for Efficiency at UN Environment, where she worked on project management, market data analysis, communications and multi-stakeholder governance.