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President Biden signs an executive order on the Paris climate agreement

What Biden Re-joining the Paris Agreement Means for Climate Action

By Nicole Lim

As you may have heard by now, newly inaugurated President Biden returned the United States to the Paris Agreement. This will officially take effect in 30 days. The President also signed executive orders [1] overturning some of Trump’s other policies that had environmental implications, including putting a halt to the controversial Keystone XL pipeline.

Since Biden first announced [2] that re-joining the Paris Agreement would be one of his first moves in office, many have been anticipating this day. For climate action and for many other reasons, today was a day that marked the beginning of a new era.

But beyond the politics and symbolism of it all, we wanted to take a look at what this all means for climate action and sustainability.

Ambition, leadership and science

As world’s second largest emitter of greenhouse gas emissions (GHG), behind China, the U.S. re-joining the Paris Agreement must come with bold and decisive commitments and plans to significantly reduce GHG emissions. When the U.S. first joined the Paris Agreement under the Obama Administration, the U.S. had pledged to reduce emission levels between 26-28% by 2025 from 2005 levels. At present, it is not on track to reach those goals.

Much has changed since then, and Biden will now be expected to raise the bar by setting more ambitious targets that capture its “fair share” of emissions. Not only that, with China announcing its commitment to be net-zero by 2060 [3], the E.U. to be the same by 2050 [4], and many other net-zero commitments by strong Asian economies, the pressure is on for the U.S. to take on an increased leadership role.

Thankfully, science, as Mr. Biden indicated in his executive order, would guide U.S.’s climate action.

 

It is, therefore, the policy of my Administration to listen to the science.

Executive Order, 20 Jan 2021

Therefore, we can minimally expect that Washington will set targets in line with the Intergovernmental Panel on Climate Change’s (IPCC) guidance on reducing GHG emissions by 45% by 2030 (from 2010 levels) and reaching net-zero by 2050.

Organisations and corporations often adopt or align with national climate targets. With the U.S. being a crucial player in the global economy, their targets send signals and inform how the private sector globally might respond to climate change.

Climate finance and pricing carbon

A striking feature of Mr. Biden’s executive order was Sec. 5.  Accounting for the Benefits of Reducing Climate Pollution. It requires all agencies to capture the full costs of GHGs through incorporating the social cost of carbon” (SCC), “social cost of nitrous oxide” (SCN), and “social cost of methane” (SCM) into cost-benefit analyses in decision-making. To facilitate this, the President has established an Interagency Working Group on the Social Cost of Greenhouse Gases, led by economists and scientists.

The Working Group has been tasked to publish an interim SCC, SCN, and SCM within 30 days (by 21 February 2021), and establish a final SCC, SCN, and SCM no later than January 2022. These costs will be used by agencies in valuing GHGs from change in regulation and other relevant agency actions. The Working Group will also be providing recommendations to the President on where and how these costs can be applied in decision-making.

Mr. Biden also made clear that these costs are to “reflect the interests of future generations in avoiding threats posed by climate change”.

The President also has a $2 trillion plan to invest in the transition from fossil fuels to clean energy [5]. This plan will see the transformation of the U.S. automotive industry to produce increased zero-emission / electric vehicles, green infrastructure, carbon-neutral power, energy-efficient buildings, investment in green innovation, clean agriculture and job creation. Since Biden’s announcement, stock prices of ESG companies that stand to benefit in a decarbonised world have soared [6]. We can expect to see these sustainable, ESG-focused companies to be at the forefront in the coming years.

Ahead of stronger sustainability and ESG regulation, companies are already bracing themselves for increased expectations [7], and some trade groups and organisations have begun meeting with the Biden team to review ESG matters and potential risks.

Outside U.S. shores and as part of commitments under the Paris Agreement, the U.S. will also be expected to play a big role in helping developing nations finance a fair, just and equitable shift away from carbon-intensive industries and fossil fuels.

Moves to watch

So much today, but it is only the beginning. Moving ahead, there are many developments to look forward to.

With COP26 around the corner, it is likely that we will see the U.S. and its newly assembled team of climate experts [8] convene with other leaders to ramp up ambition and align action ahead of the COP. In light of many other nations committing to a green transition, will we see unity and global solidarity like we saw in Paris? Backed by green technologies and corporate ambition, will world leaders take bolder action?

Come 21 February, the Working Group will announce an interim SSC, SCN, and SCM. Based on the Obama administration’s formula, the price per ton would now stand at $52. However, Trump officials reduced it to between $1 and $7 per ton. Economists believe that the Biden administration’s price might start at $125 per ton to better reflect latest climate science and market realities. [9] We can expect the price that Washington sets to impact analysts’ valuation of companies, which will be carefully watched by investors.

By 1 February, the Biden administration has promised additional executive actions to address the climate crisis. Subsequently, the $2 trillion climate package is expected to be passed. With so much optimism surrounding this, it remains to be seen if they will live up to expectations and deliver the action needed in our race towards a decarbonised future.

 

These series of events have instilled hope, inspiration, and ambition. The global pandemic has awakened the need for change, we are optimistic that the world will embark on an acceleration of climate action like never before.

 

What does this all mean for your organisation? Paia helps companies build resilience against climate change and increased expectations to decarbonise. Over past two decades, Paia has been supporting leading corporations across the region to prepare for a decarbonised future through strategically integrating climate and ESG considerations into business. Do speak to us to find out more.

