The ABCs of CPP – Z

To ensure the increase in global temperature remains below 2° C. and Canada meets its Paris Accord commitments, the Canada Pension Plan Investment Board (CPPIB) will need its portfolio to have a net zero carbon footprint.

Carbon neutrality, or having a Zero net carbon footprint, refers to achieving net zero carbon emissions by :

  • reducing carbon emissions as much as possible, while
  • balancing a measured amount of carbon released with an equivalent amount sequestered or offset, and/or
  • purchasing carbon credits to make up the difference,

Carbon neutral status is commonly achieved by a carbon-emitting entity in two ways:

  1. Balancing carbon dioxide released into the atmosphere from the burning of fossil fuels, with renewable energy that creates a similar amount of useful energy, so the carbon emissions are compensated. Alternatively, the choice can be made to use only renewable energies that don’t produce any carbon dioxide. This choice would be lead to a post-carbon economy.
  2. Carbon offsetting, by paying others to remove or sequester 100% of the carbon dioxide emitted from the atmosphere (for example, planting trees), or by funding ‘carbon projects’ that should lead to the prevention of future greenhouse gas (GHG) emissions. Other methods of carbon offsetting include purchasing carbon credits, the ‘credits’ coming from carbon emitters who have exceeded their goals for reducing their carbon emissions. Carbon credits are bought to remove (or ‘retire’) them, through carbon trading. The ‘Cap and Trade’ mechanism to address carbon emissions in Ontario under the former Kathleen Wynne Liberals was a carbon offsetting scheme.

There are two categories of emissions: Direct, and Indirect. For example, a power generating utility burning fossil fuels has both direct emissions of carbon (from its smokestack), and  indirect emissions (the carbon emitted by all the end users of the power utility’s electricity). Generally, direct emission sources must be reduced and offset completely, while indirect emissions from purchased electricity can be reduced with renewable energy purchases.

A number of international institutions and companies are totally carbon neutral, or are working towards that goal. Among them are the United Nations, TD Bank, and the Bank of Montreal. The only country thus far to have achieved total carbon neutrality is Bhutan. In 2011, British Columbia announced they had officially become the first provincial/state jurisdiction in North America to achieve carbon neutrality in public sector operations–every school, hospital, university, Crown corporation, and government office measured, reported, and purchased carbon offsets on all their 2010 GHG emissions, as required under provincial legislation. Many more initiatives are planned, to neutralize the province’s emissions beyond the public sector.

For the CPPIB to have a Zero net carbon portfolio it would need to invest only in companies that themselves have a zero net carbon footprint, and divest themselves of current investments in companies that are not achieving this goal. This is the goal the CPPIB should be striving to work towards. The CPPIB should ideally want to make themselves carbon neutral, by purchasing credits to offset their carbon footprint, eg. by buying carbon credits to offset their use of electricity, air travel, etc.