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Climate Finance Momentum Builds in Lead-up to COP 26

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COP Presidency Publishes Climate Finance Delivery Plan The UK COP26 Presidency yesterday published the long-awaited Climate Finance Delivery Plan (the Delivery Plan) led by Canadian Environment Minister Jonathan Wilkinson and German State Secretary Jochen Flasbarth. The Delivery Plan seeks to provide clarity on the commitment by developed countries to provide $100 billion in climate finance per year. The Delivery Plan is informed by recent OECD analysis to 2025, which indicates that by 2023 the $100 billion per year goal will be met and the mobilization of funds for climate finance is likely to surpass $100 billion each year afterwards. The Delivery Plan provides ten key actions that should be taken by developed countries to deliver on the $100 billion pledge, including: Increasing the scale of climate finance; Increasing finance for adaptation; Prioritizing grant-based financing for the poorest and most vulnerable; Addressing barriers in accessing climate finance; Strengthening the financial mechanism of the UNFCCC and Paris Agreement; Working with multilateral development banks to increase and improve climate finance; Improving the effectiveness of private finance mobilized; Reporting on collective progress transparently; Assessing and building on lessons learned; and Taking into account the broader financial transition needed to implement Article 2.1(c) of the Paris Agreement (making finance flows consistent with a pathway towards low GHG emissions and climate-resilient development). In 2009, developed countries first pledged to mobilize $100 billion in climate finance annually by 2020. This goal was reaffirmed under the Paris Agreement in 2015. In June 2021, Canada pledged to double its international climate finance commitment to $5.3 billion. Germany has pledged to increase its climate finance to €6 billion per year by 2025. RBC Releases Canada Net-Zero Transition Report RBC recently released a report titled “The $2 Trillion Transition: Canada’s Road to Net Zero” (the Report), which analyzes the opportunities and…

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Canadian Institute for Climate Choices Releases Low-Carbon Transition Report

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The Canadian Institute for Climate Choices today released its timely report “Sink or Swim: Transforming Canada’s economy for a global low-carbon future” (the Report). The Report is the first of its kind in Canada and is critical in prudent planning in a rapidly changing global economy that directly affects Canadians, Canadian companies, and Canadian exports. The Report moves from qualitative transition paradigms and platitudes to quantified realities for Canadian business, workers, and communities as the world rapidly progresses in its transition to a decarbonized global economy. The key findings and recommendations of the Report follow.   Findings   Net zero emissions. The Report indicates growing support for net zero emissions by 2050, currently including economies representing over 60% of the world’s GDP and over 50% of global emissions, and that an ambitious low-carbon transition will cost less than inaction. We expect that number to increase dramatically at or around the upcoming UNFCCC COP26 negotiations during the first two weeks of November.   Canadian exports and jobs are at risk. Approximately 70% of Canadian exports and 60% of foreign direct investment come from transition-vulnerable sectors, with over 800,000 Canadian workers in these sectors. Alberta has the highest percentage of workers in transition-vulnerable sectors whereas Ontario has the highest absolute numbers in such sectors. Transition-vulnerable sectors include: mining and mineral products;  downstream and midstream oil and gas; auto manufacturing and parts; chemical, plastic, and rubber materials; airlines; oil and gas exploration and productions; and high-carbon power. Private finance. Canadian companies listed on the TSX are more exposed to transition risks than other major international stock markets and are facing a -14% market capitalization impact by 2050.   Transition opportunity. Industries best positioned to profit from the transition include those associated with biofuels, batteries and storage, fuel cells, and solar and wind equipment. The Report notes…

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CSA Proposes Climate-related Disclosure Requirements

