Glossary

A Balanced Approach

A Balanced Approach

A Balanced Approach


by William Flederbach, President & CEO | September 30, 2020


Life is about balance.
Our fight against climate change must also be balanced.

At ClimeCo, we balance our investments on all types of projects that mitigate greenhouse gas (GHG) emissions.  From sequestering carbon with nature-based solutions (NBS) like grassland preservation, reforestation, and mangrove re-establishment, to destroying it at manufacturing sites before it ever gets emitted into the atmosphere, we strive for a balanced approach to addressing climate change. 

Our first focus as a company is on destroying GHGs before they ever have a chance to be emitted into the atmosphere.  This results in a permanent, non-reversible reduction that offers assurances to our clients.  So why is this approach to climate change not as popular in the marketplace?  Why does the market prefer to sequester GHGs from the atmosphere after they have already been emitted than trying to prevent them from making it that far in the first place?  Imagine how much easier it would be to knock it out at its origin than to chase it down later.  To us, the proper approach requires a balance of both – destroying the GHG molecules before they are emitted to the atmosphere and then sequestering any unavoidable emissions that occur.

 

The Facts

The USEPA publishes world-wide sources of GHG emissions by major economic sector.  The USEPA reported that destructive patterns of land use account for 24 percent of human-caused GHG emissions (See Figure 1).  Of this, deforestation and forest degradation account for 17 percent of global GHG emissions. 

 

Figure 1 – Sources of GHG Emissions (USEPA)


At the same time, studies by the Global Carbon Project revealed that 45% of the GHGs emitted to the atmosphere are retained there, with only 55% being sequestered by land and oceans (See Figure 2).

 

Figure 2 – Fate of Carbon Emissions (Global Carbon Project)


Since nearly half of all GHGs will remain in the atmosphere for long periods of time, never to be sequestered, this supports the absolute need for a balanced approach: stop what you can from entering the atmosphere while increasing land-based solutions to enhance sequestration for the rest.  It’s that simple… right?

 

Nature-Based Solutions

NBS has become the buzz phrase recently but these practices, such as proper forest stewardship and regenerative agriculture, are not new and have been in place at some level for decades.  In fact, at the heart of the Chicago Climate Exchange (CCX), which was founded in 2003, was the Continuous Conservation Tillage and Conversion to Grassland protocol.  I grew up in the country where farmers would rotate crops between corn and soybeans, and we understood this helped to keep the soil healthy (not to mention its positive impact on our corn maze adventures!).  Now, this solid farming stewardship is considered fundamental to regenerative agriculture.

Today, there has been a renewed focus on at-scale reforestation efforts (such as ClimeCo’s partnership with Restore the Earth), grassland preservation and restoration, mangroves re-establishment, regenerative agriculture, and more.  These all play a critical role in combatting climate change.

 

Reversal Risks

California, under the Assembly Bill 32 Cap-and-Trade program, has issued over 151 million tonnes of carbon offsets (in the forestry sector) since its inception 8 years ago. The California Government Wildfire Report, states that, as of September 28, 2020, there have been over 8,100 fires this year that have consumed more than 3.7 million acres.  According to the European Centre for Medium-Range Weather Forecasts, as of September 13, 2020, CO2 emissions from wildfires have reached about 83 million metric tonnes.  That is the highest level recorded since recordkeepings began in 2003.  The forest fires on the west coast are certainly exacerbated by climate change, as they are being fueled by two common contributors – dryer conditions and stronger winds.  Unfortunately, this will only get worse in the years ahead.  It is a sad story that highlights natural reversal risks in fire-prone areas of the country.

In addition to wildfires and other natural disasters, the intentional and illegal reversal of forests also occurs within countries wrought with political risk and unclear land rights.  For example, one only needs to look to Brazil, where a horrific tale of illegal deforestation is occurring.  According to conservation groups, deforestation in this region has soared since the Brazilian President, Jair Bolsonaro, took office last year.  Numbers released by the Amazon Deforestation Satellite Monitoring Project, a high-resolution system operated by INPE that produces Brazil’s official deforestation data, showed that 10,100 km2 of forest were cleared between August 2018 and July 2019, a 34% increase from the previous year. Imagine being an investor in forest carbon offset projects in Brazil; would you feel comfortable that you had made a sound investment, an investment that was going to help combat climate change?

