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CARBON PRICING ON THE HORIZON: FROM VOLKSWAGEN TO GLENCORE TO SHELL – CARBON RISKS CONTINUE TO RISE FOR GLOBAL 500, BUT THERE IS AN ANSWER
BY JOHN MOORHEAD AND TIM NIXON
OCTOBER 2015
REUTERS/JASON LEE
The authors would like to thank André Chanavat, Thomson Reuters ESG proposition manager for his untiring support and collaboration around the Thomson Reuters ESG data sets; Richard Heede, Climate Accountability Institute (CAI), for his close collaboration on the underlying data for this report; and CDP for its collaboration on the Global 500 report series.
BU NAME
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The most recent data shows that the equivalent of about 5 billion tons of greenhouse gases (also referred to as CO2e) are emitted annually from the largest publicly traded companies in the world (Global 500). Within this group of companies, 32 fossil fuel energy companies emit, when we include downstream use of their products (e.g. gasoline in cars), around 11.7 billion tons of CO2e annually. This represents 12% (Global 500) and 32% (32 fossil fuel companies + use of product) of global annual emissions1 .
The data also shows that from 2010, the overall trend in emissions is going up when it should be going down in order to stay within a 2 degree Celsius increase in global temperature. Overall, the required decrease in emissions from 2010 to 2050 is 1.4% per year according to the most recent United Nations Report, and although some Global 500 companies have managed to achieve this required level of decrease from 2010 to 2013, many have not. The benchmark is clear: we need to achieve a 1.4% decrease per year in absolute CO2e emissions from 2010 onward.
The graph (Figure 1) for the Global 500 illustrates this gap.
How to achieve the decrease? Through one simple economic measure that many businesses are already using: carbon pricing2. The Global 500 can apply a carbon price to their investment and expenditure decisions to meet the required decrease in greenhouse gases. What a carbon price does, in technical terms, is to internalize the negative externalities of greenhouse gases’ impact on the environment and human health.
In other words, it adds a price, where one does not exist, to products for the carbon they contain, to reflect the cost of carbon pollution on the rest of the world. Applying a carbon price leads to decreases in emissions as lower carbon and decarbonized investments are chosen over higher carbon alternatives. Used effectively, this decrease of total carbon intensity occurs over time as the net effect of the carbon price plays out across a landscape of investment decisions.
WHAT IS THE CORRECT PRICE OF CARBON?What is the “correct” price for carbon and how can carbon pricing be put in place? A very simple way to define the price for carbon is to divide total costs by total emissions to arrive at a cost per unit of emission. For example, global 2013 fossil fuel subsidies, which include health and environmental costs3 (in other words the negative externalities of carbon mentioned above), total $4.9 trillion. When divided by the 36 billion tons of CO2e emitted in 20134, we get a price per ton of CO2e of $136.
This figure of $136/ton could be the overall goal for firms pricing carbon. As a starting point, Global 500 companies that are not doing so already could apply a carbon price of $40-80/ton, as many of their
1 http://cdiac.ornl.gov/GCP/carbonbudget/2013/2 https://www.cdp.net/CDPResults/carbon-pricing-in-the-corporate-world.pdf3 https://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf4 http://cdiac.ornl.gov/GCP/carbonbudget/2013/ 5 https://www.cdp.net/CDPResults/carbon-pricing-in-the-corporate-world.pdf
peers do5, to their investment and expenditure decisions. Companies could then progress to the price of $136/ton as they gain experience with how quickly their footprint and commensurate regulatory pressure decrease. Again, the goal is not to reduce to 0 emissions, but rather to reduce at a rate (–1.4%/year) which significantly lowers the risk of catastrophic climate change and avoids radical, expensive, and disruptive regulatory or investor intervention at a later date. Acting now means paying less in the future.
HOW SHOULD A CARBON PRICE BE USED AND FOR WHICH INVESTMENTS?The way to apply a carbon price has to be meaningful: it must be fully accounted for in project investment calculations, such as net present value projections, that businesses use to decide how and when to invest, and not as a declared “shadow” price that is likely to be applied too narrowly, if at all, in investment decisions. In other words, businesses have to actually use a carbon price when making investment decisions. Remember, high carbon intensity equates to additional cost and rise, short- and long-term.
Figure 1. Global 500 Carbon risk exposure: 7.3% above target in 2013
Global 500 Emissions
UN Emissions Goal
5.25 GT
TOP 500 GLOBAL FIRMS
4.20 GT
2020
Emission Gap
7.3 %Higher Than UN Goal
20132010
4.96 GT
4.81 GT
4.61 GT
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6 http://energyseminar.stanford.edu/sites/all/files/eventpdf/CA%20pack%20on%20pricing%20AG%2011.01.15.pdf
7 http://www.shell.com/global/environment-society/environment/climate-change/greenhouse-gas-emissions.html
8 http://www.shell.com/content/dam/shell/static/environment-society/downloads/environment/climate-change/scope-3.pdf
9 http://s08.static-shell.com/content/dam/shell-new/local/corporate/corporate/downloads/pdf/limited-assurance-2014-scope-emissions.pdf
10 http://www.greencarreports.com/news/1093560_1-2-billion-vehicles-on-worlds-roads-now-2-billion-by-2035-report
11 http://www.statista.com/statistics/271608/global-vehicle-sales-of-automobile-manufacturers/
12 http://www.cnbc.com/2014/01/09/global-auto-sales-hit-record-high-of-828-million.html
13 https://www.cdp.net/CDPResults/carbon-pricing-in-the-corporate-world.pdf
The overall goal of carbon pricing is to meaningfully and predictably change investment decisions to lower-carbon and zero-carbon options. Following from this assumption, a carbon price should at least be applied to expenditure and investment decisions that significantly affect a business’ operational emissions (so-called Scope 1 and 2 emissions that are respectively produced by a company directly and through its purchase of energy). For those businesses where Scope 3 (value chain emissions) greatly exceeds Scope 1 and 2, (for example, industries such as Automobile, Food and Beverage, Retail, and Finance) the price should also be applied to investment and expenditure decisions in the value chain (Scope 3) in addition to Scopes 1 and 2.
In particular, in the case of fossil fuel and energy producers, a carbon price should be applied to Scope 1, 2, and Scope 3: Use of Sold Products, e.g. emissions from the combustion of coal or use of gasoline. Applied in this way, the net effect of using a carbon price is to shift a product mix away from carbon heavy to lower- or even zero-carbon products.
So how would this work? Let’s review three examples from the Oil, Auto, and Coal industries.
ROYAL DUTCH SHELLShell is an interesting and pioneering example, as it has been using a carbon price since 2000, and a price of $40/ton since 2008. Shell calls its carbon price a “CO2 PSV” (Project Screening Value). The PSV is applied to Point Source emissions (Scope 1), such as those from gas flaring, oil-sands, and gas to liquids operations, per Shell’s 2015 carbon pricing Report6.
This focused application is understandable, as this is where Shell has determined there is the “highest risk of regulatory action,” and so it is taking a voluntary step to self-regulate.
The PSV is not applied to CO2 emissions from the whole life cycle of its products (which includes Scope 2 and 3) up to and including fossil fuel combustion.
Looking at the actual trends in emissions from Shell where the PSV is applied, Shell reports Scope 1 emissions “ … were 76 million tons on a CO2-equivalent basis in 2014, up from 73 million tons of CO2 equivalent in 20137 … and up slightly from 75 million tons in 2010.”
Shell managed a 1.3% increase by 2014 vs. 2010, and did not achieve the required aggregate decrease of 5.6% (1.4% decrease/year 2010 to 2014). With the benefit of hindsight, Shell should have increased its carbon price in 2010 to avoid the subsequent increases through 2014.
