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What the Paris Agreement means for carbon pricing and natural climate solutions: A business guideWhat the Paris Agreement means for carbon pricing and natural climate solutions: A business guide Christopher Webb The Nature Conservancy Zubair Zakir Anthropocene.io Written by: global.nature | Anthropocene.io March 2019About this document This report has been written by Zubair Zakir, Anthropocene.io and Christopher Webb, TNC. The authors would like to thank the many contributors from TNC, including Megan Guy, Dylan Murray, Will McGoldrick, John Verdieck, Hamilton Hardman, and Lisa Schindler Murray. They would also like to acknowledge that this report would not have been possible without the contributions from various individuals who wish not be attributed, from across governments, civil society, and the private sector. This report was developed with funding from the Norwegian Agency for Development Cooperation (Norad), although it does not necessarily reflect their views or opinions. Front image: Celedonia Alvarado from the Sonora Institute plants cottonwood and willow seedlings at the Laguna Grande restoration site along the Colorado River in Mexico. Photo credit: Nick Hall for The Nature Conservancy Inner Image: As trees became more scarce in Haiti, villagers began crossing the border and collecting wood from the protected Sabana Clara Forest. Photo credit: Bridget BesawWe live in a time of both crisis and opportunity as the urgency and impetus to deal with climate change is upon us. The Paris Agreement allows countries to deliver on their NDCs through any number and type of domestic interventionsincluding implementing public policies and attracting private investments in low-carbon solutions. This paper looks at the potential of natural climate solutionsthe climate potential derived from our farms, forests and ocean coastlinesin the context of carbon finance, corporate investment in climate solutions, and land sector offsets. Can natural climate solutions make a much greater contribution to corporate and governmental efforts to address global warming, and what is the role of carbon pricing initiatives in doing so? Perhaps unsurprisingly, this paper finds that carbon pricing, which assigns a cost to the right to emit carbon and encourages actors to respond to the risks of climate change, can be a powerful lever to greatly increase ambition on tackling climate change. It also discusses how carbon offsetting, a form of carbon pricing, can be used to fund essential emissions reduction activities that would not otherwise occurincluding natural climate solutions. Over the course of the last 10 years, companies in sectors ranging from insurance, energy and banking through to consumer retail, manufacturing and food and beverage, have supported natural climate solution projects in sixty-five countries, through the purchase of carbon offsets for voluntary offsetting claims. Policymakers are also increasingly turning to natural climate solutions within carbon pricing regulation as a scalable and low-cost means of enabling them to go further and faster in tackling climate change. The Paris Agreement opens-up enormous opportunities for offset projects and carbon pricing initiatives tailored to national requirements, but it also requires market participants to navigate potentially different systems across countries. Given the rapid and deep decarbonisation needed across economies to deliver net-zero by 2050, carbon offsets while not a long-term solution to global warming, can play an important transitional role in the near term to deepen cuts to greenhouse gases. The use of such offsets must therefore be part of a decarbonisation plan, and not be an avoidance strategy. This paper suggests three key recommendations for leading businesses who wish to ensure natural climate solutions play a full role in their decarbonisation strategy, namely: 1. Adopt a robust and comprehensive climate strategy 2. Support strong public policies 3. Invest to learn and lead This next decade may be the most important this century to slow the runaway effects of climate change. We need it all: emission cuts, energy transition and natural climate solutions at scale to give us every opportunity and chance to succeed. Glossary NCSNatural climate solutions NDCsNationally Determined Contributions UNFCCCUnited Nations Framework Convention on Climate Change BECCSBioenergy with Carbon Capture and Storage Summary 5“Rapid, far-reaching and unprecedented changes in all aspects of society.” The 2018 Special Report from the Intergovernmental Panel on Climate Change (IPCC) was emphatically clear that we have a limited window, perhaps 10-20 years, to avoid the worst impacts of climate change, but only if we start taking much stronger steps immediately. As shocking as these findings have been for many, as surprising is that the world already has at its disposal some necessary, affordable ingredients to respond to the climate change threat. This includes the Paris Agreement, which was negotiated by Parties (countries) to the United National Framework Convention on Climate Change (UNFCCC) as the successor to the Kyoto Protocol (which runs to 2020). The Paris Agreement was finalised in late 2015 and has since been ratified by 183 countries 1 , entering into force as a triumph of international diplomacy and a clear sign of governments recognising the need for urgent action on climate change. Robust multilateral support for the Paris Agreement was due, in part, to countries abandoning some of the Kyoto Protocols approaches to governance, while increasing accountability. Unlike Kyoto, which only included emission reduction targets for rich countries, the Paris Agreement encourages all countries to make contributions to climate change mitigation. And, unlike Kyoto, where rich countries mutually agreed to their respective share of contributions, under the Paris Agreement countries independently decide on the extent (and ambition) of their contributions, as contained in their Nationally Determined Contribution (NDC) submissions. Countries will deliver on these NDCs through any number and type of domestic interventionsincluding implementing public policies and attracting private investments in low-carbon solutions. The Paris Agreements bottom-up approach has brought a significantly larger number of countries to the table, including developing countries that proposed targets for emissions reductions for the first time, and outlined (to varying degrees of detail) the policies and measures they would introduce to meet them. On the flip side, the departure from the Kyoto Protocols centralised, single-rule-set approach to international emissions trading, blurs what was once a clear and common framework for carbon markets and market- based finance. In this context, the landscape for carbon finance, corporate investment in climate solutions, and land sector offsetsthe focus of this paperwill also necessarily change. It will be vitally important for companies wishing to navigate the low-carbon transition, and maximise the related business opportunities that will emerge, to properly understand this landscape and engage with critical stakeholders. This paper sets out the potential for natural climate solutions to make a much greater contribution to corporate and governmental efforts to address global warming, and the role of carbon pricing initiatives in doing so. In the context of the changes and uncertainties created by the Paris Climate Change Agreement, it also suggests three key steps business can take to maximise these opportunities as part of robust corporate ambition and action on tackling climate change. 1 /unfccc.int/process/the-paris-agreement/status-of-ratification Introduction SECTION ONE 6The Paris Agreement, carbon pricing and natural climate solutions Parisa bottom-up agreement identifies the need to prioritise natural climate solutions and recognises the use of carbon pricing initiatives to do so Carbon pricing initiatives can deliver cost-effective rapid decarbonisation NCS can offer up to 37% of the climate change mitigation solutions needed by 2030 1.5C PARIS AGREEMENT NATURAL CLIMATE SOLUTIONS CARBON PRICING INITIATIVES Figure 1. 7The 17,351-acre Powderhorn Ranch in Calhoun County, one of the few remaining large tracts of intact native coastal prairie and wetlands on the Texas coast, will become a state park and wildlife management in the wake of a cooperative effort between the Conservancy, The Conservation Fund and the Texas Parks and Wildlife Foundation. Photo credit: Jerod Foster for The Nature Conservancy9 What are natural climate solutions? Natural climate solutions are activities that enhance or protect natural systems such as forests, grasslands and wetlands, thereby capturing and reducing carbon emissions. Examples include: 1. Better farming practices which have the potential to reduce carbon emissions associated with feeding the global population, while increasing food security. 2. Protecting forests and grasslands from conversion to other uses, which can avoid the release of stored carbon, while increased tree planting has the potential to remove carbon present in the atmosphere. 3. Protecting or restoring coastal wetlands, which can both avoid carbon emissions and help protect coastal areas from flooding. These solutions comprise a variety of well- established and emerging practices to either protect, manage or restore our forests, grasslands, agricultural lands, and coastal wetlands (see figure 2). Their importance was further underlined by the recent IPCC 1.5C report which sees no possibility of keeping global temperatures below 1.5C without the widespread adoption of sustainable land management. Fundamental to natural climate solutions are the considerable environmental and social benefits they offer beyond climate change mitigation. The worlds forests and agriculture support the livelihoods of 2.6 billion people and represent up to 60% of the GDP in many developing countries 2 . Indeed, nature provides critical ecosystem services which humanity relies upon, from food and water supply to regulation of the global carbon cycle and climate. These are estimated to be worth $125 trillion annually 3 . Natural climate solutions can also offer considerable commercial opportunity, with a recent report estimating that sustainable food and land-use business models could be worth up to $2.3 trillion and create over 70 million jobs by 2030 4 . Natural climate solutions offer a critical near-term opportunity A recent peer-reviewed study led by scientists from The Nature Conservancy has shown that natural climate solutions can deliver up to 37% of the carbon dioxide mitigation needed by 2030 to deliver the climate change targets in the Paris climate agreement (approximately 11 billion gigatonnes (Gt) of carbon dioxide equivalent (CO 2 e) per year by 2030see figure 3). 5Furthermore, while this is based on a carbon price required to deliver the Paris Agreement in full (up to $100/t CO 2 e by 2030 6 ), a high proportion is available at relatively low cost; around 3Gt C0 2 e can be delivered for less than $10/t CO 2 e. Natural climate solutionsa vital tool SECTION TWO 2 / climatepolicyinitiative/wp-content/uploads/2015/07 /Three-Tools-to-Unlock-Finance-for-Land-Use-Mitigation-and-Adaptation-Full-Report.pdf 3 /wwf.uk/sites/ default/files/2018-10/wwfintl_livingplanet_full.pdf 4 /newclimateeconomy.report/2018/food-and-land-use/ 5 Other institutions involved are the Ministry of Agriculture, Government of Brazil, Commonwealth Scientific and Industrial Research Organization (CSIRO), World Resources Institute, Woods Hole Research Center, Cary Institute of Ecosystem Studies, TerraCarbon LLC, Resources for the Future, Wetlands International, Ohio State University, Cornell University, Colorado State University, University of Minnesota, University of Maryland, University of Florida, James Madison University, CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), the Gund Institute for the Environment, University of Vermont, University of Aberdeen, The Ohio State University, Wetlands International. The study was generously funded by the Doris Duke Charitable Foundation. 6 /carbonpricingleadership/report-of-the-highlevel-commission-on-carbon-pricesSECTION TWO Figure 2: Nature provides a broad range of climate solutions 10However, a crucial unanswered question is, how will natural climate solutions be financially incentivised on the scale required? While comprehensive data on all sources of mitigation finance into the land-use sector remain limited, a 2015 study found that they receive less than 3% 7of public climate funding from tracked sources. Without the right combination of investment and policies which create an enabling environment for these solutions, they risk becoming climate changes forgotten solution. Placing a value therefore on the carbon emissions these solutions can avoid and sequester, presents one powerful tool to incentivise their uptake. SECTION TWO Figure 3: Natural climate solutions - one third of the answer New research points to the magnitude and immediacy of natural climate solutions Source: Griscom et al., PNAS (2017) -10 Fossil fuel mitigation 2C pathway Avoided emissions Sequestration Global carbon emissions (Pg CO 2yr-1) Business-as-usual emissions Historic emissions 0 80 40 30 20 10 2000 2010 2020 2030 2040 2050 50 60 70 11 7 / climatepolicyinitiative/wp-content/uploads/2015/11/Global-Landscape-of-Climate-Finance-2015.pdf The Conservancy purchased the entire watershed to protect old-growth forest, salmon, amphibians, birds and more. Working with partners Willapa National Wildlife Refuge, TNC implements common forest management goals and shares strategies and results. Photo credit: Chris Crisman13 Given the scale of the climate challenge, it has long been recognised that alongside public sources of funding, large-scale private investment is required to deliver the low carbon solutions needed. Furthermore, delaying action not only increases the cost of abatement in future years but also the speed of decarbonisation required, risking economic disruption 8 . Businesses responding to stakeholder pressure to act ahead of (and beyond) what is required of them by government, are finding new ways to do so. Recent examples include, the growing momentum of companies setting science based climate-action targets,now at almost 500 companies signed-up 9 , and the proactive disclosure of climate risk by companies, being driven by the
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