Do the risks of accidental or intentional reversal mean that we should not pursue forest or other very important NBS projects?  No, I would argue that these examples are more reason to invest in projects to enhance NBS carbon sequestration.  That said, when making your investments, understand thoroughly how the methodologies account for reversal risk, and be sure to identify both the geographical and political risks.

 

Permanent GHG Removal

Removing GHGs at the point of origin has always been a major focus for ClimeCo.  We like this approach because of the permanent, non-reversible solution it provides us in the fight against climate change.  To-date, ClimeCo has stopped over 20 million tonnes of CO2e from entering the atmosphere, and we are just getting ramped up!  Our expertise includes nitrous oxide abatement at nitric acid plants, ozone-depleting substance (ODS) destruction, methane capture and use, methane avoidance (composting), and more. These projects have no reversal risks and are of the highest quality.  ClimeCo has recently leveraged its N2O experience to lead the development of the Climate Action Reserve (CAR) Adipic Acid Protocol, which was approved by the CAR Board on September 30th.  This project type will abate an additional 5-10 million tonnes of CO2e annually in the United States.  Adipic acid is used to produce high performance plastics, including plastics contained in automobile airbags and light weight plastic in electric vehicles.  ClimeCo is also designing and building additional nitric acid (primarily used in fertilizer production) N2O abatement projects across North America.  We will soon exceed 15 million tonnes per year of CO2e abatement.

Imagine if these projects had not happened and this GHG loading had entered the atmosphere.  This would mean that, in the absence of ClimeCo’s efforts, to-date there would be an additional 20 million tonnes of CO2e in the atmosphere and, over the next decade, another 150 million tonnes or more impacting our climate.  If we were to rely only on sequestering, like as in a reforestation project, to reverse 170 million tonnes of CO2e, it would require in today’s marketplace a total of 850,000 acres at an average price of $12/tonne (forestry credit prices currently range from $8-15/tonne), resulting in a total cost of around $2,040,000,000.  By comparison, the same impact could be realized for far less cost with no reversal risk from ClimeCo’s GHG abatement technologies.  

So, my point is that there needs to be a balance of both permanent destruction of GHG molecules and sequestration in the marketplace for us to achieve our climate goals.  Relying on just one method will not get us there but finding the balance between the two can.

About the Author

William “Bill” Flederbach cofounded ClimeCo in 2009 and has grown the business rapidly over the past 10 years.  Before starting ClimeCo, Bill managed the air quality practice at O’Brien and Gere (OBG), and worked and managed the international carbon markets at MGM International and AgCert.  He is a graduate of Pennsylvania State University and the Smeal College of Business at Penn State.

A New Approach to Mitigating Future Carbon Emissions

A New Approach to Mitigating Future Carbon Emissions

A New Approach to Mitigating Future Carbon Emissions


by David Priddy, Vice President of Business Development | August 27th, 2020

Seldom has a day gone by that we have not heard of a company or organization announcing new climate change commitments.  Just in the past few months, we have witnessed companies, including Apple, Delta Air Lines, and Unilever, announcing bold carbon-neutrality goals as they seek to do their part to address the climate crisis.  In fact, Microsoft’s plan to offset its entire carbon footprint dating back to its inception in 1975 may represent the most ambitious commitment that we’ve seen yet!

So, this leads us to a question we are often asked:

How can my organization achieve carbon neutrality while we continue to grow?”

While it may be game-on in the pursuit to green up your existing operations, you must also consider your company’s future.  As your business grows, implements new projects, expands office space, increases staff, constructs new facilities, or locates new business sites, you will contribute additional GHGs above and beyond your existing footprint.  This will need to be addressed as you plan your mitigation approach. 

So how can this be achieved?  Will there be enough carbon offsets available to meet your needs?  More importantly, is there a way for you to have more direct engagement when it comes to emission reduction activities that will align with your growth timeline?  Well, thanks to Climate Forward, a new program recently instituted by the Climate Action Reserve (the Reserve), the answer is yes!