[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-protecting-public-health-and-environment-and-restoring-science-to-tackle-climate-crisis/

[2] https://www.aljazeera.com/news/2020/11/5/biden-vows-to-return-us-to-paris-climate-accord-if-elected

[3] https://www.theguardian.com/commentisfree/2020/oct/05/china-plan-net-zero-emissions-2060-clean-technology

[4]https://ec.europa.eu/clima/policies/strategies/2050_en#:~:text=The%20EU%20aims%20to%20be,action%20under%20the%20Paris%20Agreement.

[5] https://www.reuters.com/article/us-usa-election-biden/biden-climate-plan-would-spend-2-trillion-in-bid-to-boost-economy-idUSKCN24F202

[6] https://www.marketwatch.com/story/these-green-stocks-would-thrive-under-a-biden-administration-according-to-fund-managers-2020-07-29

[7] https://www-wsj-com.cdn.ampproject.org/c/s/www.wsj.com/amp/articles/companies-brace-themselves-for-new-esg-regulations-under-biden-11610719200

[8] https://www.independent.co.uk/environment/climate-change/biden-climate-change-hires-white-house-b1788976.html

[9] https://www.washingtonpost.com/climate-environment/2021/01/20/biden-climate-change-inauguration/

 

Shining a light on Scope 3 emissionsViking Cold Solutions

Carbon Assessment – Shining a light on Scope 3 emissions

These emissions have typically been hidden from view, but are increasingly coming into the spotlight.

By Junying Lou

Increasingly, companies are starting to expand their focus on greenhouse gas emissions from their core operations under Scope 1 and 2 to also include greenhouse gas emissions from their value chain (Scope 3 emissions) to better manage climate-related risks and opportunities.

 

But what exactly are scope 3 emissions?

In short, Scope 3 emissions are everything other than emissions from companies’ direct operations and purchased energy.  This includes all indirect emissions from both upstream and downstream and can be classified into 15 different categories, as shown in the graph below.

Overview of GHG Protocol scopes and emissions across the value chain

Figure 1: 15 Categories of Scope 3 emissions (WRI & WBCSD, 2011).

Source: GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

 

For most sectors, scope 3 emissions are far larger than scope 1 and 2 combined. The Carbon Disclosure Project’s (CDP) recent research shows that on average, companies’ supply chain emissions are 5.5 times greater than their scope 1 and 2 emissions (CDP, 2019).

 

Scope 3 calculation: a journey that has to start somewhere

Scope 3 measurement and management can be daunting for most companies because the data coverage is comprehensive while the data sources fall out of companies’ direct control. Collecting this data requires collaboration with companies’ value chain partners.  Paia typically advises companies to start by drafting a Scope 3 emission management plan to guide in screening the most material Scope 3 emissions, collecting relevant data and setting goals. Compared to Scope 1 and 2 emissions, the Scope 3 emissions quantification is more complex and uncertain and requires an iterative approach to refine data accuracy.

 

The next step: reducing scope 3 emissions

The end goal of knowing the full climate impact from across the value chain is to inform business decisions in what they purchase, produce and put into the market, and steer companies and their value chain to a sustainable direction.

Companies that have gained a robust understanding of their Scope 3 emissions can leverage different emission reduction approaches to minimise the climate impact in their value chain.

Best practices to reduce scope 3 emissions include implementing internal carbon pricing, extending product life span, procurement practices that prefer low carbon suppliers.  The table below shows carbon reduction approaches for each Scope 3 category, as recommended by the Science Based Targets initiative (SBTi).

Levers for reducing emissions by scope 3 category

Figure 2: Levers for reducing scope 3 emissions by category (Science Based Targets initiative et al., 2018)

 

So why should companies care about their Scope 3 emissions?

Risks:

As more governments announce their plans to reach carbon neutrality, the risks associated with rapidly evolving energy and carbon regulations are mounting. For example, if a company sources carbon-intensive materials and products, the future energy and emission costs absorbed by suppliers can significantly increase the costs of goods paid by the company. For other companies that sell energy-intensive products, they may well expect more stringent energy efficiency regulations as well as negative consumer sentiment towards their products.

Additionally, companies may also face reputational and even litigation risks if they fail to understand the climate impacts in their value chain.

Opportunities:

Where there is a risk, there is an opportunity. Through prudent Scope 3 emission management, companies stand to benefit from improved efficiency and substantial cost saving in their supply chain. CDP recently reported a total of US$19.3 billion annual supplier financial savings associated with actions to reduce carbon emissions (CDP, 2019).

Understanding scope 3 emissions also drives innovation along the value chain and helps companies build competitive advantages as the world decarbonises. Companies that can reap carbon reduction opportunities along the value chain and offer low-carbon solutions are more likely to enjoy an increased market share and enhanced customer loyalty in the resource-scarce future.

 

Closing thoughts

As countries and organisations look to build back better post-pandemic, many signs are pointing towards an increased focused on Scope 3 reporting. As many may be aware, 2020 saw a series of net-zero commitment announcements by countries and corporations. We can only expect that these commitments will trickle down along the value chain, impacting various companies.

Quantifying and managing Scope 3 emissions is challenging and we are here to help, contact us today to know more about Scope 3 emissions and how you can effectively measure and manage them.

 

References:

CDP. (2019). CDP Supply Chain Report 2018/19. https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/004/072/original/CDP_Supply_Chain_Report_2019.pdf?1550490556

Science Based Targets initiative, Navigant & the Gold Standard. (November 2018). Value change in the value chain: best practices in scope 3 greenhouse gas management. https://sciencebasedtargets.org/resources/legacy/2018/12/SBT_Value_Chain_Report-1.pdf

World Resources Institute (WRI), & World Business Council for Sustainable Development (WBCSD). (September 2011). Corporate Value Chain (Scope 3) Accounting and Reporting Standard. https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf