By Kasey Krifka
The Climate Trust, a mission-driven nonprofit that specializes in mobilizing conservation finance for climate benefit, announced its fourth annual prediction list of 10 carbon market trends to watch in 2017.
The trends, which range from more native tribes joining carbon markets to environmental justice concerns playing an increased role in climate policy discussions, were identified by The Climate Trust based on interactions with their diverse group of working partners — government, investors, project developers, large businesses and the philanthropic community.
“After collectively looking at the overall market, our team has identified areas of potential advancement, despite the anticipated inaction around climate at the federal level,” said Sean Penrith, executive director for The Climate Trust. “
This year, more than ever, we felt there was a need for positivity, and have primarily chosen to share industry insights that are positive in nature — yet still strongly based in reality. We expect that the New Year will bring together unlikely, yet strong, domestic partnerships with corresponding resolve to address climate change, and we look forward to seeing what we can accomplish by banding together.”
It’s clear to us that many states and regions have already committed to reducing greenhouse gas emissions and supporting a clean-energy future. In New York City, former Mayor Michael Bloomberg threw down the gauntlet and warned that if the Trump administration withdraws from the Paris Accord, mayors from 128 cities will pick up the cause. In the Midwest, wind turbines continue to rise out of the cornfields. And back here in Oregon, the Department of Environmental Quality is wrapping up the draft considerations for a cap-and-trade program for the state.
In the vacuum created by a Pruitt-led EPA and a Tillerson-led State Department, rulings like the one issued by Judge Aiken, and statements like the one from California Gov. Jerry Brown challenging Trump on climate change, indicate where the action will be for the next four years. We predict that as our nation heads into uncertain times with respect to climate change policy and action, states, cities and regional collaborative groups are going to lead the fight against climate change.
Additionally, the political will for carbon pricing will grow in progressive states, demanding more immediate state action. Increasingly, public entities are aware that their dollars are most efficiently and effectively used when they leverage private capital.
In 2017, states and foundations will look for opportunities to mitigate risks to private climate finance providers investing in the U.S. through creative new financial mechanisms like first loss capital contributions, loan guarantees, credit enhancements and other new structures.
The young people alleged that the government over the last 50 years, including President Barack Obama, violated their constitutional rights and imperiled their future by failing to adequately reduce greenhouse gas emissions. Whether the case is heard in federal court or settled, it provides a solid legal foundation for future climate litigation -- and gives hope to the growing ranks of youth climate activists and their supporters.
The world is watching this historic precedent set in Oregon. We predict the optimism gained from this victory will encourage judges and activists alike to look to the courts to validate the science behind climate change and allow judicial systems to require governments to take tangible action.
The Oregon case alleges that the government defendants, by continuing to “permit, authorize, and subsidize fossil fuel extraction, development, consumption and exportation … have acted with deliberate indifference to the peril they knowingly created.” We believe that more judges will acknowledge that the climate change crisis is inside their purview, and that the constitutional rights of youth plaintiffs will be upheld against other governmental branches. This case is just the tip of the iceberg.
While he has walked back these statements somewhat over the last few weeks — most recently saying that “nobody really knows” if climate change is real — his pick of Oklahoma Attorney General Scott Pruitt to lead the Environmental Protection Agency (EPA) certainly suggests that Trump is going to try and make good on his campaign promises.
Trump may not yet have an official stance on climate change; however, we anticipate that his administration will be left on the sidelines while the rest of the world rallies to meet the commitments made in Paris.
We use the term Trump administration deliberately, because we also predict that the current momentum built by John Kerry and the Obama administration will be picked up by private industry in the U.S. In fact, we are already seeing this develop.
In the days after the election, business leaders quickly called on Trump to honor America’s agreement to the Paris Accord. It seems to be that savvy business leaders and people like Bill Gates, who recently drew attention to his $1 billion clean-technology fund, not only understand that climate change is real, but also understand that taking no action will have a negative impact on their bottom line.
Our prediction: Progress will be made toward our U.S. Paris commitments due to the efforts of private industry, regardless of President-elect Trump’s designs to pull out of the Agreement.
A 2016 preliminary paper rightly points out that large carbon polluters are more likely to be located in poor communities and communities of color. Environmental justice proponents successfully ensured that the passage of SB 32 that extends California’s climate goals to 2030 was contingent on the approval of AB 197 that requires the Air Resources Board to “prioritize … emission reduction rules and regulations that result in direct emission reductions” while designing cost-effective policy to meet the steep emission reduction requirements of Senate Bill 32.
Meeting the incredibly ambitious greenhouse gas goals now required by law in California in the cheapest manner possible is therefore a central equity issue. There will be continued attention given to these environmental justice concerns both in California and across the country as state climate policy evolves.
Regrettably, it is anticipated that this continued trend will give rise to an increasing number of climate refugees, even within U.S. borders. In a sad turn of events, the Biloxi-Chitimacha Tribe in Louisiana is considered the first official community of climate refugees in this country.
Whether it’s a 1,000-year flooding event in Louisiana, or devastating wildfires on the West Coast, global warming is altering our country in ways that will displace thousands of Americans. This changing geography will necessitate the development of new solutions that not only sequester carbon, but also focus on adaptation — protecting us from the dangers of a warming planet.
Fortunately, some of these solutions are already under development. One such effort is the Blue Carbon Initiative, which seeks to restore coastal wetlands that will not only sequester carbon in plants and soils, but also protect against dangerous storm surges. The reality of climate change in the U.S. has become increasingly dire, making it more important than ever to address the root of the problem, while also tending to the symptoms that are already creating a new class of displaced and homeless peoples.
The financial and environmental benefits from participating in carbon markets provide a clear incentive for tribes to become market actors. The National Indian Carbon Coalition published an article, Carbon Credits Help Tribes Preserve Culture, Climate and Bottom Line, in early 2016, describing how securing a USDA Conservation Innovation Grant was a game-changer in improving tribal access to carbon markets, and the wide array of benefits market participation brings.
Tribes that have taken part in carbon transactions have indicated that credit sales provide a new way to make money while improving wildlife habitat, expanding the tribe’s natural resource program, and acquiring and protecting land in its ancestral territory. In other words, forest carbon projects are typically very closely aligned with tribal nations’ long-term view of sustainable land management and use of natural resources.
Carbon payments could be a very important boost to these underserved communities, and we expect that more tribes will make the move to participate in the carbon compliance market in 2017. In fact, last year, the protocol rules for the California market were expanded beyond the lower 48 U.S. states to include Alaska — opening the door for even more tribes to engage. All regional and village corporations that operate in Alaska’s timber belt now have the opportunity to participate in the forest carbon market. Estimates say this could result in an additional 20-30 million tons of forestry offsets over the next several years.
“As a developing nation and large emitter, China’s bold commitment to carbon markets will send a signal that will be felt in America and beyond,” said Erika Anderson, a climate change attorney doing business in China.
Lindsey Brace Martinez, founder of StarPoint Advisors, LLC and long-term advisor to institutional investors and asset managers alike, remarks: "Given the prevailing sentiment for a low return environment, U.S. institutional investors are looking for investment managers who have a competitive edge and can deliver value over the long term. Investment managers who systematically review and update their risk management approaches and apply their expertise through focused strategies will have a competitive edge.”
We believe that forward-thinking institutional investors will price in the negative externalities inherent in the energy sector and turn to more proactive investment in sustainable, carbon-mitigating strategies that offer lower risk and better returns.
The lawsuit argues that the auctioning of the cap-and-trade allowances constitutes an illegal tax since it does not have the approval of two-thirds of the Legislature. There are three possible outcomes for the suit. It may be deemed a tax, and cause California to have a cap-and-trade system without the auction element unless the Legislature approves with a two-thirds vote. It could be deemed a regulatory fee, and thus uphold the validity of the allowance auctions. Or, the court could find that the auction is neither a tax nor a fee but something else not subject to the strictures of tax voting requirements under the state constitution.
We believe that this third option will be the outcome of the suit and be a complete victory for the cap-and-trade program. If the state were to win on the grounds that the auction is neither a tax nor a fee, then the state’s Air Resources Board could not only continue with its cap and trade program to meet the 2020 goals established by AB 32, but could also — without constitutional limitation — extend the program to meet the new 2030 goals that were enacted last year under SB 32 and include an auction as part of the program’s design.
Oral arguments are scheduled in Sacramento for Jan. 24, 2017.
“The divest movement has provided a valuable market signal to support the needed flows of conservation finance. Riding this wave of interest from large institutions, late last year, The Trust executed a milestone contract with the David and Lucile Packard Foundation — securing a $5.5 million Program-Related Investment to seed our first-of-its-kind carbon investment fund.”
Image credit: Flickr/Christian Schnettelker
Kasey Krifka is the Marketing and Communications Manager for The Climate Trust.