Regarding Scope 3: Use of Sold Products: according to Shell, emissions went from 635 million tons8 in 2010 to 600 million tons9 in 2014, an impressive decrease of 35 million tons or 5.5%, closely matching the required 5.6% decrease. Although Shell clearly states that its PSV is applied only to Point Source intensity and therefore not to the carbon intensity of its products per se, Shell does highlight in its report the higher carbon intensity of crude over gas, and therefore may be moving towards a broader application of its carbon price to reflect the overall footprint of crude.
Even more encouraging is Shell’s recent, discontinued exploration for crude in the Arctic. Although intuitively more carbon intensive than drilling closer to warmer coastlines, the project presumably initially passed the point source emission $40/ton test and/or the project was decided on before 2008 (when Shell adopted a price of $40/ton).
It is possible that with lower oil prices, Shell’s carbon price made this investment prohibitively costly. It will be difficult to know how Shell made this decision unless it makes its analysis more transparent. There is no current regulatory process for auditing how carbon pricing is applied. More generally, lack of transparency and counterintuitive investment outcomes, like exploration of oil in the Arctic, will make expensive regulatory intervention much more likely to occur. Shell may have wisely averted this long-term regulatory and operational expense through the use of its carbon price.
GENERAL MOTORS (GM), TOYOTA, AND VOLKSWAGEN (VW) The world has a population of 1.2 billion vehicles that will grow to 2.0 billion in 2035 according to one forecast10. The automobile industry is a carbon intensive industry, through its use of steel, aluminum, and the use of its vehicles which are largely fueled by fossil fuels. GM, Toyota, and VW sell about 10 million vehicles each11, of the over 80 million vehicles sold each year in the world12. Their reported Scope 1, 2, and 3 emissions are therefore an important indicator for how the transport sector emissions are evolving as a whole.
Of these companies, GM has disclosed a carbon price of $5/ton according to CDP’s recent report13. According to the same report, VW stated that it is using an internal carbon price: “In connection with (short- and long-term) product decisions including investment decisions, a group internal CO2 price or CO2-benchmark is used to evaluate the efficiency/effectiveness of alternative measures for reduction of vehicle CO2-emissions.” In addition both GM and VW
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have recently disclosed material Scope 3 emissions14. Unfortunately total Scope 1, 2, and 3 emissions went up by 2% for GM and 2.3% for VW from 2013 to 2014, which suggests that much more needs to be done with respect to implementation of a carbon price.
Both GM and VW declared annual emissions (between Scope 1, 2, and 3) of respectively 334 and 338 million tons in 2014, and of those, 97% were Scope 3.
In the case of VW’s own reported numbers, Scope 3 accounted for over 97% of annual emissions, (within Scope 3: 75.2% came from use of their vehicles sold and 17.8% from purchased goods and services)15. Unfortunately, Toyota has not yet publicly disclosed Scope 3 for the use of vehicles sold or purchased goods and services.
The use of a carbon price by the automobile industry could have a significant impact on risk. As seen with the recent regulatory intervention with VW, carbon intensive products present significant risk in an increasingly strenuous regulatory environment. Reducing fleet emissions equates to reducing risk, particularly in terms of favoring generally lower carbon vehicles, i.e., hybrids, electric, natural gas, hydrogen fuel cell versus particularly heavy, high consumption gasoline trucks and cars.
A real carbon price would also affect the materials and supply chain used in constructing vehicles in terms of how and where parts are sourced, with a bias towards lower carbon intensive suppliers.
In our next example we consider a major coal producer, the most carbon intensive of all fossil fuels, and how a carbon price and robust regulatory action could change its business model to, potentially, becoming a renewable energy provider.