Climate Forward

Climate Forward is a program that provides a practical solution for companies and other organizations that seek cost-effective mitigation of anticipated GHG emissions. The program is designed to facilitate investments in emission reduction projects today that will result in future GHG reductions that are aligned to mitigate the future emissions of a company, organization, or project.  Its purpose is to incentivize the implementation of emission reduction projects that would otherwise be unviable using traditional carbon offset programs.

Under this program, the Reserve issues Forecasted Mitigation Units (FMUs) upfront for a project’s entire crediting period upon the completion of its confirmation, a process conducted by an independent third party that demonstrates that the project has been implemented according to an approved methodology.  The methodologies within this program contain the eligibility rules, quantification methods, and documentation and confirmation requirements that ensure the consistency and rigor of GHG reduction accounting for a specific mitigation project.  Meanwhile, the up-front issuance of FMUs helps to shift the project’s economic curve to better incentivize long-term mitigation efforts, allowing the company to plan and implement emission reduction projects that align with their sustainability objectives.


FMUs versus Offsets

While FMUs and offsets are similar in that they are both equal to the reduction of one metric ton of carbon dioxide equivalent (CO2e), there are several differentiating factors between them.  The primary difference is that FMUs represent emissions that are expected to be reduced (ex-ante), while offsets represent emissions that have already been reduced and have completed a rigorous monitoring and verification process (ex-post).  While offsets are typically applied against past emission-producing activities, FMUs can only be applied against a future stream of greenhouse gas emissions.  While the detailed auditing process for both project types is similar, they occur at different stages of the project cycle: for offset projects, the “verification” process is conducted periodically throughout the crediting period but, for FMU projects, the “confirmation” process is done only once, at the beginning of the crediting period. This one-time confirmation process helps to facilitate the monetization of FMUs in the early stages of the project, which in turn can be used to support the financing of future activities associated with the project.


Benefits and Applications

The Climate Forward program offers several benefits to organizations and developers that are seeking carbon neutrality:

  • It reduces the barriers for innovative, targeted climate solutions.
  • It can incentivize the development of carbon projects that produce co-benefits that may help the organization achieve ESG goals above and beyond climate impacts; such co-benefits can be tailored to the organization’s goals and values.
  • Projects can be targeted to occur in the communities that are directly impacted by their operations.
  • Projects under these types of programs help demonstrate climate leadership.

One potential application of Climate Forward is for GHG mitigation requirements under the California Environmental Quality Act (CEQA).  CEQA requires state and local agencies to follow a protocol of analysis and public disclosure of future environmental impacts of a proposed project and to adopt feasible measures to mitigate those impacts.  Climate Forward can provide entities that are subject to CEQA GHG mitigation requirements with a cost-effective and environmentally rigorous option for future GHG mitigation.

Another potential application of Climate Forward is for developers of mixed-use communities to participate in reforestation projects, where the purchase of FMUs could be used to mitigate the carbon footprints of their projects while incentivizing reforestation efforts. In fact, ClimeCo is presently supporting a reforestation project in the Mississippi River Basin in partnership with Restore the Earth Foundation, using Climate Forward’s Reforestation methodology; the long-term goal of this project is to restore a total of 1 million acres using this methodology.


Getting Involved

Climate Forward provides organizations with a unique opportunity to partner with other organizations to implement sustainable projects while providing benefits to their future mitigation efforts.  As of this writing, there are a half-dozen methodologies that are either approved or under development in the Climate Forward program; however, there are many more creative, innovative mitigation activities that could be considered for development as a future methodology. The program is designed to expand the scope of feasible GHG mitigation project types by encouraging third parties to submit their methodologies for mitigation activities.  So, if you have an idea in mind for an innovative emission reduction or carbon sequestration project, ClimeCo is happy to help! 

About the Author

Dave Priddy is ClimeCo’s Vice President of Business Development. He has more than 25 years of experience in the environmental management field.  He is responsible for the strategy, development, and promotion of ClimeCo’s Nature-based Solutions initiative, and for developing mutually-beneficial partnerships with both landowners and conservation organizations that result in projects that generate positive environmental attributes. David holds a B.S. in Engineering from the University of Louisiana, Lafayette.

Financial Due Diligence: Evaluating Environmental Opportunities and Risks

Financial Due Diligence: Evaluating Environmental Opportunities and Risks

Financial Due Diligence: Evaluating Environmental Opportunities and Risks


by Derek Six, Chief Business Officer | July 29th, 2020

Financial Due Diligence: Evaluating Environmental Opportunities and Risks

Over the past few years, we have observed a substantial increase in inquiries from Private Equity firms, Investment Advisors, and Mutual Fund managers seeking to better understand the environmental opportunities and risks related to investments in potential target firms.  Providing advice in this area has become one of the most interesting aspects of ClimeCo’s Policy & Advisory practice.  The subject has historically been nebulous and abstract, as many clients struggle to define environmental opportunities and risks, so getting started on this line of inquiry can be difficult.

Environmental Opportunities and Risks

So, what do we mean by the term “environmental opportunities and risks?”  In its simplest form, it can be defined as the impact, either positive or negative, that environmental markets and regulations may have on the value of a portfolio of assets.  While it is common practice to include an environmental assessment to identify potential liabilities associated with a targeted acquisition, we have found that surprisingly little attention is often paid to the potential opportunities and risks posed by environmental markets … those markets that facilitate the trading of environmental assets.


At ClimeCo, we believe in the power of financial markets to solve environmental challenges.  With this lens in mind, our approach to defining the question focuses on what types of environmental markets might impact the firm in question, whether positively or negatively.

For example:

  • Is the firm regulated under any local emission/pollution reduction programs?
  • Is the firm regulated under any state, regional, or national GHG cap and trade programs?
  • Does the firm have a technology or service that could assist other firms in these markets?
  • Is the firm likely to be pressured by consumers or other stakeholders to take voluntary action to address environmental impacts, or could it find a competitive advantage in doing so?
  • Are there opportunities where addressing environmental impacts can ease regulatory or permitting efforts?

As you can see, the analysis can be complex and requires a deep understanding of the various environmental markets to which a firm might be subject.  ClimeCo takes a unique approach to these questions, flipping the basic question on its head: rather than seeing only risks, we also search for opportunities and value.  Environmental markets provide incentives for firms to improve their operations, and they often convey valuable environmental property rights.

What Firms Should Be Aware Of

We often find that firms are unaware of some of the rights that they might hold.  As an example, a firm considering the shuttering of a manufacturing facility would not typically do so without attempting to sell and maximize the disposal value of the tangible assets on site.  However, we find that they commonly ignore the value of various intangible environmental permits the facility holds.  In regions where there are markets for permit capacity, these can be of significant value but only if sold in a timely manner.


More recently, the bulk of these types of inquiries have come from investment firms seeking to understand the potential impacts of current and proposed climate change legislation.  Entities doing business and/or located in California, Quebec, Alberta, or the US northeast region are likely to be impacted, though there are other states that are seeking to follow suit.  For example, California has comprehensive climate legislation in place; this legislation includes a Cap and Trade program for GHGs with transparent market pricing, as well as a myriad of other complementary programs and regulations.  For some entities that fall into this compliance program, there are provisions for free Allowances (permits to emit one metric ton of CO2e) based on historic emissions while, for others, allocations can be purchased at auction by the state or through a robust secondary spot and futures market. Meanwhile, firms that reside in the state but do not fall within the parameters of the compliance program may have the option to opt-in to the program to capitalize on market opportunities.  Therefore, firms need to understand the impact of this market on their own operations as well as on their supply chains, customers, and utility providers. 

Markets such as these provide opportunities, as there is tangible value in reducing GHG emissions, providing services to these market programs, or providing technologies to these markets.  Helping firms to understand future pricing expectations, potential regulatory changes, and market engagement strategies is one of the most interesting things that we do.

Regardless of what type of firm you are considering investing in, or where that firm has operations, understanding potential environmental market opportunities and risks should no longer be a pro-forma checkbox on your diligence list.  This should be an important lens through which to view every aspect of a firm’s income statement and balance sheet.

About the Author

Derek Six serves as Chief Business Officer at ClimeCo, where he leads the company’s cross-cutting business functions, as well as the firm’s ODS management program and private equity fund. He holds an MBA in investment management and portfolio analysis from Pennsylvania State University’s Smeal College of Business.

