Glossary

State Climate Policy Trends: Action Amidst Federal Inaction

by: Wilson Fong and Braeden Larson | July 28, 2022

On June 30th, the Supreme Court ruled in the case of West Virginia vs. the U.S. Environmental Protection Agency that federal agencies, including the Environmental Protection Agency (EPA), have limited regulatory powers unless they have the explicit authority from Congress, otherwise known as the “major questions doctrine.” This decision limits the executive branch’s power to allow federal agencies to regulate significant economic and political issues. In this case, it limits the EPA’s power to regulate emissions reductions from power plants under the Clean Air Act. However, the decision made on the premises of the “major questions doctrine” will trickle down to all federal agencies’ regulatory operations that have been granted through executive power. Concerning climate change policy, this means the EPA is paralyzed from taking country-wide actions on emissions reductions until Congress gives the EPA regulatory authority. While some states have already been implementing emissions reduction regulations, this Supreme Court decision will necessitate states taking their own leadership roles in climate change policy.

States Are Taking the Lead

At the time of this writing, the U.S. Congress is split on how to address climate change: it’s either through Congress-approved regulatory action or through a neutral approach, where emissions reductions are driven by industry-led initiatives. As a result, the onus falls on the individual states to develop emission reduction frameworks that align with their political, economic, and environmental realities. There have always been states, like California, that have been at the forefront of climate action in the U.S., though there has been a recent uptick in new, state-level climate action, despite the mosaic of political and environmental positions existing throughout the U.S.

The emerging state-level approaches vary from general, all-encompassing, state-wide environmental climate action plans to more focused actions, such as those that singularly promote the build-out of carbon capture and storage (CCS). State-level climate action, through differing approaches, attempts to fill the holes in climate policy and abdication of regulatory authority at the federal level. At a high level, the key actions being taken can be broken down into four policy categories: State Action Plans, Carbon Pricing Systems, Low Carbon Products, and CCS and Class VI Well Primacy.

State Policy Categories: A Primer

To better understand the actions being taken and the implications they may have on your business, we will walk through the four policy categories below.

1. State-Wide Environmental Action Plans: State-wide environmental action plans are the overarching climate policy and strategy toolkits that can be used to reduce emissions and achieve sustainable environmental outcomes. Within these plans, states often include their climate goals, emissions reduction targets, and emissions baselines to ensure the policy and strategy toolkit is utilized to meet these targets. A typical toolkit may include a state’s environmental action plan, along with policies such as carbon pricing systems, greenhouse gas (GHG) reporting regulations, clean fuel standards, low carbon product bid-preference, energy efficiency requirements, and carbon capture and storage (CCS) deployment regulations. Multiple states have committed to environmental action plans with mid-century emissions reduction targets. Most recently, Maryland passed an environmental action plan under the Climate Solutions Now Act of 2022. Maryland has committed to being carbon neutral by 2045, with an interim goal of reducing GHG emissions by 60% by 2030, compared to 2006 emissions levels. Maryland’s Department of the Environment is required to submit a draft environmental action plan by June 30, 2023, along with the policy and strategy toolkit the state will be using to meet the 2030 and 2045 targets.

2. Carbon Pricing Systems: Carbon pricing systems are one of the most effective and efficient emissions reduction policies within the policy and strategy toolkit that are available to states. Carbon pricing systems internalize the economic cost of pollution and provide incentives to industries, governments, and individuals to reduce their carbon emissions. The two most popular systems are a carbon tax and a cap-and-trade system. A carbon tax sets a price per tonne of CO₂ emitted that is paid by all participants of the economy. A cap-and-trade system sets a cap on emissions for industries and businesses within covered sectors but allows for individual flexibility through the development of emission trading schemes. Washington state is currently finalizing its rulemaking processes for the Climate Commitment Act, which requires the enactment of a cap-and-trade program (known as cap-and-invest) on January 2023. The rulemaking includes provisions for setting the emissions cap, setting price floors and ceilings on allowances, GHG reporting, establishing emissions-intensive-trade-exposed criteria for industries vulnerable to international and inter-state trading, and establishing carbon offset usage rules.

3. Low Carbon Products: In an attempt to incentivize new technological innovation, some states have introduced and passed low carbon product procurement policies. These types of policies provide a bid preference for businesses that have reduced the embodied carbon emissions associated with producing the product. Other policies include the promotion of industrial recycling through regulation. The state of California is currently in the process of passing Senate Bill 1297 (SB 1297), which requires public agencies in the state to provide preference to low-embodied carbon building materials where feasible and cost-effective for public projects.

4. Carbon Capture and Storage, and Class VI Well Primacy: While perhaps the most inequitable policy category due to the availability of geological storage in different states, CCS regulations have the potential to lead to the greatest emissions reductions through the geological storage or utilization of industrial CO₂. Storing CO₂ in the Earth is predicated by the need for a Class VI well permit, which is issued by the EPA (federal jurisdiction). Class VI wells are used to inject CO₂ into deep rock formations. In an effort to support the build out of CCS in the U.S., the EPA has created a process to transfer permitting authority to states, thereby reducing administrative burden and improving efficiency. The current Class VI well landscape across the U.S. is fragmented due to the varied control over carbon sequestration rights, or ‘primacy’ over Class VI wells. Primacy identifies whether the Federal or State Government has enforcement authority over Class VI wells permitting. The vast majority of Class VI wells are under the direction of the U.S. EPA and follow a lengthy application process. As companies increasingly discuss and mobilize resources for CCS, the administrative burden on the U.S. EPA grows in parallel. The U.S. EPA lacks the staff and resource capacity necessary to take on a large number of Class VI well applications, which are necessary to sequester CO₂ in deep saline aquifers. For this reason, while states are developing regulations and action plans for CCS deployment and sequestration, they are also active in the primary enforcement application process with the U.S. EPA to take primacy over regulating Class VI wells within their state. To receive primacy over Class VI wells, the state must align its standards with the EPA. Class VI primacy is an enabling action that will support the rapid and widespread deployment of CCS throughout the United States.

Conclusion

In the absence of federal authority on climate change regulation, 24 states and the District of Columbia are establishing emissions reduction targets and implementing a plethora of emission reduction initiatives. While one of the most effective policies for reducing emissions is a carbon pricing system, the adoption of regulated carbon markets in the U.S. has been slow.

As states contemplate policy action to reduce the effects of climate change, it elevates the growing need for support of different technological, industrial, and nature-based policy solutions. With properly designed policies, states can support the deployment of CCS solutions and increase acceptance and demand for low carbon products, both of which have significant emission reduction potential.

ClimeCo has vast experience in a wide array of emission reduction initiatives and actively monitors developments throughout the U.S. Please contact us if you want to learn more about our Policy Team’s complete range of services that help companies improve readiness and resilience in the ever-changing regulatory environment.

Update Note: On July 27th, Senator Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) announced a deal to pass a budget reconciliation bill that would include $369 billion in spending towards climate and energy policies. Most of the incentives from this package are long-term tax credits, which include relief for clean hydrogen fuel development, direct-air-capture deployment, and advanced nuclear projects for heavy industry. Other tax credits are provided for renewable projects in the energy economy, new EV purchases, and residential retrofits for heating, cooling, and power. However, this announcement, as it stands, continues a federal trend to take a bottom-up approach to climate change, which leaves the states taking the regulatory lead on climate change.

About the Authors

Wilson Fong is an Associate on ClimeCo’s Sustainability, Policy, and Advisory team, based in Calgary, Alberta. Wilson collaborates with corporate clients to navigate the complexities of carbon markets, model their carbon position, and advise them on emission reduction strategies. He holds a Master of Global Business and Master of Science in International Business from the University of Victoria and Montpellier Business School.

Braeden Larson is a Policy Analyst on ClimeCo’s Sustainability, Policy, and Advisory team, based in Calgary, Alberta. Braeden supports the tracking and analysis of carbon policies throughout North America. He holds a Master of Public Policy from the University of Calgary and a Bachelor of Arts (Honours) with a major in Politics from Acadia University.

What Is The Role Of Renewable Electricity In Corporate Sustainability?

by: Garrett Keraga | March 28, 2022

In 2022, it seems that we’ve reached a crescendo of pressure from regulators, investors, customers, peers, and other stakeholders pushing companies along a sustainable path. Things that were once considered exceptional – such as pledging to reach net-zero carbon emissions or using 100% renewable electricity – have quickly become necessities for many companies to keep up with their peers. When we look back at the sustainability landscape over the last few years, it’s easy to see how this sudden boom of ESG has led to some confusion.

As companies enhance their ESG strategy and commit to public-facing initiatives, it becomes crucial to understand how different interventions factor into their corporate carbon accounting. How can carbon offsets be used? Where can companies account for renewable energy? What projects can be undertaken to decarbonize? And ultimately, which of these efforts should be prioritized in an ESG strategy? Companies need to be able to answer these questions and communicate their strategy effectively to stakeholders. In this blog, we explain the role renewable electricity has in corporate sustainability.

How does renewable electricity factor into corporate carbon accounting?

Renewable electricity is often one of the first levers considered when creating a corporate ESG strategy, and the global transition to clean energy is accelerating every year. Bloomberg reported that global renewable energy investment grew by 6.5% in 2021 to a new record of $366 billion. For companies, switching to renewable electricity can be just part of a decarbonization strategy, or specific goals around renewable electricity consumption can be set, such as those set through RE100. When companies plan out renewable electricity adoption, there’s a lot to decipher.

First, companies need to understand how to account for renewable electricity in their carbon footprint. For this, as with all carbon accounting questions, companies will want to reference the Greenhouse Gas (GHG) Protocol, and here specifically – the Scope 2 Guidance. Scope 2 covers indirect emissions from purchased electricity and other purchased energy – basically, the emissions created by the generator of that electricity when the generator is not operated by the company conducting the carbon inventory. For most companies, this refers primarily to electricity from the grid.

Location-based Accounting: Within Scope 2, one option is to account for electricity emissions with a location-based emission factor, where reporting entities use an emission factor based on local grid mix to determine their emissions. This doesn’t allow for contractual instruments, such as Renewable Energy Credits (RECs), to be used to switch generation attributes and lower emissions.

Market-based Accounting: However, the other option – market-based accounting – allows for consumer choices in energy generation and contractual instruments to be reflected in the emission factor. In other words, continuous contracts with a supplier to use a renewable generation, or one-time REC purchases, can be accounted for in the market-based approach. Companies that are considering building renewable electricity into their ESG strategy should utilize a market-based carbon accounting approach for Scope 2.

What renewable electricity options are available to companies?

Option 1: RECs are a common entry point for companies starting to use renewable electricity. RECs represent a certified unit of electricity production from a generator. RECs must be retired on behalf of a specific entity, and once retired, that electricity generation cannot be accounted for elsewhere. RECs are often third-party-certified by entities such as Green-e® Energy. As more RECs are retired, the remaining grid mix, called the “residual mix” gets dirtier, further incentivizing companies to adopt renewable electricity. RECs can be simply purchased in bulk and used to switch a company’s entire electricity consumption to renewable sources each year. Similarly, companies can work with utilities to opt into low-carbon energy contracts, which often work by providing RECs to the purchaser. However, some critics argue that purchasing renewable electricity through RECs stunts companies’ impact on increasing the total amount of renewable electricity on the grid. Companies will also often seek to move beyond RECs to avoid the annual expenditure and price uncertainty in their renewable electricity supply.

Option 2: Onsite generation is another choice for companies, especially those that own property and/or their facilities. Rooftop solar is one popular example. Onsite generation can also occur in leased or rented spaces through collaboration with landlords. This strategy is most often employed in facilities or properties where a company has a long-term lease and plans to stay in a particular location for the foreseeable future. Companies should note that they can only take credit for renewable electricity that is generated onsite if they use power directly from their system or retire RECs generated by their systems on their own behalf. If RECs are sold, that company cannot take credit for the renewable electricity it produced on its site.

Option 3: Many companies who don’t have the assets to invest in onsite renewables opt instead to pursue a Power Purchase Agreement (PPA). In a low-carbon PPA, companies will pay a third-party to develop and maintain a renewable electricity system and sell that energy physically or in the form of credits back to the company. When credits are sold back to the company, but the electricity itself is consumed elsewhere or sold to the grid, these agreements are called Virtual Power Purchase Agreements (VPPAs). Typically, companies will size a PPA based on their energy consumption and will often develop a project along with other interested companies.

In all of these cases, renewable electricity can be accounted for in a company’s carbon footprint, as long as the company uses the market-based approach for Scope 2 accounting and retires the renewable generation credits on their behalf or directly consumes renewable electricity.

Source: GHG Protocol Scope 2 Guidance (linked above)

“Additionality” in renewable electricity – is it an effective or appropriate metric?

In the world of carbon offsets and project development, “additionality” is a strict qualifier that assesses whether a project was caused by intervention above and beyond regulation. To be additional, it must be determined that a project would not have happened without the intervention of the entity supporting the project. When evaluating what type of renewable electricity strategy to pursue, companies tend to ask themselves about additionality and whether they are supporting a new project – through a PPA, for example. But is this term really applicable to renewable electricity?

Ultimately, additionality isn’t a term that should be used to discuss renewable electricity. The GHG Protocol Scope 2 Guidance advises that “Offset additionality criteria are not fundamental to, or largely compatible with, the underlying rules for market-based scope 2 accounting and allocation.” Additionality is used to qualify projects that are an improvement over a baseline. For example, in carbon offset projects, what is being measured is a change in avoided GHG emissions from a theoretical baseline without intervention. In renewable electricity, direct energy use attributes are being claimed rather than separation from a baseline. It’s also a challenge to determine what is really “in addition” to regulation in the world of renewable electricity. On top of that, there are more aspects of additionality as used in project development, like proving that technology isn’t commonplace, which aren’t useful to apply to renewable electricity.

That said, companies may still face criticism if it’s perceived that they aren’t doing enough to support the development of new renewable electricity sources. Voluntary programs can be developed to address this concern, but for now, companies should stray away from the term “additionality” to avoid making a false claim. In the words of the GHG Protocol Scope 2 Guidance “Maximizing the speed and efficacy of voluntary initiatives in driving new low-carbon development is an important, complex, dynamic, and evolving process for program implementers, regulators, and participants.”. Supporting development of new renewable assets is an ongoing challenge that companies can help accelerate as they increase demand for renewable electricity.

Creating a corporate renewable electricity strategy

As companies face the challenge of adopting renewable electricity and developing a robust plan to meet stakeholder demands, ClimeCo is here to develop a strategy that is right for you. For more information or to discuss how ClimeCo can drive value for your organization, contact us at info@climeco.com.

About the Author

Garrett Keraga is a Manager on ClimeCo’s Sustainability, Policy, and Advisory team based in Burlington, Vermont. His sustainability work has included greenhouse gas accounting, carbon abatement planning, ESG strategy development, and disclosure advisory. He has worked with a large variety of industries, both across consumer-facing and industrial clients. Garrett holds a Bachelor of Science in Mechanical Engineering from the University of Vermont.

What is a Life Cycle Assessment?

by: Gary Yoder and Jaskaran Sidhu | February 22, 2022

Solutions considered essential to decarbonization reduce greenhouse gas (GHG) emissions, yet rarely come without other environmental impacts. For example, while vehicle electrification will increase battery production, the mining of lithium has a substantial environmental impact. So how do we evaluate whether each trade-off on our path to net-zero is worth it? A Life Cycle Assessment (LCA), which offers a framework for quantifying the potential environmental impacts of a product from cradle–to–grave (i.e., from growth/extraction of raw material inputs all the way through a product’s disposal), allows us to make that determination.

Benefits of LCAs?

Unlike GHG footprints or other Environmental, Social, & Governances (ESG) metrics that typically quantify enterprise-level impacts and show year-to-year progress, LCAs often focus on the potential environmental impact at a specific product or a facility level. Such information can be important to customers, suppliers, employees, investors, and regulatory entities.

ClimeCo has performed a variety of LCA projects across multiple industries and scopes. The goals of an LCA can vary; the following two projects provide examples of two different approaches to LCAs that ClimeCo has recently completed for our clients.

LCA Example #1

Confidential Industrial Manufacturer: Benefits of Practice Change vs. Historical Performance at a Facility

ClimeCo carried out a cradle-to-grave carbon intensity (CI) LCA for four products made at an industrial facility.

The Objective: Communicate Carbon Capture Benefit
One of the many applications of an LCA is its ability to demonstrate the environmental benefits achieved by adopting different operational practices. A detailed analysis of GHG emitted through the product lifecycles showed the reduction in CIs achieved by capturing previously vented process CO2 for sequestration. These CIs, and their recent reductions, will be used in customer communications and marketing efforts, differentiating the environmental “value” of the products from those offered by competitors.

Another Use: Evaluate Decarbonization Options
LCAs can be a reliable methodology for demonstrating GHG benefits achieved through existing decarbonization actions – as was the case for the scenario above – and for evaluating various potential reduction measures prior to their implementation. When used in combination with tools like Marginal Abatement Cost Curves (MACC), LCAs can help assess reduction pathways along with their associated monetary cost.

Financial Incentive Opportunities
Identifying GHG performance improvement opportunities can open doors to participate in current and upcoming federal- and state-level programs that come with significant financial incentives. These include California’s Low Carbon Fuel Standard, Canada’s Clean Fuel Standard, or the IRS carbon sequestration tax credit (45Q), each requiring full product LCAs.

LCA Example #2

J-Band® – Benefits of Product vs. Alternatives

ClimeCo collaborated with Asphalt Materials, Inc. (AMI) to complete an LCA-based sustainability assessment of J-Band®, AMI’s void reducing asphalt membrane (VRAM) product.

The Product
AMI designed J-Band to reduce road maintenance and extend the lifetime of asphalt pavement roads by strengthening the longitudinal (centerline) joint, traditionally a problematic site for road deterioration. The deterioration results from the intrusion of air and water due to inherently lower asphalt mixture density at the joint. Over time, the joint naturally becomes the weak link in the entire road surface, requiring periodic repairs before complete road replacement. To combat this, J-Band® is a polymer-modified asphalt product applied to the prepared surface prior to applying the new hot-mix asphalt (HMA). When the HMA pavement lifts are applied, heat from the hot-mix drives J-Band® into the available voids, sealing the joint area from below. Due to established jurisdictional practices and specification requirements, J-Band® is used in a smaller percentage of asphalt paving projects in the U.S., with traditional solutions, such as joint adhesive, pave wide trim back (PWTB), and infrared (IR) heaters, being more common.

The Product’s Competitive Edge: Performance and Cost
AMI has demonstrated that J-Band® creates a better joint compared to the alternatives, eliminating the need for frequent, significant joint repair, and prolonging the life of the road by at least three additional years. Based on this performance, AMI has shown that J-Band® has a lower lifetime cost, with its upfront costs surpassed by reduced asphalt materials, fuel, and labor costs.

A Sustainability Edge, too?
Is the same true for J-Band’s lifetime environmental and social impacts? The product requires energy and material inputs to manufacture and apply – are these impacts surpassed by the benefits of reduced maintenance and extended road lifetime? ClimeCo completed a curtailed-boundary comparative LCA, evaluating J-Band against three traditional longitudinal joint solution alternatives to answer this question. The comparative LCA approach meant impacts common to all alternatives could be excluded from quantification, such as including the production of HMA, transporting the asphalt to the job site, and energy use of the paving equipment. However, for all the life cycle phases where differences between the alternatives were established, the impacts were calculated. The following table shows the life cycle stages included in the analysis.

The Analysis
ClimeCo quantified GHGs and criteria air pollutants (AQ) impacts across raw materials extraction, materials manufacturing, product transport, joint solution application, and road maintenance. The developed calculator tool clearly documents assumptions and data sources. It is customizable for key project details, such as project length, distance to the project site, and distance to perform maintenance.

The Results
Under the assumed baseline conditions, J-Band demonstrated better sustainability performance and reduced emissions during construction and maintenance phases compared to the longitudinal joint solution alternatives. For more information on this project scope and results, please see the following PowerPoint presentation.

Using LCAs for a More Sustainable Future

As these two project examples show, LCAs can be targeted to answer specific questions and meet specific needs. However, because each LCA is context-specific and fine-tuned to its application, one LCA cannot be compared to another. To manage this limitation, ClimeCo’s standard practice is to use conservative assumptions and to be transparent with methodologies, ensuring trustworthy, well-documented LCA results that align with reality.

Whether you are looking to enhance a product or process, develop sustainability marketing claims, or meet regulatory or reporting requirements, ClimeCo has the expertise in applying LCAs to support informed decision-making across these areas.

About the Authors

Gary Yoder is a Vice President at ClimeCo, providing environmental compliance services to many clients. He specializes in the complexities of air quality compliance but also supports ClimeCo’s sustainability projects and initiatives. Gary holds a Bachelor of Science degree in Geography/Pre-Meteorology from Ohio University and a Master of Science degree in Meteorology from North Carolina State University.

Jaskaran Sidhu is an Analyst on ClimeCo’s Sustainability, Policy, and Advisory team based in Toronto. Jaskaran’s work focuses on life cycle analysis and carbon impact quantification for ClimeCo’s corporate clients. Jaskaran holds a Master of Engineering in Mechanical and Industrial Engineering from the University of Toronto and a Bachelor of Engineering in Mechanical Engineering from Panjab University.

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