GLENCOREGlencore, headquartered in Switzerland, declared 785 million tons of CO2 emitted in 2014 through the combustion of the coal and oil it sells (up from 772 million tons in 2013). These emissions represent roughly 1.5 to 2% of the global annual total from human activity. That said, it should be pointed out that Glencore is transparent, recently reporting on its emissions from Scope 1 to 3. Many Global 500 companies do not do so.
If Glencore were to apply a carbon price of $40/ton to its annual capital investment of $6 billion, it could avoid billions of dollars in cost by divesting away from coal, and indeed it has divested $290 million of coal mines over the last few months. This divestment decision also has the benefit to its investors of shifting the long-term risk of emission from this asset away from the firm. At $40/ton, the
14 Volkswagen has declared material Scope 3 emissions from Purchased Goods and Services (Scope 3 category 1) and Use Phase (Scope 3 category 11).
15 http://sustainabilityreport2014.volkswagenag.com/indicators-and-goals/environmental-indicators
REUTERS/TODD KOROL
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emissions from the coal that Glencore sells has a potential risk or price tag of billions of dollars for the owners of this carbon intensive asset. Divestment is a good risk management strategy for the firm16.
On the investment side, Glencore is a diversified group so it has other businesses, which include trading and agriculture, representing further opportunities. In particular, Glencore has the opportunity to change its coal selling business model progressively to that of a direct energy, water, and agricultural provider by investing in its assets differently. For example, it could use its mining know-how to develop geothermal energy production across many of its shaft mines. Other options could include using the less excavated parts of its open pit mining sites (which are often out of sight from potentially opposing communities) for solar energy (including CSP, Concentrated Solar Power) and wind energy production (for those mines that are suitably exposed to wind). Mines that are being rehabilitated can also benefit from this renewable energy, to power water treatment with very low emission footprints. Mines once rehabilitated can act as water reservoirs for agriculture, and more immediately as natural hydro “batteries” for when the wind and solar power are not needed on the grid.
Glencore’s Chairman Tony Hayward does agree on the need for carbon pricing, but with the caveat that fossil fuel subsidies for coal’s competitors must be phased out first17. Indeed, this priority does make business sense for Glencore, as it will likely take a significant amount of time to remove all subsidies, and the direct subsidies themselves, totaling $548 billion in 2013, significantly favor oil (Glencore’s competitors), over coal18.
That said, policy makers will likely see more urgency to resolving this, possibly implementing a mandatory carbon price and reducing fossil fuel subsidies in parallel, or using an emissions cap, as we saw recently with the U.S. EPA’s Clean Power Plan. The regulatory landscape will likely be increasingly interventionist for big coal, and the upcoming emissions reduction talks in Paris will throw more fuel on the lower-carbon, regulatory fire. With oil at less than $50 per barrel, the timing is right to remove fossil fuel subsidies, as is the case, for example, in the UAE, a major oil and gas producer, which has done so as of August 1, 201519.
THE BIGGER PICTURE: THE GLOBAL 50 Shell, GM, VW, and Glencore are part of a group of companies known as “The Global 50”20. These are the 50 largest Scope 1, 2, and 3 total emitters from the Global 500. Many of the Global 50 have the merit to come forward and declare their Scope 1 and 2, and in particular, their Scope 3 emissions on a voluntary basis. Based
on the most recent publicly available data, the Global 50 and their value chains emitted 16.5 billion tons of CO2e in 2014, equivalent to over 40% of worldwide emissions. The 32 fossil fuel producers which were reported on previously were all included in the Global 5021. The remaining 18 fossil fuel consumers include utilities, chemicals, cement, steel ,and car manufacturers (which have significant Scope 3 emissions, as was discussed above).
The latest individual company information22 can be found in Figure 2, for those companies which have reported their 2014 or, in some cases, 2013 emissions. These companies have reported their emissions and those of their value chains and are to be commended for their transparency. A significant number of other companies choose not to report. This lack of transparency only increases scrutiny and the possibility of regulatory action requiring more invasive disclosure, not to mention increased reputational and investor risk.
The 32 fossil fuel producers accounted for 12.4 billion tons of the 16.5 billion tons of emissions. They are depicted separately in the graph (Figure 2) because as producers they can achieve the most by adopting a carbon price that will lead to a less carbon intensive product mix (away from coal and oil and into gas, biomass, and renewables) and by opting for the least carbon intensive extraction and production methods (reducing gas flaring, no tar sands, and even using renewables to extract preferably gas over coal and oil). Finally, as producers, there is less chance that emissions will be double counted23.
The remaining 18 fossil fuel consumers, ranging from utilities to automobile manufacturers and their value chains, account for 4.1 billion tons24.
The 18 have a key role to play in reducing emissions, in terms of their downstream value chain (how carbon intensive their products are) and upstream in terms of how carbon intensive their chosen suppliers and their materials are (Scope 3). Significant opportunities exist in the on-site use of fossil fuels to produce energy, (Scope 1), moving away from oil and coal and switching to gas and (even lower risk) switching altogether to renewable energy sources rather than fossil fuels. How electricity is purchased (Scope 2) also can have an impact (moving away from electricity produced by coal-fired plants to gas, nuclear, and from renewable sources).
16 The coal mine assets themselves would still be in operation under new ownership, and likely still contributing to total global emissions and global carbon risk.
17 http://www.theguardian.com/environment/2015/may/21/glencore-chairman-tony-hayward-calls-for-an-end-to-subsidies-for-fossil-fuels
18 http://www.worldenergyoutlook.org/resources/energysubsidies/19 http://www.bloomberg.com/news/articles/2015-07-22/u-a-e-to-link-gasoline-price-to-
global-markets-effect-aug-120 Toyota is not a member of the Global 50 as it has not disclosed yet Scope 3 Categories:
1 Suppliers and 11 Use of products.
21 http://thomsonreuters.com/content/dam/openweb/documents/pdf/corporate/Reports/global-500-greenhouse-gas-report-fossil-fuel-energy-sector.pdf
22 The data source for the report, tables and graphs is primarily Thomson Reuters ESG which include reported values and estimates (where disclosed values were not available). In some cases, (e.g., 2010 Shell Scope 3), data is obtained directly from the company, or from the Climate Accountability Institute for Scope 3 estimates. For more information on the data sources, or if there is an update from a specific company available, please contact the authors.
23 The lack of double counting of emissions is due to fossil fuels not being counted more than once between producers i.e., Shell doesn’t sell its oil/petrol to BP.
24 These emissions are significantly subject to double counting, as part of what is produced is also consumed by other producers and what they consume is produced by others; that said, both consumers and producers have an opportunity to reduce carbon intensity, and both benefit in the lower risk.
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Figure 2. Global 50 and their value chains equivalent to over 40% of annual emissions
GLOBAL 50 Tons CO2e emitted 2014/2013
32 Fossil Fuel Producers Scope 1 Scope 2 Scope 3 Scope 1, 2, 3 Total Year
Gazprom OAO 133,428,139 5,146,743 1,132,907,074 1,271,481,956 2013Glencore 23,186,000 13,381,000 786,961,000 823,528,000 2014Coal India Ltd N/A N/A 820,167,862 820,167,862 2013PetroChina Company Limited 310,518,999 496,220,848 806,739,847 2013Royal Dutch Shell 76,000,000 10,000,000 600,000,000 686,000,000 2014Rosneft 31,000,000 12,100,000 642,741,073 685,841,073 2013Exxon Mobil Corporation 114,000,000 8,000,000 529,368,800 651,368,800 2014Rio Tinto 21,900,000 12,500,000 594,300,000 628,700,000 2014Total 44,000,000 4,100,000 550,000,000 598,100,000 2014China Petroleum & Chemical Corporation 249,454,634 338,246,080 587,700,714 2013Petróleo Brasileiro SA - Petrobras 71,600,000 1,800,000 432,594,344 505,994,344 2013BP 48,600,000 6,600,000 406,000,000 461,200,000 2014BHP Billiton 22,700,000 22,300,000 390,000,000 435,000,000 2014Chevron Corporation 56,000,000 4,660,000 367,000,000 427,660,000 2014Anglo American 7,970,000 9,460,000 313,044,796 330,474,796 2014Eni SpA 42,925,895 672,295 274,258,000 317,856,190 2014Statoil ASA 16,300,000 300,000 288,000,000 304,600,000 2014Lukoil 289,100 N/A 285,705,443 285,994,543 2013RWE AG 156,600,000 1,400,000 90,800,000 248,800,000 2014ConocoPhillips 26,039,254 1,421,411 215,387,389 242,848,054 2014Suncor Energy Inc. 17,073,028 1,841,748 155,850,107 174,764,883 2014Sasol Limited 58,757,000 8,727,000 97,789,736 165,273,736 2014Repsol 13,800,000 1,170,000 122,392,000 137,362,000 2014Occidental Petroleum Corporation 12,500,000 5,200,000 99,715,758 117,415,758 2013BG Group 7,590,000 260,000 104,773,000 112,623,000 2014Canadian Natural Resources Limited 28,100,000 1,254,000 77,627,994 106,981,994 2013Apache Corporation 8,400,000 1,500,000 96,618,173 106,518,173 2013Anadarko Petroleum Corporation 5,056,818 535,843 97,780,895 103,373,556 2014Ecopetrol SA 8,277,000 303,000 88,345,104 96,925,104 2013Devon Energy Corporation 7,596,657 1,087,905 86,537,141 95,221,703 2014Marathon Oil Corporation 3,520,000 970,000 63,388,850 67,878,850 2014Hess Corporation 4,800,000 640,000 11,500,000 16,940,000 2014
Total 32 1,627,982,523 137,330,945 10,656,021,467 12,421,334,935
18 Fossil Fuel Consumers Scope 1 Scope 2 Scope 3 Scope 1,2, 3 Total FY Used
Korea Electric Power Corporation 1,310,000 120,000 428,280,000 429,710,000 2013Volkswagen AG 3,960,000 5,020,000 328,881,475 337,861,475 2014General Motors Company 2,329,813 5,751,940 325,904,433 333,986,186 2014GDF Suez 131,154,736 3,712,790 174,907,815 309,775,341 2014Honda Motor Company 1,410,000 3,800,000 275,950,000 281,160,000 2014Vale 13,800,000 2,100,000 255,000,000 270,900,000 2014Hitachi, Ltd. 830,000 2,610,000 242,630,000 246,070,000 2014E.ON SE 97,900,000 3,900,000 128,700,000 230,500,000 2014Holcim Ltd/Lafarge SA 187,790,000 15,600,000 24,300,000 227,690,000 2014Arcelor Mittal 174,000,000 17,000,000 15,000,000 206,000,000 2014NTPC Ltd 200,994,691 0 N/A 200,994,691 2013Nissan Motor Co., Ltd. 835,766 2,432,889 176,912,131 180,180,786 2013BASF SE 18,450,000 3,911,000 129,162,000 151,523,000 2014Centrica 5,452,507 131,395 140,688,109 146,272,011 2014The Dow Chemical Company 26,600,000 8,100,000 103,800,000 138,500,000 2014Iberdrola SA 30,202,556 1,547,093 98,948,252 130,697,901 2014ENEL SpA 115,500,000 786,000 7,623,000 123,909,000 2013Duke Energy Corporation 123,430,000 N/A N/A 123,430,000 2014
Total 18 1,135,950,069 76,523,107 2,856,687,215 4,069,160,391
GLOBAL 50 TOTAL 2,763,932,592 213,854,052 13,512,708,682 16,490,495,326
NOTE: PetroChina and China Petroleum & Chemical Corporation Scope 1 figures are in fact Scope 1 + 2.
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Figure 3 is an Emission Gap depiction of the 32 fossil fuel producers Scope 1, 2, and 3 for the five-year period from 2010 to 201425. The total increase was 1.0%, or 0.25% per year versus a required decrease of 1.4% per year. In other words, the 32 added 123 million tons in Scope 1, 2, and 3 emissions when they should have collectively removed 689 million tons, leaving a total gap of 812 million tons, or 6.6% from 2010 to 2014.
Please see Appendix 1 for a list of the Global 32, and their respective emissions numbers from 2010, 2013, and 2014.
TIME TO ACT“From the public-sector perspective, the expected value of a future with 6°C of warming represents present value losses worth US$43trn—30% of the entire stock of manageable assets. By way of scale, the current market capitalisation of all the world’s stock markets is around US$70trn.” … The Economist26
Now is the time to act for both cost and climate reasons. Voluntarily adopting – and more importantly, correctly implementing – a carbon price before it becomes a regulatory burden involves a smaller cost today than what could be imposed by regulators. Indeed the cost of carbon can be a virtual cost (no actual tax or cost paid) that stays in companies’ spreadsheets but that drives carbon reduction through changes in subsequent investment behavior and decisions.
Meaningful, voluntary carbon pricing anticipates a future where carbon regulation could become very costly indeed, both in monetary
25 Unfortunately it is not possible to produce a similar emissions gap analysis for the full Global 50 as the 18 non-fossil fuel producers did not report significant Scope 3 emissions in the early years of the time period from 2010-2014, which would result in a much more significant increase than actually occurred.
26 Stated in a recent report: The Economics of Climate Change: The Cost of Inaction. Available at: http://www.economistinsights.com/sites/default/files/The%20cost%20of%20inaction.pdf
Figure 3. 32 Fossil fuel producers representing approximately 1/3 of global annual emissions
Global 32 Emissions
UN Emissions Goal
13.40 GT
GLOBAL 32 (SCOPE 1, 2, 3)
10.75 GT
2020
Emission Gap
6.6 %Higher Than UN Goal
20142010
12.42 GT
12.30 GT
11.60 GT
Figure 4. Locations of existing, emerging and considered carbon pricing Instruments World Bank. 2014. State and Trends of Carbon Pricing 2014. Washington, D.C.
and reputational terms, if companies fail to act. Consider the recent overview from the World Bank on emerging regulatory activity, which is shown in Figure 4.
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Additionally, reducing absolute carbon emissions in line with science-based climate targets27 to stay within a 2° world has significant benefits outside of avoiding regulatory costs. These include:
1) Lowering the risk of market disruption (impact on consumers and damage to business infrastructure and global value chains by extreme weather and climate conditions)
2) Lowering legal risk as exemplified by the recent court decision in the Netherlands in favor of citizens demanding a government response to climate change
3) Lowering reputational and legal risk by acting on the Intergovernmental Panel on Climate Change (IPCC) and scientific consensus on required greenhouse gas reductions28
4) Lowering the risk of divestment or investor activism as exemplified by the growing number of investors seeking less carbon intensive portfolios
Of course, this burden, voluntary or mandatory, will not fall equally across all sectors of the economy. The level of change required from a coal producer compared to say a software company will be completely different, but the alternative – doing nothing – is looking increasingly dire. Investors, regulators, consumers, religious leaders, and our children are joining together to ask the question, how do we fix this? The most expedient answer is simply to include the real cost of carbon in business and policy decisions.
27 http://www.wri.org/sites/default/files/uploads/mind_the_gap_faqs.pdf; (see also the Mind the Science, Mind the Gap initiative from CDP, and WWF
28 The climate responsibilities of industrial carbon producers. http://link.springer.com/article/10.1007%2Fs10584-015-1472-5#page-1
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Appendix 1: 2013/2014 Global 32 and value chain emissions growth rates vs. 2010
Tons CO2e emitted
2013/2014 2010 % Change FY Used
32 Fossil Fuel Producers Scope 1, 2, 3 Total Scope 1, 2, 3 Total
Gazprom OAO 1,271,481,956 1,215,749,694 4.6% 2013Glencore 823,528,000 561,516,000 46.7% 2014Coal India Ltd 820,167,862 765,007,574 7.2% 2013PetroChina Company Limited 806,739,847 844,308,351 -4.4% 2013Royal Dutch Shell 686,000,000 720,000,000 -4.7% 2014Rosneft 685,841,073 375,818,644 82.5% 2013Exxon Mobil Corporation 651,368,800 712,279,473 -8.6% 2014Rio Tinto 628,700,000 546,700,000 15.0% 2014Total 598,100,000 684,000,000 -12.6% 2014China Petroleum & Chemical Corporation 587,700,714 559,395,945 5.1% 2013Petróleo Brasileiro SA - Petrobras 505,994,344 565,273,182 -10.5% 2013BP 461,200,000 647,920,000 -28.8% 2014BHP Billiton 435,000,000 369,831,137 17.6% 2014Chevron Corporation 427,660,000 470,619,864 -9.1% 2014Anglo American 330,474,796 197,618,211 67.2% 2014Eni SpA 317,856,190 330,999,965 -4.0% 2014Statoil ASA 304,600,000 304,547,521 0.0% 2014Lukoil 285,994,543 296,355,546 -3.5% 2013RWE AG 248,800,000 249,910,000 -0.4% 2014ConocoPhillips 242,848,054 580,005,000 -58.1% 2014Suncor Energy Inc. 174,764,883 170,267,632 2.6% 2014Sasol Limited 165,273,736 178,867,352 -7.6% 2014Repsol 137,362,000 172,438,767 -20.3% 2014Occidental Petroleum Corporation 117,415,758 115,513,581 1.6% 2013BG Group 112,623,000 96,666,747 16.5% 2014Canadian Natural Resources Limited 106,981,994 100,070,692 6.9% 2013Apache Corporation 106,518,173 94,242,650 13.0% 2013Anadarko Petroleum Corporation 103,373,556 82,696,340 25.0% 2014Ecopetrol SA 96,925,104 87,169,278 11.2% 2013Devon Energy Corporation 95,221,703 82,898,706 14.9% 2014Marathon Oil Corporation 67,878,850 70,639,110 -3.9% 2014Hess Corporation 16,940,000 49,234,065 -65.6% 2014
Total 32 12,421,334,935 12,298,561,028 1.0%
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AUTHORS
John Moorhead Managing Director, BSD Consulting
John Moorhead advises private and public sector organizations on strategy and sustainable management with a particular focus on performance excellence and
reporting. He also coaches managers on how to use sustainability reporting standards such as GRI and IIRC for management purposes such as sustainability strategy definition, rethinking the business model, managing change and improving sustainability performance. John is coauthor of the BSD/Thomson Reuters Global 500 Greenhouse Gas Performance Management series.
A biologist by training, he has over 28 years of international management, training, and consulting experience in business and sustainability strategy and performance management.
Tim Nixon Managing Editor, Sustainability Thomson Reuters
Tim Nixon is a founder and the managing editor of the sustainability site at Thomson Reuters. He is also Director
of Sustainability at Thomson Reuters, and has ongoing engagement with thought leaders across a wide spectrum of NGO and private-sector partners. He has spoken at global policy-making events, including for example the World Bank Land & Poverty Conference, UN PRI Annual Meeting, and the first global meeting of UNEA (United Nations Environment Assembly). He is also the author of numerous blogs on Thomson Reuters Knowledge Effect and a report on the Global 500 greenhouse gas emission trends.
Tim is a lawyer by training and has spent most of his career working with diverse collaborators to build change-leading initiatives.