A New Tool for Rangeland Trusts

A New Tool for Rangeland Trusts

A New Tool for Rangeland Trusts


by David Priddy, Vice President of Business Development | June 24th, 2020

A New Tool for Rangeland Trusts

The prairies of the western United States, consisting of millions of acres of grassland, habitat, and complex ecosystems, have supported ranchers and their families for generations.  A symbol of pride, freedom, and independence, the prairies have sustained the American ranching lifestyle – a lifestyle that promotes hard and honest work, strong family values, and resilient communities.  Unfortunately, this lifestyle that embodies images of the old west and the growth of America is in jeopardy.

You see, prairies in the U.S. are quickly disappearing because they are being converted into farmland, though invasive species, overgrazing, and climate change are also culprits.  Many ranchers struggle to hold on to their family legacy due to rising property taxes, as the next generation considers other career options.  All of this contributes to a lifestyle that is sadly fading away.

A New Tool for the Toolbox

Rangeland trusts and other organizations dedicated to preserving the land and its legacy work tirelessly to combat this problem through the implementation and management of conservation easements.  Now, these organizations have a new means available to them that can further incentivize landowners to consider easements on their property.  This new tool utilizes the power of environmental markets by promoting good ranching practices that sequester carbon in the soil.  This can result in the development of carbon offsets, which are units of greenhouse gases that are prevented from being released into the atmosphere, the rights to which can be purchased and applied by another entity.  These offsets are typically sold to organizations that desire to voluntarily mitigate, or “offset”, their carbon footprint, the proceeds from which can generate additional revenue streams for ranchers. With more and more corporations and not-for-profit organizations committing to carbon-neutral goals, the demand for offsets continues to grow.

The process for developing grassland-based carbon offset projects on ranchland is a straight-forward one.  First, a property is evaluated for its eligibility and project feasibility by a facilitator such as ClimeCo, and then a financial proforma is developed and presented to the rancher and land trust partner.  Once the decision has been made by the landowner to proceed, the land trust will work to implement an easement that restricts the future tillage of the land.  After this is in place, the project developer will coordinate all subsequent steps, to include independent, 3rd-party project verification and then registration, certification, and monetization of the credits.  Depending on the project and the desires of the landowner, the developer may also choose to invest in the project to cover the upfront development costs, to include the implementation of the easement, thus removing a potential barrier for the landowner.

These offset projects can present multiple benefits to the rangeland trust:

  • First, the revenues from these projects may combine with Agricultural Conservation Easement Program (ACEP) funding to entice ranchers to preserve more land.
  • Secondly, the upfront payments to cover the cost of implementing and maintaining the easement can help address a typical hurdle faced by many landowners.
  • Finally, knowing that the project facilitator will handle all the activities outside of what the land trust does best will provide them with peace of mind.

Like ranchers, rangeland trusts must rely on tools of the trade in order to advance the preservation of our nation’s grasslands.  ClimeCo’s grassland offset program provides the latest tool for the land trust’s toolbox and we are ready to help you on your next preservation effort.

To learn more about grasslands preservation, please contact us.

About the Author

Dave Priddy is ClimeCo’s Vice President of Business Development. He has more than 25 years of experience in the environmental management field.  He is responsible for the strategy, development, and promotion of ClimeCo’s Nature-based Solutions initiative, and for developing mutually-beneficial partnerships with both landowners and conservation organizations that result in projects that generate positive environmental attributes. David holds a B.S. in Engineering from the University of Louisiana, Lafayette.

Restoring the Earth Together

Restoring the Earth Together

Restoring the Earth Together


by Taylor Marshall, Director of Sustainable Programs, Restore the Earth Foundation | April 24th, 2020

As a result of hurricanes, tornadoes, wildfires, flooding and other natural disasters, many of our forests and wetlands vital ecosystems have been degraded or destroyed. The need to restore and rebuild these ecosystems is essential, especially when it comes to a sound sustainable environmental future that supports biodiversity, habitat and surrounding communities.  

In 2008, we founded a nonprofit organization, Restore the Earth Foundation (Restore the Earth), with the hope of restoring the Earth’s essential ecosystems. We offered a unique approach to affect landscape-scale ecosystem restoration by leveraging the power of public-private partnerships and utilizing an exclusive, innovative and revolving funding mechanism.  