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The Canadian Securities Administrators (CSA) yesterday published the proposed National Instrument 51-107 Disclosure of Climate-related Matter (the Proposed Instrument) and a companion policy addressing the need for climate-related disclosure requirements. The Proposed Instrument seeks to provide consistent and comparable climate-related disclosure information for investors and is mostly aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. This bulletin briefly summarizes the Proposed Instrument and highlights key differences with the TCFD recommendations.  Disclosure requirement of the Proposed Instrument. The Proposed Instrument would require disclosure consistent with the core elements in the TCFD recommendations as follows: Governance. Reporting issuers would be required to describe: board oversight of climate-related risks and opportunities; and management’s role in assessing and managing climate-related risks and opportunities. Strategy. Reporting issuers, where material, would be required to describe: climate-related risks and opportunities the issuer has identified over the short, medium, and long term; and impact of climate-related risks and opportunities on the issuer’s businesses, strategy, and financial planning. Risk management. Reporting issuers would be required to describe: the issuer’s processes for identifying and assessing climate-related risks; the issuer’s processes for managing climate-related risks; and how processes for identifying, assessing, and managing climate-related risks are integrated into the issuer’s overall risk management. Metrics and targets. Reporting issuers would be required to disclose: the metrics used by the issuer to assess climate-related risks and opportunities in line with its strategy and risk management process where such information is material; Scope 1, Scope 2, and Scope 3 GHG emissions, and the related risks or the issuer’s reasons for not disclosing this information; and the targets used by the issuer to manage climate-related risks and opportunities and performance against targets where such information is material. Modifications to the TCFD recommendations. The Proposed Instrument would not require issuers to provide a “scenario analysis”, which describes how resilient an…

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Energy Charter May Put Paris Agreement at Risk

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The Globe and Mail reports on growing support in Europe for withdrawing from the Energy Charter Treaty (ECT) as the threat of multibillion-euro lawsuits by fossil fuel investors intensifies. The increasing costs associated with claims under the ECT may also put the ambitions of the Paris Agreement at risk if signatories choose to allow fossil fuel companies to continue to emit greenhouse gases (GHGs) instead of paying compensation for lost investments.   The ECT was drafted and signed, as the Soviet Union was dissolving, to protect European energy firms entering Russia and former Soviet Republics. The intent of the ECT was to allow investors to sue governments for policies affecting their new investments. The ECT is quickly becoming a vehicle for claims by fossil fuel companies to attempt to recoup losses from their investments as a result of climate action and the decarbonization of economies across Europe. It is estimated that claims brought by fossil fuel companies seeking compensation for climate policies could reach €1.3 trillion by 2050. Remaining subject to the compensation mechanism of the ECT could result in large payouts to fossil fuel companies unless countries choose to allow them to continue to emit GHGs for at least another decade under the terms of the ECT.   Four claims have already been brought under the compensation mechanism of the ECT, with a combined total of more than €2.5B.  A similar claim, against the US government for $15B USD, was brought by TC Energy for the cancellation of the Keystone XL pipeline as a NAFTA legacy claim. For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.

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Federal Government Strengthens Carbon Pricing Benchmark Stringency Criteria

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The federal government has issued its strengthened benchmark stringency criteria in line with previously announced increases to the carbon price (rising at $15/tonne per year to $170/tonne by 2030). The government previously indicated its intent to strengthen the benchmark stringency criteria for the post-2022 period in September 2020. The government intends to seek confirmation from provinces and territories on whether they intend to maintain or implement a carbon pricing system for the 2023-2030 period and assess provincial and territorial submissions against the updated federal benchmark criteria in 2022 for the 2023 to 2030 period. The 2016 benchmark continues to apply for assessments of carbon pollution pricing system stringency for the 2018-2022 period. Provinces and territories must implement (a) an explicit price-based system (i.e., (i) a carbon levy on fossil fuels, or (ii) a hybrid system comprised of a carbon levy on fossil fuels and an output-based pricing system for industry) or (b) a cap-and-trade system. Partial explicit price-based system must be designed to fully replace either the federal fuel charge or the federal OBPS. Where a province or territory implements a partial system that does not fully replace the federal fuel charge or OBPS, the corresponding federal backstop system part (i.e., fuel charge or OBPS) will apply in full in the jurisdiction. The updated benchmark sets new requirements for both explicit price-based systems and cap-and-trade systems, in the following areas: Explicit price-based systems: (i) carbon price ($65/tonne in 2023, rising $15 per year to $170/tonne in 2030); (ii) common scope; (iii) price signal (no measures to offset, reduce or negate); (iv) stringency of output-based pricing systems (OBPS) for industry; (v) restriction on OBPS and performance-based rebate approaches under a carbon levy; (vi) offset credits; and (vii) public reporting. Cap-and-trade systems: (i) maximum emissions cap (corresponding at minimum to projected emissions levels…

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