The ABCs of CPP – C

Carbon, as carbon dioxide, is a major greenhouse gas contributing significantly to global warming, and climate change, yet the Canada Pension Plan Insurance Board (CPPIB) has investments in at least 35 coal companies globally.

All countries bound by the Paris Accord, including Canada,  have set a target for 2030 that will limit the rise in global temperature to less than 2 degrees C. This will require a dramatic reduction in the emission of carbon dioxide and other greenhouse gases in the intervening years.

Carbon dioxide is generated primarily by the burning of fossil fuels through transportation, heavy industry, and electric power generation. Coal is the “dirtiest” of the fossil fuels. Canada has made a serious effort to convert its electric power plants from coal to “cleaner” fuels such as natural gas, and that process is nearly complete. On the world stage Canada has strongly urged other countries to move away from coal as a fuel. Yet the CPPIB has investments in at least 35 coal companies globally. Among them is Duke Energy, which has been fined millions for pollution. Clearly, the CPPIB’s investment criteria are not aligned with Canada’s climate change policies. The CPPIB needs to stop funding new fossil fuel projects.

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Climate Change leads to climate risk, and this risk is not being assessed by the CPPIB in their decision-making.

On Friday, July 13, 2018, sovereign wealth funds managing more than $2 trillion met in Paris to lay out a strategy to pressure companies to be more climate-friendly, French officials said.

French President Emmanuel Macron is championing the initiative, bringing together the heads of six sovereign funds to thrash-out a pro-environment investment framework. Five of the funds are from oil-rich nations–Abu Dhabi, Kuwait, Saudi Arabia, Qatar, and Norway; New Zealand is the sixth.

The guidelines, which funds will ask the companies they invest in to meet, are expected to influence other big asset managers, French presidential advisers said.

“Beyond the colossal amounts these funds manage, it’s the snowball effect we’re betting on”, one advisor at Macron’s office said. “By getting them to make this joint pledge, there will be a ricochet effect spreading across global finance.”

Lawrence Yanovitch, a former Bill and Melinda Gates Foundation investment manager and an American national, will be coordinating the initiative. Yanovitch said, “The funds understood it was in their financial interest to take account of the risks of climate change in their investments and that most of the countries were already seeking to transition toward low-carbon economies.”

“They see a business opportunity”, he said. “Financial markets are risky because they don’t take these (climate) risks into account.”

“The guidelines will include obligations for companies to calculate their carbon footprints”, he said.

Yanovitch believes it is Macron’s commitment to the Paris Agreement, particularly in view of the fact that President Trump has pulled the U.S. out of the agreement, and Macron’s background as a former investment banker that encouraged the sovereign funds to work with France on the framework. “They see him [Macron] as a committed leader on climate”, he said. “He’s got the background; he’s a banker. He understood that the funds were the strategic entry point. If you motivate them, it will cascade down.”

This entire article, “Macron gathers world’s top sovereign funds to send climate signal” from Reuters.com, can be found at:

https://www.reuters.com/article/us-france-climatechange/macron-gathers-worlds-top-sovereign-funds-to-send-climate-signal-idUSKBN1JW0IF

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Jeremy Grantham, co-founder and chief investment strategist of Grantham, Mayo, and von Otterloo (GMO), a Boston-based asset management firm, has prepared a lecture he delivers entitled: “What Investors Need to Know About Technology and Climate Change: The Race of Our Lives.”

In a lecture accompanied by numerous slides of graphs, developed from data obtained from reliable sources, Grantham shows us how the effects of climate change are rapidly surpassing our ability to cope with these effects. Technological advances will not be adequate to meet the challenges we face as the global temperature continues to rise.

Grantham’s lecture is delivered under six sub-headings. They are:

  1. “The Race of Our Lives: Climate Change Accelerates”
  2. “Climate Change: But Greener Technologies Also Accelerate (Resulting in De-Carbonizing the Economy)”
  3. “Climate Change: But Now the Terrible News, Feeding the 12 Billion (The impact on food sufficiency of: [i] population growth (plus increasing wealth); [ii] climate change; [iii] soil erosion (and many related factors)”
  4. “Other Problems Facing ‘Big Ag’: [i] water availability; [ii] urban expansion; [iii] bug and pathogen immunity; [iv] toxic environment (a 75% loss of flying insects); [v] global distribution of phosphates reserves [which are critical to agriculture].”
  5. “Climate Change: Problems With Capitalism. [i] the Sixth Great Extinction; [ii] toxicity affectings humans; over 50% loss of sperm count in developed world; [iii] complete inability of capitalism to deal with externalities, tragedies of the commons, and the very long-term; [iv] the Devil and the Farmer.”
  6. “And Finally the Peril of Divestment.”

Grantham provides a quote from James Romo, CEO of NextEra Energy, under the heading: “Alternative energy will crush fossil fuels–on cost!”

Romo says: “Without incentives, wind is going to be a $0.02 or $0.03 product early in the next decade. Battery storage will be $0.01 on top of that. And when you look at… coal and nuclear, today, operating costs are around $0.03. New wind and new solar, without incentives and combined with storage, are going to be cheaper than the operating cost of coal and nuclear in the next decade. That is going to totally transform this industry.”

With compelling evidence Grantham delivers a powerful message on why we need to do what we can to limit the increase in global climate change, while preparing for the effects of an increase nonetheless.

The entire Grantham lecture can be found at:

http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2018/03/Jeremy_Grantham_lecture_11April2018.pdf

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The economic models that inform climate policymaking vastly underestimate the economic risks associated with a warming climate and these models are fatally flawed writes David Roberts, a writer on energy and climate change issues, in an essay entitled: “We are almost certainly underestimating the economic risks of climate change: The models that inform climate policymaking are fatally flawed”, for Vox.com.

Roberts goes on to say: “One of the more vexing aspects of climate change politics and policy is the longstanding gap between the models that project the physical effects of global warming and those that project the economic impacts. In a nutshell, even as the former deliver worse and worse news, especially about a temperature rise of 3° Celsius or more, the latter remain placid. The famous [Dynamic Integrated Climate-Economy] (DICE) model created by Yale’s William Nordhaus shows that a 6° rise in global average temperature–which the physical sciences characterize as an “unlivable hellscape”–would only dent global GDP by 10%.”

Roberts draws the conclusion: “Policymakers want to know how much climate change will hurt the economy. They want to know how much policies to fight climate change will cost. Models provide them with answers. Right now, models are (inaccurately) telling them that the damage cost will be low and policy costs will be high.

Policy mobilization on climate change is going to fight a headwind as long as policymakers are getting those answers from models.

We need models that negatively weigh uncertainty; properly account for tipping points; incorporate more robust and current technology cost data; better differentiate sectors outside electricity; rigorously price energy efficiency, and include the social and health benefits of decarbonization.

One, such models would be more accurate, better at their task of informing policymakers. And two, they would justify far more policy and investment to fight climate change than has been seen to date in the U.S. or any other major economy. We shouldn’t let the blind spots and shortcomings of current models undermine political ambition.

Save the models, save the world.”

David Roberts’ entire essay can be found at:

https://www.vox.com/energy-and-environment/2018/6/8/17437104/climate-change-global-warming-models-risks