Today, Restore the Earth has secured federalstate, private and philanthropic funding to reforest over 60,000 acres along the Gulf Coast damaged by Hurricane Katrina. We were also the first to deploy restoration on oilsoiled wetlands following the Deep-Water Horizon oil spill, and we continue to support restoration along the Gulf Coast and the Mississippi River Basin.

O
ur mission is to restore one million acres of degraded lands in the Mississippi River Basin, often referred to as “North America’s Amazon”.

                                                                                    *The blue area is the Lower-Mississippi River Basin

The Climate Forward Program 

To enhance the realization of these restoration opportunities for their corporate partners, Restore the Earth pioneered the development of the Climate Action Reserve’s (CAR) Climate Forward Reforestation methodology. The Climate Forward program provides a mechanism for Restore the Earth to quantify, verify and register forecasted mitigation units (FMUs), which represent emissions that are forecasted to be mitigated in the future, using rigorous and peerreviewed carbon reduction project methodologies.  These FMUs will be marketed to voluntary buyers by ClimeCo to help fund future reforestation efforts in the basin

The Climate Forward program is designed to accelerate action on climate change by encouraging companies and organizations to proactively invest today in projects that mitigate future greenhouse gas (GHG) emissions. This program provides a means to capitalize on the carbon mitigation potential of a reforestation project, representing a real gamechanger in our efforts to fulfill our mission.  

Pilot Project  

Restore the Earth’s first Climate Forward project reforests more than 5,000 acres of the historic bald cypress forest at the Pointe-aux-Chenes Wildlife Management Area in Terrebonne Parish, Louisiana, which is anticipated to sequester more than 1,000,000 tonnes of carbon dioxide equivalent. Working with Dow Corporation through their partnership with the International Olympic Committee (IOC), an initial 400 acres will generate the first registered FMUs, which will be used to mitigate a portion of the carbon footprint of the IOC and the Olympic movement. 

Moving Reforestation Forward  

Restore the Earth is proud to lead the way with such high profile partnerships and examples, and is hopeful that these efforts will inspire other companies with carbon emission reduction commitments to consider applying the Climate Forward program to address their annual needs, resulting in significant reforestation investments in the United States.  

These investments will arrive at a critical time for the environment and the economy by affecting meaningful climate action in their own backyards, as well as in the communities of their employees, customers and neighbors. Restore the Earth applies EcoMetricsa system that provides verifiable measurement of each projects’ environmental, social and economic impacts and co-benefits, to every restoration project that we implement. While reforestation projects may have different characteristicsthey all provide exponential co-benefits to restoring native ecosystems and habitats that can be measured, quantified, third-party verified and reported on to their project partners.  These can include such benefits as job creation, clean air, improved water quality, enhanced quality of life,  economic growthetc.  

Restore the Earth has spent the past 6 years building a robust business case for landscapescale restoration in North America’s Amazon. These projects provide real impacts to the environment in one of the most ecologicallydegraded areas in the United States, while simultaneously benefiting local communities and economies in an area with the nation’s highest concentration of underserved communities.  

With a portfolio of truly shovel-ready projects, solid public partnerships, the incorporation of rigorous accounting, forward-thinking methodologies and a collaborative culture, Restore the Earth is well-positioned to address climate action right here in the United States.  Our partnership with ClimeCo is a large piece of that business case, allowing for the wide marketability of environmental attributes and the execution of significant investments in a timely and cost-effective way.   

To learn more about our partnership with ClimeCo, please click hereTo learn more about Restore the Earth and how you can volunteer or support our projects, please click here. 

About the Author

Taylor Marshall is the Director of Sustainable Programs at Restore the Earth Foundation.  Wearing many hats, her responsibilities include project development, corporate relations and ontheground management of reforestation projects in the Gulf Coast and Mississippi River Basin. 

Prior to joining Restore the Earth, Taylor was with The Water Institute of the Gulf in Baton Rouge, Louisiana, promoting community-based approaches to protecting and restoring the Gulf coast from storm risk and land loss, and enhancing community resilience to such risks. Previously, she served as a Program Director with the American Council oRenewable Energy in Washington, D.C.  Taylor earned a Master of Science degree in Integrated Water Resource Management (IWRM) from McGill University.